business, I would certainly answer "Yes" to the first question; and especially, so long as I did not have to put up any money until I needed it, and it was to be there in case I did need it.

Secretary LAMONT. Well, the questionnaire will speak for itself, of course, and we have the answers as made.

Senator WATSON. I suppose that is true, Senator Couzens. I know in the case of the questionnaire sent out by Senator La Follette to the mayors, it was criticized on the floor because they wired a mayor "Do you need any money at this time?" And of course they all answered "Yes." That was the reason why I was asking the Secretary about the character of the questions. But of course if 23.3 per cent of them answered "No" that showed that they understood it pretty clearly and that no one was induced to answer "Yes," or at least that not all of them were induced to answer "Yes" by reason of the nature of the question.

Secretary LAMONT. That is the point.

Senator COUZENS. The point I was trying to find out was, what percentage answered in the affirmative to the first question.

Secretary LAMONT. 76.7 per cent.

Senator COUZENS. That was to the first question?

Secretary LAMONT. Yes.

Senator COUZENS. What were the percentages of answers to the other questions?

Secretary LAMONT. To the second question it was 76.8. And to the fourth question 72.8.

Senator COUZENS. What was the fourth question?

Secretary LAMONT. The fourth question was:

Would the facilities afforded by the proposed discount banks help to relieve the dangers of foreclosures on urban homes and farms?

Now, the significant thing is this or I better give you the third question there:

Is there a demonstrable need for actual home construction, either new houses or remodeling work, that could be undertaken in your community if credit facilities were widened at the present tine?

Fifty-one per cent of the people answered "No" to that question, and just a fraction more than 49 per cent answered "Yes." So they were about evenly divided, showing that intelligence had been used in answering the question. In other words, those who voted in favor of the first and second questions in a good many cases did not vote "Yes" in answer to the third question. And that was a perfectly normal situation. In good times there are sections of the country overbuilt, by reason of temporary local booms, or some speculative building activity. We keep in the department, or at least I have seen somewhere statistics of the percentage of vacancies in apartment houses and homes in the important cities of the country. Looking down that list of 40 or 50 cities you will see the greatest variation as to conditions in the different cities. Some are overbuilt and some are underbuilt. Therefore I was not at all surprised when 51 per cent said there was no need for present building in their localities.

Senator COUZENS. I assume it is safe to say that those who answered that question "No" included persons having in mind apartmenthouse vacancies also.

Secretary LAMONT. Yes; I imagine so, although I do not know. The bill itself limits loans to 1-and-2-family houses.

Senator COUZENS. There is nothing in the questionnaire that makes any reference to the size or condition of the home, whether an apartment, single or double.

Secretary LAMONT. It was pretty clearly understood that the President's conference on home building and home ownership had to do only with home building. The bill as first drawn provided for just single homes, but some who were consulted thought houses built for two families should be included.

Senator WATSON. Mr. Secretary, I assume when Doctor Gries comes to testify he can give all of that information.

Secretary LAMONT. Yes.

Senator WATSON. We will then go to some more general questions with you, if you please.

Secretary LAMONT. All right.

Senator WATSON. Do you regard these proposed bonds as saleable? Secretary LAMONT. The best advice we can get from bankers throughout the country is that they will be desirable and saleable. And, as a matter of interest, Mr. Chairman, Mr. Kreuger of Kreuger & Toll, the Swedish match people, was in my office a month ago; this matter was discussed. He had heard about it in some way, and told me that bonds of institutions such as we are talking about here, of rediscount mortgage banks, were the most desirable bonds in Europe, that every European country had such banks.

Senator WATSON. Has every European country a system similar to this?

Secretary LAMONT. Rediscount banks for real estate loans; yes. Senator COUZENS. Does the Government guarantee the bonds in this case?

Secretary LAMONT. How do you mean?

Senator COUZENS. I mean do the governments of Europe guarantee bonds of this kind?

Secretary LAMONT. I think in some cases they do, but I can not answer that question positively.

Senator COUZENS. Of course, that would make them more valuable, would it not?

Secretary LAMONT. Yes, it would. But I do not believe that is true in every case. These bonds bear low rates of interest, about

3 to 4 per cent.

Senator BULKLEY. Do the bankers think we can get these bonds sold at a low rate of interest?

Secretary LAMONT. Yes; at reasonably low rates.

Senator BULKLEY. What rate do you think these bonds should carry?

Secretary LAMONT. Well, I do not think my judgment on that would be very good. That is a question for Treasury officials.

Senator BULKLEY. I thought you had been over it with some of the bankers.

Secretary LAMONT. Well, I did discuss the matter in the beginning with them, but I did not discuss rates particularly.

Senator WATSON. You are a banker yourself, are you not? What is your personal opinion?

Secretary LAMONT. Well, I am not a banker, to start with. I do not think my opinion would be worth much. It depends upon conditions at the time. United States Government bonds fluctuate a good deal from one time to another, as we have seen recently. But I do not think that important. I think these bonds would be put out at the lowest rate at which they could be sold.

Senator WATSON. Would the question as to whether or not the Government was to have interest or dividends affect the value of the bonds?

Secretary LAMONT. I do not know that it would particularly. As a matter of fact, the bill provides that the Government will be entirely out of these banks in a few years if they operate as expected.

Senator COUZENS. What percentage above the usual Government bond rate would you think these bonds ought to carry? If you would answer that question it would perhaps answer the question propounded by Senator Watson, without regard to fixing a specific rate. Secretary LAMONT. Oh, I should think 1 per cent.

Senator COUZENS. You think 1 per cent above the normal Government bond rate would make these bonds salable?

Secretary LAMONT. I'should think so.

Senator COUZENS. When you say that I assume you mean they should be tax exempt.

Secretary LAMONT. Yes. While I am personally opposed to increasing the number of tax-exempt bonds in circulation, still I believe it would be better to make these bonds tax exempt because a good many others may be said to have been made tax exempt for the benefit of the rich, and here is an institution that is to provide money for the small borrowers indirectly of course, and there might be criticism if these bonds were not made equally attractive.

Senator COUZENS. What difference in the rate of interest do you think it would make as between being tax exempt and taxable?

Secretary LAMONT. The judgment of you gentlemen of the committee on that subject would be just as good as mine. I am not an authority on such matters. I should ask Mr. Mills, Secretary of the Treasury, for an answer to that question.

Senator COUZENS. Well, I think it important.

Secretary LAMONT. I think it is important, but it is a detail. It will work out on a sound basis. And I do not think that my opinion on it would be of any very great value to you gentlemen.

Senator COUZENS. Of course the Secretary referred a while ago to the fact that other bonds are tax exempt. Many times this bill has been compared with the Federal reserve system, as an aid to industry or commerce; and of course there was nothing issued by that institution which was tax exempt.

Secretary LAMONT. That is true.

Senator WATSON. Mr. Secretary, what initial contribution by the Government will be necessary in order to set up these banks?

Secretary LAMONT. Well, if there are 12 districts, and if the minimum is $5,000,000, that would make a total of $60,000,000. And then some districts might be larger than that, so I should say probably $75,000,000 or $100,000,000.

Senator WATSON. What would you think of an amendment to this bill to take the money from the Reconstruction Finance Corporation without an original sale of bonds.

Secretary LAMONT. I would think well of it.

Senator WATSON. Well then, we will have to ask them whether they can stand it.

Secretary LAMONT. Yes.

Senator WATSON. You would not be in a position to answer that question?

Secretary LAMONT. No; I would not, but if it can be done I would say it would be desirable. It would prevent another draft on the Treasury.

Senator WATSON. Do you think the Government is entitled as an investor to receive dividends the same as all other investors?

Secretary LAMONT. Yes. But I think it rather unimportant, because if the plan works out as hoped, the Government would not be in it very long.

Senator ČOUZENS. I notice that the Secretary has said several times if the banks work out as contemplated. May I ask what the situation would be if they do not work out as contemplated?

Secretary LAMONT. The system would simply dry up and the Government would get its money back and no damage would be done. Senator COUZENS. In establishing 12 home loan rediscount banks wouldn't there be considerable obligations involved in the way of leases, and so forth, and perhaps in the way of a permanent investment, so that they could not dry up very readily?

Secretary LAMONT. If it should develop that these banks are not necessary, or are not used, they could be turned over to some liquidating institution, to the Treasury, for instance, and be liquidated without any difficulty.

Senator COUZENS. What would you think of the possibility of setting up a system of these banks wherein private capital would furnish the money?

Secretary LAMONT. These will be banks with private capital after they are first started.

Senator COUZENS. Yes; but the Government takes all the risk as to the probable success of the enterprise. If it succeeds, of course, it will be absorbed by private capital like private capital always absorbs all good things. And if it is not a rich thing, of course, the Government holds the bag.

Secretary LAMONT. I think right now it would be difficult to get private capital to do it.

Senator COUZENS. And that is one reason why I would hesitate to support the bill, because what is not good for private capital should not be good for the Government.

Secretary LAMONT. The Government is doing a good many things it would not do under ordinary conditions.

Senator COUZENS. Yes; and I think Congress contemplated when it passed the Reconstruction Finance Corporation that it would be a profitable undertaking, at least as profitable as was the War Finance Corporation.

Secretary LAMONT. Well, I hope it will be.

Senator WATSON. Have you any reason to doubt whether or not it will be, Senator Couzens?

Senator COUZENS. Do you mean the Reconstruction Finance Corporation?

Senator WATSON. Yes.

Senator COUZENS. I have been analyzing some railroad loans; in fact, I have a copy of the Interstate Commerce Commission's opinion on practically all the loans that were authorized up to the other day, and if the continuing loans are predicated on the securities now being offered I would say the reconstruction act would not be a success. Senator WATSON. Financially, do you mean?

Senator CoUZENS. Yes.

Senator TOWNSEND. Do you mean as to what have already been accepted?

Senator COUZENS. Yes; in part. But in each opinion of the Interstate Commerce Commission, or I mean opinion handed down with the approval of the commission, it was stipulated that further loans would be asked for, and those loans were authorized without prejudicing any future loans that may be granted.

Senator WATSON. You may proceed with the witness, if you like, Senator Couzens.

Senator COUZENS. I am tremendously interested, of course, in the home owner and always have been, but I have analyzed this bill carefully and I can not see wherein, in any respect, it is going to do any good to the people it is contemplated it will help. I see no helpful provision in the bill for the second mortgage, and that is where the difficulty comes in in the case of the small home owner. In fact, the witnesses who have appeared before this subcommittee over the weeks we held hearings, all said that the man who desired to build a home, the working man or the man of very modest means, would be expected to have from 10 to 25 per cent of the needed capital to build his home. That leaves a space between 35 or 40 and 25 per cent of money which he needs for his home and for which there is no provision. That is where he has been gouged.

Secretary LAMONT. No doubt about that.

Senator WATSON. It has been on the second mortgage.

Senator COUZENS. Yes. In our State we call them land contracts. A man starts a home and he has 25 per cent, and he borrows 50 per cent, and that is 25 per cent which he expects the builder to carry. But the builder would be unable of course to continue constructing houses and carry these so-called second mortgages, or with us land contracts, and is required to go to some loan agency, or some worse names than that, and discount it at 20 per cent. And that 20 per cent is the tragedy.

Secretary LAMONT. Yes.

Senator WATSON. What do you think of the present situation, where there are thousands of homes now with mortgages on them, and where the building and loan associations can no longer carry them because they can not rediscount any security, and there is danger of foreclosure and of the people being set out in the street? What do you think of that phase as an emergency phase, Senator Couzens?

Senator COUZENS. Senator Watson, I do not admit your premise, that building and loan associations can not get money, because they are already getting money in quite substantial sums from the Reconstruction Finance Corporation.

Senator WATSON. To some extent.

Senator COUZENS. I noticed a statement in a newspaper last night I think it was that out of something like $183,000,000 loaned, something like $75,000,000 had been secured by building and loan