The CHAIRMAN. Are there any questions?

Mr. PATMAN. I would like to ask a question or two, Mr. Chairman. The CHAIRMAN. Mr. Patman.

Mr. PATMAN. Mr. Hughes, I believe you are from the Congressional District that is ably represented by Mr. Walter Rogers.

Mr. HUGHES. Pampa.

Mr. PATMAN. Does he live in Pampa.

Mr. HUGHES. Yes.

Mr. PATMAN. He used to be district attorney in Burnham, didn't he?

Mr. HUGHES. Yes, sir.

Mr. PATMAN. Are you familiar with the housing starts as proposed for February?

Mr. HUGHES. As I understand it, they are down about 4 percent, but the trend on an annual basis is up.

Mr. PATMAN. Let's compare it now. That same question came up the other day and practically the same answer was given. But since that time I have gotten the figures for preceding years, and for 1950 there were 83,000 new starts; 1951, 81,000; 1952, 78,000; 1953, 79,000; 1954, 73,000.

In other words, it is down 6,000 from the preceding year and it is down 10,000 from 5 years ago. So that doesn't bear out your statement that on an annual basis it looks all right, would it, Mr. Hughes?

Mr. HUGHES. It is lower than it was in the last year, but it is starting up from the low point, which indicates, I presume, that if the increase continues, then as projected here we would come up with 1,180,000. However, I don't know whether those figures are true or not.

Mr. PATMAN. The figures are more disturbing when you consider January and February for 1953, there were 151.000 new housing starts for the 2 months, and for the same 2 months, 1954, there were 139,000, or 12,000 fewer.

Mr. HUGHES. That is correct.

Mr. MUMMA. Mr. Patman, would you yield?

Mr. PATMAN. Yes.

Mr. MUMMA. Is there a differentiation between commitments and starts? I think there are some figures here that show a remarkable number of commitments. The actual starts depend upon the weather. Being in that business I can see it has been tough.

Mr. Hughes, am I correct in that statement that the number of commitments was way up, 40,000, I think, more?

Mr. PATMAN. If you are going to bring that up, you should bring up comparable figures for preceding years.

Mr. MUMMA. I am not disputing that. I am going to the fact that you are talking about actual starts.

Mr. PATMAN. That is right.

Mr. MUMMA. That has been handicapped terrifically this winter. I just asked that question.

Mr. PATMAN. Over a 5-year period I believe we should be able to establish a reliable pattern. This has been the lowest February in that time.

Mr. MUMMA. Thank you for the time. I wanted to bring in that angle.

Mr. PATMAN. I concede there might be a difference, but I am just bringing up the starts and showing the comparable figures.

Mr. MUMMA. I figured that didn't fit in with your explanation. Mr. PATMAN. Thank you.

The Fannie May that you are talking about here you object to the one as proposed in the bill, do you not, Mr. Hughes, that we are now considering?

Mr. HUGHES. That is right. We approve it with amendments.
Mr. PATMAN. What is that?

Mr. HUGHES. We approve it in principle, with the amendments we suggest.

Mr. PATMAN. The amendments change it completely, don't they? Mr. HUGHES. Not completely. We change 3 percent to 2 percent. Mr. PATMAN. That is on the borrower's participation. You concede the borrower is the fellow that would pay that?

Mr. HUGHES. I concede the builder will pay that.

Mr. PATMAN. The builder will pay it?

Mr. HUGHES. The builder will pay it and he may pass it on to the buyer, if he can figure out a way to do it.

Mr. PATMAN. And eventually the lender will benefit from it, won't he?

Mr. HUGHES. That is my opinion.

Mr. PATMAN. But the borrower-if you have found out a way for Jones not to pay the freight, I sure would like to know it.

You are proposing a 2-percent participation instead of a 3-percent? Mr. HUGHES. That is right.

Mr. PATMAN. If I read and understood your testimony correctly, you propose 15 major amendments to this bill; is that right?

Mr. HUGHES. I don't know whether it is 15 or not. I never counted them. I know there are quite a few.

Mr. PATMAN. The way I count them there are 15.

In your testimony you attached a table, page 32. I just want to ask you briefly about that. Do you have the table there, the table on 32-"Effect of credit control on applications"?

page

Mr. HUGHES. Yes, sir.

Mr. PATMAN. This is not starts. That is where the gentleman's question comes in and it is very material. This is applications and not starts; isn't it?

Mr. HUGHES. We were trying to show, these are applications in 1950, which we are trying to show what credit controls did, and how it affected the builders' applications in the building business. How it disrupted the market.

Mr. PATMAN. I overlooked that. I thought it was 1953. It is 1950. Do you have a similar table for 1953?

Mr. HUGHES. No, sir.

Mr. PATMAN. I thought that was 1953. I will not ask you the question I expected to.

You stated in your testimony that the Federal Reserve System controlled the long-term rates; is that right?

Mr. HUGHES. I didn't understand the question.

Mr. PATMAN. I understood you to say that the Federal Reserve System controlled the long-term rates, which included mortgage rates. Mr. HUGHES. That is my opinion.

Mr. PATMAN. I think you are correct about it, except it is not the Federal Reserve System. You know the Federal Reserve System, No. 1, is the Board of Governors supposed to be here in Washington, 7 members; there are only 6 now and 1 of their terms has expired and the 12 banks and the 12 regions and the 24 branches-and, of course, each bank has 9 directors and each branch has 7-and, then, in addition to that the Board of Governors has all the power. These regional banks don't have any power. They have no more power over monetary controls than a janitor in this building. They have no power at all. Everything has to be passed on by the Board of Governors, so the Board of Governors have power, that is true-you are right-not the Federal Reserve System, but the Board of Governors, and then the Congress passed a law giving the 12 members of the Open Market Committee the power that you speak of. So when you say "Federal Reserve System," I think you should change that to read "the Open Market Committee of the Federal Reserve System," because they are the ones that control long-term and short-term rates.

In other words, they have a Committee of 12 which has unlimited power to go into the market at any time and to purchase at any price it desires, or to sell at any price it desires, United States Government securities. They have a big backlog of $25 billion worth they can use to operate on if they want to in their selling operations. They could buy every security in existence if they wanted to at any price. they want, so I agree with you that they fix the long-term rates. I assume that during the first part of last year, you had a difficult time getting financing, didn't you, Mr. Hughes.

Mr. HUGHES. We had a great deal of trouble.

Mr. PATMAN. The first half you did. It loosened up the last half. Mr. HUGHES. In some areas.

Mr. PATMAN. It hasn't loosened up everywhere yet.

Mr. HUGHES. Not every place, but it is improving rapidly.

Mr. PATMAN. That is an unusual thing. The Government bonds having come back in price, almost a hundred percent across the board; they are almost back to par. Yet, the damage was done in that first half of last year when they caused those bonds to go down to 89. There is a loss of confidence somewhere, and the people haven't got that restored to where they can get the financing, although the longterm Governments have gone back to where they were a year ago, and better in some cases.

Mr. KILBURN. Will the gentleman yield?

Mr. PATMAN. Yes.

Mr. KILBURN. Is this all a question?

Mr. PATMAN. What difference does it make to the gentleman? Mr. KILBURN. I was wondering, I thought we were supposed to question the witness.

Mr. PATMAN. Don't I have a right to do what I want to?
Mr. KILBURN. Yes. I just asked if it was a question.

Mr. PATMAN. You can make up your own mind. I don't want to be disrespectful to the gentleman, but I think a comment is worth while along that line because we are studying a very serious matter here that involves billions of dollars of the people's money and the builders' money, and the builders are trying to cooperate with us in getting a good housing program.

I think it is opportune to invite his attention to the fact that the Open Market Committee is the one that we should work with, instead of the Federal Reserve System. I believe the gentleman will agree with me that I am correct about that.

Mr. MCDONOUGH. Will the gentleman yield?

Mr. PATMAN. Yes, sir.

Mr. MCDONOUGH. You began your inquiry of what Mr. Hughes said by referring to his reference to the Federal Reserve System. I read on page 16 of his testimony that he says that:

A central mortgage bank is as essential to meet these needs. It is as necessary for mortgage credit as is the Federal Reserve System for commercial banking. He was making reference there to the Fannie May central mortgage bank, which is proposed in this bill, as being correlative to the Federal Reserve System in the banking business.

He didn't say the Open Market Committee. He said the Federal Reserve System as a whole.

Mr. PATMAN. I think there is another reference, isn't there, Mr. Hughes, in here to the Federal Reserve?

Mr. HUGHES. There is another reference, an insertion that I made at the end of "C" on page 7. I don't think you have a copy of it there. Mr. PATMAN. What did you say? That is the part I think I had reference to.

Mr. HUGHES (reading):

Finally, I wish to point out the individual lender also exercises control with respect to any particular loan at any particular time. The Federal agencies, such as the Federal Reserve Board and the Treasury, which control the supply of money, control generally the terms under which lenders are willing to make loans.

Mr. PATMAN. That is the point I referred to, Mr. McDonough.

I think you are correct, except it should not be the Federal Reserve Board of the Federal Reserve System. It is the Open-Market Committee of the Federal Reserve System composed of five private bankers representing private institutions, elected by private institutions, and under obligations to serve private bankers. They are part of that 12. That is all, Mr. Chairman.

The CHAIRMAN. Are there any further questions of Mr. Hughes? Mr. MCVEY. Mr. Chairman.

The CHAIRMAN. Mr. McVey.

Mr. McVEY. I am interested in this very fine statement Mr. Hughes has given us. There is just one matter I should like to ask a question about.

You mentioned the shortage in school building facilities and, of course, we know that there is in this country at the present time a shortage of about 350,000 classrooms and approximately 3 out of 5 that we have are overcrowded. We do have a difficult situation with regard to school building housing.

We have always felt that this problem belonged to local officials insofar as possible, but you have mentioned it in discussing the subject and I would like to explore your opinion somewhat and find out just to what you referred when you mentioned the Government in this connection.

Mr. HUGHES. Sir, I have traveled during the past several weeks. I have been from Maine to El Paso and from Miami to Seattle, and