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the effort to supervise the legal operations from Washington alone filled the city of Washington up in such a manner that we could not get space. It was impracticable. There was a delay that proved to be just most unfortunate.

Now, the illustration of the State of Montana, so far from San Francisco is a good one; but there is not a great deal of business in Montana. The regional offices are near the great centers of our business, you see, as in California and in Cincinnati, covering the State of Ohio, and is located near the important cities where most of our work is, and therefore time is saved. And there were a good many elements in that which convinced us after a year and a half's trial of operation from Washington direct to the State that it was impracticable and we had to decentralize down to the regional offices.

The CHAIRMAN. Is that all?
Mr. RUSSELL. That is all.

Senator McCARRAN. With reference to these foreclosure items, that expense is charged back in the sale, so that it comes out of the sale of the property itself, does it not?

Mr. Fahey. Yes, sir.
Mr. RUSSELL. Yes, sir.

Senator McCARRAN. In the sale of the property to another purchaser?

Mr. FAHEY. That is correct.

Senator McCARRAN. Including the attorney's fees and court costs, advertising, and all of those things.

Mr. FaHEY. Yes, sir.

Senator McCARRAN. What success do you have in selling your property in covering those items, together with the amount that is due to the corporation?

Mr. Fahey. Senator, it is too early to give any final answer to that question, but considered on the sale of 3,200 properties, I believe this is based on only 4,000 up to now.

On the sale of that 4,000 properties, the Corporation has gotten as much as it has capitalized in them. capitalizes all unpaid principal all accrued interest at the time of the foreclosure; all costs and outlays in connection with the foreclosure on its books, then it takes the property and sells it for what it can. Sometimes it takes a heavy loss, and other times may make a little profit. But, by the sale of these properties up to now the Corporation is about even. We cannot tell whether we have sold the best or whether we have sold the worst. We cannot tell yet how we are going to come out. We have over $300,000,000 in property foreclosed or in process and we cannot estimate yet how much loss there will be. We have $92,000,000, I believe, in reserves set up. On the properties disposed of up to date, cash receipts as I recollect the last figures are slightly in excess of the total amount of our investment we had in the properties.

The CHAIRMAN. Gentlemen, if there are no further questions, we will excuse Mr. Fahey.


Senator McCARRAN. Mr. Chairman, I do not know how long Mr. Fahey wants to be before the committee. I do not know whether

you want to branch off of this subject or not, but I have another subject that I want to ask him some questions on, namely, this health group insurance that is over there which created some considerable comment.

I would like to know about it if the committee cares to sit longer at this time.

The CHAIRMAN. We are going to sit right along until we get through.

Senator McCARRAN. Referring to this health group, where did you get your authority to use public money to establish that?

Mr. Fahey. We felt, Senator, and Mr. Russell can go into that, that we had ample authority under this law as this agency was set up as an independent corporation and the authority given under the law was a broad authority.

Senator McCARRAN. Well now, where did you get any money appropriated for that purpose by the Congress of the United States?

Mr. Fahey. No money was appropriated for that purpose.

Senator McCARRAN. You used money that had been appropriated for other purposes?

Mr. Fahey. Appropriated for the general purposes of the Corporation.

Senator McCARRAN. But, nowhere, during your hearings or in the statements before either the committee of the House or the committee of the Senate, did you disclose that you were going to use public money for that purpose.

Mr. Fahey. That problem was not presented to the Corporation at that time.

Senator McCARRAN. I am asking now with respect to the respective committees, did you at any time disclose your purpose, that you proposed to set up this organization and use public moneys?

Mr. Fahey. Senator, we had no such purpose when those appropriations were under discussion.

Senator McCARRAN. So that the Congress at no time had any knowledge either inferentially of otherwise that you proposed to use $40,000 or $50,000, or whatever it was, of public moneys to set up a health group agency such as that; is that correct?

Mr. Fahey. That is correct.

Senator McCARRAN. Well, why did you not come to Congress for authority?

Mr. FAHEY. Because we did not feel it was necessary, and as we were advised by our counsel, that we had authority to do it.

Senator McČARRAN. Do not all appropriations emanate through Congress?

Mr. FaHEY. Yes, sir.

Senator McCARRAN. And all appropriations for any purpose should emanate in Congress.

Mr. Fahey. I should say so.

Senator McCARRAN. This appropriation emanated through Congress?

Mr. FaHEY. As I say, we were advised and understood that we had ample authority under our law.

Senator McČARRAN. You mean by that, Mr. Fahey-and I do not mean to be captious in this question you mean by that that your counsel found a way by which you could go around Congress and use public money?

Mr. FaHEY. No; I would not say that, Senator.
Senator McCARRAN. Well, that is what you really did do, is it not?


Mr. Fahey. Counsel can explain that to you, just what the legal aspect of that problem is.

Senator McČARRAN. Now, let us go back to my question. You did really go around Congress in using that money. Now, you are the head of that corporation?

Mr. Fahey. Well, we did not feel that we were going around Congress.

Senator McCARRAN. Why did you not present the matter to Congress; present your purpose?

Mr. FAHEY. The fact, Senator, is this: In the Washington office alone it has been costing us an average of $100,000 a year and more for sick leave.

Senator McCARRAN. Well, now, that is all right. That addresses itself to the merits.

Mr. FAHEY. Yes.

Senator McCARRAN. To the merits of the system. There may be many other systems, and many other agencies that may be meritorious, but after all is said and done the money of the taxpayers is in the custody of the House of Representatives and the Senate of the United States, and all public moneys are in their custody, and it is not for any independent agency to set itself up and set aside the will of Congress nor put itself in place of Congress.

Mr. Fahey. But, Senator, is it not the duty and responsibility of an agency such as this to effect any economies or savings which it can? If, for example, we find that a better bookkeeping machine is available which will do our work at less expense and with less burden on our employees, we do not hesitate to adopt it.

Now, as I have said, we found it was costing us in the country as a whole more than a half a million dollars a year for sick leave and in the city of Washington in excess of $100,000 a year. These employees of ours came to us there on their own initiative and proposed this plan, the object of which was to reduce sickness and consequently the cost of sick leave to us.

We felt that there was every chance that would be the result. An investigation was made of the experiences in private enterprise of various kinds and it demonstrated that savings could be effected in this way. If our employees were ready, at their own expense, to undertake this effort with the ultimate result of reducing our $100,000 a year of expenses right here in Washington we felt it was good business to do it, just as we would any other business.

Senator McCARRAN. That is fine and dandy. Now, that having been determined, why did you not come to the authority from which you receive your money and lay the matter before them for approval?

Mr. Fahey. Because, as I have explained, under the law this corporation is given the powers of an emergency agency. It is under the law specifically excepted from many of the restrictions on other governmental activities.

Mr. RUSSELL. May I make this explanation here, Senator, in order to get it into the record at this place?

Senator McCARRAN. Yes, sir.
Mr. RUSSELL. The statute says in section 4 ():

The Corporation shall have power to select, employ, and fix the compensation of such officers, employees, attorneys, or agents as shall be necessary for the performance of its duty under this act, without regard to the provisions of other laws applicable to the employment or compensation of officers, employees, attorneys, or other agents of the United States.

Senator BRYNES. Will you speak a little louder, please?

Mr. RUSSELL. The statute, section 4 (j) provides that the Corporation may determine the manner in which it shall incur expenditures and that they may be paid without regard to the provisions of any other law governing the expenditures of public funds.

Senator McCARRAN. To that you applied this reasoning, as I take it, from your letter to me, and, from the figures in that letter, you construe that in this way: That that places you entirely beyond dominance by the Comptroller General.

Mr. RUSSELL. Senator, if you will allow me to make a short statement, I believe I can make it clear. The Independent Offices Appropriation Act of 1936 provided that the Corporation should incur no administrative expenses except as authorized by Congress. The Independent Offices Appropriation Act for the current fiscal year has the same identical language that you have in the bill before the Committee for the next fiscal year.

Senator McCARRAN. Just what is that?

Mr. RUSSELL. That language that is put in this act is in these words, and in the 1938 appropriation it is identical to this:

Provided further, That except for the limitations in amounts hereinbefore specified, and the restrictions in respect to travel expenses, the administrative expenses and other obligations of the Corporation shall be incurred, allowed, and paid in accordance with the provisions of said Home Owners' Loan Act of 1933, as amended.

The language in this bill last year and the language which is in the bill now before you enumerates certain expenses and then says: and all other necessary administrative expenses.

Senator, may I point out to you that there are a great many things that the Corporation does from time to time that it does not come to the committee about, that are not enumerated expressly in this list, and the language you have in this bill about other administrative expenses must necessarily be there to cover those items. For instance, we pay out substantial sums for credit reports, and they are not mentioned in here at all, and yet it is an expense of the Corporation, and it occurs every day. We pay many kinds of expenses that are not enumerated in this bill. If there is any misunderstanding on any justification, it has to be clarified. We have proceeded in perfectly good faith. I will admit, as a lawyer, that I am inclined toward liberal constructions.

Senator McCARRAN. Yes.

Mr. RUSSELL. If I were going to construe the Constitution of the United States, I would construe its terms as giving broad power to act. When I construed this statute, I construed it in the same way. I think we ought to try to arrive at the intention of Congress in construing statutes. I believe Congress put in this language so that the Corporation would have the power to do those things that were necessary to be done to do a given job.

Senator McCARRAN. And with the same degree of accuracy could you not have the Corporation engage in other lines of business?

Mr. RUSSELL. No, sir, it says: shall determine its necessary expenditures under this act and the manner in which they shall be incurred, allowed, and paid, without regard to the provisions of any other law governing the expenditure of public funds.

Senator McCARRAN. There are other lines of business which would come under that very clause.

Mr. RUSSELL. Yes; but the act does not provide for engaging in any other kind of business.

Senator McCARRAN. It does not provide for a health group either. You cannot find it in there, nor anything that would conceive of that, and Mr. Fahey stated too that this was conceived in the minds of the employees, and it was carried on at their insistence, and that is fine, but you take $40,000 of public money that the Congress of the United States never had any realization of nor any information of, and you pụt it into something that is now being carried on by the employees henceforth. Now, the carrying on is all right. I have no quarrel with that. I think any group of employees have the right to combine for any purpose they like, but I think when a junket of this kind is started, I do not care whether it is a health group or what it is, if it is something to take money out of the public funds, out of the appropriation, and apply it to something that Congress had no intimation of, I think it is a violation of the principles upon which the whole system of our Government operates.


Mr. RUSSELL. May I invite your attention to the fact that we are paying money out every day down there for steam heating to heat the cafeteria for this building, and it is not provided for in this bill. It is done on the ground that it is necessary to the carrying on of this business, and it is, but it is no more authorized than this item is. It is not expressly provided in these statutes, but it is, in my opinion, a matter for the exercise of the sound discretion of this Board.

Senator McCARRAN. Let me ask you this: Let us be fair with each other-suppose you had come to Congress with this proposition, do you think you could have gotten by with it?

Mr. RUSSELL. I think so.
Mr. Fahey. I think we ought to get by.

Senator McCARRAN. Why did you not come to Congress with it, then?

Mr. RUSSELL. We did not come to you for the same reason that we did not come and ask you about the cafeteria, and for the same reason we do not come to you and ask you about the credit reports, and for the same reason we do not come and ask you about one thousand-and-one things we do every day.

Senator McCARRAN. Did you set up the cafeteria at Government expense?

Mr. RUSSELL. We paid $1,040,000 for the building, and we spent about $1,800,000 to improve the building, and I assume, based on that cost, that space which the cafeteria occupies cost the United States Government more than $40,000.

Senator McCARRAN. Was the purchase of that building authorized by Congressional appropriation?

Mr. RUSSELL. No, sir; the purchase was not authorized by Congressional appropriation. Prior to the establishment of this procedure that expense was incurred, allowed, and paid.

Senator McCARRAN. I said, was it authorized ?

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