Mr. DEMPSEY. Yes. Mr. BUSBY. What are the names of some of the organizations that you represent? Mr. DEMPSEY. Well, I will give you the full name to-morrow morning. I only represent one, and I will give you the full name of this security owners' association. Mr. BUSBY. Well now, is it your idea that this legislation should be designed to assist any sort of stock investment concern, whether it be an insurance company or an investment trust company or some other form, in trying to peg the prices of stocks at any point on the security market? Mr. DEMPSEY. That is not my understanding of the purpose of the bill at all. Mr. BUSBY. What is your object and where would you begin with legislation for relief for the organization you are representing, to try to fix the values of the properties they hold? Mr. DEMPSEY. I would not seek to do that, and it would be utterly impossible for me to do that, and I am not advocating anything of that kind. Mr. BUSBY. Will it not be impossible for you to fix any of the prices other than that which the public to-day fixes when these securities are listed on the New York and other exchanges? Mr. DEMPSEY. Well, it would seem to me that this board of directors would sit down and they would have placed before them the full balance sheet of, for instance, a railroad corporation Mr. BUSBY. Yes. Mr. DEMPSEY. Which would apply for a loan, and they would consider not the stock prices, for instance, of to-day or yesterday, but what the stock prices had been over a period of years, for instance, 10 years; and they would take the average value during that time, and they would take the earning value, during the same period or perhaps a very much longer period. Then they would take the cash position, and they would take the entire capital structure, the issue of stock, the issue of bonds, the cash on hand, and the balance sheet, every item of it. Mr. BUSBY. How much would they vary from the market prices on the exchange? Do you have any idea of what per cent they ought to vary, or whether they ought to be Mr. DEMPSEY. I should think that, if you considered it, you naturally would consider it not to-day, but consider it for a reasonable period, so that you would take in the prosperous as well as the depressed times, and then you would reach a basis for the period as a whole, on both the earnings and the quotations, which would be reflected from the earnings, and that would be quite different from the immediate quotation. Mr. BUSBY. All right, now; what kind of securities-just the railroad securities which you are discussing-are you referring to? Mr. DEMPSEY. What I had in mind at the moment was railroad securities; yes. Mr. BUSBY. Do you have any amusement shares like R-K-O or Radio or Fox Film or any of that type of very extensively issued shares in mind? Mr. DEMPSEY. No. Mr. BUSBY. Do you not know that your proposition would not work on them; that you would have to exclude them specifically if your idea was put into operation? They are not worth anything to-day, although two years ago they made tremendous earnings. Mr. DEMPSEY. I do not understand that the people I represent are interested at all in that, so I have no Mr. BUSBY. I know that. Mr. DEMPSEY. So I have no knowledge what effect it would have upon them. Mr. BUSBY. Would you specifically exclude them from the plan? Mr. DEMPSEY. No; I do not think that is necessary. Mr. BUSBY. They had good showings two or three years ago, which were three or four times the value of the stock at the present time of some of them. Mr. DEMPSEY. Well, I think that you are going to constitute a board, like a board of directors of a bank, and I think they will be able to judge of the situation as a whole with regard not, for instance, to the railroads alone, but with regard even to the companies that you suggest, the film companies. I think they would be able to form a reasonable judgment as to whether a company of that kind. if it applied for a loan, should be granted it. Mr. BUSBY. Do you believe that the market prices of these stocks and other securities, as shown by the New York exchange and other exchanges, is not the fair value of them at the present time, in the light of their future earning possibilities? Mr. DEMPSEY. Well, I Mr. STRONG. The Comptroller of the Currency has just announced that in the examination of banks, not the stock-market values of securities, but the intrinsic value of securities, shall be considered. Would not that be the same? Mr. DEMPSEY. Yes; I think the same answer will apply to that. Mr. GOLDSBOROUGH. That is for the purpose of keeping the banks from failing. Mr. DEMPSEY. I think I can give the Congressman the same answer. For instance, I am told that first preferred American Super Power of $100, par value, paying 6 per cent is selling at about 56, and I am told that the cash on hand alone and available for that purpose is very much more than sufficient to retire it, yet it is selling at 56 cents on the dollar. The CHAIRMAN. What is that? Mr. DEMPSEY. American Super Power, first preferred; not preferred, but first preferred. M. BUSBY. I hear of a lot of those, but I buy them and they go down, and finally they go into the hands of a receiver. That is trade talk in here. Mr. DEMPSEY. My experience with that last statement is that one of the largest business men in the United States, who invested in it-that happened to be called to my attention last week-called my attention to that fact and said that he had just had an investigaion and the company actually had on hand more than enough cash to redeem its first preferred at par, and he bought at 57 and it sold the next day at 56. Mr. GOLDSBOROUGH. Suppose that an insurance company had securities of a market value of $800,000, and wanted to borrow $1,000,000, and this corporation decided the intrinsic values of those securities would permit that loan of $1,000,000. They could go right out in the market, take $800,000 of that money and buy the same securities back, and have $200,000 profit. Mr. DEMPSEY. Just state your proposition again. Mr. GOLDSBOROUGH. What I said was this: Suppose you had Mr. DEMPSEY. As a matter of fact, as I understand it, no insurance companies will apply for relief, none that I know of, under this bill, and I have been in contact with various insurance companies. I understand they will not-they do not feel that they need relief and will not apply for relief. Mr. GOLDSBOROUGH. We will say a railroad company has some securities, the market value of which is $800,000, and they wanted to borrow $1,000,000, and this board thinks the intrinsic value of those securities is $1,000,000, and they loaned them $1,000,000, that railroad company can go right out and buy the same securities back and have $200,000 to put in their pockets. The proposition simply will not hold water as a business proposition. Mr. DEMPSEY. Let us see if that is a supposable case. I do not suppose any of us believe that the railroads are coming in here to borrow money to go into the stock market to speculate. Mr. GOLDSBOROUGH. I know, but Mr. DEMPSEY. The railroads are coming here to get money to meet their maturing obligations. That was proven before the Senate committee. I was present during all of the hearings before the holidays. They have $156,000,000 obligations maturing between now and the 1st of May. If they come in and borrow money, they are not going into the stock market to speculate with it; they are going to use that money to liquidate the debts that they must meet. Of course you could suppose they could play it on a faro bank or go over to Monte Carlo, but that would only be tried by a crook; and the men who are running the railroads of the country are substantial business men, who are in real difficulties and are asking for relief to meet the difficulties which must be met or the transportation facilities of the country will be crippled. I am not saying that this board will grant any loans for a greater amount to any railroad than the market value of the securities or up even to the market value of the securities. I just gave that by way of illustration, and it may never occur. We can not any of us tell just how these applications are going to be made. We do know it is going down to the Interstate Commerce Commission, so far as the railroads are concerned, for their approval; and I would suggest that their approval would be better than the recommendation The CHAIRMAN. Let me interrupt you. Have you got some more amendments besides the one you have mentioned? Mr. DEMPSEY. Yes, sir. The CHAIRMAN. Gentlemen, let us come back here with him in the morning and finish this up. He will not take more than another half hour. Mr. BUSBY. That is all right. The CHAIRMAN. I think we should do that. We can not work here all night. We are glad to hear you, Mr. Dempsey. We will adjourn until to-morrow morning. (Thereupon, at 5.10 o'clock p. m., the committee adjourned to tomorrow, Thursday, January 7, 1932, at 10.30 o'clock a. m.) RECONSTRUCTION FINANCE CORPORATION THURSDAY, JANUARY 7, 1932 HOUSE OF REPRESENTATIVES, COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The committee met at 10.30 o'clock, a. m., in the committee room, Capitol, Hon. Henry B. Steagall (chairman), presiding. The CHAIRMAN. Mr. Dempsey, our esteemed former colleague of New York, is present this morning and I am sure the committee will be glad to have him proceed with his statement. STATEMENT OF HON. WALLACE S. DEMPSEY, REPRESENTING NATIONAL ASSOCIATION OF OWNERS OF RAILROADS AND PUBLIC UTILITY SECURITIES (INC.), INVESTMENT BUILDING, WASHINGTON, D. C. Mr. DEMPSEY. I think all the gentlemen who were present last evening are present now, so I will not restate what I said then. Of course, that is part of the record. I have but very brief and very slight additional amendments to suggest. Under the same section 5, paragraph 6, in the third line, I suggest that instead of "recommendation" we substitute the word approval." Mr. GOLDSBOROUGH. On what page is that? Mr. DEMPSEY. I am reading it from a copy of the New York Times. Mr. STEVENSON. Paragraph 5, section 5? Mr. DEMPSEY. It is paragraph 6, of section 5. Mr. GOLDSBOROUGH. The sentences are not paragraphed here. Mr. DEMPSEY (reading): Within the foregoing limitations of this section, the corporation may also, upon the approval Mr. STRONG. Line 14, page 22. of the Interstate Commerce Commission, make loans to or, And so forth. Now, that would stand as though the initiation of the loans should come from the Interstate Commerce Commission. As a matter of fact, these corporations are to apply to the board of directors to be appointed under this bill, and they will refer the question of the loans to the Interstate Commerce Commission for their report. Mr. STRONG. You want to insert the word "approval"? It is lready in the bill. 95808-32-10 143 |