Senator BROOKHART. I am a schoolmate of his, so I have known him always, too. He told me that he planned to produce more than he could sell in the United States all the time.

Mr. TRAYLOR. Yes; because he knows he has a ready market for them already.

Senator BROOKHART. Yes; and I know and you know that we have a ready world market at some price for our little 10 per cent surplus of agricultural products.

Mr. TRAYLOR. But it does not pay to produce that surplus and ruin your home market with that surplus.

Senator BROOKHART. As long as the present method of price fixing continues I agree with you. But if we can hold up our domestic market we can afford to take the loss on the little 10 per cent.

Mr. TRAYLOR. Senator, what I am afraid of on that is this: One of the ablest farm leaders I know of told me that if you would give him dollar wheat year in and year out he would guarantee to double his production of wheat.

Senator BROOKHART. Then he would reduce his production of livestock, or something else. If we would protect his wheat he would change from livestock to wheat.

Mr. TRAYLOR. You can not protect one and not protect all to a certain extent, if you are going to make it applicable. The thing I am afraid of is that if you did take care of your surplus export and raise the price of the domestic market we might produce so dog-gone much stuff in the country that we would swamp ourselves with it. That is the thing.

Senator BROOKHART. Now let me give you some information on that. I wish you would read pages 78, 79, and 80 of the Report of the National Industrial Conference Board of 1926, and you will find the most scientific analysis of agricultural production that has ever been published, and it shows that the surplus is gradually declining in the United States, the population is outgrowing agricultural production, and perhaps in 25 or 30 or 40 years we will have no surplus except in cotton.

Mr. TRAYLOR. Senator, I will send you a speech that I made in 1917 in which I proved conclusively to my own and some of the audience's judgment that in 10 years we would not be producing enough products of the farm to feed the American population. And look what we have got now. We know nothing of what the productive capacity of this country is until we stir it up and can get paid for it. The minute we get profit for it we will get the production. I am going to send you that speech.

Senator BROOKHART. I would like to see that speech, but the National Industrial Conference Board has made a scientific study of the question.

Mr. TRAYLOR. Yes.

Senator BROOKHART. And it is the most reliable thing I have found, and it shows the agricultural plants in full operation now. That all we could do would be to switch from one crop to another. If we protected them all alike there would be no tendency to do that. And the population is growing, everybody admits that. So that the final result of it will be that we will catch up with this surplus, but 25 or 30 years is a little too long for agriculture to stay in bankruptcy. We would like to liquidate that.

Mr. TRAYLOR. Nobody knows that more than we do. We have got $80,000,000 of farm mortgages that we are sweating with.

Senator BROOKHART. Now, then, supposing we would take charge of this surplus, and raise, say, the price of cotton to 20 cents, corn to a dollar, wheat to a dollar and a half, and hogs to 12 cents, and cattle

to 14 cents.

Mr. TRAYLOR. Give us 12-cent cotton. We will get rich with that. Senator BROOKHART. If that were done, your banks would get out of their trouble immediately.

Mr. TRAYLOR. Yes. You could not do that without raising the price level of everything. And of course we would be prosperous immediately.

Senator BROOKHART. That would make the whole country prosper

ous at once.

Mr. TRAYLOR. Yes.

Senator BROOKHART. Then why not take a billion dollars and do that thing instead of $2,000,000,000 here figured around this bubble at the top?

Mr. TRAYLOR. I do not think it will work, Senator, because it will double the production on you next year. That is the trouble.

Senator BROOKHEART. You know it did work when the Democrats ran it, do you not?

Mr. TRAYLOR. Well, of course I am partial to them; I will say that. Senator BROOKHART. And Mr. Hoover and Mr. Julius H. Barnes did work it after the war was over, too, and successfully, and made a profit out of it of $59,0000,000 into the Treasury of the United States. You know about that, do you not?

Mr. TRAYLOR. Yes.

Senator BROOKHART. The Democrats ought not to get off their platform here.

Senator FLETCHER. Mr. Traylor, let me ask you, would it not be advisable to encourage and promote facilities for exports by American agencies?

Mr. TRAYLOR. Generally?

Senator FLETCHER. Yes.

Mr. TRAYLOR. Well, naturally I would favor that. But again, you come right back to the laws of commerce, and it is a question of whether we can-do you mean shipping, or in what way?

Senator FLETCHER. By encouraging American agencies to engage in exports of American products.

Mr. TRAYLOR. All you have to do in order to do that is to give them a profit on the transaction.

Now there have been a lot of criticisms of the banking fraternity for the sale of foreign securities. I am willing to take and guess that half of the export prosperity of the five-year period, or the period from 1924 to 1928, when lending was practically stopped, was due to the terrific lending. They are not getting any credit for that now. All you have got to do to encourage exports is to make it profitable. You can not do it otherwise.

Senator FLETCHER. Well, some of our agencies could be helped under this sort of a bill to build up that business and facilitate it? Mr. TRAYLOR. Yes; I think that is possible.

Senator WALCOTT. Mr. Traylor, we are very much obliged to you for coming on and helping us out. You need not reconvene with us

this afternoon unless you want to, but we will meet here again at 2.30; and Mr. Mills, we will ask you to be the first witness for the afternoon, and we will let you go back home.

(Thereupon, at 1.30 o'clock p. m. Tuesday, December 22, 1931, an adjournment was taken until 2.30 p. m. the same day.)

AFTER RECESS

The subcommittee reconvened at the expiration of the recess, at 2.30 o'clock p. m.

FURTHER STATEMENT OF MELVIN A. TRAYLOR, PRESIDENT FIRST NATIONAL BANK, CHICAGO, ILL.

Senator WALCOTT. Gentlemen of the committee, I have decided to ask Mr. Traylor to take the stand for a moment in order that he may make a statement with reference to the primary purpose of the National Credit Corporation and why something is needed to supersede that.

Mr. TRAYLOR. The National Credit Corporation was formed as a voluntary act by the banks of the country to meet an emergency which they felt clearly existed at the time. That emergency arose because of the inability-at least the believed inability, whether actual or otherwise for perfectly solvent banks to borrow against their collateral. There were two avenues open to solvent banks. Those that were members of the Federal reserve bank had that avenue open for rediscount or borrowing, and all banks had their correspondent relationships with the larger city banks from whom their might borrow.

The public feeling was that a number of banks throughout the country had assets that were perfectly good, but, because of their character, too slow to meet the requirements either of the Federal reserve bank or the other correspondent banks. This emergency corporation, the National Credit Corporation, was formed, therefore, for the purpose of making loans to solvent banks against these slow assets and admittedly slow. Otherwise they would be available either at the Federal reserve bank or at their correspondent bank.

What is really ment, therefore, was that the pooled assets of the larger banks or those subscribing to the pool-presumably the liquid banks would be loaned to the borrowing banks against a character of assets which, under the interpretation of the examining bodies. whether Federal or State, was slow, and would be so classified if found in any bank.

The result is that to the extent this pool loans against these slow or frozen assets, they are taking into their portfolio, or participating in, through their guaranty, which is joint by the members of each association, assets which, the moment they go into the bank, are subject to criticism as slow and nonliquid.

To pursue to the end the operation of the National Credit Corporation would mean taking $500,000,000 out of the larger liquid banks, and tying it up in the character of loan that, in the very nature of things the thing that makes the emergency itself-can not be quickly or readily liquidated.

Therefore, I believe that it is in the interest of the whole banking structure that this present reconstruction finance corporation now under consideration be enacted at the earliest possible moment, to relieve the banks of further tying up their assets in this character of security, which they have been glad and willing to do in the emergency that existed.

Senator BULKLEY. Is it your view that the National Credit Corporation should cease to function as soon as this bill is enacted?

Mr. TRAYLOR. I should think that in all justice to the banking structures as a whole, they should cease making loans when this corporation is in a position to function.

Senator BULKLEY. I do not think it appears on the record yet what your connection with the National Credit Corporation is.

Mr. TRAYLOR. I am chairman of the loan committee, as it is called, of association No. 1, district No. 7, of the National Credit Corporation, which includes the States of Illinois and Iowa, so far as those States are in the seventh Federal reserve district.

Senator WALCOTT. Do they correspond entirely to the Federal reserve districts?

Mr. TRAYLOR. Yes. Each district organized by associations. In out district we originally contemplated that each of the five States, four being partially in the seventh district, the State of Iowa being entirely in the seventh district-that each of the States would organize its own association, for the facility of making better loans, because the loans first have to be approved by the loan committees in the respective associations, and then forwarded to the association headquarters in New York. For the sake of facility in making loans quickly, it was thought that if Michigan, Indiana, Wisconsin, Illinois, and Iowa were organized separately they could handle their deals separately, each knowing better its own banks. Iowa was unable to complete her organization, and asked to join the Chicago organization, which includes that part of Illinois in the seventh district. We were glad to take them into our association, No. 1.

Senator BROOKHART. How many other banks went in that?

Mr. TRAYLOR. Senator, I can not answer you, because I have not seen the figures, but the total subscriptions, according to the last information I have, were around two and a half million dollars. Senator BROOKHART. From Iowa?

Mr. TRAYLOR. From Iowa.

Senator BROOKHART. None of it had been paid in?

Mr. TRAYLOR. There has been no call made yet on any of the banks. I understand there is to be a call about the first of the year. Senator WALCOTT. That is all. Thank you, Mr. Traylor. Mr. Wilson W. Mills.

STATEMENT OF WILSON W. MILLS, CHAIRMAN OF THE BOARD, PEOPLES WAYNE COUNTY BANK, DETROIT, MICH.

Senator WALCOTT. I believe you are the chairman of the board of the Peoples Wayne County Bank, are you not; and also chairman of loan committee of your national credit association?

Mr. MILLS. Yes, sir.

Senator WALCOTT. You have seen the course your predecessors have taken here, Mr. Mills. If you choose, you may follow the same

course, making your own statement uninterrupted, and then we will ask you questions.

Mr. MILLS. I would like first to say just a few words supplementing Mr. Traylor's remarks regarding the National Credit Corporation. I have had some correspondence with several Senators who have written me as to whether in Michigan, or rather the lower peninsula of Michigan, which is the only portion of Michigan that is in our district, this organization is functioning.

I want to say right now that the National Credit Corporation has functioned. It was rather slow in getting under way on account of the legal requirements in New York, which I presume could not be avoided, but once it got under way the National Credit Corporation has saved quite a number of situations in Michigan.

I was very much interested this morning in Senator Brookhart's statement to the effect that there has been only some $10,000,000 of loans. Mr. Traylor said that they had made some $5,000,000 in his district. We have made, roughly, $2,500,000 in our district. So, apparently, that is three-quarters of the whole. We are apparently doing well on that basis.

The National Credit Corporation results in the large and strong banks, really, lending their resources to the smaller banks, in effect, to keep them in business. We have found that a large number of the smaller banks in Michigan, many of them perfectly sound and solvent if given a chance to work out, owing to the hysteria of the public in wanting its money, have parted with their primary and secondary reserves, and are down largely to mortgages.

We find that these mortgages are perfectly good, but, even in the hands of a solvent bank, are almost unavailable to them, except through the National Credit Corporation, or some other agency, to raise cash with which to pay their depositors. I have in mind a case that came up before our Michigan association of the National Credit Corporation last week. A certain institution wanted a substantial loan, and offered of its own volition, mortgages aggregating four times the amount of the loan. It could not get the funds elsewhere. The National Credit Corporation took them, and we did not require all the collateral in that case, that was offered. Those mortgages had been very substantially paid down from the original amount. The appraisals were still ample to cover them. There is a case where that particular institution should have been saved. That particular one was perfectly solvent. Without the National Credit Corporation I think that particular institution would have gone to pieces, but with it, it was possible to save that institution. It may not hold it forever, because, as Mr. Traylor has said, the resources of the National Credit Corporation, in the very nature of things, are limited, but the National Credit Corporation has performed, in my judgment, a perfectly splendid emergency function. But it is only an emergency measure. It is nothing that can continue forever, in my judgment.

Senator FLETCHER. Have they any limitations as to length of loans? How long is the corporation to exist?

Mr. MILLS. I can not answer your question, Senator, as to the length of its technical existence. I presume they probably took a perpetual charter. It is customary to take that. The obligations