eculative purposes in the right place, which specifically is whether the origial borrower is entitled to credit and whether the money market will stand this xtension. The millions of gamblers situated throughout the United States ould have to go to their local banks for their speculative credit, whereas toay the brokers grant credit with a lavish hand to millions of persons situated roughout the country and then the brokers must cover their extension of edit by borrowing from the New York City banks on brokers loans. Brokers loans are most dangerous because they have no element of selfquidation. The only way they can be paid off is thru the sale of the collatral, which is collectively liquidated either by the banks, brokers or gamblers, uses or accentuates a stock market panic wherein the gamblers lose their life vings. This reason is also present in every panic whether it is small or arge. There is no category of credit that is as dangerous as these non-selfquidating brokers loans. Brokers loans are the only vehicle by which brokers in expand their business with other people's money at the final expense of the hole country. Brokers loans make stock speculation an unbeatable game. he psychological difference between a gambling den and the New York Exange marginal game, in the first instance "the sucker is never given a chance" hile in the second instance "the sucker never has a chance," because of rokers loans. The stock exchange is now geared up to handle 5 to 10 million shares a day ith thousands of customers' men, clerks, auditors, etc. with thousands of ofres all over the country and with thousands of miles of leased wire and they re fighting for their lives to keep their crap game opened. They are using every rgument and are getting individuals and associations to help them out. They ay that if speculation is curtailed it will hurt business and that it will deate values and slow down the financing of corporation. This is a lot of mmy-rot, because if the exchange was closed except for legitimate buying nd selling (no marginal gambling) business and industry would never feel it. n fact, it would be good for business because stock market gambling with orrowed money eventually leads to disaster. If it were not otherwise all of would be millionaires. We are suffering from too much of the crap game at the Stock Exchange stands for and loudly advances and practices. Very sincerely yours, JRE/R J. R. EDWARDS. NATIONAL ASSOCIATION OF BUILDING OWNERS AND MANAGERS, lon. DUNCAN U. FLETCHER, United States Senate, Washington, D.C. MY DEAR SENATOR: The National Association of Building Owners and Mangers, representing an industry with $6,000,000,000 of invested capital, has a irect and vital interest in the National Securities Exchange Act of 1934, now nder consideration by your committee. Our membership consists of federated ssociations in 41 cities and of associate members in 90 other cities of the ountry. We call your attention to the fact that the issues involved in this proposed gislation affect much more than the operation of security exchanges, and will ave far-reaching influence upon the industry this association represents. We would point out that regulations so drastic as to restrict greatly the ecurity business and endanger the transaction of many legitimate enterprises elated thereto would have a ruinous effect upon property accommodating nancial institutions in all of the principal cities of the country. Specifically, such curtailment of the security operations would result in our adustry in loss of tenants, contraction of space occupied by such tenants, and bsolesence of special equipment and facilities provided for their use, which with the difficulty of adapting much of this space to other purposes could not ail to produce further impairment of real-estate values. The investment in roperties devoted to these uses in many communities is sufficiently great to. nake this a matter of far-reaching consequence. Furthermore, the industry, as you must know, has suffered, and is still sufferng, severe distress. Our recent survey of rental conditions, covering 1,900 office uildings, in 35 cities, shows a total vacancy of 48,447,161 square feet, and an 175541-34-PT 15- -54 average vacancy for these buildings of 27.57 percent. In addition to this, our inquiries have shown a delinquency in the payment of rent to the extent of 15 percent of a year's rental. This 15 percent delinquency has the same effect upon current income as if vacancies were increased by this same percentage, so that practically all office buildings of the country have a combined actual and potential vacancy of 40 percent. From 1929 to 1933, the income for the industry decreased $217,000,000, while operating expenses, not including taxes, decreased $58,500,000, or only about one quarter as much as the decline in income. As a result of the drastic shrinkage in operating net income. hundreds of buildings have been forced to default on their bonds, have been unable to pay their ground rent, and in many cases have insufficient funds to meet tax bills. A survey of 929 buildings in 16 cities shows that 24.3 percent of these buildings are in financial default. It may commonly be assumed that the effects of legislation regulating stork exchange operations would concern only those cities in which important exchanges are located. The point we desire to emphasize is that in our industry alone, they will affect all of the larger and many of the smaller cities of the country. In the limited time at our disposal, we have canvassed the opinion of member-organizations, and a substantial majority of the cities affectel have thus far registered disapproval of those features of the act which would tend to restrict seriously the volume of security business. You have already been informed by the representatives of the Real Estate Board of New York, Inc., that the building occupancy of stock exchange tenants in that city represents at least 5,000,000 square feet of space, with a rental value of $15,000,000 annually. A survey of similar conditions in Chicago, Detroit, Indianapolis, Los Angeles. Denver, Spokane, Louisville. Baltimore, and Pittsburgh reveals that in these 9 cities 105 office buildings would be affected, with 2,987,270 square feet of space occupied by tenants engaged in the security business, the invested capital represented by such occupancy being estimated at $69,700,680. We are opposed to those features of the proposed legislation which, by reason of drastic requirements, would bring about a serious curtailment in the operations of this business, and strongly recommend that material modifications be made in the act with respect to restrictions so imposed. We ask as I am sure you are disposed to do that in the consideration of this legislation you weigh fully the contingent effects upon this, as upon other avenues of business throughout the nation. Very sincerely yours, NATIONAL ASSOCIATION CF BUILDING OWNERS AND MANAGERS, By R. W. BEACH, Executive Secretary. Hon. DUNCAN U. FLETCHER, THE SHELTON LOOMS, Chairman Committee on Banking and Currency, United States Senate, Washington, D.C. Subject: National Securities Exchange Act of 1934. DEAR SENATOR FLETCHER: All fair-minded business men must be in sympathy with the purposes of this act. The provisions are so far-reaching, however, that it seems proper for those imbued with the greatest spirit of cooperation and sympathetic interest to point out unintended hardships which may have escaped the framers of this act. The writer cannot withhold his alarm at the possibility of error in many of these provisions, and, rather in the spirit of analysis than in the spirit of criticism, wishes to put before you his impression of various sections in the act. The writer trusts, therefore, that you will accept the enclosed statement as contributing to clarifying the bill and towards eliminating harmful features. In endorsing the suggestion for a special reviewing group (see page 6 of enclosed statement) aiding the legislature or the Federal Trade Commission in shaping this act, it is not intended to cast any doubt on the judgment or wisdom of those who framed the Fletcher-Rayburn bill. The additional outlook arising from such review bids fair to give a safer interpretation of the difficulties involved. Possibly such a reviewing committee may be of con tinued service in conjunction with the Federal Trade Commission, and should be made a standing committee, reviewing the experience had after the passage of the act, and making suggestions for amendment from time to time to be acted upon by Congress. I therefore respectfully urge that before taking action on the bill, such a reviewing committee be immediately formed and that a report, taking into account its recommendations, be obtained at the earliest possible moment. Yours very truly, SIDNEY BLUMENTHAL, President. [Statement accompanying letter from Sidney Blumenthal, Chairman, Sidney Blumenthal & Co., Inc.] FEBRUARY 28, 1934. NATIONAL SECURITIES ACT OF 1934. Sec. 11, page 14: There is no objection to the control proposed to be exercised by the Federal Trade Commission in fixing a uniform policy for the revelation and publicity of adequate and desirable information. There seems, however, to be a decided need to clarify the nature of publicity thus invoked for action by the F.T.C. and to limit it as far as possible so as to satisfy reasonable requirements. To accomplish this a draft should be made by the F.T.C. of what is considered desirable and necessary, and a full and frank debate on the subject should be openly had in order to avoid disquietude, uncertainty, and, if possible, unintentional harm to corporations, investors, and incidental delay in business recovery. Sec. 12 and 13, page 16: It seems wholly unwise to place upon any corporation asking for proxies the obligation to send to every stockholder the entire list of names and addresses of stockholders. This results in the revelation of names, permitting of abuse by those who have a mischievous purpose. The objective might be propaganda based on irresponsible statements, innuendoes and a spreading of questionable information which it would be hard to combat without previous knowledge of such a performance. The suspicion aroused, and the inability of stockholders to follow the details of manoeuvers of this kind, are likely to do incalculable harm. Surely other ways must be found of making available to those stockholders who have an honest claim to it all the information to which the F.T.C. might think them entitled, say on condition that they file a bond or some other obligation setting forth the entire and exclusive use which they intend to make of the information and assuring the necessarily confidential use of it. Monthly statements of gross sales and gross income likewise are a revelation of confidential information not reasonably necessary to the full enlightenment of the stockholder, who in many cases does not gain an advantage in having this information in sufficient degree to offset the great disadvantage of revealing it to competitors in the same line or in other lines of business paralleling that of the reporting corporation, notably is they are not listed or incorporated. No information should be demanded of listed corporations, which is not equally demanded from other business organizations, whether or not incorporated or listed, if indeed the publicity thus desired is necessary and valuable for the enlightenment of every stockholder. It is believed that the object of the National Recovery Act, in causing Code Authorities in each line of business to gather under the seal of confidence information desired, is much better calcu lated to enlighten the investing stockholder of any particular company by means of figures, when published, giving a well-rounded picture of the entire industry and the sum total of its achievement. Within this framework it will be easy for the investor to locate the effectiveness and responsibility of individual corporations by reason of their quarterly income statements. Even then, the subdivision of many lines of business into groups of activities differing from each other and having a seasonable character and variation are very apt to mislead, if analyzed too frequently and without comparison. There will be shortly available, publication through all Code Authorities of employment statistics as well as the results of the compilation of the values of raw materials used, power consumed, hours worked, combined inventories and shipments, and other items indicating the production of units of output, which are much more enlightening than the mere issuance of statements regarding the individual money value of output. (The enclosed statement issued to the Cotton Textile Industry by The Cotton-Textile Institute, Inc., giving a report of the Chairman of the Cotton Textile Code Authority, showing beneficial results to the Industry under its N.R.A. Code, is an example.) A monthly statement, composed purely of the money value of output, leaves out of consideration the fluctuations arising from changes in commodity prices, seasonal demands, fashion influences and speculative movements. A quarterly statement is much more apt to give a correct picture, and is less likely to confuse those who desire to check up on their investments and interests in various corporations. I can see no advantages accorded to any director or officer, who is also an owner of securities, which would be denied to any other stockholder who would be deprived of monthly information. It will probably take anywhere from three to six weeks after the termination of each month before such information is available for analysis, and any advantage that a director or officer of a company might have for the purpose of exploitation would not be thus removed. It would not even be so removed if the report were made on the basis of weekly experience, because of the length of time which would intervene before such reports could be compiled and made public, notably if they had to be certified by public accountants. Moreover, the cost of publishing such certified information, and releasing it to a large number of stockholders, many of whom have a very small interest, is a burden which will discourage the further organization of corporations and will probably lead to the abandonment of the corporate structure by many enterprises who would feel themselves at a disadvantage with their non-incorporated and non-listed competitors. Most of the guiding information necessary is now possible by the corralling of figures through Code Authorities, and this, if assembled, might well be issued by the F.T.C. as a pamphlet or loose-leaf distribution, for the guidance of and made available to investors in all lines of business asking or subscribing for it. Sec. 15, b-1, page 18: The acquisition and resale of securities within a shorter time than the six months given by this section may arise from circumstances over which the officer or director has no control. There may be death or the winding up of an estate, the struggle for existence which may require the sale and disposal of securities acquired with the intent of holding, but made necessary by pressure of unfortunate circumstances, the "acts of God", business reverses, or the evidence of what may be considered wholly undesirable new tendencies arising shortly after the acquisition of stock interests. This may arise from new inventions or discoveries which may come to the notice of those acquiring securities; a sudden discovery of flaws or incapacity of management or a sharp difference of opinion may cause a desire for liquidating interests, the acquisition of which had no venal objective. In all these the issuing house may thus be considered as involving its representative on the board of directors. In dealing with the possible abuses arising from acquisition and disposal of stocks within a short space of time through drastic penalties, the bill as now drawn is calculated to "spill the child with the bath." Surely there must be a better way of controlling the possible abuse of power. As indicated above, on most boards of directors, I would point to the presence of bankers who have come upon the board immediately after undertaking to distribute securities for a new and not widely known corporation which is about to be listed or has been listed on a stock exchange. It must be the obligation of the bankers for many months, and perhaps for a term of a year or two, to stand ready to buy and to sell securities from and to investors who may have had a change of mind shortly after the sale or acquisition of stock from these very bankers. In many instances investors, acting under the advice of investment counsel, are apt to buy securities and to sell them back to the same bankers for the purpose of buying other securities which at the time may seem more favorable, thus improving their investment position, without having any intention of speculating. Changes in the international relationships, such as the imposition of tariffs, embargoes and other laws, to say nothing of wars and internal government complications, may demand a sudden change of mind on the part of the investor. Is anyone to be penalized for dealing according to his best judgments without regard to his honesty of intention? It seems to me this section must be safeguarded by an obligation on the part of the F.T.C. to permit the exposure of the entire transaction at the time it is made to the Commission for the purpose of exculpating and keeping free from any charge of venality any director or officer who might otherwise expose himself to criticism and penalty under this section, if indeed the section must be retained in the bill. Sec. 15, b-3, page 19: There are so many ways by which this section might cause damage to all business in general because of the impossibility of con trolling honest observation by those who are genuinely square in interpreting it and because of the further possibility of circumvention of its purposes by those who are less scrupulous, that it seems a wholly undesirable section. The word "confidential" as applied to information requires extensive definition. Every operative in the employ of the company and every manager of a department, whether in the factory or in the distribution end of the business, has information which may at times be of extreme importance; and while discipline and loyalty may prevent the misuse of such facts as are available in this manner, it seems impossible to eliminate out of daily conversation with customers or suppliers, consulting engineers, other advisors, and accountants, certain current information which at times may be of highest importance and at other times the same information may be most trivial and insignificant in value. All of this information may be considered to be under the control of the management officers and the board of directors. Sec. 17, page 20: This section is fraught with much risk: First, many small corporations will be tempted at the earliest possible opportunity to withdraw from offering their securities to the public and from the listing of such securities on the exchange, acquiring as rapidly as possible all outstanding stock interests not agreeable to withdrawing from such listing; second, the responsibilities of officers and directors which they attempt to safeguard by having certified public accountants verify all public statements, appear nevertheless to expose them to challenge and doubt. I think it is unfair and unreasonable to expose officers and directors, trying honestly to comply with the law, to the risk of a suit which in light of the circumstances can only be described as a "hold-up" and to be compelled to add to the burden of their activities the mental strain, the money outlay and the tax upon their time resulting from the obligatory defense of such suits as might be brought under this section, either by those who have malicious intentions or by those who are honest but misguided. Moreover, there is no method by which a rapid determination of the facts is possible, excepting by the already certified statement of public accountants, and these suits may overhang like a cloud the contestants or litigants themselves for a period of one or more years, impairing both the credit and freedom of action of wholly innocent persons and injuring all others interested in the company, as well as impairing the functioning of the officers of the company in behalf of its own best interests. Sec. 19, page 24: This section seems to be particularly dangerous to trustees handling investments assigned to them by persons who are at the same time officers or directors and who still have a right of joining with the trustee in an advisory capacity, possibly influencing their decision. Thus, the director or officer of a company owning securities may have deposited some of the securities in behalf of certain beneficiaries under trust agreements, and may exercise his knowledge and judgment in behalf of such trust beneficiaries quite differently from that with which he would view his own interests. It would seem that this section would make it inadvisable for any beneficiary of such trust to own any securties in the company in which one of the trustees may be interested, even though the trustee is fully familiar with, and knows all about this business, and knows very little about other businesses in which the beneficiary would otherwise have to be interested, if such a course were made necessary by the sale of securities in the company of which the cotru tee is an officer, and the reinvestment of funds in other companies. Secs. 21 and 22, page 26: These sections giving blanket publicity may be very harmful, unless it is mandatory upon the F.T.C. to use all information required by it in such manner as not to injure the corporation furnishing such information by undue publicity thus making available such information to persons intending to do and capable of doing mischief. I have no knowledge of the conditions under which stock exchanges can operate for the best interests of investors in securities, corporations, bankers and distributors of securities, but it seems to me that no action should be taken which will nullify a highly-organized and sensitive mechanism because it has been misused by the accumulated tendencies and habits which have been unchallenged, rather than because of real depravity and sinister motives. Regulations there should and must be because of the recent revelation of misdoings in financial circles. Control must be exercised and the Red and Green lights of traffic on the highways of financial transactions are indispensable in these days of complicated relationships; but it is impossible to make even minor progress with brakes so continuously set as to quench all initiative and to eliminate a structure of promotional and sales activity in securities without |