Financial houses - bankers, mortgage bankers, savings and loan associations - see the 10 per cent ceiling as a vehicle traveling well down the road to a full-scale "credit crunch" and maybe a recession in this state.

They say their hands will be tied in lending sufficient money to Tennessee corporations, however unappealing the high cost of interest, at a time when customers may need it most.

This state-particularly the larger urban areashas experienced a breathtaking era of construction and progress.

Gleaming shafts of steel and concrete and glass jut into the skies from Memphis to Bristol.

Nashvillians are most familiar with skyline changes. Their city has become the showcase of the South in construction development.

It appears now that the showcase lights may dimor even go out.

The problem is that in order to obtain funds necessary to meet today's unprecedented loan de- 15 mand, Tennessee banks are being forced to purchase money on the open market at rates of 11/2 per cent and higher and then reloan the same money in Tennessee at no more than 10 per cent.

Its effect is vividly painted, matter-of-factly, by W. W. Mitchell, chairman of First National Bank of Memphis and president of the Tennessee Bankers Association:

"Tennessee banks want very much to continue to meet the credit needs of their customers, even if it means suffering short term losses. But such losses cannot be sustained over a long period of time."

Two roads are open. The first is relief from Tennessee's constitutional 10 per cent interest limitation.

The second is for banks to sharply reduce their lending, a step that would dry up the supply of capital necessary to keep the state financially healthy and to finance its continued growth.

Tennessee lenders saw the "credit crunch" coming. And they saw with disappointment the failure of the General Assembly to permit corporations to obtain loans at national money market levels.

The measure applied only to corporations and not to consumer loans - automobile, credit card, home mortgage and others.

The lenders say if this bill had passed and had been upheld by the courts, they could have breathed easier about Tennessee's economy crisis.

And the economy crisis is the avenue to no money to build new factories, business and apartments and no money to finance new equipment and inventories.

The net result would be the loss of jobs, purchasing power and tax revenues — at all levels of government.

D. Roscoe Buttrey, president of Nashville's Third National Bank, set the tone: "If Tennessee is made an island in the large financial market sea and the states around us are able to drain funds out of our economy, it will affect everyone in the state and is a set of circumstances we just cannot afford."

The waters of the "credit crunch" sea have already nearly isolated Tennessee. Only Arkansas and Montana are stranded, like Tennessee, with the 10 per cent limitation.

Banks in the other no-limit states can siphon money out of Tennessee because they can pay lenders higher rates on their deposits.

The cold, hard fact is that, whether done now or later, it simply does not make sense for Tennessee borrowers to be unable to get the money available in 47 other states.

The illness is paralysis of progress.

The cure is relief from the interest limit. Tennessee's banks are asking legislative action. Such action, which would have to come in the form of a special session of the legislature, appears doubtful before the August primaries.

Many legislators say they aren't convinced the interest squeeze has reached the critical stage. But the danger is there. And it is real.

And it has to be dealt with, sooner or later, if Tennessee's forward economic progress is to be sustained.

By BRUCE SANKEY Economists at Memphis State University and the University of Tennessee in Knoxville have joined state bankers and some, businessmen in asking for an end to Tennessee's 10 per cent limit on business loans.

"We must accept the fact that our money market is national and the flow of funds is affected by economic factors, not state boundaries," says a new report issued by the Bureau of Business and Economic Research in the College of Business Administration at MSU.

"If we do not, the Tennessee economy will suffer from unsatisfied credit needs of its industrial and commerIcial firms which may well lead to economic stagnation, the report adds.

UT's Center for Business and Economic Research said that with almost all other states having no limit for corporate loans, "it seems clearly to be in the interest of the Tennessee economy as a whole to eliminate the statutory limit."

Tennessee is one of but three states (the others are Arkansas and Montana) having a 10 per cent ceiling on interest rates that can be charged for business loans.

State bankers, who must purchase funds in the national money market at rates exceeding the state lending limit, are leading a vigorous effort aimed at getting legislative relief from the ceiling.

Paul R. Lowry, director of Memphis State's business bureau, said it was his opinion that the conditions of today with prime above 11 per cent are a much greater threat to the state's economy that the money crunch of 1968-69.

"National economic indicators suggest that the prime interest rate will remain above 10 per cent for a long period of time," says Lowry. "If this happens, Tennessee commercial banks will not be able to provide financial services required by Tenenessee business firms without some relief from the 10 per cent limitation on loans."

Lowry said the restriction

SEC Fines Firm

The Securities and Exchange Commission has penalized a Memphis investment company and its manager after finding that the concern manipulated the price of shares being offered to the public.

The firm, Financial Investments Corp., made short sales a week or so before the effective dates of registrations covering public offerings of the same stocks, the SEC said.

This, the government agency continued, "caused the market prices of those stocks to fall and hence depressed the prices at which the shares covered by the registation statements were sold to the public."

A short sale is the sale of

borrowed stock with the expectation that the price will decline, allowing the seller to repurchase the stock at a lower price.

Financial Investments was suspended from the securities business for six months.

Edward Stewart, Financial Investments manager, was barred permanently from the securities business, although he will be allowed to apply for permission to re-enter the business after a period of time.

Index Shows Increase

The Memphis "Help-Wanted Advertising Index" registered another increase in April, The Conference Board reports.

At 175 (1967-100), the seasonally-adjusted index is 9 points above March's reading and 11 points above February's 164 mark. The April index also is 7 points above its level of a year ago.

The Help-Wanted Index measures the volume of classified advertising in Memphis' two major newspapers. It is considered a "coincident" indicator of general business. A gain in the index, claims the Conference Board, often precedes a decline in the unemployment rate.

TREND OF STAPLE PRICES NEW YORK, Jure 11-AP)-The As sociated Press weighted wholesale orice Index of 35 commodities advanced to 252.48. Previous Day 349.37, Week Ago 340.71, Month Age 338.32, Year Ago 276.94. High. Low

1974 1973 1972 1971 .374.75 351.71 232.28 195.13 331.97 231.53 194.22 184.58 1926 average equals 100.

These are some things nobody wants: Jobs lost, industrial activity and expansion stagnating, the provision of goods and services curtailed, consumer loans unavailable, a general chaos in our economy as we slip backward.

But all of these things, and more, could come if there is not relief from the Tennessee Constitution's limit of 10 per cent on interest rates, while much higher rates are being offered elsewhere throughout the country.

Most of us do not like high interest rates-but they are better than a lack of available money.

Interest, after all, is simply the wages that money can earn for the work it does. Just as workers seek the best pay they can get, so money goes where the interest is highest. If Tennessee has lower interest rates than other states, then money leaves Tennessee and goes elsewhere, creating economic degeneration here that would be harmful to all of us.

The obvious solution, therefore, is to remove the Tennessee constitutional limit on interest rates compietely, and let them set themselves in the free market, by dealing between willing lenders and willing borrowers.

do.

Unfortunately, that isn't easy to

Tennessee's Constitution written in 1870 provided the top limit of 10 per cent on interest rates. The idea was to protect the people from usurers. It seems probable that the Constitution's authors were not thinking about corporate business needs because there simply were few corporations then and conditions in 1870 did not indicate the problems of today.

If enough sentiment to amend the Constitution could be generated, the process would take until 1976 to complete. That's too long to wait.

So it has been proposed that an efTert be made to interest a majority

of Tennessee's senators and representatives in the dire need; to justify a call by the governor of a special session of the Tennessee General Assembly for the purpose of passing a law removing the 10 per cent limit.

While we favor the intended result, we do not think legislative action of this kind can change the Constitution. The next step of proponents, therefore, would be a move to take the new law in a test case to the Tennessee Supreme Court. There it would be contended that the intent of the framers of the 1870 Constitution did not include corporate.finance (as is probable) and that willing corporations may voluntarily divest themselves of the protection of the 10 per cent limit and accept loans at higher rates at their own discretion.

Again, we favor that result but not the method. It would be up to the court to decide.

That the need is great, however, should not be in doubt. Tennessee is one of only three states with such a low limit as 10 per cent. The others are Arkansas and Montana, neither so highly industrialized as Tennessee and thus without Tennessee's needs. Four states have 12 per cent limits. two 15 per cent, three 18 per cent. one 21 per cent, 37 no limit.

No one should get the idea that action to raise the interest rate ceiling is "for the bankers." We are not primarily concerned about the bankers' welfare but we are deeply concerned about the welfare of Tennesseans who need business to be able to borrow the money to buy the supplies and maintain and expand the plants that provide jobs and meet payrolls and provide us with goods and services.

Interest rate limits should be eliminated as quickly as possible in the proper way and left to compete, up and down, on the free market in the private enterprise tradition that has built America.