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That I think explains our proposal in a very brief manner. We have tride to follow the most conservative policy in setting forth the type of mortgage that could be discounted with this agency. We have made the percentage of mortgage discountable the same percentage as is provided in the present bill, namely 80 percent, for a period up to January 1, 1937, but thereafter limiting the discountable mortgage to 60 percent of value.

The CHAIRMAN. What part would the Government play in connection with your organization? There is no reason why you could not get together and voluntarily organize such an organization as you propose here, is there?

Mr. SCHMIDT. There is every reason in the world why we cannot. It simply cannot be done, and experience has proven it. The public has bought in the past through discount agencies, or guarantors of mortgages if you will, these securities and it is believed that if this provision is made

Senator COUZENS (interposing). Then the old rugged American individualism has fallen down, is that your proposition?

Mr. SCHMIDT. Yes, sir; in that respect.

Senator COUZENS. So that all those who desired more business in Government and less Government in business have reversed their attitude.

Mr. SCHMIDT. In our judgment there are certain basic spots where the Government must inject itself.

Senator COUZENS. I see. That is a new theory, isn't it?
Mr. SCHMIDT. Yes, sir.
Senator COUZENS. And it must have been developed recently.

Mr. SCHMIDT. It is new. And yet it has 2,000 years behind it when applied to credit instrumentalities of government. Governments have always directed credit instrumentalities. For instance, the Government has protected the banks where we have had banks.

Senator COUZENS. "Oh! They have, have they! I thought the Government had not protected the banks, from all that I had heard, and I am surprised to hear you say that.

Mr. SCHMIDT. Well, they have tried to protect the banks.

Senator COUZENS. The way depositors are calling for their money I am surprised to hear you say that there has been any protection of banks.

Mr. SCHMIDT. Well, they have not been protected to the measure some have wished, due perhaps to the economic direction on the part of the Government. But the Government throughout all history has attempted to protect its currency and its banking system. Don't you admit that, Senator Couzens? Don't you think that has been a proper attempt, that it has been one of the prime functions of the Government?

Senator COUZENS. Well, I am not on the witness stand. I am seeking information.

Mr. SchIdr. All right.

The CHAIRMAN. Do you favor the setting up of these corporations mentioned in titles I, II, and III?

Mr. SCHMIDT. We do.

The CHAIRMAN. And then you want an additional corporation set up?

Mr. SCHMIDT. That is correct.

The CHAIRMAN. Under another title. Doesn't that national farm association provision take care of your situation?

Mr. SCHMIDT. No. This is on urban mortgages only. The CHAIRMAN. I mean the National Mortgage Association, title II.

Mr. SCHMIDT. There are two points in connection with these associations, Senator Fletcher. The first is that there has been considerable objection raised to them, as being competing instrumentalities. We feel on that point that if it should be decided they could not be continued as a portion of the bill in your good judgment, that the instrumentality we propose would be one of immediate operation. While it would not take the place of these other agencies as provided in the bill, it would nevertheless supply their place in very great measure.

We feel, on the other hand, that that which it proposes would be extremely difficult, I mean to get these associations going within a reasonable time and to perform the functions which are designed to be performed by them; that they will require the securing of major sums of capital, and that capital is not being placed in investments today. It is being held in as liquid a form as the people can hold it. The few that have it are frightened still and are not placing their capital where it will be useful.

We further feel that there may be some question as to the large operation of these agencies as proposed to be set up. We feel that it may take them a great many years to come to the point of performing the function designed. There is the feeling that the immediate and pressing obligation in our situation is the matter of reemployment, and that, as previously stated, if the construction industry can be revived it will take care probably of approximately 75 percent of that unemployment.

Senator COUZENS. Would the construction industry be willing for the Congress to set up unemployment insurance and charge a fee on all this construction work for the purpose of assuring these men work?

Mr. SCHMIDT. Personally I am very much in favor of that, Senator Couzens.

Senator COUZENS. Can you speak for the construction industry on that point?

Mr. SCHMIDT. No, sir; I cannot. I represent the National Association of Real Estate Boards.

The CHAIRMAN. You speak of about 75 percent of the unemployed being taken care of by this measure you propose. About what number of people do you think would find employment now under this proposal.

Mr. SCHMIDT. It has been my understanding, Senator Fletcher, that there are between 5 and 6 million men normally employed in the construction industry, that of that number there is unemployment to the extent of over half. I understand in the residential field that but 10 percent are employed.

I might add that it is further true that for every man employed in the construction industry he carriers with him some 3 or 4 men employed outside of the construction industry. I understand that approximately 50 percent of our manufactures in this country represent men engaged in the making of materials that go into buildings.

Senator TowNSEND. What effect would the tremendous increase in the price of building materials have upon this program?

Mr. SCHMIDT. I think that temporarily that price must be kept down. But I think that experience has proven

Senator TOWNSEND (interposing). How will it be kept down?

Mr. SCHMIDT. You have your largest activity in building construction when prices are highest, because money is more available then.

Senator ÎOWNSEND. How can you keep prices down? They are up now, as I understand the situation.

Mr. SCHMIDT. They are up to approximately 90 percent of the peak. There has been an increase as we estimate it of some 30 to 35 percent since the N.R.A. went into effect.

Senator TOWNSEND. Do you think that increase is justified ?

Mr. SCHMIDT. In large measure I do. I think that many concerns supplying materials were selling at less than cost in order to liquidate the suply they had on hand, on the one hand; and, on the other hand, in order to keep their organizations intact, rather than to let them completely disintegrate. I think that the major portion of the increase is probably justified. Also there has been an increase in wages in many fields, which justified some increase.

The CHAIRMAN. Has there been an increase in the durable goods production lately!

Mr. SCHMIDT. Not to the extent that there has been in other fields. And the reason for that is rather obvious, it seems to me, and it is that capital goods cannot be created out of income. They must be created through the pledging of the future in some measure. And the money to supply that pledging of the future has not been available to those who were willing to proceed.

I might say that I happen to have a rather large real-estate office. We made 31 sales last month of properties of different types, and every one of them except one was for cash. In other words, the only persons buying were persons who had the cash. They bought because

The CHAIRMAN (interposing). Could that property have been called distress property!

Mr. SCHMIDT. Not entirely, but property which they felt could be purchased at a low figure, not necessarily distressed in the sense that it was in default on mortgage. We sold quite a number of lots in those 31 transactions, where houses were to be constructed, and the builders who bought those lots told us that every one of their contracts—and they will only buy if they have a person in hand ready to build-was a cash contract. The reason is that you cannot in our community, despite

its wealth, secure mortgage money for new building purposes. There is a little mortgage money from some of the insurance companies on existing buildings, as I stated up to about 40 percent of the appraised value of the property.

We feel that to a further thing that has been brought out in previous testimony we wish to offer the opposite position to that which has been expressed here, and it is to this effect: It has been said that the Government would sustain very great losses if it injected itself into the mortgage situation. We feel that that conclusion is based on the fact that if the Government had injected


itself into the mortgage situation at the peak it would have sustained losses. But we feel that by injecting itself into the mortgage situation under the present inflated conditions offers every assurance that there will be no loss, that prices will increase so as to protect any investments made.

The CHAIRMAN. You will submit your proposal there to go into the record, will you?

Mr. SCHMIDT. Yes, sir; I have already handed it in for the record. The CHAIRMAN. You may proceed.

Mr. SCHMIDT. We would also like to suggest that the provisions of the Home Loan Bank Act be enlarged in order to make that agency a more useful instrumentality through the admission of a larger percentage of those engaged in the mortgage lending field upon residences. At the present time it is our understanding that approximately 15 percent of the home-mortgage lending volume is represented in the home-loan bank. We think lack of representation in that system is probably occasioned by restrictions of too severe a character; and perhaps further by the cost of membership. We merely wish to suggest for your consideration therefore that there be some elimination of restrictions, and perhaps a reduction of cost, to base that cost rather upon the use made of the instrumentality than upon the size of the corporation entering, so that there will be more members secured in that system, which we think can be made extremely valuable in the matter of stabilizing our mortgage situation.

The CHAIRMAN. There were some amendments proposed to this bill as to the Farm Credit Act and the Home Loan Bank Act, and the Federal Reserve Act.

Mr. SCHMIDT. They do not go to that point of making membership in the home-loan-bank system more easy of attainment.

The CHAIRMAN. Very well. We are very much obliged to you. Mr. SCHMIDT. And I thank you for hearing me.

The CHAIRMAN. Now, if Mr. Brown will come around and take a seat at the committee table opposite the committee reporter. Will you state your name, residence, and occupation?



Mr. Brown. Mr. Chairman, I come here as the representative of the durable-goods industries committee that was appointed under N.R.A. auspices, and which was asked to make a report to the President of what could be done to further the elimination of unemployment and to stimulate recovery:

Senator COUZENS. What is your position, Mr. Brown?
Mr. Brown. I am president of the Johns-Manville Corporation.
Senator COUZENS. Thank you.
The CHAIRMAN. You may proceed.

Mr. BROWN. An analysis of employment by the durable-goods industries committee indicates that out of a total of 49,000,000 people gainfully employed in 1929, approximately 10,000,000 were engaged in the production of durable goods such as construction, automobiles, machinery, and so forth, as contrasted with those goods which are consumed or perish quickly, like food, clothing, and so forth. More than 9,000,000 people are still unemployed, and of this number nearly 5,000,000 have come from the durable-goods industries, of which almost half were formerly employed in the construction industry specifically. The key to the unemployment problem is found by this analysis to lie in the stimulation of the durable-goods industries which by their increased activity will create additional employment in other producing industries and the service industries. Additional employment cannot be absorbed at increased cost until the demand for durable goods is increased. This is a basic need for recovery.

As a result of their analysis, the durable-goods industries committee endorses in principle the administration's basic proposals embodied in the Senate bill S. 3603, entitled National Housing Act. It is our belief that this is the greatest single step that can be taken toward bringing about recovery by stimulating sales and increasing employment directly in the durable-goods industries and specifically in one of the country's basic industries-construction and building.

The construction industry, normally employing more than 3,600,000 people directly, indirectly influences the employment of large numbers in nearly every other industry in this country. More than 10 percent of all the workers in the United States are estimated to be dependent directly or indirectly upon construction work. If this is so, at least 10 percent of all consumer products may be said to be bought by these workers.

As an indication of the influence of building upon other industries, more than 1,100,000 or one tenth of the manufacturing workers in the country were engaged in the production of building materials, equipment, and supplies, according to the 1930 census. The value of products was $5,500,000,000, or one eighth of all manufactured goods produced in this year. Similarly, more than 7,000,000 carloads of freight, or 1 out of every 5 cars, carried construction materials. Nine percent of the country's wholesalers were engaged in the distribution of construction materials and 5 percent of all coal mined went to the manufacture of building products. The lumber industry alone was the largest employer of labor in nine of our States. With the exception of agriculture, the construction industry is the greatest employer of men. For every man put to work in building a home, it is estimated that two are required in mines, factories, forests, and railroads to make, deliver, and service the materials used.

It has been variously estimated that the national wealth is 380 billions of dollars. The value of dwellings alone in this country, according to the 1930 census, represents more than one third of the total wealth of the country. The building industry is directly related to the largest single class of outstanding long-term capital indebtedness. The total real-estate mortgage debt of $43,000,000,000 is roughly four times the total industrial long-term debt; four times the public utility long-term debt; three times the total railroad debt; and nearly as large as the combined National, State, county, and municipal debts. Approximately half of this debt or $21,000,000,000 is represented by mortgages on individual homes alone.

In the past 5 years the construction industry has gone through a disaster greater than that of any other large industry. This is typi

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