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The CHAIRMAN. Is Mr. Corcoran in the room?
Mr. CORCORAN. Yes, sir.

I am going to ask Mr. Cohen to sit here with me, because he knows more about the details of this bill than I do.

The CHAIRMAN, Mr. Corcoran, I think that the committee would like for you to state your full name, and your past connections.

Mr. CORCORAN. My name is Corcoran, Thomas Gardiner. I am at present counsel with the Reconsturction Finance Corporation. Since I have been out of law school I have been secretary to Justice Holmes; then I spent 6 years in Wall Street, with one of the very best law firms up there, handling promotions stock pools, listings, and blue sky matters, and so forth, in the great years up there, and then on the way down as counsel for two of the very best brokerage houses in New York.

I have been down here with the Reconstruction Finance Corporation for the last 2 years, picking over the securities portfolios of bewildered and honest bankers who do not yet quite know what happened to them. One reason I am here today is that along with a lot of other people, I have been working on this bill; but I do not pretend to know as much about it, or be as competent as Mr. Cohen, who sits by my side, and who took charge of the actual details of drawing up the measure.

Mr. BULWINKLE. Mr. Chairman-
The CHAIRMAN. Mr. Bulwinkle.

Mr. BULWINKLE. Would you mind putting in the record who else took part in drafting the bill?

Mr. CORCORAN. I do not think that there is any secret as to who worked on this bill. Apparently there is a great deal of talk about the secrecy of this bill.

This bill originated in the Federal Trade Commission. Senator Fletcher requested Mr. Landis to prepare the bill. Some of Mr. Landis' men worked on the bill for a while. Four or five other fellows here in town worked on the bill, and we called down from New York, in the dead of the night, a lot of fellows from New York who really knew the market from end to end, who frankly, like everybody else who comes from New York, do not want to talk openly about this bill. You know, it is not mundanely judicious if you come from New York to talk about this bill or anything connected with it.

Then, the bill was gone over very carefully with the Pecora committee, and some of the points were worked out by that committee.

Mr. BuLWINKLE. Pecora committee; what do you mean?

Mr. Corcoran. The Pecora committee, or, the Senate investigating committee.

The compromises were worked out and we arrived at what we could agree upce in this bill whichi really, despite all of the talk about it, is a very moderate bill.

Then, there were conferences at the White House, and the bill was introduced.

I have never understood that there was any secrecy about this bill or about anyone who worked on it, or anything else.

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Mr. BULWINKLE. If you will pardon me right there, I am not talking about the secrecy, but I would like to know who drafted the bill. The statement that I am getting is just “a lot of fellows."

Mr. CORCORAN. You mean, you want the names?
Mr. BULWINKLE. Yes; can you give me the names?
Mr. CORCORAN. Certainly, I can give you the names.
Mr. BULWINKLE. If you will put them in the record.

Mr. CORCORAN. There was Mr. Landis, Federal Trade Commissioner Landis. He was assisted by some men over in his office. I do not remember quite who they were. Then, there was Mr. Cohen here, who you will remember drafted a similar bill last year. I, too, worked on the drafting of this bill, and four or five members of the Pecora committee worked on it. Mr. Pecora, Mr. Flynn, Mr. Lowenthal, Mr. Silver, Mr. Meehan, and others of Mr. Pecora's committee worked upon it.

Mr. KENNEY. What Mr. Meehan is that?
Mr. CORCORAN. Of the Pecora committee.
Mr. Mapes. I suppose that is Senator Fletcher's committee?

Mr. CORCORAN. I am sorry. It is the Fletcher committee, and I should have mentioned his name because as chairman he has taken a deep and active interest in the drafting of the bill. I am very sorry. Because I have been contacting with the Pecora people in connection with the investigations of that committee, and we see a lot of Mr. Pecora, I have come into the habit of calling it the Pecora committee. I am wrong about that.

The CHAIRMAN. Furthermore, was not the drafting of this bill the outgrowth of a committee headed by Secretary Roper, during the summer months, at the request of the President to investigate this subject, and this bill is based to a large extent upon the recommendations of that committee?

Mr. CORCORAN. That is correct, the Dickinson committee. Then, you must remember, there was another report which really deserves much more attention than it has had. That is the report of the Twentieth Century Fund, Inc. I think I have it with me. . I have here a list of the directors of the Twentieth Century Fund, Inc.

That report came out on the 8th of February
Mr. KENNEY (interposing). What report is that?

Mr. CORCORAN. The report of the so-called “Twentieth Century Fund." I have a list of the directors here. The Twentieth Century Fund is a research foundation which has done a great deal of fundamental work in this direction. You will remember one of the books they published is a study of internal debts of the United States by Evans Clark.

Edward A. Filene is the president of the fund; Henry Bruere, of the Bronx Bank, New York, who came down here as the President's coordinator, credit coordinator, is a member; Evans Clark is director.

I will read the list of the board of trustees. You understand that this report has been submitted to this board of trustees by the experts whom they employed to work the thing out. I do not know whether it has been formally approved by the board of trustees, but it was published practically in full in the newspapers.

Newton D. Baker; Bruce Bliven; Henry Bruere; Harry S. Dennison, that is Dennison of the Dennison Paper Co., he is now over with the Industrial Advisory Board of the N.R.A.; John H. Fahey, who is

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head of the Home Loan Bank System; Edward A. Filene; James G. McDonald; Roscoe Pound, who is dean of Harvard Law School; Owen D. Young.

So, that is where the bill came from.
Mr. Mapes. May I ask, did they approve the bill?

Mr. CORCORAN. As I have carefully said, Mr. Mapes, I do not know. I only know that they hired this committee to do this job, and received this report.

Mr. MAPES. You just enumerated the names of the men, and then you said that that is where the bill come from.

Mr. CORCORAN. On, no. I was talking about the report.
This bill embodies suggestions from all of those sources.

Any bill as complicated as this if it is worked out in conscientious detail, picks up its ideas from a great variety of persons. There is a very interesting news item by an editor of the Herald-Tribune, about a week ago, in which he takes the Dickinson report and the Twentieth Century Fund report and this bill and matches them in the places where they differ, and where they agree. You see a rather close similarity all the way through, except that this bill, in common with the Twentieth Century Fund report, ties down things a little tighter than the Dickinson report.

The chairman asked me to come to grips with specific provisions of this bill. I will try to tell what ideas are in the bill, what evils it tries to meet, and how it tries to meet them. Then, Mr. Cohen, who did the job of drafting this bill in detail, because that is always a one-man job, will go over it with you, if you choose, word by word, and comma by comma.

Now, I will come to grips with it, and you can pound me all you want to on margins, if you will just give me a few minutes to describe the structure of this bill.

The President's message, you remember, lays down a declaration of social policy on the problem of speculation by those who cannot afford to speculate, upon which there seems to be a difference of opinion around this table.

The bill was pointed at what it was expected such a message would recommend, and it may be a good thing right now to see how the bill ties into what the President asked, to remind ourselves what his message said on the subject of the policy of preventing overspeculation by those who just cannot afford to speculate.

As you were told by Dr. Goldenweiser, such people are never able to recoup their losses.

For instance, the Senate investigating committee right now is talking about the pool of alcohol stocks in the early part of last summer. The little fellows on the outside of those pools did not recoup their losses. They were just royally burned.

You will remember that in American Commercial Alcohol the pool ran the stock to 89/6, I think, and within 3 days after the peak that stock was back down again to 28 and something.

Now, the little fellow in that market who was not on the inside of that pool, which the Senate committee has been investigating in the last 2 days, just got his shirt taken away from him and ants put in the pants that were left him.

But I will come to that when we talk about margins. You remember the President's message reads like this:

There remains the fact, however, that outside the field of legitimate investment, naked speculation has been made far too alluring and far too easy for those who could and those who could not afford to gamble.

Such speculation has run the scale from the individual who has risked his pay envelop or his meager savings on a margin transaction involving stocks with whose true value he was wholly unfamiliar, to the pool of individuals or corporations with large resources, often not their own, which sought by manipulation to raise or depress market quotations far out of line with reason, and all of this results ing in loss to the average investor, who is of necessity personally uninformed.

The exchanges in many parts of the country which deal in securities and commodities conduct, of course, a national business because their customers live in every part of the country. The managers of these exchanges have, it is true, often taken steps to correct certain obvious abuses. We must be certain that abuses are eliminated and to this end a broad policy of national regulation is required.

It is my belief thta exchanges for dealing in securities and commodities are necessary and of definite value to our commercial and agricultural life. Nevers theless, it should be our national policy to restrict, as far as possible, the use of these exchanges for purely speculative operations.

Now, this bill has at bottom five ideas in it, and all 36 pages tie in around the five ideas.

The first idea is control of the amount of credit that gets into the market. That relates to the amount that brokers can borrow from banks and the amount that brokers or banks can lend to individuals to buy more securities than the resources of those individuals justify. That is point one.

It is concerned with how much of the national credit resources get into the market? It relates to all of the mechanics and all of the questions of proportions, and similar matters about which Dr. Goldenweiser has been talking to you.

Then, we go to the next point, and that is control of manipulations, As I will point out later, there are only a very few real battlegrounds in this act. Manipulation is not one of them. The provisions of this bill, as to manipulations upon stock exchanges, are agreed to practically everywhere. The Dickinson report agrees with them. The Twentieth Century Fund agrees with them. Matched orders, washed sales, pools, options—all of the rest of them are out. So, control of manipulative practices is really not something your committee has to thrash out around this table.

So first we have a problem of credit control. Then we have a problem of manipulation. Next comes the everlasting problem of protecting the fellow on the outside from the insider, the thing you were talking about the other day, Mr. Marland. That is, the problem of protecting the stockholder--and every fellow who buys into the market is a stockholder—who does not know as much about the company as the fellow on the inside. Under those conditions as Dr. Goldenweiser has said, the poor little fellow does not know what he is getting into, and it is just as important in preventing unwarranted and destructive speculation, to have the fellow on the outside protected from the fellow on the inside who is an officer or director of the corporation or a pool with inside information, as it is not to let the little fellow buy too much stock by setting the margins too low.

Then, there is a fourth idea in here. That is the elimination of abuses in the market machinery that tend to make the market a place for speculation rather than an investment. That relates to this everlasting problem you heard so much talk about, about specialists, floor traders, dealers, underwriters, when all, except the floor trader, are acting as brokers for you and me, when we send in an order to buy stocks. You bave that problem of exchange machinery.

Then you reach the fifth problem. If you are going to regulate the stock exchanges, who is going to have the job of doing the regulating? Are you going to try to let the exchanges regulate themselves? Are you going to set up a new separate commission down here, or are you going to try to tie this job in with the jobs of the Federal Trade Commission in relation to the securities act, the N.R.A., and everything else, so that one body watches the whole problem?

This bill therefore points up directly to the problem of speculation that the President talks about in his message.

Again, there are five problems. First the amount of credit that gets in the market. Second the manipulative practices in the market. Third the machinery of the market, the relations of the brokers, the floor traders, the dealers and the underwriters, to those outside, fourth, the protection of the corporation outsider from the corporate insider, and finally the problem of administration.

Now, let us talk about this matter of control of credit. Going into the bill in detail, there are two sections to take care of that problem of credit control. One of them is section 7, over here on page 13, relating to restrictions on borrowings of brokers. You will notice that the bill talks about both a member of an exchange, and any person who transacts a business in securities through the medium of a member. That is to meet a situation that is common in the street. A great many investment houses do not hold membership on the New York Stock Exchange because they do not want to be subject to such restrictions as the New York Stock Exchange has put on its members. So they stay out, on the outside, but they take orders as brokers and they clear through a member. It is to get that sort of a broker who is not a member of the exchange, but who regularly carries on a brokerage business through a member of the exchange, just like a member of the exchange, that this provision about doing business through a member of the exchange is intended to catch.

The bill needs to be clarified, so that a bank which just acts for you in passing on an order to a broker, for you, does not come within that sort of a provision.

Mr. KENNEY. Why should that limitation be taken out?

Mr. CORCORAN. Because there are plenty of other limitations on the banks. A bank cannot normally go in the business, like a broker, of dealing in securities. For your convenience, for a service

Mr. KENNEY. But they do.

Mr. CORCORAN. They are not allowed to do those things any longer, under the Glass-Steagall bill. They cannot go into a business of dealing in securities, but they can still make a service charge for passing on for you, as a customer

Mr. KENNEY. What business haven't the banks gone into?
Mr. CORCORAN. You may be able to answer that better than I can.

Now, when we get into these provisions about the control of credit, you will notice that first of all the bills say to these brokers who really carry on the bulk of the business on the exchanges, “you cannot borrow from any bank except a member of the Federal Reserve.”

With the deposit insurance system going into effect, practically all banks will eventually be members of the Federal Reserve System.

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