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Senator Watson. Who signed that letter?

Mr. PAYNE. Mr. Elmer W. Stout signed the last letter, and Mr. Frank D. Stalnaker signed the other letter.

Senator Watson. Mr. Stalnaker, president of the Indiana National Bank?

Mr. PAYNE. President of the Indiana National Bank; yes. These gentlemen are the presidents of our two largest banks of Indiana.

At a meeting of probably 400 building and loan and real estate men at the Columbia Club, a meeting which filled the ball room of the Columbia Club a week ago, these resolutions were adopted :

Whereas, the resumption of the flow of mortgage money is one of immediate essentials for relieving the unprecedented economic crisis which the Nation is enduring; and

Whereas the availability of loans on real property has been one of the chief factors in establishing values and markets for property itself, and the lack of these mortgage funds reduces values tremendously, even to the extent of jeopardizing the functions of government which depend on taxation based on valuation; and

Whereas the distress is particularly affecting the huge army of home owners, in whom this Nation has ever vaunted the strength of its fabric; and

Whereas the President of the United States, in his program for relief, has urged Congress to pass the Federal home loan bank bill, which has been generally indorsed over the country, and which bill is now in legislative committees: Therefore be it,

Resolved, That we, gathered in a representative assemblage of men interested in home ownership and building and loan membership, heartily indorse said measure sponsored by the President and urge its speedy enactment into law, believing as we do that the facilities of said home loan bank, functioning for mortgage loans on somewhat parallel lines as the Federal reserve banks function for member banks, will give the necessary impetus to start again the flow of money and save the heartbreaking losses to the innumerable home owners of the United States, as well as encourage the resumption of building homes in this country.

I would like to have these resolutions placed in the record.
Senator WATSON. Certainly.

Mr. PAYNE. You have heard, gentlemen, a great deal in respect to this bill. Particularly from the quarters opposing it you have heard that it will produce inflation.

Senator Watson. In home building ?

Mr. PayNE. Yes, sir. Before leaving Indianapolis I happened to be in the office of the president of one of our leading trust companies. He had just received a telegram from the Mortgage Bankers Association asking him to wire his congressman and asking him to furnish an estimate of the number of vacant houses in Indianapolis. I presume that this is in line with their endeavor to establish the fact that there is a great surplus of homes in America to-day and that this bill is not needed.

If you will permit me to speak a word or two on this subject of inflation in homes, I think I can speak advisedly of conditions in my own home town. In the middle room they have mother-in-law and some of her family. In the front parlor is Cousin Joe, his sister, and his old uncle. In the kitchen are two or three second cousins. And so on through the house. And parked in the rafters are the children.

Now, gentlemen, those are the premises on which they base the fear of inflation. Those are the same conditions which existed in London in the early Victorian days—that crowded, congested home life. You who have read Dickens know of those conditions that

existed then under the stress of hard times. And to-day, owing to this very unhappy economic situation, we find families doubled up and trebled up in houses. At the slightest approach of normalcy, this surplus of houses that they describe to-day will very quickly be occupied, and I take it there naturally will be a resumption of building.

We have boasted a great deal of our high standard of living, including our luxuries. Yet, gentlemen, when a condition exists to-day over the country where unemployment forces the doubling up and trebling of families in houses, I say that your are not only

reducing your high standard of living, but you are menacing the moral standard of living, with two or three families huddled up in the house. The moral standard is far more important than a high standard.

In respect to this argument as to inflation. We are so deeply deflated in this country that we can not begin to think about inflation until we reach a line of normalcy. Inflation begins at a line of normalcy and from thence up. There is a long time ahead before we get to the point of talking inflation in the building of homes.

Senator COUZENS. Could you define what would be normalcy under existing conditions? I mean, what point would we have to reach to be normal?

Mr. Payne. I would define “normalcy" as a condition where a fellow who wanted to work, by a little effort, could go out and find a job. That is about as near as I can define normalcy.

Senator COUZENS. How long would you estimate that was away?

Mr. PAYNE. Well, from the way the President and the Democratic and Republican Members of the House and Senate have been going, I would not put it off as far as I would have put it four months ago. I do not know your politics, but if you will permit me to say it

Senator Couzens. Let me finish the question now. How long would you have put it away four months ago!

Mr. PAYNE. Well, far out at or beyond the horizon. How far that is, I do not know.

Senator COUZENS. You think it is closer now?

Mr. Payne. I do, very truly. I do not know your politics, Senator

Senator WATSON. Neither do we. Senator Couzens is a Republican. I said that by way of fun.

Mr. PAYNE. I would be glad to convey to you the impression as a man hears it on the street. That oftentimes reflects the opinion of the country. The opinion is that this Congress is more patriotic in the time of peace than any Congress we have had in many a year. The cooperation between the President of the United States and the Members of this Congress, Democratic and Republican, has been admirable.

Now, here is another point, gentlemen, on this question of inflation, which is raised by opponents of this bill. I think the amendments which the gentleman who spoke before you, representing the Ohio Bankers Association as an opponent of this bill, are very reasonable and very fair, and I do not think among the building and loan men you will find opposition to the amendments. These details as to amendments we expect to come up in the committee itself.

A point was made here yesterday which I think is well worth emphasizing. You can

You can not have inflation with first-mortgage money. Inflation comes with junior-mortgage money. Now that is a big point in this whole proposition. Here is a bill which is favored by the President of the United States as a part of his program, and if it does not pass I think his program may be a 3-legged horse. This measure is of very great importance to the Nation.

If you will permit me, I will digress just a minute or two on the general banking situation in this country. We are in a terrible welter in fiscal matters. We do not know what the ultimate outcome is to be. Here are over 2,500 banks in the United States which have closed in a year. Across an imaginary line, in Canada, are the same sort of people that we are, raise the same crops, do business as we do; you could not tell us apart except the way we sound our A's.

Now across that imaginary line they are going ahead in the even tenor of their banking way, and outside of an insignificant case, there has not been a bank failure over there in a generation. In England there has not been a bank failure of consequence since 1891, when Baring Bros. closed.

This has set our bankers to thinking, and out of all this welter, and out of the subconsciousness of banking leaders, I think there is coming a system whose prime factor will be cohesion.

You can walk into a bank in Calgary and draw out every dollar in it, and to-morrow there will be no visible effect of your action; it would be like sticking your finger in the ocean and drawing it out, there would be no hole. Money would flow from elsewhere to the needed spot at once. Such is the Canadian branch banking system.

Our national motto in the United States is, “ United we stand, divided we fall.” The motto of our banks is, "Each for himself, and the devil take the hindmost.” I am not a prophet, but growing out of it all I think I can see we are going to develop a banking system based on cohesion, and I think that this home loan bank bill fits in ás a part of a cohesive system that will bring about a situation where a condition financially, like that which exists to-day, can not arise again.

Senator COUZENS. May I refer back to your previous statement about the junior money being the real cause of inflation; will you repeat what you said about that?

Mr. PAYNE. That you can not have inflation on honest first-money mortgage—perhaps I should qualify that and say on a 50 per cent loan you can not have inflation. The inflation comes when you have a 90 per cent loan or a 75 per cent loan, where the equity is speculative. Much of our present bad situation has been created by a careless system of loaning money.

Senator COUZENS. Just at that point, it has been testified before this committee that if it was made easier to get first-mortgage money it would make it easier to get junior money.

Mr. PAYNE. I think so.

Senator COUZENS. Would not that make inflation, if it was easier to get junior money?

Mr. PAYNE. I do not think so.

Senator COUZENS. You just said that junior money would make inflation, and that is the only way you can get inflation.

Mr. Payne, No; I did not intend to convey that impression, if I did. I meant to say that you can not talk about inflation on honest 50 per cent mortgages. You can not have inflation up to that point. You can have inflation, however, on a 100 per cent loan.

Senator Couzens. I am not talking about that. I am talking about having had testimony before this committee that by having more liquidity would make it easier to get first-mortgage money, and make it easier to get junior-mortgage money, or second-mortgage money. Now, if your statement be true it obviously must lead to some inflation.

Mr PAYNE. Senator, I do not think I see it quite in line with you. Senator COUZENS. That is what you said.

Mr. PAYNE. I still cling to the idea that on this first-mortgage money, which is the purpose of this bill, that you can not have inflation on first-mortgage money. That is, I mean, of course, if the loan is a sound loan in the beginning, and I take it that this bill contemplates nothing but sound loans, and supervision, and all.

Senator Couzens. That is true, but legislation does not always stop with a written law; it has far-reaching effects sometimes that you can not see by simply reading the bill. For instance, some of the comments now going on throughout the country with respect to the Glass bill, some say it is an inflationary bill, and some say it is not. No one can tell from the legislation the far-reaching effect of a bill, and that is true of this bill. So it is not developed in this bill that this would lead to easier junior money. That is, the home owner would be assisted materially by the liquidity of the mortgage, and the ease with which he could get junior money. Of course, that is not in the bill which we have here, so it must lead far beyond the measure we are talking about. And you, yourself, said that is the way inflation would come; it could not come from first mortgages, you said, but from junior money, and I was trying to develop that particular point.

Mr. PAYNE. Well, in the first place, the fellow who is going to employ junior money in this inflation purpose would first have to get it. To-day I would not know a spot in the world where they would even let him come in the front door.

Senator COUZENS. The do not even let him in the front door when he comes with a first mortgage.

Mr. PAYNE. Just now they hardly let him in when he comes with a first mortgage. But, assuming we could get first mortgage money, it will be quite a long time before the fellow hunting secondmortgage money will have the entrée.

Senator COUZENS. I do not want to ask you to duplicate anything you have said, but yesterday I raised the question whether a builder desiring to build 50 houses for speculation, or for possible resale, should be allowed to rediscount under this bill any mortgages on houses that have not been actually sold to the ultimate owners.

Mr. PAYNE. I do not think, after these two years of experience, his prospect would be very good.

Senator COUZENS. No; I did not ask you about his prospect. This is permanent legislation we are talking about, and I am trying to separate any confusion which might arise between temporary legislation and setting up 12 banks permanently; whether or not you think that a builder should be allowed to rediscount under this bill any mortgages on houses before they were sold to the ultimate occupant of the home. Do you think so?

Mr. PAYNE. Well, Senator, that suggests to me this thought: We have had the experience of the Federal reserve bank for a number of years. There is an element of supervision necessary in all these things. Now, theoretically, if I bought a carload of old hats, 50-cent hats of the vintage of 1929, and moved them from New York to Indianapolis to sell them, my paper, based on goods in transit, would be eligible for discount.

Senator COUZENS. That is true.

Mr. PAYNE. I may go to my banker and try to borrow $25,000 on the best quarter of a square in the city of Indianapolis, and I could not borrow a nickel because that is not eligible for rediscount. Yet the Federal reserve bank is indirectly open to me to borrow money on the old women's hats.

Senator COUZENS. You mean women's old hats.

Mr. PAYNE. Old women's old hats, if you please. Now you might say that the Federal reserve bank system has dangers, because theoretically, under the law, I might offer eligible paper based on very poor collateral. But I can not do it, as a matter of fact, because my banker, in the first instance, would want to know about the hats. He would be suspicious as to their merchantability, and my paper would never get started even toward the Federal reserve bank. I think you can conjure up many things that might happen in this new home-loan bank and single out these particular situations. As Senator Watson said a while ago, you have got to assume that there is intelligence in some degree in the operation of these banks.

Senator COUZENS. I was not questioning the intelligence in the operation of the banks Mr. PAYNE (interposing). Or judgment, if you like.

Senator Couzens. I am not questioning that. All along I am trying to determine the future of this thing, not just for the emergency, because a difference of opinion exists among some of us, at least as to whether or not it is wise to set up 12 home-loan banks as a permanent institution to cover what appears to be an emergency.

Mr. PAYNE. Well, some gentlemen discussed that yesterday, I believe, and probably some of them will to-day. I believe I would prefer to leave that phase of the subject to some of them; to defer it, if you please, to let some other gentleman take it up.

There is another angle, Senators, in connection with this purpose of the bill to encourage home building. Nearly every magazine in the United States that you have picked up in the last year or two, has had beautiful photographs of modernistic buildings, apartment houses, in Germany; they are all glassed in on one side with wide courts down the middle, and beautiful geraniums blooming in the yards, and everything convenient for a workingman's home. I am under the impression that we have paid for most of those advantages through our loans to Germans. And I believe that in anything that promotes home building in America, we should give at least as much l'espect to the idea as we seem to have done over in Germany where

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