Mr. BLACK. I would like to add to that, Mr. Chairman, that again, as far as stabilization of the market of our securities is concerned, buying or selling bonds for any reason, whether it is for sinking-fund purchases, or what it may be, we again can only do that upon permission of the National Advisory Council. I have to go to them as American director to get permission for the bank to go into the market in any way. So that there is no way that I see that the bank, if it wants to, could manipulate the market at all.

Mr. BENNETT of Michigan. Let me interrupt you before you leave that.

I wonder if counsel would explain where the difference in opinion lies between yourselves and the Securities and Exchange Commission on interpretation of the provisions of section 9.

Mr. NURICK. There is no well-defined difference of opinion between us, because we have not had a problem yet. The discussion that we did have was theoretical; but I think it arises because of the peculiar nature of the bank and the very large scope of its marketing operations. As I say, it may be engaging fairly continuously in market operations both from the point of view of buying its own securities for sinking fund purposes and possibly stabilization purposes and also from the point of view of selling its securities at the same time. There is no organization like this, so far as I know. And, I think we raise a novel problem for that reason.

Now, under section 9, if you purchase securities before you sell other securities and the purchase of the first securities tends to raise their price, it might be that that would be considered manipulation. If we buy for sinking-fund purposes, the result of that might be to raise the price. Our purchases would be merely to buy for sinkingfund purposes, but nevertheless the effect may be to raise the price. Therefore, if the Commission holds that to be manipulation we would be prohibited from buying for sinking-fund purposes under those circumstances.

Mr. BENNETT of Michigan. That question has not been decided? Mr. NURICK. No, sir.

Mr. BLACK. It has not come up because we have not bought yet for the sinking fund. The sinking-fund purchases come in later years when amortization payments on the loans come to us. In other words we use those amortization payments as sinking funds and that is something that is several years off.

Mr. BENNETT of Michigan. If this act is passed, then you would be free of any question regarding the provisions of section 9. Mr. BLACK. That is correct.

Mr. BENNETT of Michigan. You can buy as you see fit or deal as you see fit in securities, whether it has the effect of raising the price. or not?

Mr. BLACK. We could do that in case of NAC approval, but only with their approval.

Mr. BENNETT of Michigan. But you by-pass the Securities and Exchange Commission?

Mr. BLACK. That is correct; yes, sir.

The CHAIRMAN. Had you finished the answer you wished to make? I do not wish to enter into an argument about it. I want to get your basic reasons for the conditions that in your opinion warrant

the stabilizing. That is, why do you want it, because frankly, when you have stated why you want it then I am going to question the SEC as to whether it is in the public interest or not.

Mr. BLACK. The reason we want it, Mr. Chairman, is that our counsel has suggested that when we receive payments from these foreign countries, amortization payments, upon these bonds, which we wish to be allowed to use, to take those bonds and buy bonds for sinking funds. If we buy bonds for sinking funds, it may that we have payments coming in somewhere at or around the time we are going to have a new flotation of bonds. Now, it might be construed that our sinking-fund purchases, that which would be a perfectly normal thing for us to do, might be construed as manipulative operations in order to make our market look better at the time of the flotation of an issue.

The CHAIRMAN. Is it your opinion then that the buying of these bonds for your sinking fund would have the effect of stabilizing the price?

Mr. BLACK. Well, I think any substantial purchase of securities always helps stabilize the price; but I—

The CHAIRMAN (interposing). What I want to know is your reason for stabilizing the price. What would be a good reason for stabilizing the price. What would be a good reason for your wanting to stabilize the price? Might it not be that you were about to make a new issue?

Mr. BLACK. Not necessarily. We would like to have a steady broad market for our securities at all times; but if we have the money to buy bonds for sinking fund purposes, it might be a difficult decision for the SEC to make.

The CHAIRMAN. Now, let us put it this way: If you had a new issue of bonds that you were about to put out, anything that would stabilize the price of the bonds previously issued would be helpful in putting out the new issue, would it not?

Mr. BLACK. That is correct; yes, sir; certainly.

The CHAIRMAN. Now, then, anything you would buy, whether for sinking fund purposes or otherwise, would have the effect of stabilization?

Mr. BLACK. That is correct.

The CHAIRMAN. Well, do you not think then that if it would have that effect that purchasers of the new issue would be entitled to know what was being done in the way of stabilizing the price?

Mr. BLACK. I think that they would know. I do not think there would be any secret about it. I think as a matter of fact that if we plan-

The CHAIRMAN (interposing). Then, where is the objection? What is it that you are afraid of? You say that you might be running counter to some provision, I understand, of the SEC Act. What is it that you would be doing under those circumstances that might be the subject of complaint?

Mr. BLACK. What we are afraid of is this: It is not the question of sinking fund purchases at or around the time of the new issue. We are concerned about sinking fund purchases at any time, that that might be construed as a manipulative operation.

The CHAIRMAN. Would it be a manipulative operation if it were ther than this Government bank?

Mr. BLACK. You mean to buy bonds for sinking fund purposes? The CHAIRMAN. Now, this transaction that you are speaking of, which you are fearful might be considered as a practice that would be improper; could anybody carry on that kind of a practice without it being considered improper, and if so, why would there be any reason why you folks should carry it on and no one else could?

Mr. NURICK. May I answer that, sir?

The CHAIRMAN. Yes.

Mr. NURICK. The SEC considered this point in its letter to the committee and I would like to make reference to their answer. As they point out, so far as the bank is concerned, the exemption from the 1934 act would put us in the same position as Government, municipal, and State bonds. Now, so far as private purchasers are concerned they state this:

To the extent that this may remove a restriction on manipulative activities affecting the bank's securities, it is relevant to note that it is unlikely that any private group of dealers could, by their trading activities, substantially affect the price of any particular issue of the bank's own securities or of securities fully guaranteed by the bank, in view of the substantial equivalence of these issues, the large amounts involved, and the ability the bank would have to engage in trading activities itself, under the supervision of the National Advisory Council. However, if the credit of the bank should be seriously impaired, the guaranteed issues would develop investment characteristics of their own, depending upon the credit of the principal obligor, and the smaller of these issues would become susceptible to manipulative activities by private persons. Such a contingency could, of course, be met by future legislation.

The CHAIRMAN. Well, of course, I do not think it answers the question to say that this is possible in Government's or in State or municipal issues and, therefore, should be permissible in this instance. Maybe it is wrong all of the way through. Is it a practice that is in the public interest?

Mr. NURICK. If it is wrong all of the way through, we certainly would not object to being treated just like everybody else.

The CHAIRMAN. Well, are you basing your answer to the question on the fact that others have the privilege or on the basis that it would not be harmful to the public?

Mr. NURICK. The basis to our answer to the question in general is that we want to be treated as exempt securities.

Now, being treated as exempt securities has certain characteristics. One of them is that you are free from section 9 of the Securities and Exchange Act.

The CHAIRMAN. Well, eliminate the fact that there are exemptions as to others and let us consider it now just on the principle involved. Is it good or bad?

Mr. NURICK. Is it good or bad to exempt us from the manipulative activities provisions?

The CHAIRMAN. Yes.

Mr. NURICK. So far as the bank is concerned I think it makes no difference, becausse we are subject to the National Advisory Council in any event.

The CHAIRMAN. I am speaking from the standpoint of the public. Mr. NURICK. As the SEC said in the letter I read to you, their answer to that is that it is unlikely that any private dealers could manipulate our securities and I think that as a practical matter that is

correct.

The CHAIRMAN. Well, we will take that up with the SEC when their witnesses come on.

Now, I would like to direct your attention to an article entitled "A Look At World Bank Bonds," by John H. Rumbaugh, president, John H. Rumbaugh, Inc., New York City, appearing in the Commercial and Financial Chronicle issue of Thursday, May 13. In his article he makes this statement, concerning which I would like to have your reaction.

Observers feel that last July the Word Bank openly and knowingly promoted one of the biggest joy rides speculators ever had; and when joy riders cashed their profits the redistribution of the debentures disastrously bumped smack into the firming up of short-term Treasury borrowing rates. Careful readers of the financial news are not taken in by such publicity devices as the Hollywood-like ceremony introducing Stock Exchange trading in the bank's bonds at a prearranged premium, or the recent Bank press release, announcing that operations are in the black, a transparent euphemism.

What comment do you care to make on that?

Mr. BLACK. Well, everybody has his troubles, and Mr. Rumbaugh wrote this article-I read the article. I was quite disturbed about it, because it was full of inaccuracies and misstatements, and after the article was written we got in touch with Mr. Rumbaugh, discussed the article with him in detail, and he was quite apologetic about having written it. He said he was not aware of the facts at the time and that is all I can say about it, sir.

But, I mean we have lots of troubles; one kind or another.

The other day the St. Louis Post-Dispatch had an editorial in the paper, said they had noted that the International Bank for the first time was in the black and they thought that was a very deplorable thing; the International Bank was making money, because it was on the basis that it was a shame for us to be making money on the European countries.

So whatever you do, somebody criticizes it, and I think that was a very unjust letter, and I think Mr. Rumbaugh would admit that to you himself if he were here, because we got in touch with him immediately after that letter.

(The following telegram regarding the above discussion was received from Mr. Rumbaugh:)

Hon. CHARLES A. WOLVERTON,

NEW YORK, N. Y., June 9, 1948.

Chairman, House Interstate and Foreign Commerce Committee,

House Office Building:

Regarding Mr. Black's testimony your committee, June 5, in my meeting with World Bank's New York officers concerning my article in Commercial and Financial Chronicle, I admitted no inaccuracies and still stand by the article. Would appreciate incorporation this wire in record.

JOHN H. RUMBAUGH.

The CHAIRMAN. Well, of course, it does not require any lengthy argument on your part to convince Members of Congress of the truth. of what you have just said.

Mr. BLACK. Thank you.

The CHAIRMAN. We have plenty of things in our own individual lives that makes it very understandable.

Now, I will read to you a statement by a prominent banker relating to the foreign loans. It is a little long but very interesting.

The important factors, of course, were, as I said a while ago, that many of these foreign governments, or the most of them, I would think, had found them

selves more or less impoverished because of the ravages of war; that while their people were industrious and hard working, they were suffering from the effects of the war and they felt the ravages could be restored if they could get something like working capital to help restore it. The American investing public and the bankers, on the other hand, looked over there and saw those countries in the last degree ultimately solvent, as we thought and as we believe will prove to be the case. We saw that they required this situation alleviated, and we further saw that unless we were able to obtain a certain amount of foreign loans for them our foreign trade would be imperiled. There was American money available at that time, and money was fairly easy, so those were the chief factors.

That sounds very much like the situation today; but the fact is that is a quotation from the testimony of Thomas W. Lamont, of J. P. Morgan & Co., in testifying before the Senate committee in 1931 about our loans abroad after the last war.

Mr. BLACK. That is very interesting.

The CHAIRMAN. Now, we know what happened to American investors who bought foreign securities which American bankers distributed. It is probable that has as much to do, as I said yesterday, as anything with the interest that is taken by this committee in this whole subject, to the end that the American public, investing public, will be properly protected.

Mr. BLACK. Well, that was the very reason, Mr. Chairman, for the creation of this bank-the unfortunate experience on foreign loans after the last war-and I have been familiar with this type of financing for a great many years, and I personally feel that this bank is the most intelligent solution to that problem of anything that I have ever seen. The CHAIRMAN. Mr. Lamont further described to the Senate Finance Committee which was investigating the situation, that the result of the furnishing of dollars by individual American investors was that foreign countries were enabled to obtain the dollars to serve obligations to the American Government.

In your opinion, can this situation recur under the selling of International Bank securities to individual American investors.? Will the dollars thus obtained add to the capacity of the foreign governments to enable them to meet their obligations to the United States Government or agencies of the Government such as the Export-Import Bank? Mr. BLACK. Yes; it would, because it would increase the productive capacity of those countries and allow them to export more goods and the more that they can export, the more dollars they can obtain, and the better they will be able to pay their obligations to this Government or to the Export-Import Bank.

The CHAIRMAN. Any further questions?

Mr. CROSSER. Mr. Chairman.

The CHAIRMAN. Mr. Crosser.

Mr. CROSSER. Have you engaged in any operations whatsoever for the avowed purpose of stabilization?

Mr. BLACK. We have never bought one bond or sold one bond for that purpose.

Mr. CROSSER. None at all?

Mr. BLACK. Not a one.

Mr. CROSSER. Well, have you done anything else that might be regarded as aimed at stabilization?

Mr. BLACK. Not anything at all, sir.

Mr. CROSSER. That is all.

Mr. BENNETT of Michigan. Mr. Chairman.
The CHAIRMAN. Mr. Bennett.