Last year there were three accounts to bid for Michigan bonds, three accounts to bid for Illinois bonds. I was in one of the accounts and so were most of my friends in Kentucky, and then the big banks came in, the same list you have right here, and talk about competition, they said, "We will make a negotiated deal. Let us all get together and make one bid." They did that in both places, and the result was that I was left completely out. So were all my friends.

We think we can do a good job of selling these bonds to our customers, we think we are entitled to it, we think we can create a good market. We do not think the banks can make any kind of a secondary market. And I know this just as well as I am standing here.

And I am very frank to say that I am up here as much as for anything else to protect my own selfish interests, because nobody else seems to be doing it, and I think we are entitled to a chance to bid on these bonds, as investment dealers, and if the banks get in, I know that I am out.

Mr. PATMAN. The commercial bankers are in no position to present the argument that they want this because they want competition. Their record has been against competition. We used to have competition on demand deposits. You remember that.

Mr. GRAHAM. Yes, sir.

Mr. PATMAN. But this Congress passed a law outlawing it, and making it a violation of the law to pay interest on demand deposits, in order to protect the banks, at their request. They did not want competition. Then we passed a law so that the interest rates on time deposits would be fixed, so there would be no competition. So they are not in a position to insist on additional rights on the theory that they want competition, because their policy has been in the opposite direction.

Mr. GRAHAM. On that point, you have noticed where the Federal Reserve bank, last week, in the interest of the country, lowered the reserves for the banks.

Mr. PATMAN. Surely.

Mr. GRAHAM. And the reason was given that it was done to increase the profits to the banks. I think the Government is doing everything possible, in a restrictive way to take care of the banks, and I just want somebody to give me a little protection. That is the reason I asked the chairman if I could appear. I am getting tired of being kicked around.

Mr. PATMAN. Well, they own about $50,000,000,000 of Government bonds now that were bought by created bookkeeping transactions, without paying any money to the Government.

Mr. GRAHAM. That is right.

Mr. PATMAN. To that extent we might say they were getting a subsidy to the amount of the interest on those bonds, might we not? Mr. GRAHAM. That is right.

On this particular issue we have the unqualified support of a large number of investment dealers. I understand that there were a few investment dealers who sent telegrams to the Senate committee-and you mentioned that to me last week, Mr. Chairman-who came out in support of the banks. Of course the banks will use any kind of

pressure.

As a matter of fact I was advised by two bankers in Louisville who have correspondence with two of these big banks in New York, that it would be just as well if I did not appear before this committee. But that is when I always like to do something.

Mr. MULTER. What do you mean by "pressure"?

Mr. GRAHAM. I mean the banks will use any kind of pressure to gain their end.

Mr. MULTER. Just as they brought pressure on the investment brokers and brokers to back up their opposition here, they would then be_pressuring their own customers to buy these securities from them. Mr. GRAHAM. That is right.

Mr. MULTER. Just as they did before the crash.

Mr. GRAHAM. That is right.

Mr. MULTER. They were generally dealing in the security market and pressured their own customers to buy their securities from them and in many instances stuck their customers with them.

Mr. GRAHAM. That is right.

Mr. MULTER. You would have a repetition of that now if you let them into this market. Instead of dealing in the ordinary course of business, and looking after their own business, they would be passing these off on their customers and in that way drying up commercial credit. Instead of dealing in commercial loans they would be dealing in these bonds, is that not so?

Mr. GRAHAM. That is right.

Mr. BUCHANAN. Is the interest rate apt to be any lower if the commercial banks are permitted to bid along with the investment dealers? Mr. GRAHAM. Well, it is possible, Mr. Buchanan, in good markets, that there might be a fractional difference. In the bad markets the investment dealers will bid much more than the banks. In December, when the Federal Reserve pulled the plug, as you remember, on interest rates, and that market went down and some of these Government bonds went off very sharply, when they pulled their support out, talk about the underwriting power of banks, you could not sell a thousand-dollar bond to any of them.

We still kept buying municipals and other securities. Of course we had to adjust our interest rate, when the Government changed its ideas somewhat on interest costs, but the banks will run faster than anybody else. In good times they might bid a little more, but in bad they are no help to you at all.

Mr. MULTER. Are there any other long-term securities that banks are permitted to buy today, other than direct Government obligations? Mr. GRAHAM. Yes; there are some of the guaranteed obligations that they can buy.

Mr. MULTER. Other than guaranteed obligations.

Mr. GRAHAM. They can buy long-term general obligations, State municipal bonds.

Mr. MULTER. Other than municipals and Government obligations, commercial banks are not permitted to deal in long-term securities. Mr. GRAHAM. No: the Congress took them out of that business. Mr. MULTER. And most of the States took the State banks out too. Mr. GRAHAM. That is right.

Mr. BUCHANAN. Neither the Treasury nor the Federal Reserve testified to this section in the Senate hearing and as yet I do not know whether they are scheduled to testify here. Are they, Mr. Chairman?

The CHAIRMAN. I do not think they have testified on this particular section.

Mr. GRAHAM. Well, I would say this: I can tell you pretty well. The Treasury as a matter of policy is very much behind this situation, and of course certain of the other financial

Mr. PATMAN. Do you mean behind this amendment?

Mr. GRAHAM. Yes.

Mr. PATMAN. I cannot understand that. It is absolutely inconsistent. They are speaking about getting bonds out of commercial banks so as to prevent inflation, and this is encouraging bonds to go into commercial banks.

Mr. GRAHAM. That is right, but I can tell you the reason. It amazes me. Here is a Democratic administration. I would not be surprisedand I do not mean this in a critical way-but the Democrats are supposed to have one political philosophy of financing and the Republicans another, but it amazes me to see every key job in the Treasury filled up with these Wall Street bankers, and they just kind of ferry

boat back and forth.

One time they are Assistant Secretary of the Treasury and next they are president of one of these banks. I do not know if it is a pay offer or not, but I think it is. And the Treasury Department is all for this. I expect some of them think if they do it they will go up there as some very recently, as vice presidents or presidents of the big banks. That is the vicious thing I am talking about and I think it is not in the interest of the country.

I wonder sometimes whether the Congress and the President of the United States actually have anything to do with the finances of this country, the way they seemed to be controlled by Wall Street.

Mr. PATMAN. I will say that Congress does not. We have delegated the power to the Federal Reserve Board, and by getting an amendment here and there, over the period of the last 15 or 20 years, the Federal Reserve Board is absolutely out of the control of even the President.

He cannot control the Federal Reserve Board and cannot control the action of a single Board member. They have 14-year terms. He cannot fire any one of them. They are absolutely out of his control. They create the money. They have control of the money.

The Secretary of the Treasury, the Comptroller of the Currency, the duties they perform are just administrative duties. They have no power to withhold money. The Bureau of Engraving and Printing is operated by the Federal Reserve Board and the Federal Reserve banks, and the money system has gotten out from under the Government entirely. It is run by the private bankers.

Mr. GRAHAM. Well, I do not know what the Federal Reserve attitude will be

The CHAIRMAN. Congress has delegated legislative powers to them. Mr. GRAHAM. And I think in some of these things it is time that Congress attempt to get back some of its powers, at least not allow them to put an amendment to the Banking Act in the Housing bill.

Mr. PATMAN. It is inconceivable to me that the Secretary of the Treasury would advocate commercial banks buying these bonds in competition with you, who have to put up your own money.

Mr. GRAHAM. It is to me. That is the reason I say I do not know why the Wall Street bankers seem to have control of the Treasury Department. That is what I have come up to get a little redress on. I think the people of the United States are entitled to know the reason why, and know the reason why these people, after they get to be Assistant Secretary, or Secretary, should turn up the next week in New York at a salary of $50,000 a year. I am just a little tired of getting pushed around that way.

Mr. TALLE. The amount of cash you carry is very small in relation to total assets, is it not?

Mr. GRAHAM. You mean in the investment business?

Mr. TALLE. Yes.

Mr. GRAHAM. Well, of course, we do not have much capital. We are a small firm. We do not have any deposits. All the capital we have is our own money.

Mr. TALLE. You depend on turn-over.

Mr. GRAHAM. That is right. Let us say that we were to get a participation. If these banks get these bonds and a Louisville loan comes along, I will bet all the Louisville dealers would not get a hundred thousand dollars in bonds. And yet we have sold up to now $30,000,000 or $40,000,000 of these same bonds and have kept them out of the banking circle.

Our firm does not have much cash; we try to keep our money in use, but if we made an underwriting, let us say of a million dollars, we try to do it carefully. We do not want to lose our money. We borrow it from the banks and gradually distribute it here and there to the investing public or retail institutions.

Mr. TALLE. If you find you do not have enough cash you depend on commercial banks for loans.

Mr. GRAHAM. Yes, sir; but of course we have to move that loan out. We are not bailed out like they are. In other words, if they would do it they could run to the Federal Reserve and rediscount it. We cannot do it. If the bank calls us, we have to immediately sell or take a loss. We are strictly in the risk distribution business.

Here is another interesting thing as far as the banks are concerned. with relation to underwriting. They say in the statement they have made here, the five biggest Wall Street banks, that these securities will be backed by the credit of the Federal Government.

Now actually, if you read this bill, that is absolutely false. They are backed by the rents and a subsidy of the Federal Government, an appropriation of the Federal Government. And if they have not improved their analysis of securities any more since 1929 than that, they ought to be kept out of the underwriting business because they do not know anything about it. They do not know how to analyze securities.

I guess it is easy to analyze a Government bond, but when you come to analyzing various other types of securities you have certainly got to know more about their fundamentals. When they make the statement to you gentlemen, that these securities will be backed by the credit of the Federal Government, you know that that is not correct.

Another thing I have been interested in, Mr. Chairman, is whether these banks and our mutual good friend, Bill Laemmel, just for the fun of it, is registered as a lobbyist.

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I will just sum up. I know you gentlemen have been very patient. In the present inflationary trend everybody is calling for the use of additional risk capital, and for the diminution of the power of the bureaucrats, who in the May issue of Fortune are called the Lilliputians who are going to destroy this country with red tape.

You gentlemen of the Banking and Currency Committee in my humble opinion should do everything you can to help the investment business, knowing its essential nature to the economy of this country. We need some legislative help and we need some of our laws changed to do a better job, but that may come in time.

The banks are certainly making enough money. They are getting bigger all the time. Wall Street banking power is in danger of returning in a way that I do not believe you gentlemen of Congress ever intended.

We in the investment business are able to do a fine job of distributing these bonds, to sell these housing bonds in the proper places and create reasonably good markets, and to do it without using other people's money-depositors' money or Government money.

We think an amendment to the National Banking Act has no part in housing legislation, and very respectfully we wish to ask you to eliminate section 502 in the bill. We hate to ask you to hold up this important legislation for that, but I think it is essential to the best interests of the country.

I have never testified before a committee of this kind before, and I want to thank you gentlemen very much for your courteous attention. I will close with just one thing: When the Congress of the United States the churches and everything else always used to have the prayer, "God bless the Congress of the United States." Gentlemen, we small people, small dealers, ought to say that prayer all the time because you are the only thing that can protect us against the entanglements of the bureaucrats, the Treasury Department, and the Wall Street bankers. Gentlemen, I thank you.

Mr. TALLE. You do not have to answer this question if you would rather not, because you may be prepared to testify only on this amendment, but what is you general attitude toward the remaining part of the bill, H. R. 4009?

Mr. GRAHAM. Well, of course I am getting into a discussion in which I realize there is a very great difference of opinion. There are some of my fine friends from Kentucky here who have differences of opinion on housing legislation.

Louisville is the only place where I have had any experience with it, and Mr. Neville Miller, our fine mayor, is here listening to this testimony today, and he initiated the housing projects in Louisville, and I think it has worked out in the public interest.

There is a question of whether it is socialistic or not. I do not know. But I do know this: That at the present time the city of Louisville is paying the rent of 4,200 people-either 3.200 or 4,200 people; at any rate, a substantial number.

Now as Senator Taft said, there is one-fifth of the people in this country that you have to do something for. Whether that is socialism or not I do not know. But I do know that in the colored project there, that the colored project there has helped the morale of those people, and to get into that deeper, Terrace housing project is considered to be one of the finest social accomplishments they can strive for.