FIBER PLANTATIONS In addition to rubber and tin production, RFC operates five abacá fiber plantations in Central America, with a total of 25,000 acres now under cultivation. These plantations produce 30,000,000 pounds of fiber a year. Abacá, better known as manila hemp, is another material for which this country must depend upon imports. It is used principally in the production of marine cordage, an item vital in the defense program. During the last war RFC was authorized to produce abacá in Central America, in order to alleviate the loss of hemp from the Philippine Islands. Because of defense requirements, authorization for the operation of these plantations was continued by the Congress after the war. EXPANSION OF ACREAGE During the current fiscal year RFC is increasing the area under cultivation to 50,000 acres. This expansion will be completed in 1952. As Chairman of the National Security Resources Board, I studied both tin and rubber; but am not as familiar with this third material, abacá.. I hope to have a better grasp at an early date. In summary, the problem of these materials is primarily one of obtaining those raw materials essential for that American production necessary to protect both ourselves and our allies. If our economy is to survive the unprecedented cost of this vast mobilization effort, however, these necessary materials must be obtained at a fair price. So much for the Materials Division of the RFC. Now as to its lending functions. LOANS TO BUSINESS ENTERPRISES The RFC is currently making loans to business enterprises, both directly, and in participation with private institutions. Some time ago a policy was laid down that these loans should be restricted to businesses which either directly support the defense effort, or are engaged in the production of essential civilian goods and services. We are making every effort to see that this policy is enforced promptly throughout the organization. In that connection I would like to say that some of the loans made in the field recently have not followed that policy. It is difficult to establish a new policy and have it obeyed by everybody immediately. Since 1934, when direct lending authority to business enterprises was first granted, the RFC has authorized 61,648 business loans, in the amount of $4,877 billion. Bank participation in 25,810 of these loans aggregated an additional $535 million. Presently there are 12,112 loans and commitments outstanding in the amount of $766 million, with bank participation in 4,513 of these, aggregating $55 million. DISASTER LOANS In addition to the business loan program, the RFC also makes loans to persons or enterprises which have suffered from a major disaster. To date, we have made 26,602 loans totalling $63 million in this program, of which 997 loans totalling $4 million are outstanding. PUBLIC AGENCY LOANS RFC is also authorized to make loans to, or purchase, the bonds of States, municipalities and political subdivisions of States, to assist in the financing of public projects. To date 1,862 such loans, totalling about $1 billion have been authorized; 164 are currently outstanding. DEFENSE PRODUCTION LOANS The RFC also serves as fiscal agent for the Defense Production Administration. It handles loans granted by DPA from funds authorized by the Defense Production Act. It does not review these loans from a credit standpoint, merely handling same as fiscal agent. In the case of one loan made to a steel company, although the entire loan was in the public's interest, under its statutory position the RFC could approve only two-thirds of the amount considered right. The remaining one-third was approved by the Defense Production Administration, FRC acting as fiscal agent. The authority and therefore the responsibility for such a loan should be concentrated in one agency. RECORD OF RFC REVIEW BOARD In the RFC is a final Board of Review, consisting of the Corporation's five probably most experienced loan examiners. It is a significant fact that not one loan approved by this Board of Review has ever been the subject of criticism in the recent congressional investigation of this agency. Every loan criticized was approved by the RFC Board of Directors against the recommendation of its own Review Board. During the current period of defense production, RFC will have its role in supplementing credit available from other sources. Experience in the last war and the current expansion proves that guaranteed loans will meet only part of the credit needs of defense mobilization. This country is now in a period of expanding production, expanding economy controls, and rising costs. Such conditions will require many businesses to secure credit assistance, especially as the smaller businesses attempt to shift, from peacetime products to defense items. BUSINESS LOAN AUTHORIZATIONS, 1937-52 Based on past experience, it is anticipated that RFC loans to industry in the fiscal year 1952 will increase about one-third over the current fiscal year. Many of these loans will be to relatively small subcontractors, typical small-business men, whose attempts to add their productive facilities to the defense job might otherwise be either hampered or eliminated through lack of credit. May I insert in the record at this point a statement which presents the history of RFC loan activities from 1937 to 1952? Note the sharp rise and fall of loans during periods of recession and expansion. Mr. GARY. The statement may be inserted in the record at this point. (The statement referred to is as follows:) RFC business-loan authorizations,' fiscal years 1937–52 1944 190 1945_ 1,237 815 1946 (reconversion) 3,855 3, 720 1947– 2, 689 1, 126 1948. 2,368 804 1949 2,593 2, 187 1950 (inventory liquidation) 4,500 2,300 1,591 1952 (estimated), (mobilization) - 3,100 1 Excludes loans made under blanket participation agreements and under the small-loan participation program. Mr. SYMINGTON. The present position would seem comparable to that in 1941 prior to the major war expansion. It is estimated that RFC will also have an increased credit load in loan administration and advisory services, because 9,100 loans, excluding participations in bank loans, are expected to be outstanding at the end of the fiscal year 1952; 8,800 loans are outstanding at the present time. The workload in servicing these loans, however, will increase more than the figures indicate. Economic dislocations attendant upon the allocation of critical materials may result in substantial readjustment in the business of many firms with loans outstanding. Such readjustments will require continued vigilance to assure that the interests of the Government are not impaired. ADMINISTRATIVE EXPENSES In order to administer the programs just outlined, we are requesting a limitation on administrative expenses of $17,835,000. This compares with an authorized limitation of $21,337,000 for the fiscal year 1951. (Excluding expense of the Federal National Mortgage Association, which was transferred from the RFC during the current fiscal year.) The requested limitation, therefore, has been reduced $3,502,000 over the previous year. This large decrease is predicted in spite of an anticipated increase in workload. More loans to be serviced will be outstanding. A 30 percent increase in loan approvals is anticipated. The RFC is expanding its operations in the field of critical materials. In addition, the original budget was predicated upon a reduction in fiscal personnel through the consolidation of fiscal activities in a few of the central offices. After examination we believe this consolidation is not in the interest of effective management. Fiscal activities, therefore, will be reestablished in the loan-agency offices under a simple and more efficient accounting system. It may seem inconsistent to be making a reduction in the budget when the over-all workload is increasing. From our brief experience in this organization, however, we believe that this suggested budget will prove adequate for our needs. Members of this committee have read much recently about the position of the RFC. The above summary of what the agency is doing as presented to you today would seem to end any discussion as to its value, but there are certain additional factors I present for your consideration. EFFECT OF PUBLIC DEBT ON CREDIT FACILITIES In an effort to both preserve its freedom and at the same time maintain its high standard of living, America has now accumulated a staggering debt. Its Government must nevertheless face up to all the implications of this debt, at the same time the rise of Soviet communism forces us, for security reasons, to embark on another vast program of mobilization expenditure. Nowhere in the economy is the resulting impact of these hundreds of millions of dollars of debt felt more heavily than in our private banking system, and in the credit facilities that system is normally expected to extend. In the past banks paid money on your and my deposits; and therefore it was necessary for them to lend money in order to make money for their stockholders. Today, however, with their walls bulging with those Government securities necessary to handle the problem of this gigantic public debt, they pay little or no interest on your and my deposits; but they obtain a large portion of their earnings from the Government bonds they purchase with the money their depositors have placed in their care. Under these circumstances it is obvious that the lending policy of a bank can be handled on a far more fastidious basis than before. A bank can just about eliminate any element of risk in its loan policies and still make money. Some element of risk in lending, however, has heretofore been considered an important aspect of our private enterprise system. COMPARISON OF RFC WITH BANKS May we point out that RFC pays interest to the Treasury on a substantial part of the money it lends to small business, in contrast with bank practice of lending the interest-free funds of its commercial depositors. Another aspect is that banks are willing to still incur risks on private loans; but at interest rates far above the normal value of money. RFC is a great deterrent against excessive interest charges because it can lend the little-business man if he cannot obtain a loan, with proper collateral, on reasonable terms. This I believe that under the steady march in this country towards the Big-Big government, Big business, Big taxes, America is steadily moving toward a concentration of wealth-and a concentration of the power behind that wealth-which in a relatively short time may put us perilously close to socialism. As a wise man said to me years ago, the walk from trusts, cartels, and monopolies to socialism is just another step across the street. Almost certain progress toward that undesirable form of government is the elimination of the smaller-business man through the restriction, or withdrawal, of his credit, at the same time there is a continuous increase in the size of his large competitors. That is what has happened in certain countries which formerly were considered the master phophets of the private-enterprise system. CREDIT DIFFICULTIES OF SMALL BUSINESS For such reasons as restrictions on total lending authority, restrictions on the amount that can be lent to any individual, banking policy not to lend on fixed assets, and banking policy not to make term loans, it is becoming more and more difficult for smaller business to obtain credit, on reasonable terms, despite such businesses nevertheless possessing what was formerly considered adequate collateral. As the current world situation develops, with its grave impact on the American economy, this credit vacuum is becoming more apparent; and we believe it will get worse instead of better. There is no more difficult time for small business than in a mobilization conversion period. It would seem that the one real and practical finger in the dike against this trend toward socialism through the abolition of small business is the RFC. As the large corporations in our great industries continue to grow, any credit problem becomes less. But as the national debt mounts under the spur of this new mobilization, the credit problem of the little-business man becomes steadily more acute. I have had as much experience as most in direct contact with working men and women in plants. Most of these citizens, regardless of their wages, have a desire a hope. They want to break away from the wage, and have, and have their children have, their own business, which they hope will grow. Even though today ever mounting taxes make it more difficult for them to save their stake to get started, they still have that hope, which in the past has been an inherent part of the American way of life. The RFC cannot give them the venture capital to start a business. No matter how hard it is to begin, they must save or borrow elsewhere, the original capital required. Surely, however, they should not be rubbed out of the business they have started with their savings because of credit conditions which have risen as a result of other conditions far beyond their control. PRESERVATION OF FREE ENTERPRISE I believe that any organized effort to abolish the RFC is just another blow at small business, in favor of the trust, the cartel, and the monopoly. I believe that the perpetuation of small business in this country is vital to preserve our system of free enterprise. I believe this agency is essential in order to prevent the entrance over here of one of the many "isms" now plaguing both the governments, and the plain people, in the lands of all our enemies, and many of our allies. Some would abolish the RFC because of corruption. There were conditions in this agency which merit criticism. They have been changed; but a continuing analysis of the operating efficiency and integrity of the agency, just as in private business, will continue. What an absurdity, however, to imply that, because of possible corruption resulting from inefficient management, a Government agency |