tion a year from now. However, that is a matter for your committee.

The CHAIRMAN. Mr. Tierney, have you any questions that you would want to ask?

Mr. TIERNEY. No.

The CHAIRMAN. Mr. Strong!

Mr. STRONG. No.

The CHAIRMAN. Mr. Seiberling?

Mr. SEIBERLING. NO.

The CHAIRMAN. Mr. Luce?

Mr. LUCE. No.

The CHAIRMAN. Mr. McFadden?

Mr. MCFADDEN. No.

The CHAIRMAN. Mr. Disney?

Mr. DISNEY. Nothing at all.

The CHAIRMAN. Governor Meyer, we thank you, and I think that. unless some one discovers a further need for your presence, we might be able to excuse you.

Gentlemen, we invited Mr. Mills, the Under Secretary of the Treasury, to discuss this bill with us, and I am sure you will be very glad to have the benefit of his suggestions.

Mr. Mills.

Mr. STEVENSON. I take it we would like Mr. Mills to make his statement, and when he gets through, I thought that any questions that we may ask→→→→

The CHAIRMAN. Yes, I am sure the committee will be glad to hear Mr. Mills until he has made such statement as he desires to make, without interruption, and then of course, I am sure he will be glad to answer any questions.

STATEMENT OF J. OGDEN MILLS, UNDER SECRETARY OF THE TREASURY

Mr. Mus. Mr. Chairman and gentlemen of the committee, I do not know that it is necessary for me to make any elaborate statement.

I assume that, in the hearings held before the holidays, and this morning, Governor Meyer has covered the general purpose of this bill and the reasons which call for its enactment.

The Treasury Department is fully in accord with the views of Governor Meyer as to the necessity for this kind of legislation at this time; it is in thorough sympathy with the purposes to be accomplished by this legislation, and we have no suggestion to make as to the amendment, other than the amendments which have been submitted by Governor Meyer.

I assume and understand that Governor Meyer submitted the Treasury amendment providing for the purchase of these securities by the Treasury Department, and their subsequent sale, if you thought it desirable. There was one amendment which we thought was necessary, in order to protect the Treasury Department in conducting the financial operations of the Government, so that these debentures would not be offered simultaneously, for instance, with Government issues.

I do not know it is necessary for me to say very much more, Mr. Chairman, other than to emphasize the fact that this legislation is necessary. It is not only necessary, but it is immediately necessary, and the promptness with which it can be enacted is as important as obtaining the legislation itself.

The CHAIRMAN, I will say this to you, Mr. Mills: If you desire to do so, the committee would be glad to hear you in executive session, if you would prefer it.

Mr. MILLS. I see no occasion for that, I think, Mr Chairman. The CHAIRMAN. Then proceed with whatever suggestions you see fit to make.

Mr. MILLS. I do not know that I have any more suggestions to make, Mr. Chairman.

The Treasury Department unqualifiedly indorses the measure. Mr. BRAND. Mr. Mills, may I ask you a question right there? Mr. MILLS. Yes, Judge.

Mr. BRAND. After this act is passed and approved by the Senate, as we are hoping it will pass soon, how soon can the corporation be organized and be ready to function?

Mr. MILLS. That is a very difficult question. I would rather you had asked that of Governor Meyer, because he was acting when the War Finance Corporation was organized. It seems to me that it must, of necessity, to take a little time, because applications for loans are going to come in from all sections of the country, and the machinery has got to be created to pass on the necessity for the loans and the adequacy of the securities, and that can not be done overnight, even with the help of the existing agencies.

I have this feeling, that the mere knowledge that this powerful instrumentality has been created by the United States Government, as the support of her whole credit structure, and the knowledge that the resources of this corporation are available to plug any hole that may develop in it-that, of itself, will have such a strong effect that it will tend, of itself, to restore the lack of confidence that exists to-day.

We can proceed, of course, with the utmost expediency.

Mr. BRAND. I am satisfied of that.

Mr. MILLS, But you can not create an organization of this kind overnight.

Mr. BRAND. The reason I asked that question is, down in the South, and elsewhere, these banks are continually breaking, and if this corporation was in existence now, it might afford sufficient collateral or security to borrow money on it.

Mr. MILLS. Well, I know of some situations there, Judge, and of course there is a great deal of information available, I think, through the National Credit Corporation, which has been functioning now for some weeks; and I have no doubt that that information could be made available to this corporation at once.

Mr. BRAND. Well, now, when you do get functioning, will the practical effect of it be that the National Credit Corporation will cease, or will it still be making loans when they want to make them? Mr. MILLS. I do not know. After all, that is an organization created voluntarily that is, a voluntary organization created by the banking institutions for their mutual assistance. I suppose it

would be for the banks to determine whether or not they desired to continue during the period of the emergency.

The CHAIRMAN. Mr. Mills, would you be able to say how much of the initial capital stock of $500,000,000 would be called for by the directors immediately after organization?

Mr. MILLS. No; I would not, Mr. Chairman, but I think the full amount should be made available immediately by appropriation. The CHAIRMAN. I should take it for granted that would be the procedure.

Mr. MILLS. Yes.

The CHAIRMAN. The bill provides for a board of directors consisting of the Secretary of the Treasury, the governor of the Federal Reserve Board, and the farm loan commissioner, and two other persons appointed by the President of the United States.

Mr. GOLDER. That has been amended, I think.

The CHAIRMAN. It has been suggested that it should be amended and that the parties directors should be four, instead of two. Would you think it would be advisable to have the whole board consist of 7 members, or in the case of a change in the law to make the parties number 4 instead of 2, leaving 1 or 2 ex officio Government officials as members of the board?

Mr. MILLS. I would think it would probably be desirable to have three.

The CHAIRMAN. You would think favorably of the suggestion to make the appointive members four instead of two?

Mr. MILLS. Yes, most decidedly.

The CHAIRMAN. The Secretary of the Treasury himself would hardly be able to perform the duties of a director of this board, would he, in the light of his multitudinous duties and responsibilities elsewhere?

Mr. MILLS. I think the suggestion made by Governor Meyer is a good one, that the Undersecretary could act for the Secretary, if the Secretary so desired.

The CHAIRMAN. I think that is contemplated.

Mr. GOLDER. That is suggested in the amendment on that, Mr. Chairman.

The CHAIRMAN. I did not know the amendment had been drawn to that effect, but we have discussed it.

Mr. GOLDER. Page 1 of the amendments.

The CHAIRMAN. Mr. Mills, what is your view of this legislation as to the necessity for including the railroads within the purposes and purview of this plan?

Mr. MILLS. Mr. Chairman, I think it is very desirable, because of the situation which exists to-day. Bonds of class 1 railroads have always been looked upon as prime securities of this country, and this security is one that has been largely purchased by insurance companies, by banks, by trusts of all kinds, and it has been generally looked upon as fine an investment security as existed.

The fact that railroad earnings have fallen off at the rate that they have, has tended to depreciate the railroad funds to an equal extent. The depreciation in railroad bonds has affected all other bonds. The depreciation of all the bonds has affected the secondary reserves of all the banks; and that, in turn, has been responsible in a

large number of cases in closing banks that were liquid, but not technically solvent.

I think the knowledge that the railroad credit situation can be taken care of in the emergency, by this corporation, together with such other steps as undoubtedly will be taken, will tend to restore confidence in railroad securities; and that, in turn, would be reflected in the greater confidence in all other bonds, and that is all that part of the credit structure which we are seeking to fortify at the present time.

The reason the railroad bonds are so important is not only because of the volume outstanding, but because of the fact that they have been purchased as the safest and soundest securities by insurance companies and trust companies, and those other organizations that do the investing of peoples' funds; and, therefore, it can be fairly said that the people as a whole have a very direct interest in the value of railroad bonds.

The CHAIRMAN. Well, now, Mr. Mills, if you have something on that

Mr. STEVENSON. I want to ask this: Are those bonds-those bonds are, at the present, largely in the hands of private holders? Mr. MILLS. No.

Mr. STEVENSON. Semipublic institutions?

Mr. MILL. No; I should think the semipublic institutions

Mr. STEVENSON. Well, now, when a railroad came to borrow from this institution, what security uncorroborated would it have to offer? Mr. MILLS. It might still have some chance of it-it might not be able to give you a first mortgage on its property, but it might still have a very considerable equity that would be good security.

Mr. STEVENSON. You would not undertake to take a mortgage on a railroad for this institution?

Mr. MILLS. No; but this institution could take the railroad bonds that are guaranteeing that mortgage. You must look to the railroads' showing in the days when the Government was lending money by the hundreds of millions of dollars to the railroads, and we made very few loans-I think we made very few losses. I think we have got about $50,000,000 of railroad securities left out of that hundreds of millions of dollars of loans, and I think $25,000,000 of those are good. You remember that the Government was lending hundreds of millions of dollars to the railroads at a time when their properties were fully mortgaged, as a practical matter, as they are to-day.

I do not think that presents any real problem, Mr. Stevenson. Mr. STEVENSON. We are going to be asked a lot of questions about this inquiry in the House, you know, and I wanted to get at the facts about it.

Your idea would be that the railroads would still have some bonds in the Treasury and not sold to the public, which they can pledge, or that they would give a new trust and mortgage-and mortgage bonds secured by a new trust, and pledge them?

Mr. MILLS. Yes; I think that might be one form. I can conceive of a situation where the standing might be sufficient guarantee, or of a situation where the standing might be sufficient guaranty, or that the corporation would be justified in lending on the mere note of the corporation.

Mr. STEVENSON. Or a note, pledging certain of its assets?
Mr. MILLS. Yes.

Mr. DISNEY. How long would it take to put the railroads on their feet?

Mr. MILLS. I have not got the figures, but if you take the class 1 roads as a whole, they will certainly earn their fixed charges this

year.

Mr. DISNEY. Can you estimate about how much the board would be called upon to lend the combined railroads?

Mr. MILLS. No; because I am very hopeful that, now that the credit fund has been created for the reaction of the Interstate Commerce Commission, that the possibilities of the adjustments that are in prospect-that with the general restoration of confidence and the resumption of business, I do not see why the railron is should not come back very fast.

I do not figure this corporation as one that is going to be called upon immediately to lend vast sums of money, in order to put the whole credit structure of the United States on its feet. I think that the credit structure, generally speaking, is sound; but it is the less of confidence to-day which is resulting in the very deflating movement, and fear plays a very large part in it; and up to the present time there has been in existence no agency sufficiently powerful to give the assurance to the people that there need not be any serious collapse, and full protection on that point.

What we are doing here is to create an institution big enough and strong enough to give assurance to the people of this country that we are able to protect the credit structure. My own feeling is that, having done that, together with the other events which I hope will take place gradually, we can restore confidence; and with the restor ation of confidence, our ordinary credit machinery will begin to function again. We can not replace the ordinary credit machinery of the United States, and it is useless to attempt to do it. What we are trying to do is to give the people enough confidence in the exist ing machinery, so as to permit that machinery to function on a normal basis.

Now, if you ask me whether we have got enough funds here to finance all of the people of the United States, no: it is not big enough, and it is not our purpose to finance all of the credit need through the banks. No; that is not our purpose.

A good many banks have failed. The banking resources of this country are still immense, but we want to give that protection to the United States. We want to stop this credit restriction, and show the way to do that, and to show the people that the credit situation can be taken care of. That is the real purpose of this bill, and you have got to look at it in a large way. There is no use trying to tear it to pieces with a meticulous examination of the details, or try to ascertain whether--how much of the fund-to what extent the funds will be used here or used there.

The great success that can be reached through the enactment of this bill is not to have a corporation lend one nickel. That may sound paradoxical; but there would be a great deal that could be gained by the enactment of this legislation. I do not know whether I make myself clear, but that is the way I visualize it.