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As to concealed, unchecked Federal expenditures: the Constitution of the United States contemplates annual appropriation of Federal funds. It was for a long time the established policy of the Congress to retain control of expenditures. By the enactment of this scheme the Congress would farm out to a single administrator the power and authority, without any annual check by the Appropriations Committee and the Congress, to put out up to $2,000,000,000 of Federal money, and Congress would be compelled in the years to come to appropriate the money to pay the maturing guaranteed obligations. Furthermore, it seems to me to be bad policy and Government to enact a scheme of this kind which tends to conceal the use of public funds not only by permitting an administrator to put the same out, but also by taking the same out of the direct public debt. It is a typical example of the modern Socialist plan to conceal the facts and progressively to move us into a Socialist state. In concluding,

I would say that the scheme involves Government housing, a new Federal bureau, Federal subsidies, uneconomic loan terms, Government competition, adverse effects on builders and lenders, adverse effects on the economy, and concealed, unchecked Federal expenditures. It is not only pure socialism to the extent of $2,000,000,000, but the scheme is designed and intended to mislead; first, by referring to it as "private enterprise housing,” second, by hiding it behind à Federal bureau and local cooperatives, third, by providing very well-hidden subsidies, and fourth, by providing uneconomic and unrealistic loan terms. This is the modern plan of the Socialists progressively to lead us into a Socialist state.

Private enterprise is producing about 1,000,000 new housing units per annum and the market is now nearly saturated. There is no basis of emergency or necessity for the scheme here proposed. Private funds for apartment-house financing are available throughout America in the largest volume and upon the best terms ever known in this country or any other country.

I represent the United States Savings and Loan League, whose membership consists of more than 3,700 local savings and loan associations, protecting about $14,000,000,000 of the savings of about 14,000,000 people and financing about 3,000,000 individual private homes. These are comparatively small local businesses, serving local savers and local home owners. They are against public housing and Government housing in all of its forms and are for private home ownership and the private ownership of property in this country. These are local mutual institutions, operating without profit to any underlying owners, but they cannot meet subsidized competition such as that involved in this proposal and their customers cannot meet such competition. Therefore, I respectfully submit the foregoing objections and the reasons therefor.

Senator SPARKMAN. Thank you, Mr. Russell. Senator Bricker? Senator BRICKER. No questions.

Senator SPARKMAN. Mr. Russell, of course, I appreciate your feeling with reference to this legislation and similar legislation, but in all fairness it seems to me that you perhaps go rather to extremes in interposing your objections here, particularly where you say that this legislation was intended by its sponsors as a Socialist undertaking.

I am just looking for those words that you used near the end of your statement.

Mr. RUSSELL. I remember them, Senator.

Senator SPARKMAN. You say "The scheme is designed and intended to mislead."

Mr. RUSSELL. Yes.

Senator SPARKMAN. Now, this particular bill was introduced by Senator Maybank.

Mr. RUSSELL. Yes.

Senator SPARKMAN. I don't believe that you think for a minute that Senator Maybank would intentionally propose legislation intended to mislead the American people and to lead the American people down the road to socialism.

Mr. RUSSELL. Nor do I think Senator Maybank devised this scheme or drafted this bill, and you don't, either. We know he didn't draft the bill, or devise the scheme.

Senator SPARKMAN. I don't believe you would believe for a minute that Senator Tobey and Senator Flanders and Senator Ives would design legislation intended to mislead the American people and yet they are the three who last year introduced a bill to provide for cooperative housing, and it was really growing out of that that this legislation was developed.

Mr. RUSSELL. Senator, I came from Georgia to Washington in 1932, and I drafted a good deal of legislation that was presented to this committee for a period of several years here.

I know where this legislation was developed and drafted. I know where this one came from.

Senator SPARKMA. Let me say this: I can't believe that you do. I know that I know better than you do where it came from. I know the numerous conferences that were held out of which this legislation was developed. I want to say to you, Mr. Russell, in clear understandable language, that the statement you make is unfair and is not correct.

Mr. RUSSELL. WellSenator SPARKMAN. I want the record to show that, because I know where this legislation came from.

Mr. RUSSELL. Senator

Senator SPARKMAN. I know that it grew out of the proposals that came to us first last year, that there were numerous conferences held, and meetings of various members of this committee, and a group of us went to Europe and studied the cooperative housing movement in the Scandinavian countries; I know of the many conferences held following that.

I want to say that the statement that you make here is not correct; and is unfair.

Mr. RUSSELL. I don't like to be called a liar before a Senate committee, or anywhere else.

Senator SPARKMAN. No; I am merely saying-
Mr. RUSSELL. I don't like it.

Senator SPARKMAN. You made the frequent, direct, and positive statement that you knew where this legislation came from, and that you knew what was intended. I am saying to you that I know more about it than you do.

Mr. RUSSELL. I don't question that.

Senator SPARKMAN. That I know where it came from. I know it was not intended to mislead the American people. I would not sup

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port it for 1 minute if I felt that it was intended to mislead the American people or if I felt that it was full of the dangers that you point out here.

I don't want to quarrel with you, but I want the record to show the truth on this point as I know it to be.

Mr. RUSSELL. I am glad to have you undertake to get the question clearly on the table. I have studied home ownership for some 30 years, and that is a lifetime. I have worked in the Government, I have worked out of the Government, I have been before this committee from time to time for nearly 20 years. I have never come before this committee or any other committee of Congress and undertaken to evade or avoid an issue. I have tried to come with an honest statement of what I think about this legislation.

I think there is reasonable basis for each of the statements that I have in the prepared statement. I say that because I know the process by which this business developed. have seen one after another. First, when we had the Federal Reserve System, where the Government provided the machinery and the banks provided the capital. Then the land bank, where the Government provided temporary capital. Then we had the Home Loan Bank System in 1932 where the Government provided temporary capital and provided for paying it off.

You have a bill pending in the present Congress, which is S. 2325. Senator SPARKMAN. That is right.

Mr. RUSSELL. Which would provide for the retirement of capital of that bank system by the members of the bank system. The RFC was established in 1932 on a temporary basis, and has been continued. Then the FHA was established on a temporary 2-year basis, and that is being continued. The Federal Savings and Loan Insurance Corporation was established.

The same bill, S. 2325, provides for the members to buy the Government capital in that one. But when I study the development of legislation on this character and the establishment of agencies such as this new agency proposed here, I think I understand what the direction is that we are taking, and what the purpose is in going forward with it.

I wouldn't come down here before the committee and not give you what I think to be the truth.

Senator SPARKMAN. No; we want you to do that. We always invite all of the interested agencies to come and state their views as frankly and plainly as they wish.

What I am saying is that I do believe that your statement is unfair; when you say that this legislation was intended to mislead the American people. I say that as one who had a great deal to do in drawing up this measure. I say that on behalf of a good many others who have sat around this table and have worked diligently in trying to draw up legislation.

Mr. RUSSELL. I know that a sharp difference of opinion exists. My clients finance about a third of the homes built in this country. They have been engaged in that business more than a hundred years. They are local citizens that accumulate some savings and use them to finance homes to debt-free home owners. They are very bitterly opposed to Government's taking over housing in this country, which is about 20 or 25 percent of our entire economy. When we are

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promised public housing that is for low-income people only, we see which way the wind is blowing. This is the first one to provide Government housing for any except allegedly low-income people. This one says the middle-income. It says those between the lowestincome one-third and the highest-income one-third are to be served by this bill. If the price level doubles, in the next few years, as it will if incomes double, then each of these families will have an award, free award by the Government, of all the increment and value in these houses, in addition to the advantages they have of the tax exemptions, the Government credit, the Government appropriations for the Washington operation, the Government carrying of the financing, which is substantial.

Senator SPARKMAN. Where in the bill do you find any tax exemption?

Mr. RUSSELL. On page 23 of S. 2246, amendments, by Mr. Maybank, beginning at line 22, it says:

Except as to such taxation of real property and tangible personal property, the Corporation, including but not limited to its franchise, capital, reserves, surplus, income, assets and other property, shall be exempt from all taxation now or hereafter imposed by the United States or by any State, county, municipality, or local taxing authority. All notes and other obligations of the Corporation shall be exempt, both as to principal and interest, from all taxes (except surtaxes, estate, inheritance, and gift taxes) by any State, county, municipality, or local taxing authority.

Senator SPARKMAN. The first sentence says all real and personal property subject to all taxation.

Mr. RUSSELL. Yes.

Senator SPARKMAN. The property is subject to taxation like any other property.

Mr. RUSSELL. The real estate is subject to taxation.

Senator SPARKMAN. And the personal property is subject to taxation.

Mr. Russell. But this lending corporation presumably is not going to own any real estate. That is subject to taxation. But what it does own is all tax-exempt and its securities are exempt from all State, county, municipality, and local taxation, except surtaxes, estate, inheritance, and gift taxes. All of the real estate financing, as you and I know from practicing law-if I make a mortgage to John Doe in Cook County, Ill., that mortgage is subject to taxation ad valorem. The mortgage company that makes a mortgage has to pay franchise, capital stock, and ad valorem taxes on the financing.

The savings and loan people pay very substantial taxes. It varies State by State. There is substantial local taxation upon real estate financing, of all types.

Therefore, substantial local revenue arises from its financing of real estate. Here you take $2,000,000,000 of it and jerk it from under the local government, all local taxation.

I submit it is pretty well covered up. Not many people realize that a very substantial subsidy is being handed to this some 200,000 preferred families by that means. There is a substantial grant being given to them by the Federal Government, and we have to pay it.

Senator SPARKMAN. That part of it is not in any way different from what has been done with the agricultural banks, is it? The Farm Credit System?

Mr. RUSSELL. If it is not any better, Senator, it is going to be too bad when this comes out. I pointed out in the statement that

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Farm Credit has loaned its money at 4 percent or more and had deficits. If this comes out with 3 percent, if this comes out at 3 percent, why, of the losses on that kind of 100-percent loans, and Farm Credit has not made 100-percent loans, it will be very bad.

Senator SPARKMAN. You understand that the rate of interest is not set in the bill but will be dependent upon what the money market provides?

Mr. RUSSELL. Unfortunately, the bill is very confused on that point, it says the loan shall be made at a fixed interest rate. Then it says that the rate shall be the cost of capital to the corporation, plus an eight, plus general reserve, plus expenses. Now, the cost of capital from day to day under this scheme can vary very greatly. As to the $100,000,000 of capital that you appropriate it says the Secretary of the Treasury shall have a dividend on that, equal to the average rate, I believe, on Government bonds, not the going Federal rate, but the average rate on all Government financing.

When it comes to the $2,000,000,000, it says that these obligations may be issued on any terms that this Administrator and the Secretary of the Treasury approve. Suppose they issued 1-year obligations, and 1-year obligations under this scheme would go at about 1.25 or 1.5. So they lend me $10,000,000 at 1.25 plus an eight, plus a general reserve, plus the other. It has to be the fixed rate, so I get the fixed rate, or 63 years. I submit that the bill on this ought to be clarified in that point. I think what was intended, probably, was that it would not be loaned at a fixed rate, but would be loaned at a rate that would represent from year to year the cost of money to the Government.

Senator SPARKMAN. Don't you think that the term "fixed rate” applies to the individual loan? In other words, when a loan is made a fixed rate is set. The rate is not variable on that loan from that time on.

Mr. RUSSELL. That is what the bill says, "fixed rate." I understand the words "fixed rate” to be a fixed rate. If you loan me money for 30 days at 6 percent, that is a fixed rate; or for 10 years at the going Federal rate, that is the same rate the Government pays on more than 10-year money.

Senator SPARKMAN. I certainly agree with you on that point: that if we are going to tie it to the money rate, some machinery will have to be set up whereby that can be reexamined and reset periodically. I think such was the intent.

Mr. RUSSELL. I call your attention in that connection to a new phrase; they have used the going Federal rate heretofore, which is about 2.25, I think, but this draft has in it the average cost of money. It is different.

You take the average cost of money. Suppose this thing is organized, it puts out short-term, it is average cost of money. HÕLC started out with 4 percent bonds and then it issued 3 percent bonds. Later it began to turn the stuff over fast, and put out short-term and it paid itself out of the red by riding the Treasury on short-term paper and getting its money for about 1 percent. This can and will do the same thing if you don't fix it so that that would not be feasible. Under this draft it is feasible to put this stuff out short term until they get the loans made. Then it requires that they make the loans at that rate, and make it at a fixed rate.

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