I do not know any good purpose that can or would be served by the proposed change in section 302 and since, as I have indicated, the change would produce a most deleterious result, the provision is highly undesirable. The following quotation demonstrates the essence of the change which section 2 of S. 1123 would effect in the present section 303 (a) of the Defense Production Act of 1950 (new language to be inserted is in italics: "SEC. 303 (a). To assist in carrying out the objectives of this act, the President may authorize the Secretary of the Interior, the Secretary of Agriculture, or the Administrator of General Services to make provision (1) for purchases of or commitments to purchase metals, minerals, and other raw materials, including liquid fuels, for Government use or for resale; and (2) for the encouragement of exploration, development and mining of critical and strategic minerals and metals: * * * " The foregoing quotation clearly shows that the proposed change would limit the President's choice of the officers or agencies to perform the functions specified in section 303 (a). I do not believe that it is wise as a general proposition to limit the President in his selection of agents to perform delegable functions, and in my opinion, the more important the function, the more important it is that the President be permitted to make his selection in accordance with his best judgment. Especially because the particular functions here involved vitally affect the Nation's security, I believe it advisable to retain section 303 (a) in its present form, which permits the President to make delegations of authority in the exercise of his sound judgment. I believe that the proposals contained in S. 1123 are not in the best interests of the Nation, and accordingly I recommend against enactment of the bill. In view of the urgency of this matter, there was no opportunity to present this statement to the Bureau of the Budget and it is, therefore, not possible at this time to advise you regarding the relationship of the legislation to the program of the President. Sincerely yours, W. E. HARBER, Chairman. RECONSTRUCTION FINANCE CORPORATION, Hon. BURNET R. MAYBANK, Chairman, Committee on Banking and Currency, DEAR MR. CHAIRMAN: As requested by Mr. McMurray on March 9, 1951, I am submitting my views on Senate Joint Resolution 44, the effect of which, if enacted, would be to terminate the active life of Reconstruction Finance Corporation on June 30, 1951, and to transfer it to the Secretary of the Treasury for liquidation of its assets and the winding up of its affairs. It is true, as the resolution states, that the specific economic conditions which existed when the RFC was established and which it was designed to alleviate no longer exist, but, since the dark depression days of 1932 when it was established and when it did a heroic job in preserving the economic life of the Nation, it has been assigned by the Congress and has performed other important and valuable functions both for the promotion of peace and the prosecution of war. At this very moment, under the provisions of the Defense Production Act of 1950 and the Executive orders of the President, it is making loans to private business enterprises for the expansion of capacity, the development of technological processes, and the production of essential materials needed for the national defense. Also, RFC is handling the Government's synthetic rubber program, the tin program, and the abacá fiber program, all of which, as you know, were originally organized, developed, and operated by RFC. These programs so vitally important to the national defense and the other functions performed by RFC under the Defense Production Act must be continued even though the RFC should be abolished, and, as you can well appreciate, transferring these functions to other Government agencies would involve highly undesirable consequences-the dispersal of an experienced and able organization, the dissipation of ill-spared energy, time, and funds required to effect the transfer and the loss of the advantages of the corporate form of organization, the most important of which are operating flexibility and the ability to use business methods. In pointing out RFC's usefulness in the preparedness program I do not wish to minimize the important role which RFC does and should continue to play in 85072-51- 4 peacetime. Even in what might be regarded as normal times, there are gaps in the private credit structure caused partly by unwillingness, and partly by inability of banks to meet certain credit needs. For example, there is reluctance to tie up depositors' money in a long-term loan or loans to new businesses. This reluctance is exemplified by the fact that the loan which RFC made to Kaiser-Fraser could not be obtained from private sources. Primarily responsible for this reluctance is the fact that banks prefer to put their cash in Government bonds and Government-guaranteed mortgages. Also, banks are prohibited by law and regulations from making certain types of loans. These restrictions are designed to protect depositors, but their effect, under the economic conditions which have made it profitable, and at the same time safer, to invest in Government bonds or Government-guaranteed obligations has been to transform banks, to a very large extent, to the status of mere depositories for funds. In general, the very existence of an agency such as the RFC has a very wholesome and salutary effect on both business and the banks in assuring that there would be as broad a flow of private credit as conditions would warrant. In the future as in the past, both small business and new businesses, whether large or small, will continue to require financial aid which no longer is available from private sources-a need which RFC loans have supplied in the past. Needed also, and perhaps to a greater extent in the future than in the past, is the assistance which RFC has been giving business in obtaining credit from private sources. It is particularly noteworthy that a rearrangement of financial schedules, guarantees, and collateral, suggested by RFC's staff, has made it possible for many a small business to obtain a loan from the same private sources which originally declined the loan. In addition, RFC not only plays an important part in alleviating hardship and rehabilitating property damage caused by floods, hurricanes, tornadoes, and other disasters, but it also makes an important contribution to the economic stability of the country through the financial assistance which it gives to States, counties, municipalities, and other public agencies toward financing projects such as waterworks, sewer systems, transportation facilities, bridges, tunnels, hospitals, drainage facilities, irrigation works, airports, docks, college dormitories, and a host of other projects undertaken by State and local governments. As in other categories of loans, such financial aid is not given unless credit from private sources is not available on reasonable terms. The gaps in the credit structure vary with the different geographical areas and, through its various types of loans, particularly its loans to both large and small business enterprises, RFC has been instrumental in promoting the industrialization of economically under-developed areas of the country. In brief, in normal times RFC has an essential function to perform-that of supplying the financial needs of the economy not otherwise available from private sources. In this connection, it should be particularly remembered that this Nation has attained its present state of development and productive capacity largely becauses new enterprises were able to obtain the financing needed to transform ideas into reality. American history clearly demonstrates that new and expanding businesses have always needed financing and that small business, the foundation of a prosperous and happy nation, is essential to the preservation of our economic system. Especially in these days of emergency when the Nation is bending every effort to strengthen its defenses, the know-how, experience, and operating flexibility which repose in the RFC are valuable resources which the Nation can ill afford to scrap. In this connection, I would like to emphasize that the present staff of the RFC includes many individuals who held key positions during the years when the RFC and its subsidiaries made an outstanding record in promoting first, the National Defense program preceding Pearl Harbor, and later, the actual waging of World War II. RFC's contribution to these efforts, it will be recalled, included the construction and operation of more than 2,500 plants, the procurement of strategic and critical materials costing more than $7%1⁄2 billion, the establishment and operation of a synthetic rubber industry, the waging of economic warfare on a global scale through a program of preclusive buying, and the lending of $2,033,000,000 to private business engaged in producing the guns, tanks, and other armaments, equipment, and supplies needed for successful prosecution of war. The proposals to abolish the RFC stem, I believe, from dissatisfaction with the conduct of a few individuals holding high office in the Corporation. To abolish the RFC for that reason is as logical as it would be to scrap a very useful auto mobile because of dissatisfaction with the way the chauffeur has been driving it. It seems to me it would be much more sensible to hire a new chauffeur. RFC's record is one of distinguished service to the Nation both in time of peace and in time of war. That service has been rendered efficiently, honestly, and honorably by men and women who are loyal to the RFC and eager that it and its experienced staff be utilized in the present effort to strengthen the defenses of the country. The Fulbright subcommittee's criticism is not directed at these people and there is every reason to believe that, under competent direction, RFC can play an important role in rebuilding the Nation's defenses. In 1948, when the Congress was considering whether RFC should be continued, the Senate Committee on Banking and Currency reported, after a thorough inquiry into RFC operations: "The committee has concluded, however, that there are sound reasons which justify the continuation of RFC on a permanent basis. Those reasons may be summarized as follows: (1) RFC performed an extremely useful and vital function during the emergencies of the last depression and of the war. Should such events recur, the existence of such an agency, already established, will permit more prompt and effective action than would be possible if an agency had to be recreated. (2) There are some limited functions which such an agency can usefully perform during periods which cannot be characterized as times of economic depression or national emergency. * * * "Despite the existence of those fields in which RFC may make loans in what might be termed 'normal times,' the committee believes that the first reason for continuing RFC-its readiness to go into action during times of national emergency— is the far more important one. [Emphasis added.] The passage of time and the course of events have proved the validity of the reasons for continuing the RFC stated by the Senate Banking and Currency Committee in 1948, and in my opinion it would be sheer folly to destroy the RFC at a time when the most important contingency for which it was preserved has actually occurred. I am firmly convinced that the best interests of the nation require that, instead of destroying or dissipating the resources which RFC represents, greater use of those resources be made in meeting the grave problems confronting the Nation. In short, the legislative proposal is in my opinion not only unwise, but actually detrimental to the public interest, and I would therefore recommend against enactment of the resolution. In view of the urgency of this matter, there was no opportunity to present this statement to the Bureau of the Budget and it is, therefore, not possible to advise you at this time whether the views herein presented are in accord with the program of the President. Sincerely yours, W. E. HARBER, Chairman. Senator ROBERTSON. Mr. Chairman, I wish to commend the junior Senator from Arkansas for a very clear and illuminating discussion of his viewpoint on this matter and to say that if RFC is continued he has certainly offered some very helpful suggestions that will improve its operations. Senator FULBRIGHT. I thank the Senator from Virginia. The CHAIRMAN. Any further questions, gentlemen? If not, the next witness will be Mr. Eccles. STATEMENT OF MARRINER S. ECCLES, MEMBER, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Senator ROBERTSON. As I understand, the text of S. 1376, the analysis prepared by the Staff of the committee, and the analysis prepared by the Senate legislative counsel will be in the record at this point before Governor Eccles testifies? The CHAIRMAN. That was unanimously agreed upon. (The bill and analyses referred to follow:) [S. 1376, 82d Cong., 1st sess.] A BILL Providing for the dissolution of the Reconstruction Finance Corporation and the transfer of certain functions related to national defense heretofore vested in the Reconstruction Finance Corporation Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the "Reconstruction Finance Corporation Liquidation Act". SEC. 2. (a) The first sentence of section 3 (a) of the Reconstruction Finance Corporation Act, as amended (15 U. S. C. 603 (a)), is amended by striking out "through June 30, 1956" and inserting in lieu thereof "until the close of business on the one hundred and twentieth day following the date of enactment of the Reconstruction Finance Corporation Liquidation Act". (b) Subsection (f) of section 4 of the Reconstruction Finance Corporation Act, as amended (15 U. S. C. 604 (f)), is amended by striking out "June 30, 1954" and inserting in lieu thereof "the date of enactment of the Reconstruction Finance Corporation Liquidation Act". (c) Except as otherwise provided in this Act, the liquidation of assets and winding up of affairs of the Reconstruction Finance Corporation shall be carried out as expeditiously as possible in accordance with the provisions of sections 9 and 10 of the Reconstruction Finance Corporation Act. The unused balance of the moneys belonging to the Corporation required by such sections to be paid into the Treasury shall be used exclusively for the reduction of the public debt. (d) In the exercise of his powers and functions under section 10 of the Reconstruction Finance Corporation Act, the Secretary of the Treasury shall not extend the maturity of or renew any loan made, or securities and obligations purchased, by the Reconstruction Finance Corporation beyond the date provided in the loan contract or other agreement or commitment, but the Secretary may, in aid of orderly liquidation, exercise a sound discretion in respect of the time which shall be allowed any obligor of the Reconstruction Finance Corporation to make interim payments on an outstanding obligation. (e) The Secretary of the Treasury is authorized to incur and pay out of the funds of the Corporation all administrative expenses necessary to carry out the functions vested in him as a result of the enactment of this Act. Such expenses shall be limited to and charged against amounts made available to the Corporation or to the Secretary of the Treasury in appropriation Acts for applicable administrative expenses, which amounts shall not include any sums transferred to an officer or agency of the Government, other than the Secretary of the Treasury, under sections 3 and 4 of this Act. The activities engaged in by the Secretary of the Treasury as a result of the enactment of this Act shall continue to be subject to the provisions of the Government Corporation Control Act. SEC. 3. Effective one hundred and twenty days after the date of enactment of this Act, all the functions, powers, duties, and authority of the Reconstruction Finance Corporation with respect to the administration and supervision of the rubber program (Rubber Act of 1948, as amended), the tin program (Public Law 125, Eightieth Congress, as amended), and the abacá program (Public Law 683, Eighty-first Congress), together with all properties, assets, funds, contracts, loans, liabilities, commitments, authorizations, allocations, personnel, and records primarily related to the exercise of such functions, powers, duties, and authority are hereby transferred to the Secretary of Commerce. Except as specifically provided herein, this section shall not be construed to modify or repeal any of the Acts under which such programs are carried out. SEC. 4. The President may transfer to the Secretary of the Treasury, the Federal Reserve banks, or any existing department, agency, official, or corporation of the Government he may designate, or to a new agency (other than a corporation), the functions, powers, duties, and authority conferred by him on the Reconstruction Finance Corporation under section 303 of Executive Order 10161, dated September 9, 1950 (15 F. R. 6105), with respect to the production defense loan program authorized by section 302 of the Defense Production Act of 1950, together with all assets, funds, contracts, loans, liabilities, commitments, authorizations, allocations, personnel, and records primarily related to the exercise of such functions, powers, duties, and authority. In the event that the President does not transfer such functions, powers, duties, and authority within one hundred and twenty days after the enactment of this Act, such functions, powers, duties, and authority, together with all assets, funds, contracts, loans, liabilities, commitments, authorizations, allocations, personnel, and records primarily related to the exercise of such functions, powers, duties, and authority, are transferred to the Secretary of the Treasury. The Secretary shall exercise such functions, powers, duties, and authority until such time as the President shall otherwise provide in the manner herein before prescribed. The Reconstruction Finance Corporation shall continue to exercise such functions, powers, duties, and authority in accordance with such Executive order until the President makes the transfer authorized by this section, or one hundred and twenty days after the date of enactment of this Act, whichever shall occur first. SEC. 5. (a) The Reconstruction Finance Corporation shall continue to exercise its functions, powers, duties, and authority under section 409 of the Federal Civil Defense Act of 1950 until one hundred and twenty days after the date of enactment of this Act. (b) Effective one hundred and twenty days after the date of enactment of this Act, all functions, powers, duties, and authority of the Reconstruction Finance Corporation under section 409 of the Federal Civil Defense Act of 1950, together with all assets, funds, contracts, loans, liabilities, commitments, authorizations, allocations, personnel, and records primarily related to the exercise of such functions, powers, duties, and authority, are transferred to the Secretary of the Treasury, and shall be performed, exercised, and administered by the Secretary in accordance with the provisions of such section. SEC. 6. Within one hundred and twenty days after the enactment of this Act, the Reconstruction Finance Corporation is authorized and directed to transfer to the Department of the Air Force, without reimbursement, Plancor 2304, consisting of an industrial plant at North Grafton, Massachusetts, together with all improvements and appurtenant facilities, and the machinery, equipment, and other personal property accessory thereto except inventories of raw materials and work in progress. SEC. 7. No suit, action, or other proceeding lawfully commenced by or against the Reconstruction Finance Corporation shall abate by reason of the termination of succession of the Corporation; but the court may, on motion or supplemental petition filed at any time within twelve months after the date of such termination of succession and showing a necessity for a survival of such suit, action, or other proceeding to obtain a settlement of the questions involved, allow the same to be maintained by or against the officer or agency of the Government performing the functions with respect to which any such suit, action, or other proceeding was commenced. SEC. 8. (a) Upon the termination of succession of the Reconstruction Finance Corporation the Administrator of the Reconstruction Finance Corporation shall make a full report to the Congress. (b) During such period of time as the Secretary of the Treasury shall be engaged in liquidating the assets and winding up the affairs of the Reconstruction Finance Corporation, pursuant to section 10 of the Reconstruction Finance Corporation Act, he shall make quarterly reports to the Congress setting forth the progress of such liquidation and winding up of affairs. STAFF MEMORANDUM on S. 1376 S. 1376, introduced on April 24 by Senator Byrd, for himself and Senators Bricker, Kem, Robertson, Williams, and Ferguson. Entitled the Reconstruction Finance Corporation Liquidation Act, this would terminate the Corporation's lending powers on the date of enactment of the bill and would dissolve the Corporation 120 days following that date. It expressly refers to sections 9 and 10 of the RFC Act providing for liquidation of assets and winding up of affairs of the RFC by the RFC itself, after the date of enactment of the bill, and by the Secretary of the Treasury, after the following 120 days have passed. While prohibiting the Secretary of the Treasury from extending maturities or renewing loans, it does permit the Secretary to allow RFC debtors to make interim payments. It permits the Secretary of the Treasury to use RFC funds for administrative expenses to the extent they are made available in appropriation acts to the RFC or the Secretary of the Treasury. However, no funds connected with the administration of the tin, rubber, or abacá programs or the defense loan program may be so used by the Secretary of the Treasury in view of other provisions in the bill concerning the transfer of these programs. Any unused balance of RFC moneys after liquidation shall be paid into the Treasury and used only to reduce the public debt. |