We all know the power of debt to control; and if, in an emergency like exists to-day, the Government is called upon to put up so-called blood money, is it going to leave these institutions entirely in the hands of the present management, or is it going to dictate the control of these institutions that are being taken over?

Mr. GOLDER. It calls for payment, though, in two years.

Mr. MEYER. There is no control contemplated, other than the control which already exists through the Interstate Commerce Commission, which is prescribed by the law passed by the Congress.

Mr. MCFADDEN. I am referring to the power that we all know exists through the control of debt; that is a powerful influence of control.

Mr. MEYER. Of course, the money loaned by this corporation to the railroads would be a small part of the total debts. The railroad bonds now outstanding amount to some $12,000,000,000.

Mr. GOLDER. $12,000,000,000 of bonds and $8,000,000,000 of stocks. Mr. MEYER. The entire amount of notes or bonds that are involved in the contemplated financing would be very small, a very small proportion of the total bond debts of the railroads.

Mr. MCFADDEN. Might I also inquire as to the provisions of the loans to the insurance companies?

The CHAIRMAN. Just a moment, before you leave this. I understood, Mr. Meyer-I am not entirely familiar with this amendment and have not it before me at the moment. I do not understand that it is in your mind that this corporation would make loans to railroads without security.

Mr. MEYER. No.

The CHAIRMAN. And the sums they obtain on their notes has reference to their general operations?

Mr. MEYER. Yes.

Mr. MCFADDEN. Might I say one word there?

The CHAIRMAN. Yes.

Mr. MCFADDEN. I have noticed that in the last few days the Comptroller of the Currency has initiated, either by a statement or by a ruling, a liberalization of previous rules as regards the value to be placed upon the assets of national banks. In other words, the policy of making banks carry their securities at the market price has been changed, so that the banks can carry their securities at their actual value.

The CHAIRMAN. The book value?

Mr. MCFADDEN. And then the question comes up as to how you are going to determine what the actual value is. Heretofore I suppose the rule has been very general, because the banks were carrying their securities at the stock exchange list value; whereas, now, a new situation has developed whereby the new term of intrinsic value or book value or some other value is to be the rule.

I am wondering, in connection with the security that is to be taken here, whether the same elastcity is to prevail, or whether these loans that are made are to be secured on some other basis than that which has been known to bankers in the past as safe basis? It is extremely difficult now to arrive at values.

Mr. GOODWIN. Mr. Meyer, at the last meeting of the committee, I stated that the Minnesota State has organized what is known as a rural-credit bureau, patterned somewhat upon the lines of the Fed

eral land banks, loaning money to farmers upon farm securities. Under the provisions of this bill, would you consider that the State of Minnesota, operating its rural-credit bureau as a department of the State, or somewhat similar provision, can borrow money when it is in trouble?

Mr. MEYER. You asked me that question at the previous hearing. I told you I was not familiar with the organization of the ruralcredit bureau. I do not know how it is organized. That would depend on the law under which it was organized, which would be a matter for opinion of counsel as to whether or not it is a financial institution.

Mr. GOODWIN. Well, would you consider that a State-a ruralcredit bureau operated by a State ought to have relief under the provisions of this bill?

Mr. MEYER. I do not think you can generalize on that. The bill is drawn in a very broad way to cover the great financial machinery of the country. As to whether any rural-credit bureaus or organizations come under the law as drawn would depend upon the law under which they were authorized. I should think they probably would. I think they would, but I could not-you are now asking me on a technical legal matter, and I am not a lawyer; and even if I were a lawyer, I would not know how to answer that question unless the act of the State of Minnesota were examined.

Mr. GOODWIN. Under this bill, the board would be authorized to extend aid to Federal land banks?

Mr. MEYER. A land bank is a bank; a Federal joint-stock land bank is a bank, and the intermediate credit bank is a bank. If the Minnesota rural-credit institution were qualified under this law, it would be under "other financial institutions," the last in the list of institutions mentioned there.

Mr. STEVENSON. Is not that a department of your State government?

Mr. GOODWIN. Yes.

The CHAIRMAN. It would hardly be governed by this language if it is.

Mr. STEVENSON. It would not be covered by this.

Mr. MEYER. It may be organized in such a way under the Minnesota law-this land-bank system in the United States is organized under the Federal law in a way that makes it a bank.

Mr. STEVENSON. Yes; but if this is a department of the State Government, it is essentially a loan to the State. We had that all up when South Carolina used to run the liquor business, and we tested it out in the Supreme Court here, and they held it was a department, and it could not be sued.

The CHAIRMAN. Which department of the State does this come under, the department of agriculture?

Mr. MEYER. Sir?

The CHAIRMAN. Which department of your State does this come under, the department of agriculture?

Mr. GOODWIN. No; the department of finance.

Mr. MCFADDEN. May I also ask whether institutions doing a mortgage business, operating as a bank or trust company, are to be inIcluded in this?

Mr. MEYER. Financial institutions?

Mr. MCFADDEN. Yes; for instance, some of these institutions guarantee and sell mortgages; would these come under the provisions of this bill, would they, and could they get relief?

Mr. MEYER. I am inclined to think that they could.

Mr. MCFADDEN. Such institutions as the New York Title & Mortgage Co., which was assets of possibly $60,000,000, and possibly in excess of $1,000,000,000 of guaranteed mortgages outstanding. Other mortgage companies similar to that would be able to get relief?

Mr. MEYER. I don't know under what law they qualify; whether they qualify as financial institutions, or not. Building and loan associations

Mr. MCFADDEN. Take the one I have mentioned, which does a banking business in connection with its mortgage business, or did, and had depositors.

Mr. MEYER. That would be a bank, would it not?

Mr. MCFADDEN. Yes.

Mr. MEYER. It would be a bank.

Mr. MCFADDEN. But the main part of its operations would be to carry on the mortgage business; and I wonder whether an institution of that kind

Mr. MEYER. Well, of course, a great many banks were authorized by law-I think that you, yourself, introduced it in Congress-to invest 50 per cent of their time certificates in mortgages.

Mr. MCFADDEN. Yes. If a national bank can loan up to 50 per cent of value of property, it would, under the authority of this provision, be able to loan money on the mortgage? In section 5, it says, any bank," and I am wondering whether any bank which was doing largely a mortgage business would be able to get money from this proposed corporation?

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Mr. MEYER. You are asking me a question I can not answer, because I am not a lawyer, and I have not examined the charters of these institutions.

Mr. BRAND. It would clearly come under the term "financial institution."

Mr. MEYER. I do not know whether it would or not. Building and loan associations, of course, are specifically mentioned.

Mr. MCFADDEN. Would a bank, chartered under the State law, a bank chartered under the Federal law, to conduct a business such as I have mentioned here, be eligible to do business with this corporation and receive funds?

Mr. MEYER. The banks chartered under the Federal law, the national banks, and land banks, and credit banks, joint-stock land bank, as far as I know, would all be eligible. State institutions would be a matter for lawyers to pass on, whether or not they were organized as financial institutions, or whether they were not. The laws in different States, of course, vary very much, according to their laws of incorporation.

Mr. MCFADDEN. If these mortgage companies were organized as banks and were doing business, they would come under the language of this law?

Mr. MEYER. If they are banks, they are banks; there is not any use in calling it a mortgage business. If they are banks, they are banks; and many banks have loans on mortgages.

Mr. MCFADDEN. Is it your contemplation to make loans to insurance companies?

Mr. MEYER. They are mentioned here, and some of the larger insurance companies' heads were present in the Senate hearings, and I think they all agreed it was a good thing to have it in the bill. I think you were here at the hearing, were you not? The insurance companies have a good many applications-in fact, they have a great many applications for policy loans, and if they could borrow money under this authority, they might do it, in preference to selling securities or forcing the payment of a maturing mortgage, which would distress the borrower. They would want to relieve the pressure, and they would need it in case increases in policy borrowings had to be made. I do not think that any insurance company that was present testified that they expected that they would have to use it, on the outlook as at present; but on the other hand, I think they all agreed it was a good thing to have in the law.

The CHAIRMAN. Did not some representative of an insurance company state in the Senate hearings that some insurance companies felt that they had need for this legislation?

Mr. MEYER. Well, he said that he knew about-he could not speak for all of the insurance companies in the United States; but at the same time, Mr. Ecker of the Metropolitan Life was there, and he said he did not contemplate, as far as his company was concerned, having any need for it, but he thought it was a good thing to have in the law.

The CHAIRMAN. Let me ask you one question: Now, if I understand the language of the legislation and your interpretation of it, no loan will be made to anybody without security?

Mr. MEYER. Well, that is the law.

Mr. WILLIAMS. I am not so sure about that language.

The CHAIRMAN. There it says that the security-what security would a railroad company have to offer when it applied for a loan? Mr. MEYER. In the first place, it would be to their obligation secured by bonds of various kinds in the different railroads. There are lots of railroads that have bonds, and the liabilities of the railroads are good now, even whether they are meeting their interest

The CHAIRMAN. Securities of that kind, Governor Meyer, would be long term?

Mr. MEYER. Yes, but a 3-year note of the railroad is not a longterm security.

The CHAIRMAN. No.

Mr. MEYER. And in the meantime, in three years, or possibly the maximum of five years, they would be expected to finance their requirements in the investment market as they always are required to do.

The CHAIRMAN. I am speaking now, getting down to cold steel, as to the security they could offer. They could give you their notes, but when you get down to taking security for it, what could they offer you upon which the corporation would be able to realize at maturity?

Mr. MEYER. Every railroad would be in a different position; you can not generalize on it. We loaned, in the War Finance Corporation, to a lot of railroads, and in one case they had general mortgage bonds and convertible bonds and general liens

Mr. GOLDSBOROUGH. Their own bonds?

Mr. MEYER. Yes; thereon, with perhaps 25 per cent more than the face of the bonds, or even more than they, in some cases, offered as security.

The CHAIRMAN. If a railroad sought to borrow money and put up its own bonds, it would not be termed a security, would it? It would be like a corporation offering you its own stock as security. Mr. MEYER. No, no; these are mortgage bonds.

The CHAIRMAN. You mean referred to primarily

Mr. MEYER. No; their notes, secured by mortgage bonds.

Mr. STEVENSON. Well, now, a railroad gives you a mortgageissues bonds and gives a mortgage to a trustee

Mr. MEYER. Yes.

Mr. STEVENSON. Or deed of trust, to secure those bonds-now, do you mean that the railroad will have those bonds in its treasury? Mr. MEYER. Yes.

Mr. STEVENSON. And when it borrows money, that it pledges those bonds that have not been sold?

Mr. MEYER. Yes; issuing those bonds for construction and improvements and other purposes, that they still hold in their treasury, but which they can not sell in the present investment market. The CHAIRMAN. So that

Mr. MEYER. That is the only way that a railroad ever does

The CHAIRMAN. So that necessitates a long term security of the railroad

Mr. MEYER. That will be a short-term note.

The CHAIRMAN. But so far as the security back of that note, it will be that kind of security?

Mr. MEYER. Yes.

The CHAIRMAN. What would an insurance company have to ' offer?

Mr. MEYER. It would have mortgages or bonds. The policies of most insurance companies' investments are restricted by law in each State, and they might have public securities-I mean city, county, and State-legal securities as provided under the law of the State in which the company is incorporated.

Mr. HANCOCK. I would like to ask one question. I do not know whether it is important or not.

The CHAIRMAN. Certainly.

Mr. HANCOCK. In line 14, on page 5, I wish you would tell the members of the committee your interpretation of the words "other financial institutions in the United States." What do you mean by the term "United States "?

Mr. MEYER. Well, we mean the continental United States.

Mr. HANCOCK. I mean, does that carry with it the meaning that a corporation or financial institution must be organized under the laws of a State of the United States, or some subdivision, or would it be

Mr. MEYER. An American institution, in other words.

Mr. HANCOCK. Would it apply to a foreign institution doing business in the United States?

Mr. MEYER. No; it distinctly would not.

Mr. MCFADDEN. It would not apply to a Canadian railroad?
Mr. MEYER. No.