Judge CLARK. If you care to have me submit a thorough discussion of comparative stock-exchange practices I would be glad to do it.

Mr. REDMOND. Judge Clark, you made the statement, and I simply wanted to find out and develop the facts before the committee. I have no further questions.

Senator KEAN. We have in New Jersey, and also in New York, a large number of companies which have taken mortgages on property all over the State, and all over New York City, and issued certificates against them. You are familiar with those companies, are you not? Judge CLARK. Some of them seem to be in the hands of receivers. Senator KEAN. Every one of them has failed, so far as I know, or has practically failed. Now, that was an investment which was supposed to be the safest that you could obtain, was it not? I mean to say, the charities in New York and in New Jersey bought these certificates and they were recommended as the safest that one could possibly invest in. They have all gone; they are all in trouble. You did not include them in your statement. They are entirely outside of the stock exchange.

Judge CLARK. But, Senator Kean, I think there are very unfortunate things that have happened to the whole investment structure. I do not think anybody can deny that. I was only devoting myself to one particular part of it. I think it might be said-maybe unjustly, but still it might be said, perhaps that the stock-market collapse, which some people think was due to the excessive speculation, brought about the general economic condition and brought about the unfortunate condition in which these companies find themselves. Senator KEAN. Perhaps it might be said that their collapse brought about the other.

Judge CLARK. Is it not, chronologically speaking, sir, correct to say that the stock market touched off the others?

Senator KEAN. I do not think so. I think perhaps the stock market started a little bit sooner than the others, but they all went down together. Here are these investments in mortgage bonds, in homes, and everything else. A great many people committed suicide because they were about to lose their homes; and the reason they were about to lose their homes was that they had bought their homes and had a mortgage on them.

Mr. PECORA. In other words, bought them on margin?

Senator KEAN. Bought them on margin, if you choose. But are you going to stop all the building and loan associations so that people cannot buy a home on a building loan? Would you stop them so that they cannot get a mortgage on anything?

Judge CLARK. Of course, Senator, is there not a distinction between a mortgage on real estate and a mortgage on stock? Real estate is not as volatile as stock. If I lose my home by foreclosure it does not immediately and to such a great extent affect the market. for other stocks.

Senator KEAN. It affects the market for homes in the neighborhood, because you have a record just the same as you have on the stock exchange. You have made a record that that house in that block has sold for that amount of money, and that calls everyone's attention to it that owns a house with a mortgage in that block.

Judge CLARK. I think it does have some effect; yes.

Senator KEAN. I would like to make the statement for the record that in the London Stock Exchange they do not require margin, but their stocks are payable every 2 weeks. They have a settlement and they pay a commission. When the drop in the market came it took more than a year, certainly, for the London Stock Exchange to settle their commitments. It was much worse than the stockexchange conditions in New York, because they settle from day to day.

Judge CLARK. I was of the impression, Senator Kean, that the events in the London Stock Exchange did not compare with ours. Maybe I was wrong.

Senator KEAN. That is partially true, because the volume of business that they do is not to be compared with ours. But as far as they went, their situation was very unfortunate.

I have nothing further.

The CHAIRMAN. I think the record might show that on October 1, 1929, stocks listed on the New York Stock Exchange were selling at $87,073,000,000. On July 1, 1932, stock was selling at approximately $15,663,000,000, a loss of $71,440,000,000. That grew largely out of the speculative mania that culminated in October 1929, did it not?

Judge CLARK. Yes, sir; I should certainly suppose it did.

The CHAIRMAN. Statistics further show that the value of bonds on the New York Stock Exchange on October 1, 1929, was $49,456,000,000, and on July 1, 1932, $48,000,000,000. It is further shown that in 1929 the value of all the properties in the United States was estimated at $452,000,000,000; 4 years after that at $252,000,000,000in other words, a loss of about 40 percent on the value of all property in the United States. The income of the United States, taking the whole country, has dropped about one half in the last 4 years. Senator KEAN. Judge, you have no figures in your mind as to the total amount of these mortgage companies, have you?

Judge CLARK. You mean, the ones that are unsuccessful? Senator KEAN. They are all unsuccessful, I think. They run to a great many hundreds of millions of dollars, do they not?" Judge CLARK. I would imagine so.

Senator KEAN. I think more than a billion dollars of these mortgage companies that have issued certificates on first mortgages, that these charity organizations bought and everybody else bought

Judge CLARK. I would very much like at perhaps some other time, Senator, to suggest what should be done. Some of them have been in my court; but I do not understand that they are within interstate commerce. I am afraid that it would have to be taken up with the individual States. I think, undoubtedly, Senator Kean, there have been great abuses.

Senator KEAN. If you will look over the charities of New York and New Jersey, and also the endowment funds, you will find that a large part of their investments have been in these mortgage certificates or mortgages; also life-insurance companies. All these companies have invested tremendously in these mortgage certificates covered by first-mortgage bonds, and they are all of them either wiped out or in the hands of receivers or in trouble.

Judge CLARK. Is not that partly, Senator Kean, because of the speculative management of those companies? I know of a large savings bank in Newark, with which you are familiar, and of which I happened to be manager. I asked the president the other day how many of his mortgages were in default. They have, of course, a very large amount of mortgages. He said, less than 1 percent. They have managed well. Whereas, the mortgage certificate company in Newark is in the hands of a receiver. I examined their list of mortgages the other day, and I certainly would not have invested in them.

The CHAIRMAN. Of course this depreciation in values extended to real estate as well as to all other kinds of property.

Senator KEAN. I believe it got down to Florida, didn't it, Mr. Chairman?

The CHAIRMAN. Somewhat; but Florida is coming back. Everyone wants to get down there now to buy. So there is a change in that situation.

Judge CLARK. There was an article to that effect in the paper just the other day, Senator. I do not know whether you noticed it. The CHAIRMAN. It is quite true. People who have land which they acquired in the boom days are not very anxious to sell it now. There is a good deal of demand for it.

Aside from that, people who hold certificates and mortgages on real estate are not entirely wiped out. There is something left there for most of them. With stocks and that sort of thing they are gone absolutely.

Judge CLARK. With stocks you are out the window. With mortgages you have some chance.

Senator KEAN. I hope they all come back.

Mr. REDMOND. Judge Clark, may I ask you one more question? Judge CLARK. Certainly.

Mr. REDMOND. You referred to the excessive amount of credit on the stock market. The chairman has just mentioned

Judge CLARK. I do not think I used the word "excessive." But let that go.

Mr. REDMOND. The chairman has mentioned the total valuation of stocks on the New York Stock Exchange in October 1933. If you will remember the figure of brokers' loans, it was about $8,500,000,000, which represented slightly less than 10 percent of the market value. Do you think that 10 percent is an excessive amount to borrow against property?

Judge CLARK. I do not think I used the word "excessive." I will look at my statement again and see. My objection to the brokers loaning money is that they have an incentive to loan; they are not impartial. I may be that in certain cases they are able to overcome that temptation; I do not know.

Mr. REDMOND. But you doubt it?

Judge CLARK. My judgment, from what has passed, is that they are not able to overcome it.

Mr. REDMOND. That is all.

The CHAIRMAN. Thank you, very much.

STATEMENT OF ALFRED L. BERNHEIM, NEW YORK CITY, DIRECTOR OF THE SECURITIES MARKETS SURVEY OF THE TWENTIETH CENTURY FUND, INC.

The CHAIRMAN. State your name, please, and your address and occupation, for the record.

Mr. BERNHEIM. Alfred L. Bernheim, 27 West Eighty-sixth Street, New York City. I am director of the Securities Markets Survey of the Twentieth Century Fund.

The CHAIRMAN. Do you wish to be heard on this bill, Mr. Bernheim?

Mr. BERNHEIM. Yes, sir.

The CHAIRMAN. We will be very glad to hear you. You may proceed in your own way.

Mr. BERNHEIM. I am appearing before the committee in my capacity as director of the Securities Markets Survey Staff of the Twentieth Century Fund, Inc. The staff has recently completed a nonpartisan scientific study of the security markets from the point of view of the interests of the American public. A digest of the findings of the staff and their recommendations, for Federal regulation of the markets, published in book form under the title "Stock Market Control ", by the D. Appleton-Century Co. of New York, has been formally submitted to the members of the committee and its special counsel.

The statement I am about to make has been drafted on the basis of the findings and recommendations of the staff, as summarized in this volume. It is endorsed by the other editors who were associated with me in the preparation of the book: Evans Clark, director of the Twentieth Century Fund; J. Frederic Dewhurst, the fund's economist, and Margaret Grant Schneider.

At the outset I want to say that I am in full accord with the basic purpose of the National Securities Exchange Act of 1934 which, as stated in section 2 of the act, is the regulation of security exchanges in order to eliminate manipulation and control of prices and, in general, to prevent the volume of speculation in securities from reaching excessive and harmful proportions. The point of view I represent, as developed after several months of intensive study of security markets, is summarized in the following words in the recently published digest of the findings and recommendations of the Security Markets Survey staff:

Security exchanges render certain economic services which are essential under a capitalistic economy. However, excessive and uncontrolled speculation, especially when accompanied by manipulation, not only makes the price we pay for these services out of proportion to their value, but it also may result in a positive disservice to investors by distorting security values. It follows from this that public policy requires that speculative activities be brought under such control that they will add to and not detract from, the value of the functions which security exchanges are designed to perform; and so that such activities will no longer create credit disturbances and other maladjustments throughout our economic structure.

This quotation makes it clear that the general conclusions reached by the staff of economists who conducted the survey of security ex changes on behalf of the Twentieth Century Fund, coincide with those which were apparently in the minds of the framers of the

"National Securities Exchange Act of 1934." I am appearing before you to advocate the principles and objectives of the act. I believe that the prompt enactment of these principles and objectives into law is a matter of urgent importance to the economic welfare of the Nation-especially to the proper working of the Nation's banking and credit system and the flow of commerce between the States. I am of the opinion, however, that the bill could be improved, strengthened, and brought into closer conformity with its own declared purposes by certain changes which I beg leave briefly to bring to your attention.

GENERAL ANALYSIS

I can best summarize my views at the outset by saying that, in my opinion, the bill as drafted lays too heavy a hand of Federal control upon some of the activities of the markets and of corporations whose securities are bought and sold in them, while other activities are either left without control by the Federal Government or subject to undefined and unpredictable regulation at the discretion of the Federal authorities. If the bill were to be passed as drafted I believe the result might be the strangulation of some useful and beneficial activities which play an important part in the economic functioning of the markets, while other practices, which seriously interfere with the proper performance of the markets' functions, would be left unrestricted.

Let me be more specific. The bill, for example, could be so administered as to subject the organized exchanges to such complete domination, even in the routine details of their administration, by the Federal Trade Commission that the quick and effective responsibility of the exchange authorities might be seriously impaired. I believe that as a matter of broad policy certain minimum requirements of exchange practices should be clearly set forth in the statute and then that the enforcement of these provisions be made the responsibility of the exchanges themselves, with penalties provided if they or their members should fail in their duties and obligations.

On the other hand, the bill completely exempts the corporation whose securities are not listed on the exchanges from the requirements as to accounting and reporting and the security transactions of officers which are-and I believe on the whole wisely-imposed upon those concerns whose securities are listed.

EXCESSIVE POWER VESTED IN FEDERAL TRADE COMMISSION

A few examples will illustrate what seem to me to be unmistakable instances of undue and unwise grants to an administrative agency of what amounts to legislative power.

One: In relation to margin requirements on long accounts, the bill provides in section 6 (b) that

The Commission may by rules and regulations prescribe lower loan values s may be deemed appropriate in the public interest or for the protection f investors during any stated period of time or in respect of any specified ass of securities.