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Now, on behalf of the banks we would like to see, and there ought to be, a reservoir where mortgage loans in some way can be discounted. Now, just the character of that bill, whether it should be in this shape, or whether for immediate emergency purposes it should be an adjunct to the Federal resérve I can not say at the moment, but that would be the quiek way for the banks to discount their loans, where currency can be issued against it. In other words, you must create additional credit. We say that there is a large amount of money hoarded, and if that is taken out of circulation and out of the banks you can not put it back any other way. This bill can not put it back.

Now, the final statement I want to make

Senator TOWNSEND. Just a minute. Are you familiar with the so-called Glass bill, the new bill?

Mr. DEPPE. Yes. I think that will help very materially the banking situation, because it puts the power in the Federal reserve to take security that is not eligible paper to-day. And that is the only, way you are going to unlock this situation. You have got good values. And personally I can not see where you have, say, first mortgages, and they are good, and they have been paid, why for emergency's sake you can not go in and get some money on those temporarily to ease up this situation. I think it is necessary, and I think the situation demands something to be done. I personally am not averse to a reservoir for that purpose. But I do not want it a new banking system.

As to the permanence of the thing, with a bill properly drawn so it will not create overexpansion, I think that is all right.

Senator TOWNSEND. Well, the arrangement is for one year.

Mr. DEPPE. Yes; that is all right. I am speaking of this bill, Senator.

Now, we get down to the sale of the bonds. All this goes for nothing unless securities can be sold. Probably securities can be sold at this time. Where is the money coming from? You are not going to get the hoarded money, because that hoarded money has been out, if it has existed, while you have had the Government bonds selling at a discount. You have got various forms of Government obligations, and there is no disposition in buying those, apparently, on the part of people having money. Probably, if this law went into immediate effect it might have a tendency to withdraw moneys from the banks again, which condition we do not want to see right now. But there ought to be some emergency legislation. That ought to be done, and ought to be done speedily. I think perhaps if it is decided that a bill of this character is necessary in the economic situation of our country, it ought to be a revised bill. This bill here is objectionable for the various reasons stated. I am not going to take up any more of your time.

Senator Watson. Thank you, Mr. Deppe.

Mr. Kingsley has handed me a memorandum which I can not read readily. I will ask Mr. Kingsley to state what his memorandum is.

Mr. KINGSLEY. Just one point with respect to this bill. If the aim of S. 2959 is to help the small-home owner, is it advisable to include 3-family apartment houses, which is alien to home ownership, and the encouragement of such type of property weakens home occupancy instincts! This bill provides and brings in 3-family apartment houses. The question is as to whether it is advisable to include 3-family apartment houses.

Senator WATSON. I think that is rather a pertinent idea. We will rise to meet again at 10 a. m. to-morrow.

(Thereupon, at 12 o'clock noon, an adjournment was taken until 10 o'clock à. m. the next day, Thursday, February 18, 1932.)

CREATION OF A SYSTEM OF FEDERAL HOME LOAN BANKS

THURSDAY, FEBRUARY 18, 1932

UNITED STATES SENATE,
SUBCOMMITTEE OF THE COMMITTEE
ON BANKING AND CURRENCY,

Washington, D. C. The subcommittee met at 10 o'clock a. m., in the hearing room of Committee on Interstate Commerce, the Capitol, pursuant to adjournment on February 17, 1932, Senator James E. Watson presiding.

Present: Senators Watson and Couzens.
Senator WATSON. The committee will come to order.
The first witness on the list this morning is Mr. C. J. Haase. Is
Mr. Haase present?

(There was no response.)
Senator WATSON. Mr. E. A. MacDougall.

STATEMENT OF EDWARD A. MacDOUGALL, PRESIDENT QUEENS

BORO CORPORATION, JACKSON HEIGHTS, NEW YORK CITY
Senator Watson. Where do you live, Mr. MacDougall?
Mr. MacDOUGALL. New York City.
Senator Watson. What is your business over there?
Mr. MacDOUGALL. Real estate development and building.

Senator Watson. You are put down here as the president of the Queensboro Corporation.

Mr. MacDougall. That is a corporation engaged in building homes.

Senator Watson. Building homes ?
Mr. MacDOUGALL. Yes, sir.
Senator WATSON. Any other business?

Mr. MacDoUGALL. That is our principal business—the development of real estate and the building of homes.

Senator Watson. How long have you been engaged in that business? Mr. MacDoUGALL. About twenty-odd years.

Senator Watson. What is the process that you go through in building a home? What do you do?

Mr. MacDOUGALL. Well, it is a long story, Senator. If I might have an opportunity to discuss that with you and the committee after I have presented my views on your particular bill, I will be very happy to do so.

Senator Watson. In order to bolster up your opinion, whatever it may be, you might tell us how you are engaged in this enterprise. Just shortly. You do not have to tell a great long story about it. Mr. MacDOUGALL. Twenty years ago I bought 300 acres of land in the city of New York to develop and sell to builders. We found, after we had spent several million dollars in the improvement of the land, that it was necessary to engage in building ourselves for the reason that, with a large land operation of that kind, we had to anticipate the ultimate use of the land. That is to say, we found that the increased assessed values of real estate in our cities of large population grows so rapidly that a real-estate operator to earn any profit whatever must anticipate the ultimate use of the land.

So we organized a very large building corporation known as the Jackson Heights Apartment House Corporation, with a capital of two and one-half million dollars, to build apartment and private houses. Before we engaged in this building operation we went to Germany, to France, to many of the important cities of Europe to find standards, as well as the principal cities of the United States to find standards. We learned that the Prussian Government had what, in our opinion, was the most sound economic basis for housing to be found anywhere in the world. And we predicated our building operations upon a plan that the Prussian Government had laid down to encourage good living conditions in Germany.

Senator WATSON. When did you start that?
Mr. MacDOUGALL. That was about 1916.
Senator Watson. You have been working on that since then?

Mr. MacDOUGALL. Yes, sir. That was the introduction, Senator, of what is known in the United States to-day as the garden apartment plan. The idea of building apartments around large central gardens to insure permanent air and light, and detached apartment buildings, for the reason that people are willing to pay, we find, a little more per month rent where they are sure of cross-ventilation and permanent air and light,

Upon that principle we have built and financed now about $50,000,000 worth of housing in the city of New York, and I think it is generally accepted as a sound business principle. I know it has been accepted so because throughout the United States practically every builder to-day that builds an apartment house uses the word garden." Senator WATSON. How many houses of that kind have you built, Mr. MacDougall?

Mr. MacDOUGALL._About twenty million dollars worth.

Senator WATSON. I do not mean in millions of dollars. Have you built a thousand or 10,000 ?

Mr. MacDougall. No; I should say there are living accommodations for about 3,300 families. That is what we are taking care of now. I have illustrations of them here.

Senator Watson. What about the average cost, Mr. MacDougall?

Mr. MacDoUGALL. I should say about $10,000 per family. Many of those apartments we sold cooperatively, because after the war we found it was a difficult problem to house people. There was a great shortage in New York. Some landlords tried to take advantage of the shortage as the result of the war, and they had to go to the legislature in New York and get an enactment called the rent law, an enactment which curtailed the rent that they could charge.

Senator Watson. Yes. Do you build these houses as builders and then sell them or rent them?

Mr. MacDOUGALL. Well, we build some of them and others we finance; we finance other builders.

Senator WATSON. Other builders or home owners themselves?

Mr. MacDOUGALL. No; no home owners. The land is too expensive for that.

Senator WATSON. You finance the builders?
Mr. MacDOUGALL. Yes.

Senator Watson. Now go on and give us your impression, Mr. MacDougall.

Senator COUZENS. Before you start with that, will you tell us how you finance them?

Mr. MacDOUGALL. I believe it is Senator Couzens I am addressing? Senator WATSON. Yes.

Mr. MacDOUGALL. Principally through long-term mortgages with the large insurance companies. I felt that it would be unsound business to invite the public to buy securities in a cooperative apartment home which we sold on installment payments over a period of 10 or 15 years, unless they had a first mortgage-no second at alla first mortgage that ran for at least 15 years from 10 to 15 years. And that is the plan upon which we have operated, fortunately for the tenant owners that bought those apartments. If they were met with the situation that prevails to-day and could not renew those mortgages, they would be in a very serious condition, when you take into account that we sold $12,000,000 of them that way.

Senator Couzens. Give us an example of the cost of financing any such scheme.

Mr. MacDOUGALL. I will give you an illustration of one particular mortgage I have in mind on one group of buildings, at the very inception of our building operations. I went to one of our title guarantee and trust companies. The cost of construction was advancing very rapidly. I asked for a loan of $560,000, if I remember the figure correctly. They examined the plans and said that they would only loan $475,000 as a building loan mortgage.

The mortgage money is advanced in installments, usually two or three installments, one when there is the enclosure, when the roof is on the inclosure), one when the brown mortar is on; and the balance finally on completion.

Senator COUZENS. I suppose that is on an architect's certificate of the amount you have got invested ?

Mr. MacDOUGALL. Yes. They have their inspections that are made as the work progresses. They said that they would only loan four hundred and some odd thousand dollars. I asked them if they would consider a proposal that they write the mortgage for the gross amount and we would have it reappraised on completion, which they finally did. The labor costs advanced very rapidly during the period of 1919 and 1920. On the completion of the building I went to the Prudential Life Insurance Co. of America and obtained a loan from them for the gross amount, which was five hundred and some odd thousand dollars, and the total cost was $835. A very nominal fee, because they took it by assignment from the Title Guarantee & Trust Co. of New York.

Senator WATSON. What interest?

Mr. MacDoUGALL. I think the interest on that loan was 6 per cent. I negotiated other first mortgages with the Metropolitan Life Insur

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