I do not know Mr. Taylor. I do not know what he will say, but if he is here in the room you will probably call upon him. I should think he probably would be opposed to the bill, but I do not know. So much for the evidence in the case. One of the former speakers has referred to some securities being liquid. In my experience, and in the experience of some insurance companies, the first mortgages that we have now are the best securities we have. They have been proven to be liquid. The Senator will probably recall, in 1912 to 1914, or from 1914 to 1916, or somewhere along there, when the stock exchange in New York was closed. and securities could not be sold, and bonds could not be sold, that the Mutual Life Insurance Co. of New York advertised in the New York newspapers, in quarter-page advertisements, that due to the fact that their first mortgages were liquid, they were able to meet the demands. We had a condition in those years, due to war conditions, that was somewhat similar to the conditions to-day, but the conditions to-day are more exaggerated and of greater moment, even, than were the days and times during the war, because people have lost faith in American institutions. Perhaps that does not reach into the Government itself, but it certainly reaches into industrial concerns, banks, insurance companies, and similar types. I think much of the fear that has been generated is because the Federal reserve system has not functioned as people thought it would function. It has functioned legally, but when the Federal National Bank in Boston closed, being a member of the Federal reserve system, it took away from the people at large-the common people-the last belief they had in the financial institutions of Massachusetts, and we had from 15 to 20 bank failures. I do not know what conditions were in New York, or in other States, but I do know what happened in Massachusetts over night. I happened to be standing at the announcing board in the South Station. There were a couple of young expressmen, dressed in the ordinary type of overalls turned up at the bottom that we are all familiar with. They happened to be discussing my bank. Therefore, I listened. One of them said, "Oh, gee, my bank is all right (that is, the Exchange Bank), because it is a member of the Federal reserve system." Frankly, to-day the sign on the window, "Member of the Federal reserve system," is more of a liability than it is an asset. You may not believe that. I think that is true. The people have lost faith because somebody somewhere down the line has slipped. It was not possible, I suppose, to keep open the United States Trust Co. of New York, or whatever the name of that bank was, that was a member of the Federal reserve system, and which failed. It seems to me that was the beginning of the fire, and from that these terrible times have happened. I am trying to talk now as a very small country banker, although my bank happens to be located in the city of Boston. We are only a $20,000,000 bank. We are more of a savings bank than a commercial bank, and we have a portfolio of somewhere around $7,000,000 of first mortgages. While I do not want to refer to my own bank in any way at all, except to draw pictures and examples, I know that we were able to cash mortgages overnight. When the Boston Con tinental National Bank closed, and the Federal National Bank closed, both of them very near neighbors, we had occasion for two hours to take care of a good many people, although we had no lines form, and we were able, through our mortgages, to take care of all our demands. If I may be pardoned that one reference, I will keep away from my bank, because, after all, I am appearing here more as a citizen than I am as a representative of a bank. As a matter of fact, I had a wire from somebody in Boston this morning telling me not to appear before the committee. They were interested in my bank. So, I think it is true to state to this committee that at the present time mortgages alone are the only things that have remained at par. Everything else has gone down in value. That even includes Government securities. Where does the money go when it is taken out of banks? I had occasion to examine a witness in a bankruptcy case a short while ago, and I asked him where he put his money when it was taken from the bank. He said he put it in a money belt. I asked him if he wore it all the time. He said yes. He said sometimes on Saturday night he took it off. That was a new light on hoarding money. It has been stated by one of the witnesses that this was temporary relief, which would be afforded the building and loan associations. I quite agree with that statement. It is also true that if the building and loan associations, as I understand them, as conducted in some of the Western States, did not attract capital by paying higher rates of interest than trust companies and national banks, they would not at this time need temporary relief, which can not be obtained through the National Credit Corporation, nor through the Reconstruction Finance Corporation. I believe that the adoption of this bill will pull down public confidence and lower the value of present mortgages and present homes. I believe that is one of the effects of the bill. Whether we can afford at this time to affect the standard banks, the solvent banks, the ones that have carried the load during these strenuous periods-whether we can afford to affect them by pulling down the value of their mortgages and securities, is a question which this committee will have to decide, naturally. There is a grave question in my mind as to whether, if the value of mortgages is reduced because of overproduction, we are not going to create more trouble, instead of less. I make these observations, not prepared, but simply as they come to me from what people stated here this morning. One of the gentlemen has spoken about taking mortgages as security in Michigan, and how glad he was or how pleased he was that the association formed in Michigan could take care of some of the building and loan association mortgages and some of the savingsbank mortgages. It seems to me that is fundamental, that each State, independent of any Federal interference at all, should so build its State laws that these associations would function as State matters and not put into the Federal Government, under the terms of this bill, the very things which the States themselves should take care of. The Senator has stated, in asking a question, these words: "To save this country from wreck, almost." I wrote those words down as you stated them. Of course there is one very plain and adequate way to do that, and that is for the United States Government itself to guarantee deposits in banks and guarantee insurance companies. That sounds socialistic. It is beyond our ken and probably not constitutional. That is exactly what we did with public funds from securities sold to the people, in Germany. We did nothing else than try to stabilize their banks and their industries with our money. The very fact that the United States Government is asked to make the statement-it will not do it; I realize that-that our insurance companies, our banks are sound and safe is the answer to this whole proposition, because the people have lost faith. There is just as much money as there ever was. What we lack is credit. What we lack is belief in our own institutions; and I do not think this bill, as drawn at the present time, will do anything more than the Reconstruction Finance Corporation bill. That is one of the grandest measures that has ever been put through. I think that is nearer the answer than we can hope from this bill alone. I have spoken about the lack of faith in the Federal reserve system. I do not know how that can be cured. Perhaps the Federal reserve system is big enough and strong enough to take the criticism that is leveled at it by the ordinary man in the street. He does not understand that only 90-day paper of certain classifications is rediscountable at the Federal reserve banks. He does not understand that at all. That name "Federal reserve system" means stability. It means that deposits will be paid, and when they are not paid they are not interested in why it is not done. The fact that deposits are not guaranteed is enough for the man in the street, and he walks into the bank and gets his money and puts it in a safe deposit box. Senator MORRISON. I believe the inspection of all national banks under the Federal law for many years has been under the Comptroller of the Currency, has it not, as to their safety? Mr. TIBBETTS. I am not familiar enough with the action of the Federal reserve bank. I am not a big enough banker. I do not understand, perhaps, what could be done to change that. Senator MORRISON. But you do know, as a fact, that the inspection and general enforcement of the banking and currency law, with respect to the safety of the banks, is under the Comptroller of the Currency. Mr. TIBBETTS. I know that. Senator MORRISON. And has been for many years? Mr. TIBBETTS. Yes. Senator MORRISON. And that the Federal reserve system does not make statements to the public about the safety of banks. They do not loan money. They simply discount notes under certain circumstances. Mr. TIBBETTS. Yes, sir. Senator MORRISON. And if there is any weakness in the supervision and disclosures to the public of the condition of banks when unsound, that is a matter for the comptroller's department, and not the Federal reserve system? Mr. TIBBETTS. Yes, Mr. Chairman, that is true; and I am not criticizing the Federal reserve system. I do not want to be placed in that position. I am not saying that the comptroller is wrong, or that anybody else is wrong. I am looking for the fundamental fact of what affects the mind of John Coolidge, of Plymouth, Vt., and men like him, men who sit on a soapbox and talk things over. It does not make any difference what the virtues or the defects of the Federal reserve system are. If the effect is that people lose faith in our institutions, it does not make any difference. We can not blame the Federal reserve system; but this bill is not going to cure that disbelief in our institutions. Senator MORRISON. In your opinion. Senator MORRISON. You say about 20 banks failed in Boston? Mr. TIBBETTS. In the vicinity of Boston; in eastern Massachusetts. Senator MORRISON. It is quite a natural thing that intelligent people would get a little nervous about a thing like that, is it not? Mr. TIBBETTS. Absolutely. Senator MORRISON. With banks failing in the large numbers that they are failing all over the Republic, it is quite a natural thing for people to get nervous about the banks, is it not? Mr. TIBBETTS. Yes, sir. Senator MORRISON. The bankers themselves formed a national credit organization, did they not, under the leadership of the President? Mr. TIBBETTS. Yes, sir. Senator MORRISON. To furnish rediscount facilities to banks which the present system did not furnish? Mr. TIBBETTS. Yes, sir. Senator MORRISON. Taking the country as a whole-not Boston alone was not one of the principal things they furnished that credit upon real-estate mortgages? Mr. TIBBETTS. As one of the items. Senator MORRISON. And the large one? Mr. TIBBETTS. I think it was. Senator MORRISON. You think it will depreciate the value of real estate and the value of real-estate mortgages current? Mr. TIBBETTS. I do. Senator MORRISON. If the Government sets up a system under which they can hope, in emergencies, to get some of that paper rediscounted or used as security for loans. Mr. TIBBETTS. I do, because you can not Senator MORRISON. Now, will you tell us why? Mr. TIBBETTS. Because you can not change the law of supply and demand. Senator MORRISON. Would not that same argument apply to the rediscount facilities furnished for the limited credits enumerated by the Federal reserve system? Mr. TIBBETTS. No; it does not apply that way at all, in my opinion. Senator MORRISON. Does it not have the same effect, and would not the same arguments apply to the farm land banking system? Mr. TIBBETTS. I would not want to discuss the farm land bank system, because I know very little about it. Senator MORRISON. You think that when farm-loan mortgages can not be rediscounted anywhere except by some friendly correspondent bank that might take some of them, to furnish an opportunity to rediscount would depreciate their value? Mr. TIBBETTS. I think all that thing will be taken care of by the Reconstruction Finance Corporation. Senator MORRISON. But you have testified that you thought this bill would depreciate their value. Mr. TIBBETTS. I do. Senator MORRISON. What I am trying to get at is your reason. Mr. TIBBETTS. Because it is going to create other real-estate units; because it is going to put into the market, in competition with older pieces of real estate, newer pieces of real estate; and while temporarily it may give to some artisans some work, it does not seem to me that this bill is the way to cure unemployment. Senator MORRISON. I suppose there are many home owners throughout the country with mortgages on their homes. Mr. TIBBETTS. Yes. Senator MORRISON. Don't you think, under existing conditions, they would have difficulty in getting those mortgages renewed if necessity forced them to do so? Mr. TIBBETTS. I think they would have more difficulty in getting them renewed if there were more houses. Senator MORRISON. You think that if more people built homes, it would depreciate the value of those who already have homes? Mr. TIBBETTS. Is there any question about that? Senator MORRISON. I think there is a very large question. I think it would depreciate the value of the people who were exploiting and imposing on those who did not have homes, but I do not see how it would hurt those who did. 66 Mr. TIBBETTS. That brings up the very next thing I intended to say. There was a statement made here this morning that I was rather surprised to hear. The statement was made that the public has been gypped" for years. It seems to me that is fundamental with the management, then, of the "gyppers"; it has nothing to do with the insurance companies and the savings banks and the trust companies, who conduct a legitimate, honest, upright business, without any "gypping," without any bonuses, and without any fees. Senator MORRISON. Except this, that when they can not furnish adequate, legitimate accommodation, the poor and the struggling resort, as they always have, to those who impose on them. Is not that true? Mr. TIBBETTS. Naturally, as long as human nature is as it is, there will be people who "gyp" others, and there will be people who will be "gypped." There is no question about that. But we are not going to change human nature by passing this bill, any more than the eighteenth amendment creates temperance. It is fundamental in human nature. Senator MORRISON. Is there anything else you wish to state? Mr. TIBBETTS. Yes. You asked one question about the clerk and the mechanic being worried to-day. It is not any great stretch of the imagination to look back to 1929, before the break. There were not any mechanics and clerks worrying at that time. I do not think this so-called "gypping " business was going on then to any great extent. It is because of the crashing of our institutions-not banks, not insurance companies. You know better than I what caused it. Neverthe 98195-32-PT 2- 4 |