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Mr. KOPPLEMANN. But let me say this for the benefit of the Congressman, that this bill contemplates an administrative body very far removed from the banking mind. It contemplates a body of men who understand credits, finance, industry, and business, and the purpose of the change in the set-up of those who make the loans is that we might then have men in charge of making the loans on behalf of the Government who would not see the picture from the bankers' point of view, but rather from the business point of view and the point of view of recovery.

Mir. BULLOCK. Positively. I went into the Philadelphia loan agency, and I said, “ You refused my loan, I think, from a hardboiled bankers' point of view. You did not take a business point of view, and if you will be good enough to send an investigator to Williamsport, we will be glad to pay his expenses.'

Yet we find, even since the modification, that there is no credit for small business; there is not anything that will compare with Congressman Kopplemann's suggestion here.

Mr. Williams. I come back to the proposition that if you apply the same standard, we will be in the same shape.

Mr. BULLOCK. Well, I cannot answer your question any more than that I wanted to set forth the reasons

Mr. WILLIAMS. I might add in that connection that I have had considerable correspondence with constituents who have had a great deal of experience in efforts to obtain loans from the Federal land bank, and the same cry goes up all over the country, that they are too rigid and too strict in their appraisals, and they have not been able to get loans when they thought that they should have had them. Still, that is a Government lending institution, and the same complaints have been made against them as against the R. F. C. and the Federal Reserve System by the small industries of the country, and the thought in my mind is, if we establish another banking system, and they apply the same rules with reference to appraisals and the loans made as are now being applied in the Federal land banks in this country, there will still be no substantial aid to small industries.

Mr. BULLOCK. There will not be, no.

Mr. WILLIAMS. And, it being a question of administration, a question of individual judgment in passing upon that loan, I do not know how we can reach that situation by legislation.

Mr. BULLOCK. I know that the banks do not look favorably on the small fellow, on the small enterprise that wants to borrow some money unless they put up adequate collateral, 2 to 1, 3 to 1, or 4 to 1.

Mr. WILLIAMS. How big is the bank in your immediate neighborhood ?

Mr. BULLOCK. We have three, and one bank is chartered for about $500,000. As I say, we have three banks.

Mr. Williams. And still they are not furnishing any credit to the small business people ?

Mr. BULLOCK. As far as I am interested, to my knowledge they are not. I am only speaking for myself and a few others that I know. I cannot tell you what they do with anybody else.

Mr. WILLIAMS. The fact is, is it not, that they are all on a good, sound business basis now. The capital structure has been built up, they have excess reserves, and money to lend.

Nr. Bullock. The fact is that they are bulging out with money. Mr. WILLIAMS. And still they will not lend.

Mr. BULLOCK. The R. F. Č. came to their assistance, but the little fellow is fighting with his back to the wall. If the banks, or the R. F. C., or somebody else, will come to his assistance and make him a loan of $2,000, $5,000, or $10,000, he will in a year or two regain his one-time large earning power.

Mr. WILLIAMS. I do not understand that you are criticizing the R. F. C. for coming to the aid of the banks of the country?

Mr. BULLOCK. I did criticize the R. F. C. directly.
Mr. WILLIAMS. On that ground?

Mr. BULLOCK. I wrote a letter directly to the R. F. C., after reading a statement of its chairman in which he criticized the banks for being hard-boiled and in not giving any consideration to the character, ability, and prospective earnings of a small business, and after I had had my experience of having my loan rejected

Mr. WILLIAMS. I want to finish that line of thought. You are not criticizing the action of the R. F. C., are you, with reference to helping the banks? You do not think that that was a wrong policy? Mr. BULLOCK. No, sir; I do not. Mr. WILLIAMS. That is the question that I asked you. Mr. BULLOCK. I criticize the R. F. C. for criticizing the banks when they would refuse a loan for the same kind.

Mr. WILLIAMS. I have heard the chairman of the R. F. C. say that they would divide a loan with any bank that would make it.

Mr. BULLOCK. I understand that they will take probably 80 percent.

Mr. WILLIAMS. And if you can induce the local bank to make the loan, with its knowledge of the local situation, the R. F. C. will at least divide that loan with them.

Mr. BULLOCK. If it were possible to do anything with them, I would not be down here today.

Mr. KOPPLEMANN. In other words, you cannot get the banks to act at all?

Mr. BULLOCK. Positively not. I represent my small enterprise as well as a good many other small mills that I have handled, that are today shut down, not operating. I can point out five mills where $10,000 will put them in operation, and I can sell the material, too; I have a market for the material. But where are you going to get the financing! Where will you get a loan? You have a $1,500 inventory and 700,000 feet of timber and a mill, a going concern, with a past record of 20 years of ability and honesty, built up from 1 mill to 7 mills, with a balance sheet showing $100,000 in less than 7 years. Yet that does not count any more.

Mr. WILLIAMS. I think that we understand your position, Mr. Bullock. You have a very strong case, and I am very much in sympathy with you.

Mr. BULLOCK. And that applies to the country over. Mr. KorrLEMANN. Mr. Bullock, would you mind coming back to Mr. Williams' question!

The Congressman has struck at the crux of the entire situation. I do not believe that the proponent of this bill would be for it if he did not think that the administration of this bill would relieve the situation which now is not relieved, namely, making loans to small industrialists for the purpose of providing employment.

Now, he asked you, in effect, what difference would it make if we had another set-up of the Government that applied the same requirements.

Now, you have probably read this bill, H. R. 5918, and formed some opinions on it, because you have come here to express them. What have you to say on that point? Let us hear that.

Mr. BULLOCK. If you mean, if you had something the same as the R. F. C.; if you had the same

Mr. KOPPLEMANN. If it appeared that the new set-up would do the same thing. After having read this bill, what is your opinion?

Mr. BULLOCK. The set-up that they have is not doing anything.

Mr. KOPPLEMANN. Do you think that under this bill, that situation would be improved!

Mr. BULLOCK. This bill is the only bill in any of the legislation that I have studied for the past 2 years that is going to be of assistance to little business. The bill will do more for the small business man, do more for recovery, than anything that I have come in contact with, or any legislation that I know anything about.

Mr. KOPPLEMANN. In other words, as you read the bill, you see in it the purpose of making these loans about which you have been telling the committee?

Mr. BULLOCK. I do; yes, sir.

Mr. BLOOME. May I clarify this one viewpoint, for I see that Congressman Williams has asked a very definite question.

I will say this, that up to now the agencies that have handled loans for $1,000,000, half a million dollars, or $100,000, are geared for that purpose, and their minds run in big figures, and if I come in with an application for a loan of $2,000, I do not get much consideration.

But if an administration is set up such as under your bill, Congressman Kopplemann, then they will know that they are specifically set up for the poor fellow, and when he comes in with an application for $1,000, $2,000, or $5,000, their entire philosophy, their entire mental attitude, will be wrapped up in the thought of taking care of that kind of a loan. But the fellow who handles applications for half a million dollars cannot get the viewpoint of the little fellow.

Therefore, I feel that the administration set up under your bill will know that it was the wish of Congress to take care of the little fellow, and it will not be such a case as that of the queen, who, when she was told that they had no bread for the people, said, “ Let them eat cake." She had that mental attitude of cake. Here would be an administration that would know that they have to cater specifically to the little fellow. That is my humble opinion.

Mr. WILLIAMS. All right, Mr. Bullock.

Mr. BULLOCK. I do not feel that the little fellow ltas any chance to get a loan out of the R. F. C. of $5,000 or $10,000, regardless of what he furnishes for collateral or assurance of repayment.

I would be glad to do anything that I can, to come back at any time to support this.

Mr. WILLIAMS. We will be glad to have you at any time.

Mr. BULLOCK. And I appreciate this opportunity, and I thank you very kindly.

Nr. WILLIAMS. We have enjoyed having you with us.

If there are no other witnesses for today, I suppose that we will adjourn this committee until 10:30 o'clock tomorrow morning.

(Thereupon, at 12:20 p. m., an adjournment was taken until Tuesday, June 4, 1935, at 10:30 a. m.)

INTERMEDIATE CREDIT CORPORATION

TUESDAY, JUNE 4, 1935

HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C. The committee met at 10:30 a, m., Hon. Michael C. Reilly presiding.

Mr. REILLY. The committee will come to order. We will resume the hearing this morning on H. R. 5918, introduced by Mr. Kopplemann.

Mr. Gill is the first witness this morning.

Will you give to the reporter your full name and state whom you represent?

STATEMENT OF R. O. GILL, PRESIDENT AMERICAN-AUSTIN CAR.

CO., BUTLER, PA.

Mr. Gill. Mr. Chairman and honorable Members of the Seventyfourth Congress, it is a privilege to appear before your committee in support of H. R. 5918, so ably introduced by Mr. Kopplemann on February 19, 1935.

So that you may be informed as to the experience and training back of the testimony I am about to present, your indulgence is asked while I recite briefly my training and experience.

Since graduating from the University of Louisiana in 1910, in the College of Engineering, I have been actively engaged in one or more branches of the automobile business, principally in the Detroit area. Since 1914 my activities have been confined to the operating end in a managerial capacity. During 1917 and 1918 I was works manager of a large aircraft plant employing 7,500. From 1918 to 1925 I was factory manager of a Detroit automobile company employing 12,500 workmen.

During the period from 1925 to 1931, I was engaged in consulting work for automobile and allied concerns for eastern capital. One of my clients, a body-building concern employing from 3 to 4 thousand workmen, was the large merchandise creditor of the AmericanAustin Car Co., Inc., of Butler, Pa. The latter finding itself in serious financial difficulties during the early months of 1931, at the request of the directors of the American-Austin and other principal creditors, I took over the management of that concern as president and general manager and a member of the board, and so forth, as of March 13, 1931.

By a series of voluntary moves on the part of the creditors, the overhanging debts were frozen so that commitment claims could be cleared by the operations of manufacturing and sale of cars.

During 1931 there were in common with general conditions at the time a lot of distressed cars in the hands of dealers throughout the country. Dealer mortality was very high; sales were slow ;. prices that we were able to get were considerably below cost, yet like in all circumstances of this kind, a few of the creditors would not go along, resulting in suits, attachment of funds, and so forth, so we were forced to liquidate inventories at great losses to try to save the assets as a going concern for the majority of the equity holders, pending more favorable conditions to effect a reorganization.

Even during the dark days of the spring of 1932, we made steady progress so that by the end of 1933 we had, by building 10,000 cars, satisfied approximately $1,250,000 of commitments; proved the sale of the products under the most vicious set of circumstances, only to find that credit facilities were, contrary to normal expectancy, gradually being closed to firms like ours whose working capital had been depleted by circumstances such as prevailed during the preceding years, 1930, 1931, and 1932.

The normal expectancy I have referred to, had to do with rapid and sound appearing conditions of banking situations in the Nation as a whole, but while we enjoyed a line of credit at the local bank during 1931, 1932, and 1933, this was withdrawn in the latter part of 1933, as it became evident that the restrictions placed on R. F. C. loans were such that concerns such as ours would not be able to qualify. Coupled with rising costs under N. R. A. codes, we, like a lot of small concerns, volunteered in June 1933, to meet the President's wishes in respect to minimum wages and maximum hours, and later signed the automobile code, thinking that working capital, then being rapidly depleted by rising prime costs due to the N. R. A., could be obtained from the much publicized R. F. C.

By the time we made our application, in November 19:3, for a loan of $300,000 to the Cleveland office of the R. F. C. through a Pittsburgh mortgage company, our prime costs had risen 3313 percent, due to conditions and to the N. R. A. The loan was declined in January 1934 for “ inadequate security.”

During May 1934 we resorted to borrowing from a private banker and distributor; from the former we borrowed $20,000 and he guaranteed one of our vender accounts amounting to $28,000. We then borrowed on August 16, $35,000 from our principal distributor under a contractual arrangement for 1,000 cars; sold $10,000 in certificates of indebtedness and started operations on October 1, producing $300,000 of sales in 3 months; paid off both borrowings with a gross profit to the banker of $12,000 and $24,000 to the distributor, or at an annual interest rate of approximately 120 and 130 percent, respectively.

While we were busy paying off these loans, we learned of the liberalization of the R. F. C. and Federal Reserve loans, so we prepared a Federal Reserve application in March of 1935; we went to Cleveland preliminary to filing it, and we were told that it would cost $1,250 to make the investigation, and that it was thought the Federal Reserve Board would not consider anything but first liens as collateral; and, besides, our record of earnings would probably disqualify us, anyway;

Funds that formerly flowed through investment bankers are no longer available to us by reason of the S. E. C. and the banking laws as regards banking affiliates.

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