The CHAIRMAN. I did not mean that, but I mean so far as determining the policies of the RFC to carry out such a program. Senator FULBRIGHT. As I tried to say in the beginning, the existing legislative standards are quite vague, and they leave to the discretion of the Board tremendous leeway to make loans of nearly any kind they want to make. I hardly see how we could effectively do anything about restricting their activities under existing legislation if they chose to go the limit. They could make a loan to everybody in the country, I suppose, that they wanted to on the theory that he is small or he is unemployed or on one of the grounds. I think it would be an abuse of it, but still legally and technically it is possible to do it. The CHAIRMAN. The point I make is that we have the message on small business and probably will have some legislation proposed to set up certain authority to carry out a small-business program. Suppose that legislation were not enacted, suppose Congress thought it was too broad, that the proposal went too far, and Congress was just not ready to go along to that extent with the President, do you find in this plan the possibility that, irrespective of the will of Congress or the lack of consent of Congress, such a program could generally be promoted and established and carried out? Senator FULBRIGHT. I certainly think there is the existing power to do that. The CHAIRMAN. That is the point. I do not say it would be done, but I mean does not this plan actually give that power? Senator FULBRIGHT. I would say that today under their existing powers they could, if they chose, make loans to small businesses at 2 percent, whereas in the normal market that business, if it could get a loan at all, would have to pay six. Is that not a subsidy of 4 percent? I would say it is. They have great discretion. They can set the interest rate. They have it now generally at 4. They can make it either 2 or 6, as far as I can see. Their power is very broad. I think, since you have brought this matter up, that the present Board interprets one phrase there, aid to small business, much too loosely; and they have assumed the attitude of saying that, if it is a small business that applies, the burden on proving they should not have the loan is on the RFC, whereas I think they should always take the attitude that the applicant for a loan must give affirmative reasons why he ought to have this public money. They have gone very far now in giving loans to any applicant who comes along. We had the snakefarm case, and I could not see any possible justification for using public money to bolster up a snake farm, which promptly went broke right after they did it. They said, "It is small business." I asked, "Isn't there some affirmative interest? Why is the public interested in making such a loan?" They said, "It is a small business, and we interpret that language to mean there is a public interest in aiding small business." The same way with a little cactus farm down in Texas. It was a small loan. Some of them are not so small. The cactus farm got $48,000. When you go on up over $100,000, their standards are very loose. In the Ribbonwriter case it was very difficult to find a reason for having given it except I think they mentioned the possibility of employment. Of course, every company has some employment. I am saying only that these standards are very broad. We cannot say and no one has the authority to say that a certain loan was illegal and beyond. their power. We gave that broad power to them, and it could be extended enormously. I want to say again I think the Congress is subject to criticism for not having made stricter interpretation. The CHAIRMAN. Just for the record, may I ask if there is any limit on the borrowing power of the RFC? Senator FULBRIGHT. I am coming to that point now, if I may continue. I do not have much more of that statement. I sum up what I have said in these words: That I am unwilling that such a delegation be made in the name of a more efficient management of the executive branch, particularly when it is extremely doubtful that more efficient management can be expected to result. Reorganization Plan 24 may well be expected to produce more effective and positive presidential control over the lending of RFC, but I am not satisfied that this would be the same as more efficient management of the Corporation affairs. In that connection here are the present authorizations of the RFC. I may say by way of introduction that, subsequent to the enactment of the basic charter in 1948, additional authorizations were given from time to time in special acts—that is, dealing with housing and other things-so this is the final result. They have authority to expend for the Federal National Mortgage Association, commonly called "Fannie Mae," for the provision of secondary markets for guaranteed Government mortgages, that is, under the VA and under the FHA program, $2,750,000,000; business loans, $825,000,000; public agency loans, $200,000,000. That division as between those two categories is determined by the RFC itself. It can shift as between the business loans and public agency loans, but that is the way they now allocate it. Catastrophe loans, $40,000,000; prefabricated housing loans, $50,000,000; insurance company loans, $15,000,000; making a total of $3,880,000,000. In other words, they have present authority to lend $3,800,000,000. That is quite a substantial sum to have the power to deal with. This is a revolving fund. At any time they have the continuing use of that much money without any appropriation from the Congress. That is a very significant point to keep in mind when you are considering their power. At the present time they have an unused authority for business loans of $223,000,000. The RFC has at its disposal, included in the total, $100,000,000 of what they call capital stock and $250,000,000 of what they call surplus. In other words, they have $350,000,000 of interest-free money which they use. In that sense we are subsidizing their operations. That is, that is the use of public moneys. It is a long story. There is a difference of opinion between myself and the RFC as to how those funds should be considered. They seem to regard themselves as a private organization would and think they should not pay interest on those capital funds. It is my view that they ought to pay interest. The actual fact would be that if they paid the going rate of interest that the Treasury pays when it borrows money from the public at 17%, it would amount-let us take 2 percent round numbers-to $7,000,000 that they have in the nature of a subsidy. If they paid interest at 2 percent, which is just slightly over the going rate, they would have to pay $7,000,000 which they do not now have to pay, and that I may say accounts for their being in the black occasionally in their operations. This is a matter which we are dealing with and have already had hearings on. It is my view that in order to ascertain exactly what RFC costs and what its whole operation involves, it should pay interest to the Treasury on all its capital funds. The CHAIRMAN. I wanted to get it in the record. Senator FULBRIGHT. The views which I have expressed are not new. They were given by many of the Senators and many of the Congressmen when the independence of the RFC was restored by the law of 1945. I should like to introduce for the record in this hearing quotations from some of the leading legislators who urged the transfer of RFC out of the Department of Commerce when the George Act was considered. The CHAIRMAN. Do you have those? Senator FULBRIGHT. If I may, Mr. Chairman, there are two or three I should like to read-I will not read them all-just to illustrate what they are and then put the rest in the record if that is agreeable. The CHAIRMAN. That may be done, and they will all be put in the record. Senator FULBRIGHT. I do not want to overlook the task force report, page 63 of the report on lending agencies. There is just one paragraph I should like to read. I think it sums up fairly well some of the things we have said referring to the RFC: Since it is a commercial activity involving the management of considerable economic power, the lending activity never should be placed under the supervision of officials who have the Government's political powers at their disposal. A lending agency, we think, has no place within the organization structure of a regular establishment in the executive branch of the Government. It should be independent to the greatest possible extent consistent with the general organization of our Government into three branches. It should report to the Congress as well as to the President of the United States, and it should be exempted from Executive orders issued by the President, while at the same time remaining responsive to the general policies adopted by the Government. The list of the names of the Advisory Committee on Lending Activities is here. I will mention one or two: Mr. Allan Sproul, president, Federal Reserve Bank of New York. Mr. Sumner H. Slichter, economist and professor, Harvard University. Paul Bestor, president, the Trust Co. of New Jersey. I will put those in the record. (The information referred to follows:) EXCERPT, PAGE 63, TASK FORCE REPORT ON LENDING AGENCIES (APPENDIX R) (Prepared for the Commission on Organization of the Executive Branch of the Government, January 1949) Since it is a commercial activity involving the management of considerable economic power, the lending activity never should be placed under the supervision of officials who have the Government's political powers at their disposal. A lending agency, we think, has no place within the organization structure of a regular establishment in the executive branch of the Government. It should be independent to the greatest possible extent consistent with the general organization of our Government into three branches. It should report to the Congress as well as to the President of the United States, and it should be exempted from Executive orders issued by the President, while at the same time remaining responsive to the general policies adopted by the Government. ADVISORY COMMITTEE ON LENDING ACTIVITIES Mr. Paul Bestor, president, the Trust Co., of New Jersey. Mr. Donald D. Davis, president, Minnesota & Ontario Paper Co. Mr. Walter J. Cummings, chairman of the board, Continental Illinois National Bank & Trust Co., of Chicago. Mr. Walter D. Fuller, president, the Curtis Publishing Co. Mr. George L. Harrison, chairman of the board, New York Life Insurance Co. Mr. Arnold B. Keller, senior consultant, International Harvester Co. Mr. Walter Lichtenstein, banker and economist. Mr. James H. McGraw, Jr., president, McGraw-Hill Publishing Co., Inc. Senator FULBRIGHT. I also received yesterday a telegram from Mr. Emil Schram, president of the New York Stock Exchange, former Chairman of the Board of the RFC. I will put that in at this point. I will read one sentence just to indicate what his views are: If RFC is to be continued it should be kept as independent agency reporting directly to Congress. (The telegram referred to follows:) Hon. J. WILLIAM FULBRIGHT, United States Senate: NEW YORK, N. Y., June 13, 1950. Re Mr. Yingling's request for statement on transfer of RFC. If RFC is to be continued it should be kept as independent agency reporting directly to Congress. It is difficult for me to believe. However, that with business as good as it is today that it is necessary for our Government to be in the lending business. The agency has a wonderful record which was made during a very difficult period. Many worthy loans were made at a time when credit was not otherwise available. While there is a shortage of equity capital today there is no dearth of funds for loans and as long as that condition prevails there is no need for Government loans to businesses. My recommendation leans toward liquidation, but if that is not possible authority should be curtailed not expanded. None of the above should be construed as criticism of present personnel for whom I have the highest regard as to both ability and integrity. EMIL SCHRAM, President, New York Stock Exchange. Senator FULBRIGHT. There are one or two others. One interested me because of his prominence at that time and presently. This is a statement, one paragraph, from the present Vice President, at that time a leader of the majority of the Democrats in the Senate, Senator Alben Barkley. This was in the Congressional Record, February 1, 1945, page 6823. I quote: At the same time I said I thought the job of being Secretary of Commerce was sufficiently important to occupy the entire time of any man. It is a Cabinet position. It is a high honor. That office deals with our industrial and commercial life, both domestically and internationally, and I believe that any man who is appointed to a Cabinet position, whether it be Secretary of Commerce or other Cabinet office, though the Secretary of Commerce was the position especially under discussion, ought not to be "saddled", if that is the proper term, and using the quotation from the Vice President, with another job as big or bigger than that of being Secretary of Commerce. I thought that the Secretaryship of Commerce was a full-time big man's job, and that being Administrator of the Federal lending agencies was also a full-time big man's job, and that the two jobs ought not to be combined. That was my opinion 2 years ago; it is my opinion now, and that explains that my attitude respecting the George bill has not been induced by the appointment of Henry Wallace as Secretary of Commerce. In other words, he was against the transfer to Commerce in the beginning and he was against its retention there, and as everyone knows, the George bill passed disassociating them, that is, divorcing them. I have a statement by Mr. Brent Spence, the present chairman of the Banking and Currency Committee of the House, which is found on page 1149 of the Congressional Record of February 15. I shall not read that. I think it is informative. There are only two short paragraphs and I should like to offer them for the record. The CHAIRMAN. They may be inserted in the record. Senator FULBRIGHT. One from John McCormack, presently the leader of the majority of the House, to the same effect: Charles Halleck, the whip of the minority party of the House, Congressman from Indiana; Senator David I. Walsh, the late Senator from Massachusetts; Senator George, who was author of the bill; Representative John H. Folger, who I believe was a member of the Banking and Currency Committee at the time; Congressman John Robsion, of Kentucky; and Representative Thomas A. Jenkins. I have tried to make this bipartisan. Several are Republicans. Here is one by Congressman Outland, of California. I think they are informative and should be in the record that you can see what the Members of both Houses thought about it at that time. (The information referred to follows:) DIVORCEMENT OF RFC FROM DEPARTMENT OF COMMERCE-DISCUSSION OF S. 375, SEVENTY-NINTH CONGRESS, FIRST SESSION (Representative Brent Spence (Democrat, Kentucky) (Congressional Record, February 15, 1945, p. 1149)) merce. "Secretary Jones was Chairman of the Reconstruction Finance Corporation. He built that great financial empire that extends not only throughout many other sections of this country but throughout many sections of the world. He built it with skill; he is a financial genius; and when he was made Secretary of Commerce he was Federal Loan Administrator. All of these agencies were put in the Commerce Department because Jesse Jones was made Secretary of ComThe Congress and the President at that time wanted him to administer it. "Mr. Chairman, that was personal legislation, and personal legislation is always dangerous. There was no other reason why these great financial institutions should be placed in the Commerce Department except that Jesse Jones was Secretary of Commerce. When he is no longer Secretary of Commerce, it is the opinion of all of us that those lending agencies should be restored to their former status. I think that that is the correct solution of the problem. I think they ought to be taken out of the Department of Commerce, and I think they ought to be independent agencies of Government, whoever might be Secretary of Commerce, because they have no relationship to the Department of Commerce, and do not belong there * * *" (Representative John McCormack (Democrat, Massachusetts) (Congressional Record, February 15, 1945, p. 1146)) "This bill is before us to undo something that we did. The responsibility for the situation that exists rests upon the Congress of the United States. It is our responsibility because we brought that condition about by legislation that passed this body and passed the other body. I am frank in stating it should never have been done. "The present bill has, as its purpose and objective, undoing that which we did before and which we should not have done. Mixing the appointment of Mr. Wallace with the passage of this bill is unsound thinking, in my opinion. So far as most of my friends on the left are concerned, you and I know that it is politics, unadulterated politics, that prompts them to do that. The proper thing for us to do is to pass this bill and undo the harm that we have already done." (Representative Charles A. Halleck (Republican, Indiana) Record, February 15, 1945, p. 1145)) (Congressional "Mr. Speaker, probably because of great congressional confidence in Jesse Jones, we permitted a system to grow up under which the great lending agencies |