Mr. STRONG. Do you have any evidence of that, that he wants to rob everybody through the banks? Mr. ST. JEAN. No, I said route. I understand he drew the bill; Mr. Mills said he did not, but Mr. Meyer did not deny it. Mr. Meyer had the intention that every application issued by the reconstruction finance corporation would be eligible for purchase and rediscount at the Federal reserve bank. The Senate committee saw fit to strike out all reference to the Federal reserve for the purpose of rediscounting in the Federal reserve. The idea of robbing everybody through the banks became more or less obsolete and the Senate decided so far as the export business was concerned they would put in this provision for making acceptances, and permits it to lend its credit for purposes of financing every necessary industry. Now, gentlemen, if you want to kill the export business, leave this out. If you just want us to go ahead and forget all of that vast effort we have made, and millions of dollars we have spent in building up this trade you can do it no quicker than by leaving it out of this bill. Mr. MCFADDEN. It would be possible if you were popular enough with the shippers engaged in the export trade to control all of that export business through this channel, this acceptance business, if you were clever enough to do it and the business should all be done through this one institution. Mr. ST. JEAN. We seriously doubt that. Mr. MCFADDEN. I know, but by this vehicle you could handle all the acceptance business, governed by the export business in the United States, couldn't it? Mr. ST. JEAN. I hardly think so. It is limited to $500,000,000 to do that. Mr. MCFADDEN. But the $500,000,000 is largely a constant turn over. Mr. ST. JEAN. These are long credits and a matter of turnover in 12 months, so that you will only have one turnover a year. Mr. MCFADDEN. What is the total amount they could accept? Mr. MCFADDEN. $500,000,000 at one time? Mr. ST. JEAN. Yes; and you would get one and one-quarter turnover on the proposition. Mr. MCFADDEN. What would be the total volume in actual operation that they accepted? Mr. ST. JEAN. About $750,000,000 at the most. Mr. MCFADDEN. That would be limited? Mr. ST. JEAN. Yes; and then this credit would put a lot of people to work. Mr. STRONG. This bill would be quite a help to your own business? Mr. ST. JEAN. I am only advisor. I have no business. Mr. STRONG. But business for others; you are fixing it whereby they will come to you to consult you. Mr. MCFADDEN. The business that is being done through the operation of this business is the class of business being done by some of the banks in New York. Mr. ST. JEAN. They were before June 20, before the moratorium. Mr. MCFADDEN. It is the same kind of business that has resulted in this bill, the buying of acceptances in Germany, isn't it? Mr. ST. JEAN. No; it is essentially different. Mr. MCFADDEN. I am not speaking about the class of paper but the trade represented. Mr. ST. JEAN. The trade was financed by different machinery. Mr. MCFADDEN. You are financing that same trade through new machinery? Mr. ST. JEAN. I am suggesting that the reconstruction finance corporation finance it in a manner I conceive to be the only manner in which it can be done. Mr. MCFADDEN. It is the same trade but different machinery? Mr. ST. JEAN. It was trade financed by different machinery prior to the moratorium. Mr. MCFADDEN. Yes. The CHAIRMAN. What Mr. McFadden is asking you is in the effort to handle that trade heretofore they got into trouble with Germany? Mr. ST. JEAN. They took foreign names and let the American go. They were financing them in the wrong way. The CHAIRMAN. You think you can offset that by this? Mr. MCFADDEN. Mr. St. Jean, there are frozen acceptances in Germany in the Wiggin report estimated to be in the neighborhood of $1,250,000,000, and it was stated $540,000,000 of those were held in the United States. Of course, since the committee, however, under the Young plan, they found those acceptances were $2,800,000,000. I have seen no official statement to revise the total of that paper held in this country since that report was made. My understanding is, whatever that amount is, whether it be $540,000,000 or $600,000,000 as stated before the finance committee last week, that amount is largely unsecured acceptances, is that right? Mr. ST. JEAN. No; may I explain this? Mr. MCFADDEN. I understood you to say last evening that was the situation. Mr. ST. JEAN. In my judgment, my composite information, from no reliable, but from general sources, of that $600,000,000 of acceptances that were originally accepted, about $400,000,000 of it is unsecured. Now, let us go back to what you say about the Wiggins statement. That $2,400,000 is made up of all kinds and varieties of shorttime securities extended to Germany by bankers all over the world, and it includes a British loan, and also includes acceptances in the British bill market and the Dutch bill market and the French bill market for Germany. That is largely for the purpose of showing how much capital Germany got out of the rest of the world to get back on her feet. Mr. MCFADDEN. What is the amount of this class of credits that were in the United States; I understood you to say last night it was about $1,100,000,000; is that approximately the amount? Mr. ST. JEAN. I think it is between a billion and $100,000,000 of all kinds of short-time credits, whether made directly to Germany or only discounted at banks which is loaned to Germany Mr. MCFADDEN. But, the part which is held by American banks Mr. ST. JEAN. Or foreign short-time credits, because a good deal were loaned to finance other nations, and they loaned to Germany. 95808-32- -12 We have about $1,000,000,000 to $100,000,000 of foreign short-term credits. Mr. MCFADDEN. That represents our report? Mr. St. JEAN. 40 per cent. The CHAIRMAN. 40 per cent of the total? estimated in the Mr. ST. JEAN. 40 per cent of that two billion and odd. Mr. BRAND. What do those acceptances sell for? Mr. ST. JEAN. The rediscount on acceptances is now from 2 to 4 per cent. Acceptance money gets about 4 per cent. Mr. BRAND. Suppose I had some acceptances and wanted to sell them, what could I get for them? Mr. St. JEAN. On 12-month acceptances you would get 952, I would assume. Mr. BRAND. That is a pretty good thing to invest in. The CHAIRMAN. How great is the necessity for the undertaking of this service by this corporation? Mr. ST. JEAN. Without that service being undertaken by this corporation, you will find American export commerce will dwindle to nothing. The CHAIRMAN. Are you weighing your words when you say it would dwindle to nothing? Mr. ST. JEAN. I do not mean to zero, but I mean no considerable amount. Here is the danger that I think you are facing there, this country depends for maintaining its balance of trade on two things, or balance of trade, I mean in order to keep an international account balance. We have to collect money on the goods we export in order to have an exchange due from other countries and we have to be able to sell the goods we manufacture in order to have exchange due from other countries. Americans like foreign goods and we are always importing things. Our import business increases and our export decreases. This is eliminated from this bill, and in my judgment, we are headed toward the thing that England got into as a result of its prosperity during the Victorian era when England thought she could sit back on the strength of the $24,000,000,000 of foreign loans so that she could allow the export business to go wherever it pleased. If by her trade and continuing to balance her budget to a very large extent, regardless of the war, in my opinion, England would not be in the position that she is in to-day whether she had ever borrowed all of the money from us during the war because she did not keep her exports up. The CHAIRMAN. How badly are the present agencies for furnishing this credit broken down? Mr. ST. JEAN. To this extent, that on June 22, two days after the moratorium, a foreign sales manager in a large automobile company called me up and said, "I have 14 distributors abroad and have secured through the banks guaranties for them in Germany, United States, and all over the world. I have got to give them agreements assuring them of the shipping and to give them terms.' I said, "What are your terms?" He said the terms were a bank or banker opened credit with a New York bank, and the New York bank notified the factory through the sales manager that the credit had been established against which he could ship his parts. Now, then, that was actual credit, the first transaction. He did not use acceptances for them because the banks or bankers had guaranteed the draft with the documents attached. Now, that was the first step. We found out the next step was with this foreign bank, then through a New York correspondent or Chicago or Boston correspondents had reimbursements guaranteed on the basis of which 90-day acceptances are sold to finance distribution of automobiles in the trade territory and then it took a third 90 days which was gotten through a third acceptance in order to keep those cars off the dealer's floor until he put them in the hands of the customer and sold the installment notes and got discount on them. In this case those were canceled by the Swiss bank. Mr. MCFADDEN. Which Swiss bank? Mr. ST. JEAN. The Swiss federal. The bank said that if the factory was able to get any American bank which would care to give it credit for the whole 9 months it was willing, but said on the risk that it was not going to take a chance of putting its head in the noose, nor was it going to take 9 months on the likelihood of being called upon to pay in 90 days. Mr. PRALL. I would like to ask about this export trade, part of it is due to general conditions. Mr. ST. JEAN. Undoubtedly it has something to do with it. Mr. PRALL. Then it is not all due to the methods of acceptances and that sort of thing. You said if we did not include this in the bill the export business would practically fail entirely. Mr. ST. JEAN. Yes; but the fact remains you can't sell goods without being able to sell on credit. Mr. HANCOCK. Mr. Chairman, I would like to direct your attention further to section 5(a) in connection with this amendment. Are you in a position to express an opinion as to the present market value of $1,000,000 in foreign acceptance bills held in American banking institutions! Mr. ST. JEAN. I do not know, because it is so changed in form. I do not know who the indorsers are. They have changed indorsers around so that you can't tell who is on them any more. Mr. HANCOCK. What, in your judgment, would that amount of acceptances and bills sell for to-day? Mr. ST. JEAN. Well, in order to know that, Mr. Hancock, I would have to know who the maker was. Mr. HANCOCK. What is the general impression in New York as to the value? Mr. ST. JEAN. Let us assume this to be the measurement. I think the last quotation on the Deautche Bank's 6's due in 1932 was 75. Mr. HANCOCK. Would you say they had a market value to-day of $750? Mr. St. JEAN. If the names on the paper are as good as the Deautche Bank I would say that that would be a fair criterion. Mr. HANCOCK. Now, under section 5(a) could the Reconstruction Finance Corporation credit be used to liquidate present outstanding foreign acceptances and bills held by new banks or would that credit apply to only new bills and acceptances? Mr. ST. JEAN. It applies only to new bills. Mr. MCFADDEN. Let me explain what is taking place to-day in regard to those acceptances and bills. When an acceptance matures it is taken up by a new acceptance. The CHAIRMAN. Will you pardon me a minute? Mr. MCFADDEN. Yes. The CHAIRMAN. I am not sure, Mr. Hancock, that my answer to you was accurate. I had read this hurriedly with reference to the very question you raised, but upon rereading it I am impressed there is an error in my answer that I never intended. Let me read: The corporations authorized and empowered to accept drafts and bills of exchange drawn upon it which grow out of transactions involving the expiration of goods actually sold or transported for sale and in process of shipment to buyers in foreign countries. Now, there are two kinds. I was under the impression that it applied to those only in process of shipment. It says, "which grow out of transactions involving the exportation of goods actually sold." Your question becomes very pertinent under this language. Mr. HANCOCK. The thought I had in mind, Mr. Chairman, was just this: That the credit of this corporation under this provision could be used to take care of renewals of the old acceptances. The CHAIRMAN. It could under this language. Mr. ST. JEAN. There is a rather vicious practice of shipping goods on consignment and I think what they had in mind was covering a bona fide sale in order to make it eligible to be financed by this corporation. I do not think anyone ever put that construction on it in the first place. The CHAIRMAN. It does say transported for sale and in process of shipment to buyers in foreign countries. Mr. BRAND. Which grow out of transactions involving the exportation of goods actually sold. It does not say when they had been sold or anything else. It is just a question of whether they were actually sold or not. Mr. ST. JEAN. If there is any doubt, Mr. Chairman, put in “sold " after date of enactment of this bill. The CHAIRMAN. Yes; that is a good suggestion. Mr. ST. JEAN. I am sure it was intended. The CHAIRMAN. We are not questioning the gentleman's understanding of the intent. I am thinking of the final provisions of this language which we are going to employ if it is passed. Mr. MCFADDEN. I want to make this observation since we have started this particular discussion to observe that the banks in the United States which have been handling this acceptance business incident to our export trade in financing Germany have experienced considerable difficulty with them, and now find those frozen credits that they have granted on acceptances or credits thereto in the banks to the extent as Mr. St. Jean says of $1,100,000,000. It is evidenced from the trouble that these banks are experiencing now in getting them paid. They know they can not be paid, if they take long-time credit of some kind, it is no matter whether it is 1 year or 10 years in order to get their money out of Germany which they have loaned through this channel of financing the acceptances and Mr. St. Jean also explains that $400,000,000 is unsecured, and about $200,000,000 is secured possibly and possibly not, we do not know. It is very evident that the banks are not going to continue operating on this basis, |