"Weakling!” cried the American old-timers in the Islands, only half-seeing what he was at.

"Milksop!” cried they. "Granny! Why doesn't he get after the rascals and make them hunt their holes! Why doesn't he swing the battle-axe?”

But those who called for the battle-axe forgot just what Mr. Harrison had chosen to forget-that the Governor-General of the Philippines is bound to govern under the law-under the Organic Act. The men whom they would have beheaded were elective officers of an elected body.

3

"Well, anyway, the Council of State is a mischievous excrescence," our old-timers pursued, "The idea of tying the Governor-General up to what may be a gang of conspirators against the public weal! That is ridiculous! Let him begin by abolishing the Council of State."

Now, the Council of State is indeed an extra-legal body without authority for existence by the Organic Act. The Governor-General probably could abolish it at will. Yet the fact remains that all the mass of laws put through the Philippine Legislature in Mr. Harrison's day is so thoroughly entangled with the Council of State, the whole routine of administrative procedure so wound up in it, as to be inextricable except by means of a major operation performed by the United States Congress.

The heat of the Americans, however, was natural. They were not all paragons, but they had done, as a whole, excellent work in the Islands, extending trade and credit, opening the country, bettering conditions everywhere, through many weary years. They had never been rewarded by large profit. Not one of them had "made a fortune" in any modern sense of the term. Yet they had continued steady, enlightened labour. They had observed order under many provocations. As Secre

3 The Council of State under the Governor-General consisted of the Vice-Governor-General, the President of the Senate, the Speaker of the House and the Secretaries of the several Departments. It was created by executive order of Mr. Harrison and was, whatever its other qualities, one of the conspicuous examples of encroachment upon the prerogatives of the United States Government, as defined in the Organic Act.

tary Baker had so wisely foreseen, they had nevertheless become the object of much unfair discrimination. And they had never received, from any Insular administration, as much consideration as they probably felt that their record deserved.

And yet, the one thing first incumbent upon the new Executive was not to jump in and clean the political stables, but to stop the crevasse in the Treasury dyke-and to stop it quick. For the eleventh hour was past and the twelfth far spent.

When General Wood took office the Government was bankrupt, with a deficit of about $20,000,000 and no credit. And the peso stood at 17 per cent discount. There was no reserve fund and no confidence. Business was dead. The bottom

of all things was just about to drop out.

But the peso, immediately on General Wood's appointment, began to rise. His name plus the several financial measures that he pushed through the Legislature made it possible to get from America a new rescue loan of $22,500,000. And his two successive annual budgets-those of 1922 and 1923-at last raised things to the zero point, just as by skill and patience, by strength and labour, a sunken ship is raised to the surface of the sea.

The money that had been lost was Filipino money, lost by Filipinos. The rescue money was American money; for it may be taken as an enduring fact that no Filipino buys his own, or any other government's bonds-not while he can loan out his surplus at fantastic rates of usury. And the man who now administered that American rescue money was determined to stand watch over it and see it do its rescue work.

"The lid is down on the Treasury-box," said the new Governor-General. "It still can be opened by the lever of sound investment and legal enterprise. But free and unsecured circulation of public funds among political friends is finished.”

"This man lacks polish," murmured the politicos, one to the other. "This is a rough and tactless type. Militaristic. Brusque. How much more agreeable was Mr. Harrison's smile!"

Nevertheless, they did as they were bid. For, as has been said, they were seriously, personally scared. They acquiesced in a radical lopping of overgrown personnel throughout the departments; in a reduction of the swarm of motor cars that everybody had voted to everybody else; in the number and expenses of the insular ships; in a considerable variety of other things until the sum of their acquiescing amounted to a total reduction of 37 per cent in the annual expense of the Islands.

And all this necessary work was helped-or so the Governor-General hoped-by his conciliatory policy of retaining the old cabinet that he had found in office upon his arrival; of retaining the Council of State; and of labouring diligently to maintain peaceful relations with the Legislature.

In the midst of which the curtain flew up on that amazing divertissement entitled "The Philippine National Bank."

Chapter X

FOR THE TIRED BUSINESS MAN

THE Philippine National Bank was created in 1916, in the joyous days of Harrison. The Philippine Legislature, in giving it birth, endowed it with the right to issue notes, to do commercial business and to invest not more than 50 per cent of its capital in agricultural loans.

The Legislature then ordered into the coffers of its new creation all municipal and provincial funds throughout the archipelago, as well as all funds of the Insular Government, withdrawing from other banks for the purpose.

Next, it imported from America Dr. H. Parker Willis, Secretary of the U. S. Federal Reserve Board, and made him President of the bank. Dr. Willis remained in office for nearly a year, gave much good advice which was consistently ignored, and so departed. They then put in, as President, Mr. Samuel Ferguson, American, a man whose qualifications are said to have been that he had been clerical secretary in Mr. Harrison's office, without one day's experience in banking. He died a year later. His ignorance of banking was inclusive.

Mr. Ferguson having passed on, General Venancio Concepcion succeeded to the vacant chair. General Concepcion was a small Filipino politician with a shady record. General Concepcion's further equipment for the post equalled that of his predecessor, excepting for the facts that he had had no clerkship in the Executive office and that he was understood to be sober.

Dr. H. Parker Willis, in his brief day, had been able to insert a few Americans into the bank personnel, but to these

General Concepcion soon made a final end, leaving but one lone survivor and he a subordinate.

This presently came to mean that an organization containing not a single trained banker, not one single man familiar with bank detail, was handling and investing $150,000,000 of values. And, there being no bank examiners, no one was keeping check.

What happened, this vantage-ground once reached, has been summarized as follows:

"They (the Filipino politicos) were like a child with a new toy. They laughed and cried over it, hugged it and kissed it, fondled it, rocked it to sleep and then woke it up and jumped on it, banged it with a club, ripped it open and pulled the stuffing out." 1

By the summer of 1919, rumours of this process reaching faraway Washington led Mr. Newton D. Baker, Secretary of War, to authorize a bank examination. He named for the task Mr. Francis Coates, Jr., Clearing-House examiner of Cleveland, Ohio, and despatched him to Manila. Mr. Coates began his work on November 30, 1919, continued it for four months and then fell ill. His report did not reach Washington until September, 1920, and was then incomplete. It did not cover, for example, the assets of agencies and branches amounting to about $13,292,500.

As far as he had got, however, his findings were interesting. He said, in part:

The surplus and profits of the bank, aggregating P6,196,428, are entirely wiped out by estimated losses aggregating P10,697,166. ... The paid and subscribed capital of the bank is P12,980,000, leaving a margin of capital unimpaired of P8,479,262, against which is scheduled: slow, non-liquid and questionable values, P8,550,107, slow, non-liquid and problematical values P6,926,530, and undetermined values of P8,728,353-a total of P24,204,990. In addition to this we have to consider that class of assets that is scheduled as "slow and non-liquid but ultimately solvent values" 1 Editorial in The Far Eastern Review, Shanghai, September, 1923, p.