Risks To Banks Greater Than To Corporation Loans

But, on the other hand, there are a number of risks to which Corporation Loans are liable, from which both Banks and Insurance Companies are altogether free; and these it is necessary to distribute into their respective categories before the net amount of risk attaching to them can be appraised and summed up for the investor's consideration.

A Minor Risk In Corporation Loans

The first and most obvious risk in Corporation Loans is the danger that the money may be spent in hare-brained, unproductive enterprises which bring in either no return at all, or only after many years, during which time the interest and Redemption Fund have to be punctually paid. This, however, is a risk to which I attach comparatively little importance, especially in this country, where the loan has to run the gauntlet of the inspection and sanction of the Local Government Board before it can be floated. It is only of importance in the case of the Corporation Loans of foreign countries, where neither the Government inspection and sanction can be relied on to prevent disaster, nor yet can the details and circumstances of the Corporation be sufficiently known to outsiders to make the security other than problematical guesswork. On the other hand, many of these foreign Corporation Loans may all the time have all the security of the best English stocks, and with a higher rate of interest as well; and it is here that, as we shall see later on, the Geographical Distribution of Capital comes to the help of the investor.

Risk Of Trade Migration. Risk Of A Decline In Population

The real risks proceed from quite another quarter, and are not only much more incalculable but much more insidious in their operation. The first is a purely speculative and, to a large extent, unforeseeable risk; the second inheres in the very nature of these loans, and it is to be feared will become more and more dangerous in the future. The first may be summed up in the danger of the leading trades and industries of the towns or cities which have contracted these loans (and with them the population dependent on them), stealing away more slowly or rapidly to new and more favoured regions for the exercise of their callings; especially when the town or city depends for its general prosperity on the continued prosperity of some special industry for which it has acquired a reputation. This might easily arise, for example, if a tariff which had protected a particular industry from the inroads of foreign competition were suddenly withdrawn - as in the case of Spitalfields with its silk industry and other well-known instances. But a still more dangerous, because more permanent and irremediable, risk would arise if the population of the town or city declined, not merely, as sometimes occurs, through changes in fashion, as in watering-places and the like, but through its trade being stolen away by the discovery of a centre in the same country more favourable for its exercise.

Where Trade Migration Is Not Risked

Now, in old historic nations this is altogether unlikely, inasmuch as the evolution which has fixed the present great industries in the localities they now occupy is the result of a process of selection and weeding-out of the less favoured regions, continued through generations and centuries. Either the raw materials of the industry exist in the neighbourhood in the most accessible form and the greatest abundance, as in the case of the steel and iron works in the Midlands and the North of England; or the particular trade centre owes its success to the cheap and easy transmission of its products to the outside world by railway, canal, river, or sea, as in ship-building centres on the Clyde, at Belfast, and elsewhere; or in virtue of its possessing the peculiar qualities of soil, air, or climate necessary to the highest development of the commodities - as the moisture of the air in the centres of the cotton industry, the quality of the water in the great brewing centres, or what not.

In all these instances it is quite improbable that the local conditions on which towns or

Where the declining population risk is minimised, cities depend for the growth of their population, and for the continuance of their manufacturing or commerical prosperity, should ever again be affected by the discovery of more favoured spots in these old countries; or that their rateable values in consequence should ever fall below the liabilities which these towns and cities have contracted for the repayment of their loans.

Where The Declining Population Risk Is Greatest

Now, this would not necessarily be so in young countries, still sparsely populated and with hidden resources of all kinds still awaiting development, and where, in consequence, the great future trading centres only twinkle dimly here and there in the twilight. This is especially true in the case of mines as yet unknown. As in the past so in the future of these young and still undeveloped countries; gold mines like those of California, Australia, South Africa, and Klondike; silver mines like those of Nevada; diamond mines as in South Africa; coal and iron as in Canada; oil wells as in Russia or the East, may be suddenly discovered in the most unlikely regions; with the result that, in their immediate neighbourhood, great trading centres and populations, thus artificially created, may arise like gourds in a night, but on the exhaustion of the mines as suddenly wither and disappear - and with them the rateable values on which their Corporation Loans were raised. All this is, of course, true but trite, and needs but little further labouring here.