That part of the resolutions pertinent to the present hearing is as follows: Whereas the financial integrity of the railroads as a whole is so menaced in the present unprecedented depression as that a continuation of adequate railway service, without some governmental assistance, is clearly impossible; Whereas there are 542 Class II and Class III railroads (commonly called short lines) doing a line-haul service in 48 States within the United States, and such railroads, on account of their short mileage, are suffering more acutely than the larger roads from automobile competition; Whereas the short-line railroads are serving many communities not served by other lines and, as a class, originate more than one-fifth of the freight traffic handled by the railroads of the country, therefore are indispensable not only to the localities which they directly serve but also as feeders to the major earriers; Whereas in most instances the stocks and bonds of short-line railroads are owned by people local to the territory who are the most seriously affected by the decline in business of these short lines, as well as the general commercial and industrial depression: Now, therefore, be it Resolved by the American Short Line Railroad Association in annual meeting assembled: (1) That this association earnestly request the President of the United States to consider, as a part of any plan he may have for rehabilitating the credit of the railroads, a recommendation that Congress, as an emergency measure, adopt and enact a law along the same lines as the provisions of section 210 of the transportation act of 1920. This section 210 provided a revolving fund for relief of the railroads during the reconstruction period following the war, and, in our opinion, the present act, H. R. 5060, with like intent, provides a fund for the present emergency. Mr. MCFADDEN. Mr. Jones, you are not suggesting any amendment to the bill, are you? Mr. JONES. No; my fear, however, is this: I hate to suggest an amendment. This is a relief bill, and time is the essence of its performance. Our association is in harmony with the purpose and intent of this legislation. My fear is that the patients, many of them, will be dead before you can administer the medicine. The amendments that were offered yesterday to this bill will require thorough investigation by the Interstate Commerce Commission, which is probably the best commission to make the investigation. Mr. MCFADDEN. You mean the amendments that were suggested here by Mr. Meyer? Mr. JONES. Yes; and then the Interstate Commerce Commission makes its recommendations and gives its approval. I know, under the transportation act of 1920, paragraph 210, when the Interstate Commerce Commission made its recommendation or approval, the Treasury was directed to make the loan. Under the bill as it is now suggested to be amended by Mr. Meyer, the report of the recommendation of the Interstate Commerce Commission, and the approval of the Interstate Commerce Commission, must certainly then be thrown back to the directors of———— Mr. MCFADDEN. The Reconstruction Finance Corporation? Mr. JONES. The Reconstruction Finance Corporation, and they, in turn, go over the whole thing again; and in addition to the exhaustive investigation that the Interstate Commerce Commission may have made, they have the burden, if it is a burden, of satisfying themselves that this corporation could not raise sufficient funds. through banking channels or through the public; and then, having established that, the railroad corporation is compelled to satisfy the directors that it is financially able, through its operating income, to take care of the loan within the short period of time. In other words, I fear that when they get through with that, get through with proving that they are qualified under the act, they would swear themselves out of court, because the committee will say, "If that is all true, you do not need any money.” Mr. MCFADDEN. Your reference to delay is not the delay in the passage of the bill? Mr. JONES. No; yet I am making no suggestion of amendment to it, because I can recognize that, if I were a director on this Reconstruction Finance Corporation, I would hesitate to take the say so of some other inquisitorial body as binding on me in lending this money; I would want to have something to say about where the money should go; and I think the need is to get the bill out quickly and into the hands of the administrators, so that those who are in need, and there are many in need, not only because of the railroad situation, but because of the banking situation that holds their securities. May I say that there is this difference between the securities that are held, that securities of these short-line roads, and the securities of the large trunk lines, Class I roads. Most of the securities are held locally, of these short lines, by people and banks and towns that are served in the community into which it goes or they go. Mr. STEVENSON. I may state frankly that the bonds that you name on your Piedmont road are held by your local banks and your local people as a matter of civic pride; and if those securities are affected locally, the whole local community is affected. Mr. MCFADDEN. Let me ask you one question: You are familiar with the burdens of the Interstate Commerce Commission. Is this additional burden which is to be imposed upon it going to necessitate an additional organization for them to handle it? Mr. JONES. I do not think so. Mr. MCFADDEN. You think that they have the equipment necessary to deal with the matter promptly? Mr. JONES. Their annual reports that have to be made to them periodically, and the matter that is on file-I think very little time will be needed, and I hope it will work out to this extent-that when they make their examination and their recommendation and the necessary approval of the loan, that the credit corporation will act quickly on their recommendation and not have a further delay, even though they may have a right to make the investigation. Mr. STEVENSON. Now, when they loan to these corporations that have mortgages on them, and issue mortgage bonds, what security can the corporation get from these little railroads when they have already been mortgaged for more than they are worth? Mr. JONES. Well, as amended by the Senate, I think they have answered that question. Their prospective tonnage and their profits on their freight; and I take it, under this bill as amended, if they can not show that, they are not going to qualify for the loan. Mr. STEVENSON. That is kind of like taking a lien on a cotton crop in January that is not planted until April. Mr. JONES. Yes; I am not one of those who believe that every one of these railroads are going to get money out of this fund. Mr. STEVENSON. We had that question up yesterday, and Governor Meyer seemed to intimate that the big railroads, who were contem plating getting this, I suppose, would give deeds of trust and issue more bonds, if they did not have any bonds in their treasury. Now, the little fellows are usually up to their necks? Mr. JONES. Yes. Mr. STEVENSON. I owned one of them myself. Mr. MCFADDEN. Of course, it might be said that this corporation has an opportunity, independently, to give relief to these interests locally. You see, the securities are held by the local banks. If a local bank held any of these electric securities, or short-line securities, and they needed to be helped, they have access here to this corpora tion. Mr. JONES. Yes; if you consider that they are now fully bonded, a railroad, in order to get relief, would have to have another issue of bonds. Mr. STEVENSON. It would be in the way of a loan from a bank, with these securities as collateral? Mr. JONES. Yes. Mr. STEVENSON. But the railroad itself would have to pledge its assets, or give a new mortgage, it strikes me. Mr. JONES. Yes; or can you satisfy the commission that the earning power and tonnage on the present rate structure is sufficient for them to go along and repay this loan? Mr. STEVENSON. Yes. Mr. MCFADDEN. Would you think, as Mr. Stevenson suggested, that if a short-line railroad went out into a community which it served, and found, in January, there were going to be 10,000 bales of cotton raised and harvested the next fall-that that fact would be sufficient security for a loan to a short-line railroad? Mr. JONES. I would rather not answer that question, because I am not a director of the Credit Corporation, and that is a matter up to the directors, I think; it depends on how they feel, I think, about cotton. Mr. STEVENSON. Well, now, without prejudicing the committee in any way against the inclusion of the railroads, that is one of the difficulties we are up against that is not so much due to the financial depression. I think the illustration that Mr. McFadden uses illustrates the situation. There have been 35,000 bales of cotton ginned, which must move in my county this year, and I will venture to say that 25,000 bales of it at least have been moved by trucks. The facilities are greater to sell them in centers like Charlottesville and Gastonia and distribut ing points among the mills, and the buyers will buy it all day on the street, and they will load it on trucks, and the trucks move at night, and they draw against the stuff on Charlottesville or Gastonia banks, and the cotton is at the warehouse of the mill the next morning at daylight, and they have got the money; whereas if it moved by railroad it would take two days to get it there. That is the trouble at this time, that is killing the railroads, but I do not know how to help it. Mr. JONES. Yes; it is crippling the short lines more than it is the trunk lines, because they have keener competition with the motor transportation. If that is all, gentlemen, I thank you for the courtesy of this hearing. The CHAIRMAN. We thank you. Gentlemen, we will hear Mr. St. Jean. STATEMENT OF GEORGE ST. JEAN, PRESIDENT FEDERAL INTERNATIONAL CORPORATION Mr. ST. JEAN. I am president of the Federal International Corporation, which is The CHAIRMAN. What? Mr. ST. JEAN. The Federal International Corporation, which is a research corporation organized by a number of the leading industrialists; we specialize in export credits. Mr. GOLDSBOROUGH. Where are you located? Mr. ST. JEAN. New York City, 120 Broadway. Mr. BUSBY. Did I not discuss that project with you some time? Mr. ST. JEAN. You remember last year another party introduced Mr. BUSBY. I talked with you personally, and told you I thought the Banking and Currency Committee was entirely against your proposition. Is this the same one? Mr. ST. JEAN. No; we have not asked for the introduction of any bills, because we felt that the President's message, in asking that the Reconstruction Finance Corporation should give aid to the American exporting agencies Mr. BUSBY. Let me get you identified a little bit further. Your research organization has to do with presenting to the American public international securities, that, investments of a type that have to do with American and with European securities, and with other foreign securities, more than it pertains to the local situations. Mr. ST. JEAN. No; we are not interested in securities in any way at all. Mr. BUSBY. Well, you recommend them and your research is toMr. ST. JEAN. No; we are interested in financing commodities, whether merchandise or raw products and commercial credits. We have nothing to do with Mr. BUSBY. Similar to Mr. ST. JEAN. For the export of American products, based on the credit of the American exporter, is what we are interested in. Mr. BUSBY. I have some knowledge of your plan. Let me ask you what you think this bill has to do with that kind of organization, or any clause that would be applicable to your organization. Mr. ST. JEAN. Section 5 (a), as you will find it reported in the Senate bill, as it stands now, is the one that I want to talk to you about, which gives this Reconstruction Finance Corporation authority to accept bills for a maturity of time of acceptance of not more than 12 months. Mr. BUSBY. Do I understand it applies to domestic acceptances altogether, or not? Mr. ST. JEAN. No; those are on export bills. Mr. BUSBY. Now, foreign acceptance are the things you are interested in. Mr. ST. JEAN. No; export acceptances. I am not interested in transactions between two foreign countries. Mr. BUSBY. You are interested, though, in selling obligations that are incurred in this country by nationals of other countries? Mr. ST. JEAN. No. Mr. STEVENSON. I suggest we let the gentleman make his statement. The CHAIRMAN. He called attention that he was interested in section 5 of the bill, and I told him we would be glad to hear him express himself. Mr. BUSBY. I just wanted to identify him. Mr. ST. JEAN. The process of exporting either raw products or manufactured products from the United States requires than an American exporter would continue to carry the credit until those articles have been placed in the hands of the person who is going to consume them, use them, and pay for them. That process requires financing over a period of shipment, the period of distribution abroad through the various agencies, until they reach the final hands of the consumer. Depending upon the character of the articles sold, it requires, in these distressed days, when the depression has been so lengthy, a cycle of consumption anywhere from 9 to 18 months. On the average, 12 months is insufficient. Prior to the depression, prior to the slowing down of the machinery of consumption, that process could take place ordinarily within 6 months, with regard to most of the products of this country; and we are in the face of an emergency, when even our domestic credits have been extended beyond the normal cycle of 90 days (as is contemplated by the Federal reserve act) to 6 months, as the merchants will tell you Mr. MCFADDEN. May I ask you, Mr. St. Jean, a question? Mr. MCFADDEN. I am supposing that what you are suggesting, so far as acceptances are concerned, we will say, is an acceptance on a shipment of wheat originating from Duluth, to Liverpool, and the delivery of that wheat into the elevator at Duluth. Mr. ST. JEAN. And even until it was sold for manufacture; it would go even beyond that. Mr. MCFADDEN. These acceptances would follow it? Mr. ST. JEAN. Until the flour had been milled and the flour had been sold and the bill liquidated; and cotton that was shipped to Germany Mr. MCFADDEN. Say the cotton was shipped from Galveston to Manchester. Mr. ST. JEAN. The same thing applies. Mr. MCFADDEN. Until it was manufactured and shipped back into the United States in the form of towels, and so on? Mr. ST. JEAN. It would. Mr. FADDEN. They would cover these shipments all the way through? Mr. ST. JEAN. Yes, sir. Mr. MCFADDEN. From what source are you going to get the money to do this? Mr. ST. JEAN. It will be necessary, under section 5 (a), when these acceptances have been made by the Reconstruction Finance |