Mr. WILLIAMS. I do not take it that that would be proper here. But here we would have only the power to properly present to the court, and the court would exercise the power and would have that same leavage, and I think it would be established pretty soon that a recommendation could be supported. I do not think the Comptroller's office would make any recommendation to the court that it could not support. And I think the precedents of the court in upholding the hands of the Comptroller in these reorganizations would soon give the necessary leavage-not an undue leavage, but that which is necessary to bring these people to taw in bringing about reorganizations.

I do think the provision the gentleman explained was inadvertently left out was in the draft that I saw. I think some mandatory provision as to the plan of reorganization should be there, because we found in the reorganization of banks that there were many banks where interests were conflicting to such an extent that we would never have had presented to us on their motion any plan for reorganization.

Mr. MICHENER. What I was getting at was that you are banking experts, that you are not experts in running automobile factories or cheese factories or tobacco factories or anything else, and that you would necessarily be obliged to have experts in these several lines, or at least call in experts entirely foreign to your line in practically every reorganization.

Mr. WILLIAMS. May I say that at the present time we are running a race track, we are running a beauty parlor, we are running two or three different kinds of manufacturing concerns, and, necessarily so under the receivership.

Mr. MICHENER. You are versatile, at least.

Mr. WILLIAMS. The question was brought up by one member of the Sabath committee that a great many of these reorganizations were real-estate reorganizations. In our Detroit bank I think it was stated we had $180,000,000 of first-mortgage real estate. And we had to reorganize any number of realty holding companies. So you are correct in saying that up to the emergency of March 1933 that the functions of the Comptroller's office were somewhat restricted to national banking as such, commercial and savings banks, and all of the national banking system. But even there the examiners had for years, over the period that the examiners' force had been built up, which was some 40 years, been called upon to put valuations upon securities held, let us say, in a local compress company or other local companies; and they have had to go in and find out something about those valuations in order to determine just where the bank stood. But not until March 1933, I would say, were we interested in almost every field of endeavor. However, since that time we have been, and it has been forced upon us.

Mr. FULLER. Mr. Williams, some question was raised as to the great number of employees and whether or not it would be a burden and an expense or whether it would be self-sustaining.

Mr. WILLIAMS. Of course, it would be self-sustaining. It would have to be self-sustaining, just as now the salaries of the receivers in the field, the attorneys for the receivers and all costs of the entire Insolvent Division here are all allocated to the individual trust as an

assessment in proportion as those trust estates bear to the total of the trust estates at the time we are administering, so far as the central office here is concerned. The total expense of all that, the field and the field attorneys, the Washington office and the Washington office attorneys, examiners and auditors, and the whole thing, has come to 6.3 percent. So I think that answers that question and speaks for itself.

Mr. DUFFEY. That is 6.3 as related to what?

Mr. WILLIAMS. It is 6.3 percent. Of every dollar collected we have had only 6.3 cents for the entire administration of the field and here. Mr. DUFFEY. It was very reasonable.

Mr. WILLIAMS. Yes, sir; I think other averages of liquidation run in excess of 20 percent, although I am not sure as to that.

Mr. CHANDLER. Thank you, Mr. Williams.

Does Mr. Kelly wish to say anything about the matter?

STATEMENT OF L. A. KELLY, COUNSEL, OFFICE OF THE
COMPTROLLER OF THE CURRENCY OFFICE

Mr. KELLEY. Mr. Chairman, I think I have nothing to add. I believe Mr. Williams has covered the field pretty well, and I see no need for any further comment, unless some additional questions are presented.

Mr. FULLER. Do you approve of the statements which were made by Mr. Williams, Mr. Kelly?

Mr. KELLY. Yes, sir; I do.

Mr. CHANDLER. Mr. John Gerdes is present in the room this morning. Mr. Gerdes is the author of a new work on 77B, reorganization. I would like to have him express his views, if he has any to present at this time.

First, however, we would like to hear from Representative O'Malley.

STATEMENT OF HON. THOMAS O'MALLEY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN

Mr. O'MALLEY. Mr. Chairman, seeing that the proponents are about to conclude, I only wish to point out that as our committee went over this revised bill it seemed to me that it boiled down simply to one issue, the appointment or the creation of a general master under the domination of the Congress of the United States, or rather under the control of the Congress of the United States, to look into these matters and present them to the court from a neutral viewpoint.

Our committee had in mind when we changed over and put into the bill that the Comptroller of the Currency should be the Conservator the very excellent record of the Comptroller in handling the liquidation of closed banks. Mr. Williams pointed out that they were able to do that for 6.3 percent of the money collected. If the committee will go through the record of our committee's hearings, with respect to percentage of money collected, it sometimes ran up as high as 40 percent of the total capitalization or whatever assets the concern originally had.

Another reason that I personally was very much in favor of the Comptroller of the Currency handling this matter in view of an experienced personnel, we have had some objection raised that the Conservator might be political and there might be political appointments. I think nobody, regardless of their politics, would cast that aspersion upon the work done so far by the Comptroller of the Currency's Office in connection with banks. Of all the forces of the Government, that office has been less political than any other I know of personally. I happen to know some of the examiners personally who have been in that line of work and with banks and as bank examiners for years. Some of those examiners have been active for 15 or 20 years. So the stigma of politics, by this direction in the bill to appoint the Comptroller, is completely removed. It is removed as far as we could possibly remove it.

With the bill as it is and with 77B that stands at present, a very minimum of bondholders can force a reluctant bondholders' committee into a 77B proceeding and thereby force them under the observation of the Conservator which we propose to create by this bill.

So I think if this bill were passed that many of these committees that have operated for 5 or 6 years without making any attempt at reorganization would find that they had one or two or three bondholders with a thousand dollars worth of bonds, would walk into court with the confidence that a Government agency would protect their rights and force those reluctant committees into a 77B proceeding.

So while it has been said that the peak may have been passed in the 77B proceedings, I know for a fact many bondholders who distrust and have good reason to distrust the operations of the committees to whom they have signed away all of their rights, and who, the minute a Government agency is created that will supervise their rights, will go right into court, and not only in my own State but in other States, with their small amounts of bonds and bring about a 77B proceeding. While I did not go back and attack any committees that are not in 77B proceedings, the very passage of the act would give that weapon to the bondholders which they have long sought which would give them Government protection in their rights and an impartial and neutral Conservator at no expense to them. selves who will protect them through a 77B proceeding.

Mr. MICHENER. But there have been some bondholders' committees that have rendered splendid service, have there not? Mr. O'MALLEY. There is no question about that.

Mr. MICHENER. And they have done good work for the bondholders because they have not reorganized, and the securities have gone up and bonds have gone up. I know of concerns not reorganized but have they been forced to reorganize, as the bank was forced to reorganize, they would have been out of pocket a great deal. That is true of many banks that have not reorganized.

Mr. O'MALLEY. That may be true.

Mr. MICHENER. Take one Detroit bank; how much did that bank pay? Was it 87 percent or 97 percent?

Mr. WILLIAMS. The last one paid 70 percent but has prospects of much more.

Mr. MICHENER. They will pay around 90 percent.

Mr. WILLIAMS. The Guardian has paid 87.5 percent, and the reorganized corporation into which we put it will result in almost 100 percent.

Mr. MICHENER. And, as it developed, they ought never to have been closed.

Mr. WILLIAMS. That is subject to a good deal of argument.

Mr. MICHENER. But they were compelled to do something and to accept the conditions as they were then. I know that double assessments were paid by many State banks where the bank was closed and not permitted to open; but if they had been permitted to continue they would have paid out every dollar; but they were reorganized. Mr. WILLIAMS. Those to which you referred could not have continued, because they were insolvent.

Mr. O'MALLEY. In the manufacturing field there is no question but that there have been some good ones that have not gone into 77B proceedings but that have gone on, and as conditions in business got better they have been able to get a better recovery for their bondholders and stockholders. And in the real-estate field I do not think we have a dozen cases where a long continuing committee in charge of the property has done a good job for the bondholders. It may be true in manufacturing that committees by prolonging the reorganization have brought about a better recovery. But, as the record will show, they have not done it in the real-estate field. What we are primarily concerned with in the real-estate field is the fact that the Conservator will have some way to present to the court the real facts about this reorganization.

All I wanted to bring to the attention of the committee was that after a very careful study of all of the possible departments that could handle the administration of this bill, we were unanimous in our belief that the Comptroller's office should handle it if the bill is passed.

Mr. CHANDLER. I see John Gerdes is in the room. Have you had an opportunity, Mr. Gerdes, to look into this matter?

STATEMENT OF JOHN GERDES, NEW YORK

Mr. CHANDLER. Will you please state your name and address for the record, Mr. Gerdes?

Mr. GERDES. My name is John Gerdes, lawyer, New York City. Mr. Chairman, I had an opportunity about 10 minutes before the hearing started this morning to glance at this bill. But I am not prepared to talk about it in detail. However, I would like to give my views on the general proposition.

We have heard a great deal of discussion this morning from the Comptroller's office as well as from the members of the Sabath committee regarding good work which has been done in the reorganization of banks. I concur thoroughly in their statements about the effectiveness of the work which has been done. But it seems to me that in that situation you face an entirely different situation than you do in the situation which confronts us in this proposal.

Referring to the banking situation, perhaps the only other analogous situation where you have anything that is similar to the proposal here is in the case of the railroads and the Interstate Commerce Commission's relation to the railroads. In both of those cases you

are dealing with a situation where you have an organization thoroughly familiar with the operations of that particular line of activity, an organization which has control over the activities of these corporations, even prior to the time when they get into 77B, and where as a result, as soon as they get into difficulties, you have an adequate knowledge not only about the technical problems which are involved in the continued administration of the business but you have an actual knowledge in many cases of the actual problems of that particular debtor itself. When it comes to applying that type of organization to the situation which confronts us here, we find there are very radical differences.

The country has not yet adopted as a public policy, and the decision of the Supreme Court in the N. R. A. matter seems to me to indicate that under the present Constitution it is not contemplated that there should be regulation of private business prior to difficulties, as a result of which you have a situation where, when a concern gets into difficulty, you would have an agency-and I do not care whether it is the Comptroller's office or a separate agency-but you would have a new problem presented.

It has been stated here that the prime purpose of all this mechanism is to assist the court to deal with this matter as an administrative matter and to present the situation rapidly to the court; and in that way you would facilitate the progress of a reorganization.

It does not seem to me that that would result, because it seems to me all that we are doing here is to introduce a new agency on top of all of the existing agencies. This does not propose to do away with any of the mechanisms which now exist. It proposes to build a new mechanism, and it means you have to delay until this new agency becomes familiar with the problems of the particular industry and with the problems of the particular concern which is now in difficulties. If you wait for that you will get additional difficulties, additional expense, and additional delay.

Much has been made of the comparison of the percentage of costs and collections. There again it is perfectly obvious that there ought to be a big difference. In the case of a bank you have constant supervision by the banking department. As soon as there is the least evidence of financial difficulty the banking department immediately forces the concern into liquidation. You do not have that in the case of a private organization. In the case of a private organization it drifts and drifts along, and it is bound to be in a much worse financial condition when it finally goes into 77B than the bank is when it goes into the Comptroller's office. So you are bound to have a much larger percentage of recovery in the banking situation than in the case of an organization such as you would have in the typical 77B situation.

Let me make clear that I concur thoroughly with the findings of the Sabath committee and the other people who are familiar with what is happening here, that we have had many evils develop as a result of the operations of 77B so far. There is no question about it. There is no question but that an honest and sincere effort must be made by everybody in order to eradicate some of those evils. The only question is as to the proper method of eradicating those evils.

It seems to me that what this proposes is the substitution of a bureau for the functions of the courts. To a certain extent the courts