and economy and because a veto is at the end of this proposed course of action, we should then, of course, give our attention right away to an alternative bill.

Senator FULBRIGHT. Let me say that alternative bill was introduced before any of the abolition bills. I think the proper procedure is to proceed with both of them as to whatever their ultimate end is, and we ought not to hold up action upon the committee's bill, because it might be abolished, or the Senate might vote to abolish it. Why not report them both. If the witnesses who are for abolition also think that that is a good bill, and everybody agrees that if you are going to have an RFC, that is a good bill, is it not quite proper to pass it out, too?

Senator DIRKSEN. I think so. But I am thinking only in terms of the argument.

The CHAIRMAN. Senator O'Mahoney has a meeting this afternoon. Senator DIRKSEN. Speaking in terms of the argument, of course, you should not abolish the RFC because you will not get the job done because of a prospective veto, and therefore we have to keep it. I just want to say for myself at least I do not want to be diverted by that argument if it is going to be an argument, and I have heard it advanced before.

The CHAIRMAN. Senator, you said the Armco Steel Co. went to Texas. Senator KEM. Yes.

The CHAIRMAN. Not to get into a discussion again, but the RFC, as bad as it is, and due to the actions of certain people around here, and certain advantages taken, it is terrible; I want you to know, as you probably do, that certain corporations got $72 million in tax amortization certificates for 75 and 80 percent, and another one since that time for another $11⁄2 million, so that makes $73,500,000 in certificates of necessity and tax amortization that they got. I am not criticizing them for getting them, but I mean these great corporations have gotten advantages in these tax amortization certificates and certificates of necessity, and when the final write-up is had on June 30, it is going to stagger the imagination of the people of America.

Senator KEM. I have been very much interested in statements along that line made before the Senate by the distinguished Senator from South Carolina. I have expressed publicly approval of what he has said. I have gone further and said this: That if so much money was not made out of war by so many people, in my judgment we would not have so many wars.

The CHAIRMAN. The Senator asked me that question on the Senate floor on debate when he was agreeing with me on it, but I just wanted the record to show all these big corporations that condemn things, they are around with their $400 and $500 million in tax amortization certificates. They have the people over here to work for this or that, and as corrupt as it might be and wrong as it might be, referring to the RFC loans, they try to take the people's minds off what they are doing.

Senator KEM. I have no brief for Armco, although some of the officials are my personal friends.

The CHAIRMAN. Neither have I, and I think they should have had it, because the other corporations got it, too-Republic Steel and the

rest of them. I just wanted the record to show that. KaiserFrazer got $140 million worth.

Senator KEM. In order that the record may be made clear, I want to say that the works of the Armco in Houston, Tex., were built before the outbreak of what is known as the police action in Korea.

The CHAIRMAN. The Senator and myself agree exactly on this amortization. They have had office buildings, I understood, that were built and I was told this-that were built before the outbreak in Korea, that are now being tax-amortized. The only reason I brought it out was because everything seems to be directed at something that is corrupt or wrong in RFC in some of these loans, as Senator Fulbright so ably brought out, and have been turned over to the grand jury.

Senator KEM. I hope nothing that I have said here today will lead the Senator from South Carolina or the members of the committee to think that I regard the RFC as the only evil thing in Washington. The CHAIRMAN. The Senator made that plain when he talked about the Internal Revenue Department.

Senator KEM. I think there are many things that ought to be corrected. You have to start somewhere, and for my money I would like to see a start made with RFC.

Mr. Chairman, you have been very patient, and I just want to say a few more words:

The people are fed up with what the Fulbright committee has so aptly called political favoritism, with influence peddling, with unearned fees, with natural royal pastel mink coats, free luxury accommodations for Government officials, and all the rest. We ought to close the door, so far as we can, to temptation.

People in my State are writing me and I am sure every Senator here has the same experience they are writing me and asking me, "Have public morals gone out of style in Washington?" That sort of thing hurts the pride of every decent American. Our people compare the shenanigans that are going on today with the solid honesty of Washington and Jefferson and Lincoln. Our people want their Government to be respectable again. How can our youngsters have any respect for principles of truth and honesty when many Government officials, high and low, show no regard for them?

I do not believe that this Congress can do better than to eliminate this source of public and private temptation. I do not believe there is any sound reason why we cannot get along without the RFC. Its useful function will be transferred under the Byrd bill to other departments of the Government. The end of the RFC is long overdue and I hope this committee will report out the bill.

The CHAIRMAN. Senator, we certainly appreciate your testimony. Senator KEM. Thank you very much for your attention.

The CHAIRMAN. Senator O'MAHONEY.

Senator, before you start I would like to have placed in the record an analysis of S. 1329 that was made by the staff of the Banking and Currency Committee, and I trust at your earliest opportunity you might correct the analysis or approve it, as you so desire.

(The analysis referred to follows:)

DIGEST OF S. 1329

S. 1329, introduced by Senator O'Mahoney on April 12, 1951, amends section 13b of the Federal Reserve Act to provide regional investing corporations to make loans to or purchase stocks of small and independent business enterprises. It preserves for 1 year the present provisions of section 13b which authorize Federal Reserve banks to make loans to business enterprises for working capital.

A section-by-section analysis follows:

1. Purpose. To supplement existing activities of financial institutions by establishing regional investing corporations (RIC), privately owned and managed. Authorizes Federal Reserve banks to purchase stock of such corporations for later sale to members of the Federal Reserve System and private investors. RIC authorized to invest in and make loans to small and independent business enterprises supplying an economically useful product or service. Investments or loans must be in interest of national defense during national emergency or to promote expansion of the business.

2. National Investment Advisory Council.-Members: Chairman, Secretary of Commerce; Secretary of the Treasury; Chairman of Board of Federal Reserve. Advises Federal Reserve Board regarding operations and lending and investment policies of RIC.

3. Eligible enterprises.—Secretary of Commerce to issue eligibility standards, considering relative size of business, area of operations, size and independence of group supplying capital or controlling the business, and independence of its management. Makes ineligible a business enterprise affiliated with a dominant enterprise in business (unless latter is also a small or independent business).

4. Organization of corporations. (a) Regional investing corporations not to exceed number of Federal Reserve banks and branches. May be organized by five or more persons subscribing to articles of incorporation (only Federal Reserve bank subscribes to articles if it invests in corporation's stock). Articles of incorporation specify objects of corporation and other provisions consistent with bill (including cumulative voting in election of directors). Articles (and amendments) to gain approval of Federal Reserve Board. Articles to state (1) corporate name, (2) area of operations (Federal Reserve Board may restrict area while Federal Reserve bank owns stock), (3) location of principal office in Federal Reserve district where established, (4) amount of stock, number and classes of shares, and shares' participation in profits.

(b) Before approving articles, Federal Reserve Board to consider need for small business financing in proposed area, character of management, number of RIC's previously organized, and volume of their operations. Upon approval, Board may issue permit to begin business. Corporation then is a body corporate with powers to use seal and 30-year succession (unless extended or dissolved sooner by two-thirds of stock, by act of Congress, or by forfeit of franchise for violation of law). Corporation granted usual corporate powers (to sue, appoint officers, adopt bylaws, establish branches, hold and dispose of property) and to act as United States depository or fiscal agent.

(c) Corporate board of directors has nine members elected annually by shareholders. Directors to have wide discretion in directing corporate affairs.

5. Capital stock provisions. Each RIC must have paid-in capital and surplus equal to at least $5 million. If Federal Reserve bank organizes a corporation, it must invest in at least $5 million total of stock with other investors. Federal Reserve bank limited to investing not over 2 percent of combined capital and surplus of its member banks, or $5 million, whichever is greater. Federal Reserve member bank may invest up to 2 percent of its capital and surplus. Federal Reserve bank, with approval of Federal Reserve Board, may sell all or part of shares it holds to a Federal Reserve member bank, or to any person or corporation. Sale price is subject to Federal Reserve Board approval. Board may limit stock holding of any one person or corporation. Except Federal Reserve bank, no stockholder may own or control over 10 percent of outstanding shares.

6. Borrowing power.-Outstanding obligations can't exceed paid-in stock and surplus. Federal Reserve Board may set borrowing regulations. Member banks may purchase RIC obligations up to 10 percent of banks' capital and surplus. 7. Direct loans.-RIC authorized to lend with or without security to eligible small and independent business enterprises or purchase RIC obligations. Can do this directly or in participation with banks.

8. Equity financing.-RIC authorized to buy and resell stocks of eligible small business enterprises.

9. Aggregate limitation.—RIC loans limited to aggreagte of one-third of capital, surplus, and debt of corporation for loans over $300,000 to any one enterprise, unless Federal Reserve Board approves more.

10. Exemptions.-(a) RIC loans to national bank not subject to real estate loan limits in section 24 of Federal Reserve Act.

(b) Exemptions from SEC provisions granted RIC securities.

(c) RIC exempted for 15 years from all Federal and local taxation except ad valorem real property taxes.

11. Miscellaneous.—(a) To operate with Federal Reserve member banks and other banks, which may handle loan investigation and servicing on a fee basis. (b) RIC may use business advisory services of Federal Reserve System and Department of Commerce. RIC may provide such services on fee basis. Federal Reserve bank may act as depository or fiscal agent for RIC under direction of Federal Reserve Board. RIC may invest funds not needed for current operations in United States obligations.

(c) Federal Reserve Board may issue regulations for operation of RIC's

(d) RIC subject to examination by Federal Reserve examiners, cost to be paid by RIC. RIC to report to Federal Reserve Board.

(e) RIC franchise subject to forfeit for violation of act adjudged by Federal court in suit brought by United States at request of Federal Reserve Board or Attorney General.

(f) On application to and approval by Federal Reserve Board, RIC may extend life for 30 more years, on vote of two-thirds of stock.

(g) Federal Reserve Board authorized to petition Federal court for injunction against violation of act by any person.

(h) $5,000 fine or 2-year imprisonment or both for making false statement in application for aid from RIC.

(i) Present provisions of section 13b of Federal Reserve Act continues for 1 year (direct loans by Federal Reserve banks for working capital). Then may sell assets under section 13b to RIC.

(j) Within 60 days after section effective each Federal Reserve bank to pay to United States the amount the Secretary of the Treasury has paid to banks under present section 13b. Such payments to be used as miscellaneous receipts.

(k) Neither United States nor Federal Reserve bank has any liability on any RIC stocks or obligations.

The CHAIRMAN. I would like to say I am very sorry that we kept you waiting here 2 hours. We know how busy you are.

STATEMENT OF JOSEPH C. O'MAHONEY, A UNITED STATES SENATOR FROM THE STATE OF WYOMING

Senator O'MAHONEY. That gives me an excellent opportunity to say, Mr. Chairman, that I think the Committee on Banking and Currency is carrying the burden of deciding some of the most important questions before the people of the United States. Indeed, it would not be too much to say that on the wisdom and diligence of this committee will depend the result in very great measure of the troubles which affect the whole world.

I think everybody knows that the capitalistic system is under attack. The conviction of totalitarians that capitalism is outmoded and must fail is one of the chief causes of the international difficulties with which we are now confronted. I do not have any doubt that if it were not for the fact that the Soviet dictators of the Kremlin are convinced that the system of free enterprise cannot survive, they would be much more ready than they are to agree to an international settlement.

We say a great deal about the free enterprise system, but we do precious little to preserve it. I have in my hand here a publication of the Department of Commerce issued in 1943. It is entitled "Economic Series 27." It contains the digests of 390 bills which were introduced betweer 1933 and 1944, in both branches of Congress, or one or the other branches of Congress, in aid of small business.

Again, in 1946 the Department of Commerce issued a digest of 187 bills introduced in the years 1943 and 1944.

I brought with me today a complete file of the bills in aid of small business which were introduced in the Eighty-first Congress, together with a digest of each. There were 46 measures, most of which were referred to the Banking and Currency Committee in either the Senate or the House, and by far the most of them deal with this very problem of financing small business.

Senator FULBRIGHT. How many were passed?

Senator O'MAHONEY. The record of passing is very small. If we were to use the phrase "batting average" I would say it is exceedingly low. I think this record shows, over a period of 18 years, that Members of Congress are very much aware that there is a smallbusiness problem, and that something has got to be done about it. We create small-business committees in the Senate and in the House. These committees are voted unanimously by each body, and even when we passed the Congressional Reorganization Act, in which it was stated plainly that there should be no more special committees, the demand from the country for special consideration of the problem of small business was so great that both Houses, in violation of that rule against special committees, created new small-business committees.

This was the record, not only in those Congresses controlled by the Democratic Party, but also in the Eightieth Congress controlled by the Republican Party. The problem of small business is with us, and it is not yet settled. The chief argument which is being made for the retention of the RFC arises from this demand which comes from every part of the country in one form or another for Government credit, Government financial support for little business, because the financial system we now have does not seem to meet the need.

I recited the record for the Eighty-first Congress. In the Eightysecond Congress 13 measures to assist small business have been introduced through the month of March.

Mr. Chairman, just as an indication of how this demand comes about, I want to read to you, with certain omissions, a letter which came to my desk this morning from an attorney in a Wyoming city.

The CHAIRMAN. Senator, I only want to say this for the committee: That we are aware of the number of bills that have been passed, and I think the Senate generally is aware of that, but there are a number of other bills, such as the housing legislation, the NPA legislation-the committee, really, as the Senator so kindly said, has more than had its hands full. But the committee has had, through certain hearings at least, done a few things for small business, such as getting Mr. Wilson to open up an office downtown here after a joint committee hearing; we have done a few constructive things. I am aware of the fact that the problem has not been solved and the proper bills have not been passed, but nevertheless we do, as a committee, feel our responsibility, and we have done, as the Senator knows, and so ably said, some good to try to keep our capitalistic system going.

Senator O'MAHONEY. What I said was not intended to cast any reflection at all upon the committee. I am only trying to emphasize the magnitude of the problem, because I say, Mr. Chairman, unless the Congress of the United States finds a way to make it possible for new independent competitive business to come into the economic