They tell me that it has cut down the incidents of crime, sickness, and other things, and that actually it is good business. That is about all I know about it. I personally believe that whether it is socialistic or communistic or whatever it is, you have to take care of these people and I do not know any other answer to it.

Mr. COLE. You would not go so far as to say that we should adopt the communistic system.

Mr. GRAHAM. Oh, no, I meant this: Some people say this is communistic, some say it is socialistic. I do not know. There are a lot of things we are doing today that I know my grandfather would turn over in his grave if he knew about them. But I do not see any answer. You have got your taxes so high in this country, and your expenses are so high, that I do not see where private capital can ever hope to make any money out of low-cost housing, so I do not know of any other solution. It is not the fault of private capital. It is your high tax system, your expense of government, and everything else, which they are making an effort to curtail.

Mr. TALLE. Mr. Chairman.

The CHAIRMAN. Mr. Talle.

Mr. TALLE. May I ask Colonel Alden the same question?
The CHAIRMAN. Yes.

Thank you very much, Mr. Graham.

Mr. TALLE. I would like to ask you the same question, Colonel Alden.

Mr. ALDEN. I am not really qualified to express an opinion.
Mr. TALLE. I will not press you for an answer.

Mr. ALDEN. My offhand opinion is that public housing in Louisville has done a lot of good. They have cleaned up a lot of bad slums, and made good homes for a lot of poor people, who have been able to live better than they ever had, and I think it is a good thing. I think a good housing bill is all right.

The CHAIRMAN. Mr. Veit is our next witness.

STATEMENT OF ROBERT T. VEIT, SHIELDS & CO., NEW YORK

Mr. VEIT. Mr. Chairman, members of the committee, my name is Robert T. Veit. I am a partner of Shields & Co., investment banking house in New York, and I might add also, with branches throughout the country. Our house has headed one of the groups which has competed vigorously in the past for local housing authority bonds and we have bought and distributed a great many of them.

What I have to say represents the opinion, I think, of every member of a syndicate of 50 or 60 bond houses that is committed to me in this business.

We investment bankers have appeared several times before the Senate. We have always endorsed public housing; we have endorsed slum clearance. We do it because we think, being dealers in municipal bonds, that it is better for the municipalities, as well as for the people who live in them.

We feel that in the long run it costs the Government very little because of the improvement in health and moral conditions of the people benefited, and because the cost of policing and other municipal costs are very much reduced by better housing.

There are a number of things that I have written in my formal statement that can well be dropped out at this time. There are, however, several points that I would like, if I may, to bring up before you.

In the first place, it must be understood that at the present time, if they want to invest in them, the commercial banks can buy all the housing bonds that will be issued, if they really want to buy them.

They are allowed to buy up to 10 percent of their capital and surplus, of bonds issued by every housing authority. That means that they can buy, in the aggregate, as much as a billion dollars worth of bonds from any one housing authority and there will be no housing authority, even New York, that will have outstanding a billion dollars worth of bonds under the present legislation.

In the second place let me ask that the banks do not act only in a dual capacity in regard to bond business, but they act in a triple capacity.

In the first place they buy bonds from us to some extent for their own account, to a greater extent for their trust accounts, and we also have to depend on them to lend us money so that the bonds we buy can be carried while they are being distributed by us.

In that connection, in their statement to the Senate the banks made a very peculiar remark, which is awfully hard for me to understand. They say, "If we are allowed to deal in these bonds, we will make better loans than we would if not allowed to deal in them."

I have always thought, up to this time, that credit was extended not because the banks could make money out of something, but because the creditor had good credit, and the securities that he put up as collateral were good securities. You can see for yourself what a complicated situation this is, when banks can act both as our competitors and as lenders.

You see what actually happens: If the banks make better loans on securities in which they are interested, if they make better loans to syndicates which they have, that does not help the security dealer, it does not help the security in the long run, because they carry along the loans to a point, and then if the market becomes impaired, those loans are called, those syndicates are broken up, and the market is not helped but is rather hurt considerably.

This lending business is a two-edged sword and when security dealers know that we are a lot better off and we know that our markets are a lot sounder, if the banks are purely lenders, if they purely lend on our credit and not on our sentiment, they purely lend on the value of the security and not because they are participating.

We have made the statement, and it is correct, that the banks are not now in a position to sell bonds to their trusts if they are interested in the flotation of those bonds. There is good reason for that, because there is great question as to the legality, and the position of the banks in case the bonds went down. They would be liable for suits, and therefore they have made this practice of not selling to their trust accounts. And we have said, "If you cannot sell to your trust accounts, you cannot distribute the bonds the way we can, because we can sell to the trust accounts."

And they say, "Oh, well, we can sell the bonds to our trust accounts, after the syndicate is closed." What does that mean? That means either one of two things--and this is exactly where the trust account

comes in: If the issue has been successful, the trust account pays more for the bonds. That is quite evident. If the issue is not successful, then the trust account might well have been put in the position of supporting a falling market.

It seems to me very desirable that the trust account should be allowed to buy these bonds at original prices and purely on the merits of the security.

Another factor appears, which surprised me a great deal, in the statement the banks made. They say, for example, "If we are allowed to deal in these securities," which they say, and which I contend is not totally correct, are practically guaranteed by the United States Government, "people will think they are a better bond."

I think it is a very unfortunate thing if this country has come to the point where a security, which has a large degree of backing of the United States Government, can be judged only in the light not of the backing by the United States Government, but of what the commercial banks say about it.

I might add further that a couple of years ago, when the Congress was cutting down the appropriation for the payment of contributions to local housing authorities to a point which we bond dealers considered dangerous, a group of us came down here and appeared before the Senate committee, and I personally was fortunate to be able to have called a meeting in the subcommittee in the House, so that we had that appropriation changed and made adequate.

At that time, the banks whose trust departments had both these bonds were very anxious to know what we were going to do about them. But they did not come down here and support the appropriation. I would also like to say that the American Bankers Association has never supported public housing; they have never supported slum clearance; in fact, in two previous hearings in the Senate they have been definitely opposed to it.

Mr. COLE. You do not want us to decide your issue on whether or not you are for or against public housing?

Mr. GRAHAM. No, but the point I wanted to bring out is the fact that the banks apparently do not believe in public housing. I do not think that I ought to sell bonds, or anyone else ought to sell bonds of issuers that we do not believe in. It does not make for good bond business. These banks can buy these bonds if they want to. But we have never been able to sell anything but short-term bonds to the banks and we have handled a good many public housing bonds.

Mr. COLE. Some of us who are not in favor of this program might want to consider your issue, but we do not want to consider it on that basis. I may not be for this program, but yet I may be for your side of the issue. I do not like that sort of conversation about it.

Mr. GRAHAM. That is all I have to say, gentlemen. Thank you. The CHAIRMAN. You may stand aside. Mr. Veit.

We will hear next from Mr. Stubbs. Identify yourself, Mr. Stubbs.

STATEMENT OF GEORGE STUBBS, BIRMINGHAM, ALA.

Mr. STUBBS. Gentlemen, my name is George Stubbs. I am a member of the firm of Stubbs, Smith & Lombardo, a small investment banking house in Birmingham, Ala.

In the first place, I want to endorse heartily the housing bill as a housing bill, but at the same time say that I am very very much opposed to section 502, which allows the banks to come in and underwrite and deal in housing bonds.

A small group of national banks has filed a very strong statement with your committee. The statement is logical and a forceful presentation of their point of view.

I wish to enter into the record one matter that seems to be very generally overlooked, and certainly has not been emphasized in either the recent hearings before the Senate or those before this committee. I examined the hearings before the Committee on Banking and Currency of the United States Senate in 1946, 1947, and the recent hearings in 1949. I wish to call your attention to the fact that in the 1946 hearings the American Bankers Association appeared and opposed the whole general Housing Act, then called the Wagner-Ellender-Taft bill. In 1947 the same association, which is the largest association of bankers in the United States, appeared and again opposed housing, the bill being known at that time as S. 866, the Taft-Ellender-Wagner bill.

At the hearing before the Subcommittee on Banking and Currency of the United States Senate, held in February 1949, a representative of the American Bankers Association appeared before the committee, but in his testimony he failed to comment at all on the bill itself. S. 138, but confined his requests to proposed modification of section 211 of the National Housing Act, which concerns Federal Housing Administration insured mortgages.

At the conclusion of his testimony Senator Sparkman asked him to comment on section 502 of S. 138 with the following remark:

We have had no one representing banking give us an expression of opinion with reference to this particular provision, and I thought I might call it to your attention. If you are not familiar with it, I wish you would look into it, and we should be glad to have a memorandum from you.

Mr. Rickman replied:

We should be happy to do that for you.

I have made a search for such a memorandum but have been unable to locate it and I am forced to the conclusion that such a memorandum does not exist. Therefore, I ask this committee directly if it is not significant that the American Bankers Association, representing all of the banks, has not appeared either before the Senate or this committee, advocating housing as such, and specifically endorsing legislation, and in particular advocating the retention of section 502. Gentlemen, a question was aked a few minutes ago that I would like to answer, if I may. The question was asked, "What is the capital of the investment banking firms in America, and what is the capital of the banks?"

I am reliably informed that five-hundred-odd of the leading underwriting houses in this country have capital of approximately $550,000,000.

I am further reliably informed that that does not include such dealers in securities as myself, of which there are hundreds, who have small capital, but at the same time millions of dollars of capital.

I understand that the capital and surplus of the banks of the United States is approximately 1012 billion dollars. But I would like to point

out, in that regard, that those bank funds are not for investment banking or underwriting. They are for commercial banking, for lending money to the farmer, and backing up those loans, lending money to small business, such as I am, lending money to industry, and for every other purpose, and only an infinitesimal part of it goes to the underwriting of securities. That is all I have to say, gentlemen. Thank

you.

The CHAIRMAN. Thank you, Mr. Stubbs.

Mr. Cunningham, please.

Mr. TALLE. Mr. Chairman, I should like to say that Mr. Cunningham, of Pittsburgh, Pa., is a brother of our esteemed colleague, Congressman Paul Cunningham, of Iowa. I want to say that for myself I am happy to have you here, Mr. Cunningham, and I am sure every member of the committee is happy to have you.

Mr. CUNNINGHAM. Thank you, Mr. Talle.

STATEMENT OF S. K. CUNNINGHAM, PITTSBURGH, PA.

Mr. Chairman and members of the committee, my name is S. K. Cunningham. My firm is S. K. Cunningham & Co., Inc., Pittsburgh,

Pa.

My firm is small-in the same category as that referred to by Mr. Graham. I am speaking, therefore, for my own firm, in the first instance. In the second place, during recent days, I talked with partners or officers of four of the leading firms in Pittsburgh, who would like to have been represented here, but could not arrange to do so, and who concur in the opinions which I shall present.

In the next place, gentlemen, my firm is naturally a member of the National Association of Security Dealers. I have been authorized to speak for that organization by the officials thereof. Although a formal statement of the National Association of Security Dealers has been presented to you, and I shall not elaborate on it, I would like to say that I concur in it. I read it in advance, and it is a fine, concise, clear-cut statement of the position of the security dealers in the United States.

Then, may I call your attention to the fact that this National Association of Security Dealers-you all know this perhaps and I apologize for calling it to your attention-is a representative organization, created under provisions of Federal law. Its members are scattered from coast to coast and from Canada to the Gulf. It is governed by a board of governors and divided into 14 districts, with one or more governors coming from all the districts, and the statement that was submitted to you, I am officially informed, was approved by that board of governors.

It happens that I served on that board for a period of years during the war, and I am familiar with the way they act-and I know they gave thorough consideration to the statement-and that, therefore, it represented a cross-section of the good opinion of the security dealers in the United States.

Next, gentlemen, may I call your attention to just two or three specific points which have been mentioned here.

The question at issue is just the one statement in section 502 of the proposed legislation. That statement would permit commercial banks, national banks, and State banks, if State laws do not interfere, to