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Senator MORRISON. This proposition of yours, and your comments here, are your own individual thoughts and actions, and you are not associated with anybody else in doing it?

Mr. ADAMS. I am not associated with any other person. I have never discussed the plan with anybody interested in any of those branches. It is purely my own creation, the outgrowth of the experience I have had, and my knowledge of the home owner in a small way, and what he is up against when he wants to borrow money, and when he wants to buy a home.

Senator MORRISON. Although you think your plan would be better, do you not think this other plan would do some good?

Mr. ADAMS. This other plan would temporarily serve to relieve distressed building and loan associations and banks and similar institutions that are permitted to borrow, and would be willing to sacrifice the necessary collateral in order to get that immediate relief, but would never be used by them during normal conditions. It would serve the very large stockholders, who could manipulate the situation and who would receive all the benefits of the earnings of the system. They could shunt their securities from one bank to another under the terms of this bill. They could organize a bank in New York, for illustration, which would probably carry the largest capital. They could exhaust the resources of that bank to carry their paper, and they could then sell that paper through that bank to any other bank in the country, and through dummy subscribers they could own the controlling interest in every district bank in the United States. That is possible under this bill.

Senator MORRISON. It is not possible with honest administration. of it, is it? You do not think any organization would allow that to be done, do you?

Mr. ADAMS. Well, administrators sometimes are fooled, as I believe this committee might be fooled if it approved this bill. Senator MORRISON. All right, Mr. Adams.

STATEMENT OF WILSON W. MILLS, CHAIRMAN OF THE BOARD, FIRST WAYNE NATIONAL BANK OF DETROIT

Senator MORRISON. Mr. Mills, will you state your name, address, and business, please, so that the reporter can get it in the record. Mr. MILLS. Wilson W. Mills, Detroit, Mich.; chairman of the board of directors of the First Wayne National Bank of Detroit.

Senator, do you just wish me to make some general statements on the subject, or how do you prefer to have that handled?

Senator MORRISON. We would just like to examine you. When you are reading a paper there, if you choose to use that as a memorandum

Mr. MILLS. I have not anything to read, Senator. I did not prepare anything.

Senator MORRISON. Do you favor this bill or do you oppose it? Mr. MILLS. I am in favor of the bill.

Senator MORRISON. Will you please state in your own way, with such particularity as you see fit, the reasons why you favor its enactment into law?

Mr. MILLS. Senator, I believe this bill offers more of a possibility for the revival of the building industry, and if the building industry

is revived, more by way of a possibility of revival of other industries, than anything that has yet come to my attention during this Congress. I say that for this reason. Many parts of the country may be overbuilt. I say 66 may be." It is a very difficult thing to say what "overbuilt " is. I think other parts are admittedly somewhat underbuilt. I do know that the supply of money from banks and building and loan associations and from insurance companies, at least in the Middle West, has been very much curtailed as compared with what it has been in the past, to promote building, and for any mortgages on homes or other mortgages.

The bank with which I am connected happens, by reason of various consolidations, to hold probably more mortgages than any other bank in the country. We have some $150,000,000 or $160,000,000 of mortgages. Practically all of them are on improved properties, such as homes. I do not like to speak about my own institution, but I know more about it, and therefore I think I can use it more by way of illustration than anything else.

During the past year we have managed, all year, to make loans to the customers of our bank, secured by mortgages on their homes, or to enable them to build. We have not begun to make sufficient loans, or all the loans we would like to have made-loans that were amply secured by way of mortgages on properties to be improved, and the like-simply on account of the fact that we did not want to get into an unliquid state. As I say, we have made mortgages all year, but the number of mortgages we have made has been far less than usual, and infinitely less than the demand. With some such bill as this one, I think that our institution, at least, would make more mortgages than we have made in the past, because the possibility of becoming frozen would be eliminated. I do not wish to be construed as saying that it is at all probable now, but there would be less danger. We could make loans with more freedom and make far more mortgage loans than we otherwise would feel safe in making.

I do not believe that the Reconstruction Finance Corporation, which I heartily favor, is any answer to this particular proposed legislation. The Reconstruction Finance Corporation is a matter for an emergency. I know that our institution would not like to go to the Reconstruction Finance Corporation unless we had to go. We would not want to go for various reasons which will undoubtedly occur to you, but if we joined our local Federal home loan bank, Ï think we would undoubtedly use its facilities, just as we now use the facilities of our own Federal reserve bank from time to time as occasion requires. We go to the Federal reserve bank from time to time as occasion requires, for a shorter or longer length of time, and then we are out again. It is very probable that we would use the Federal home loan bank for the same purpose, and in the same way, that we now use the Federal reserve bank.

Senator MORRISON. Right there, of course, this rediscount power of the Federal reserve bank is restricted to the credits enumerated in the act creating the system.

Mr. MILLS. Yes, Senator.

Senator MORRISON. That does not include debts secured by mortgages on homes, or any other real estate.

Mr. MILLS. No; it does not, Senator.

Senator MORRISON. Do you not think it would be a wise thing for the Government, in some orderly and businesslike way, to provide some rediscount system for that paper?

Mr. MILLS. I think so, without question. I do not think it should be made any basis for circulation, such as the witness who just preceded me spoke about. I would not agree with that for a moment. I think it would be inflation of the wildest sort.

Senator MORRISON. That system is based on the credits embraced in the Federal reserve system, being business in process, and quickly liquid, is it not?

Mr. MILLS. Yes.

Senator MORRISON. Therefore, notes can be issued against it.

Mr. MILLS. Sixty or ninety-day paper is usually liquidated at maturity, and it is out. Lien paper, and any paper under mortgages, except in rare instances, is not quickly liquid, or self-liquidating paper. It is long-term paper, and if this type of security that is covered by Senator Watson's bill were made eligible for rediscount at the Federal reserve bank, the Federal reserve bank would be frozen solid, and would require months of summer sun to thaw it out. To my mind, it is utterly unthinkable.

Senator MORRISON. You think that credits of the character of home mortgages ought to be kept separate from the Federal reserve system largely on that account?

Mr. MILLS. Yes. I think there is no question about it, Senator. I do not like to appear so positive, but I feel just as strongly as that. I think there is no question about it. I think it would ruin the splendid results of the Federal reserve system. I think it would be a blow below the belt for the Federal reserve system.

Senator MORRISON. However, it would be a good thing to provide some system separate from that, under which discount could be made on home loan mortgages.

Mr. MILLS. I think there is no question of it. Senator, I wonder if I might take a moment to explain a matter that has recently been. operating in Michigan, which, to me, illustrates the good that a bill patterned somewhat after Senator Watson's bill, or this bill that we are considering, would do.

Take our National Credit Association: In the Lower Peninsula of Michigan, I happen to be chairman of the loan committee. We have made some 50 loans to as many banks in Michigan. As you know, those loans are severally guaranteed by all the other members of the National Credit Association. In all except two or three cases where the National Credit Corporation has granted the loans in Michigan, we have taken mortgages by way of security. We have had an ample margin on the face value of the mortgage, and in all except two cases, I think, we have taken mortgages by way of security, and taken them deliberately, because we thought they were the best security, the safest and the soundest security we could get, particularly where those mortgages had had substantial payments made on them and had been amortized down to a proper basis, where we felt the owner of those properties would go through anything to maintain his property.

I do not think there would be a better security than the National Credit Corporation in Michigan has taken on its advances. But, in the absence of the National Credit Corporation, and in the ab

sence of a system of Federal home loan banks to discount those mortgages, I do not know where those 50 banks we have helped. would have been able to get any accommodations. They had mortgages which were, in my judgment, 100 per cent secure, and which, given time, of course, would liquidate and be perfectly good. We have taken them on a basis of more mortgages than we have made loans, and they will be perfectly good. But in the absence of some kind of an institution like that and I am only speaking of the National Credit Corporation in Michigan as illustrating the fact that it has already, to some extent, functioned as an institution for redscounting mortgages-I do not see where those banks would be able to get accommodations. The effect has been excellent.

Senator MORRISON. That was done because it appeared to be absolutely necessary to set up such a system?

Mr. MILLS. Yes, sir. It was.

Senator MORRISON. To save the country from wreck, almost?
Mr. MILLS. Yes.

Senator MORRISON. That is why it was done?

Mr. MILLS. That is why it was done. That process, of the larger banks coming to the aid of the smaller banks, can not go on forever, because if that is continued for years the larger banks are going to become equally frozen with the banks they have helped. But for a short period of time, during the emergency for which the National Credit Corporation is created, it has done a splendid work, and in our State, at least, it has acted really as an institution to put banks in funds, where they had nothing but mortgages to offer, or where we thought the best thing they had to offer was mortgages. We have rediscounted them, and I am bound to say that it has worked out splendidly. Many of those banks would otherwise have had to close. They are not insolvent. They are perfectly solvent, but they had become frozen, tied up in mortgages, and by taking their mortgages and discounting them we have enabled those banks to run. I think that is one very great virtue in this bill.

I think another one is that it will enable people to borrow, and the banks and building and loan associations to continue to make loans to individuals on mortgages, and, in turn, enable some of those people who have already had their mortgages foreclosed on them, or foreclosure commenced, to refund them somewhere else. In the past, if a bank needed the money, the mortgages could not be discounted anywhere outside of the National Credit Corporation. If a bank needed its money, it called the mortgage. The only way it had of getting the money was to call it. The poor mortgagor was up against a stone wall. He could not go to another bank, because the other banks are not lending money in any quantity on mortgages. It has produced this debacle that we have all witnessed in real-estate securities and in the value of real estate.

If this bill should become a law, I feel very hopeful that it would. stop that. Many of these people would not have to be foreclosed on their mortgages. They could refund them in other places. I know our institution would be very glad to lend money to refund certain mortgages which are being foreclosed, which at the present time no institution is desirous of doing if it can avoid it, not desiring to become frozen itself.

I believe it would stimulate building, because, while the country is hard up, I am impressed by the tremendous number of people who have money in the savings banks. While our bank is a National bank, we have very much larger savings deposits than we have commercial deposits.

Senator MORRISON. Would you mind giving us your opinion about this? Suppose the commercial banking system of the country did not have the benefits of the rediscount privileges of the Federal reserve system. Don't you think that banks of that character, the commercial banks, would be in a mighty bad fix now?

Mr. MILLS. There is no question in my mind about it, Senator. Senator MORRISON. They could not have come through this period at all?

Mr. MILLS. No. While the tolls have been heavy, there would have been, in my judgment, but few survivors without the Federal reserve. While the figures showing the borrowing from the Federal reserve might lead one not to agree with me, the fact that the banks had the Federal reserve, to which they could go if they had to, is what has saved the situation. Otherwise, they would have had to continue. piling up reserves in cash in their own vaults to a far greater extent than they have had to do in the past, and the results would have been simply frightful.

Senator MORRISON. As I understand you, if we had had something like the bill before us seeks to set up, to which resort could have been made for rediscount of home loan mortgages throughout the country, we would have been saved, to a large extent, at least, the demoralization in that type of credit in the country?

Mr. MILLS. We would unquestionably have been saved some of the demoralization we have been through in that connection.

When we speak of rediscounting mortgages, I do not wish to be taken as favoring for a moment the issuing of currency against it. I want to safeguard my statement in that respect.

Senator MORRISON. Yes.

Mr. MILLS. But, given some institution through which the banks could have rediscounted mortgages, a tremendous amount of the agony that the depositors of failed banks have been through, and the banks themselves have had, would have been unquestionably avoided. That has been proved to date, at least in our State, by the operation of the National Credit Corporation. I think that is the best proof I can give you, Senator.

Senator MORRISON. Is it not a fact that it would be almost impossible to operate a bank in this country dealing only with the credits eligible for rediscount by the Federal reserve system? Do not all the banks have to deal more or less in credits not subject to rediscount by the Federal reserve system?

Mr. MILLS. Yes, indeed. I saw some figures a short time ago, when I was in New York, as to the percentage of credits that the various banks had in that district, and in various other districts, which were subject to rediscount. They were very, very small. One reason has been that many of these manufacturing concerns have built up vast reserves. In my own city of Detroit, the automobile companies have been very well "heeled" for cash. In effect, they have liquidated their inventories into cash. They have either kept that in cash or

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