Senator WATSON (interposing). Do they come from the banks, or the building and loan associations?

Mr. SCHMIDT. From both.

Senator WATSON. Yes, sir. I think our city, however, is in better shape than any city in the country; perhaps St. Louis, Cincinnati, Milwaukee, and Baltimore, maybe, are in as good shape.

Senator COUZENS. What would you say if this bill were set up, and all of the banks, and building associations, and real estate associations were required to set up the capital; would you get going?

Mr. SCHMIDT. I don't think so. You would get going at some time away in the future, I imagine, but that was not the sole purpose of this bill. There is a present emergency, undoubtedly.

Senator COUZENS. There is no provision in this bill for reimbursing the Government for any of the investments it makes in the home loan banks. Do you think they should come ahead of anybody else? Mr. SCHMIDT. Of course, there is a provision for a return of the stock subscription; but no earnings on the stock.

Senator COUZENS. Yes; but no return on the investment.

Mr. SCHMIDT. It seems to me that it is an appropriate function of government, gentlemen, for our Government to waive temporarily return on investments to make a distinct economic advance.

Senator COUZENS. Giving money without a return?

Mr. SCHMIDT. It seems to me the Government should help in economic situations such as this. And I am most actively against the Government in business.

Senator COUZENS. What is this?

Mr. SCHMIDT. It is not in business here. It is setting up and supervising a business whereby banking of this kind can be conducted on a proper basis.

Senator COUZENS. I find a lot of money going in, and no place for it to be returned.

Mr. SCHMIDT. It provides that the capital which the Government invests comes back to it at the rate of 50 per cent of the amount of subscriptions after the Government's original subscription has been equaled.

Senator COUZENS. But private industry does not want to put any money into this without a return on it, yet you urge the Government to put this money into it without a return.

Mr. SCHMIDT. Yes, sir.

Senator COUZENS. There is no provision in the Reconstruction Finance Corporation for any return of the money.

Mr. SCHMIDT. Personally, I do not see that that is material. If it is customary for the Government to get a return on its money in such activities, this bill should have the usual customary provision. I do say I think the Government could afford, in order to take direct action in connection with this bill, temporarily to invest its money without income return.

Senator COUZENS. Are there any other questions of Mr. Schmidt? [After a pause:] Is there anything else you want to say, Mr. Schmidt?

Mr. SCHMIDT. I think I have covered the ground, Senator.
Senator WATSON. All right. We thank you.

Mr. Marc Rose.

STATEMENT OF MARC ROSE, EDITOR OF BUSINESS WEEK, NEW

YORK, N. Y.

Senator WATSON. Mr. Rose, your name is Marc Rose?

Mr. ROSE. Yes, sir.

Senator WATSON. Where do you live?

Mr. ROSE. New York.

Senator WATSON. It says here that you are the editor of Business Week.

Mr. ROSE. Yes, sir.

Senator WATSON. When have we had a business week? [Laughter.] What is your publication, Mr. Rose?

Mr. ROSE. That is the name of it. We named it before we knew this period was coming on. Now you can spell it differently, if you like.

Senator WATSON. W-e-a-k?

Mr. ROSE. Yes, sir. Business Week, Senator, is a weekly which studies business conditions and presents the news of the business week.

Senator WATSON. How long have you been its editor?

Mr. ROSE. Since it started.

Senator WATSON. When was that?

Mr. ROSE. That was in 1929.

Senator WATSON. And what has that to do with commenting on at measure of this kind?

Mr. ROSE. Well, I am interested in the bill as a citizen; I am also interested in it as a student and observer of business conditions. Senator WATSON. Yes.

Mr. Rose. I am not talking as a real estate man or banker, nor yet as an expert on the technical features of the bill; but I have some thoughts, perhaps, as a student of business conditions which might be interesting to look at from the point of view of some one who is not actually concerned in a monetary way.

Senator WATSON. You speak with reference to New York City particularly?

Mr. ROSE. No, sir.

Senator WATSON. Or the country area generally?

Mr. ROSE. No, sir; not New York City particularly.

Senator WATSON. What is the situation in New York City with reference to home building that you think it requires legislation of this kind, either to stimulate it or to stabilize it?

Senator COUZENS. The witness has not said he favors such legislation.

Senator WATSON. I am trying to find out. I think his general remarks lead us to think he favors it.

Are you in favor of this bill?

Mr. ROSE. Yes, sir.

Senator WATSON. Why?

Mr. ROSE. Well, I think that it is of value as a permanent effort to stabilize the loaning of money on real-estate first mortgages. I think it ought to lead to better building practices, which is one of the most important things that I see in it. It ought to encourage the general practice of amortized mortgages, which is another excellent

thing, because they are given preference in this bill, and that is a first-class thing.

Senator WATSON. Is not that a general thing now, to amortize mortgages?

Mr. ROSE. No, sir. It is becoming the general custom, but this should foster and encourage it.

Senator WATSON. Yes.

Mr. ROSE. And I see in it some effort at curbing real-estate booms, which, I think, is entirely desirable.

Do you want me to go back to New York?

Senator WATSON. Do you not think that this bill, if it should pass just as it is written, would result in a great building inflation? Mr. ROSE. No, sir; I do not.

Senator WATSON. You do not?

Mr. ROSE. No, sir.

Senator WATSON. All right. Proceed.

Mr. ROSE. There is some cumulative demand for housing, there is no doubt about that. When people are hard up they live two families in a house, there is no doubt about that, and there must be some cumulative demand for housing, and when they get back to work again and can earn money, and conditions begin to improve, then I should say that this would be a help in providing the housing which, undoubtedly, people want. They are ambitious to have their homes when they can get them.

Senator COUZENS. Have you any information as to the cumulative demand that you have spoken of?

Mr. ROSE. I have seen recently some figures, but that is a difficult thing to get at. I think you can get them from the National Association of Real Estate Boards, who take a survey of those matters periodically.

Senator COUZENS. That is a partisan statement.

Mr. Rose. Yes, probably so, if you wish to be skeptical, but I do not see why they should wish to fool themselves as to the state of the market. They want to know where they are at.

As to the regulation of booms, it seems to me there is no national method of appraisal and watching conditions at the present time. Senator WATSON. Well, is that not possible without the passage of a law, Mr. Rose?

Mr. ROSE. Possible, but I should say improbable. It is so much an individual local thing nowadays that one locality is not watching what the other locality is doing.

Here is another reason-this is, of course, one of the primary things that this ought to provide a flow of credit from one area where money is plenty to another area where there is a stringency of money. I think that is one of the conditions that would be helped. I know there are areas where money is more stringent than in other areas. I, myself, have sent money out to places where the interest rate was high, rather than to invest it in New York where it was lower. I do not think that is the way it ought to be.

Senator COUZENS. What do you think with reference to the question I asked the other witness, as to whether the builder should receive the benefit of this bill prior to the sale of the property to a home owner.

Mr. ROSE. Well, sir, I think that is a matter of practice. I should think by the time the mortgage got around to the rediscount stage the place or property would be sold and occupied.

Senator COUZENS. It is just the reverse situation now, because a great many new houses have not been sold, and yet the building and loan associations and the banks all want the right to rediscount those mortgages now.

Mr. ROSE. I see. Well, probably there has been some unwise building. And then we have the terrific emergency. I think this might help to avert a great deal of the difficulty that we are in to-day, in this way; nobody knows-maybe somebody does, but I have not figured how much money the total of first real estate mortgages is, but it must be a stupendous sum. I think that, just to estimate it, that it ranks with the railroads and banks.

Senator COUZENS. And that has all been done without the help of these banks?

Mr. ROSE. Yes; and that is all nonsalable; it is not quoted. If you own a mortgage on the other man's home, you have not the faintest idea of what it is worth. Maybe, by going from place to place, you might find somebody who would buy it from you at some price. But you have that very uneasy feeling that you have an asset there which is not quoted, and you haven't the slightest notion of its present-day value. I speak very feelingly, because I am in exactly that situation.

Senator COUZENS. You want to create an exchange, like the stock exchange and the exchange for the quotation of wheat and cotton prices, and for quotations for the stock market, for reporting those things, so that you can obtain the values?

Mr. ROSE. Obviously, if these mortgages are rediscounted at the central bank, the central bank can not go far along on its mere capital. It will issue bonds against the mortgages. That is contemplated in the act. The moment it is consummated there is a market and, I should think, a very fine market.

Senator COUZENS. So you think that the buyers would buy those bonds, instead of taking an individual mortgage on a home?

Mr. ROSE. Yes; and it seems to me to open a new and very attractive primary fundamental investment for the people of this country; very attractive to them, because they like the idea of investing in homes. They always have. And instead of an individual operation of going out and dickering with an individual owner and making an appraisal, you buy a fraction of a consolidated mortgage on a thousand homes. What could be more attractive? I should hope-and this is only a hope-that these things might be issued in small amounts so that the small investors could have a safe place for the investment of their funds.

Senator COUZENS. What rate should they pay?

Mr. ROSE. I do not think that matters, if you will allow me to express my thought on that, because they will find their own market. If you put a 5 per cent rate on, they may sell at 115 or 120, and if you put a lower rate, it will equalize itself. Those things take care of themselves.

Senator COUZENS. Do you think they should be tax exempt?

Mr. ROSE. I do, because the basis of the mortgage, the home, is already taxed.

Senator CouZENS. Is that not true of the railroads?

Mr. ROSE. I should not like to get into a broad general discussion on taxation.

Senator COUZENS. The question is: Why, if the transportation lines, which are of vital interest and importance to everybody, are taxed, should these bonds not be taxed, and the railroads be taxed? If you make these bonds tax exempt, why not also railroad bonds, and apartment-house bonds? They are all fundamental necessities of the Nation.

Mr. ROSE. None quite so fundamental as the homes.

Senator COUZENS. I thought the railroads were quite fundamental, according to the pressure that is brought upon us for relief.

Mr. ROSE. You can make out a case for making them tax exempt, if you want to. I would not care to undertake it. But I think you are having a little fun with me, Senator.

Senator COUZENS. No, I am not having any fun with you. I am trying to find out why one class of investments should be tax exempt and not another; that is all.

Mr. ROSE. Well, I think I have answered it as best I can-that real estate already carries a very heavy burden of taxation, and the income of the workers is taxed in another way, and it seems to me he has done his bit-I mean the owner of a small home.

Senator WATSON. Is this bill more desirable for new-home construction than for taking care of the mortgage on a home that is already built and in existence?

Mr. ROSE. I should think so, Senator. I am interested in this as a long view, not as an emergency thing. In time these present homes are wiped out and we have new homes.

Senator COUZENS. Now, assuming, for instance, that a builder wanted to build 50 homes for future sale, as sort of a merchandise proposition

Mr. ROSE. Yes, sir.

Senator COUZENS. As a manufacturer or producer, and he went out and borrowed 50 per cent on all those homes, do you believe that those should be rediscounted?

Mr. Rose. Let us assume that the system is in operation, Senator. Senator CouZENS. Yes.

Mr. Rose. It has been going for some time and every man who loans upon real estate, therefore, is anxious to create a first mortgage that will be rediscountable. That is bound to be his practice, because otherwise-because he wants that added advantage of being able to hock it at some time if he wants to sell it, or wants money. That having been going on for some time, I should say that the standards of appraisals have already been set up where the builder is going to do better building, because otherwise it will not pass; the kind of building that we have in some communities will not pass if this is in operation. Therefore, these homes are apt to be wellbuilt homes; they are apt to be built in a neighborhood where the values will not go down hill. The appraisers are going to think about that. Some local lending agency, some savings bank, or building and loan association, or an institution of that sort, has already considered the character of the builder, and the character of the neighborhood, and they have risked their money on it, and, after all, they can only recover half of that by rediscount; so I would say