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Don't be alarmed about this boogey-man labeled “inflation.” There can be no danger until we reach the flood stage of trade.

We are suffering from a severe case of "deflation” and need a strong tonic.

The patient is suffering from very low blood pressure and can not recover with “ doctor finance " sitting on the bedside merely repeating over and over again, “ You are getting better; you are improving; you are getting better and better every day in every way; your health is just around the corner.”

What the patient needs is a transfusion of blood, an injection of inflation, and that injection should be money and not credit.

Senator MORRISON. I understand you are a standpat Republican. Mr. ADAMS. That is true.

Senator MORRISON. You are an official under the administration, you have testified?

Mr. ADAMS. Yes.
Senator MORRISON. Has the President considered your plan with

Mr. Adams. I have not been invited by the President to discuss it with him, and I would not presume to impose myself upon him.

Senator MORRISON. Would you mind saying whether your appearance here is your own voluntary act, or whether you were requested to appear?

Mr. Adams. I was requested to come here by some member of your committee. The clerk notified me. Otherwise, I would not be here, Mr. Chairman. I am not injecting myself into this.

Senator MORRISON. Do you know who caused that request to be made?

Mr. ADAMS. No.

Senator MORRISON. Your action in coming here is not in any sense official on your part?

Mr. ADAMS. Not at all.

Senator MORRISON. Your official duties have no particular relation to the subject matter of this bill?

Mr. ADAMS. No relation.

Senator MORRISON. So, your preparing this plan for furnishing the home loan bank facilities was your own voluntary act ?

Mr. ADAMS. Yes.

Senator MORRISON. You have presented it without any official request on the part of anybody to do so, except that you were merely summoned here by the clerk of the committee?

Mr. Adams. I was requested to come here and submit my views. Perhaps that is because of some experience I have had in the past, that might qualify me in some degree to do so.

Senator MORRISON. What I was trying to get at was, who did that?

Mr. Adams. I think Senator Norbeck, chairman of the Banking and Currency Committee, instigated it, or directed the request to be made.

Senator MORRISON. Did you make known to him that you had been studying this matter?

Mr. ADAMS. I have never talked with Senator Norbeck, but I think he does know, because in 1926 I prepared a home loan bank bill that was introduced by Senator Stanfield in the Senate, and that bill is known as Senate bill 3256, Sixty-ninth Congress, first session. I became very much interested in it.

Senator MORRISON. That was what I was trying to get at. I was not trying to reflect on you in any way. I was trying to get at what special study you had given to it. So, you did help to prepare a bill that was introduced?

Mr. Adams. It is evident that you did not have time to read a little statement of my experience which I have submitted. In 1884 I became associated as clerk in an office that made loans as brokers, and made abstracts, examined abstracts, and determined title, wrote insurance, and for seven yaers I was experienced in that line of work back in those days.

Senator MORRISON. I did read that, but what I was trying to get at was this. You seem to have prepared a complete scheme of your own, and what I was trying to get at was whether you were associated with anybody else in doing that.

Mr. ADAMS. Not at all.
Senator MORRISON. Or whether it was your own act.

Mr. Adams. It was purely my own creation, whether it is good or bad, Mr. Chairman.

Senator MORRISON. All right, sir.

Mr. Adams. I might add this. This has been submitted, but, as I stated, from 1884 to 1892 I was associated in the business of loaning money, writing insurance, and preparing the papers and examining abstracts, and I have even made abstracts from the sectional indexes in the Register of Deeds office. In 1894 I was admitted to the bar, and have practiced in Grand Rapids, Mich.; Seattle and Aberdeen, Wash. I was admitted to the Supreme Court of the United States in 1901. Of course, that does not mean much, as all lawyers know. It is on motion, but it has to be backed up by some experience at the bar at home.

I was a member of the Michigan Legislature in 1897, from Grand Rapids. I was speaker of the house in Michigan in 1899. I was a member of the constitutional convention in Michigan in 1907. In 1917 I was associated in preparing the Oregon law for financing our highway system, which provided for the practical hypothecation of the motor-registration fees to meet the payments of interest and maturing principal on bonds issued to build road immediately. That system was later copied by Illinois, I think, first, and many other States have followed. They give me credit for being the first to suggest a gasoline tax on gasoline consumed by motor vehicles to secure the funds to keep up the highways, and that now is adopted by nearly all the States.

From 1892 to 1917, as a hobby, much as men indulge golf now, I planned, designed, and built about 100 residences in Grand Rapids, Mich., and Eugene, Oreg. That is my hobby, and I love to do it. I can make out a bill of materials for every piece of material that goes into a house.

Senator MORRISON. The point I am trying to bring out is whether or not at this time you have any business connection with anybody engaged in the business of loaning money on homes?

Mr. Adams. Not at all; not the slightest.

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.



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

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 mort. gages. 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, I 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

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