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The seriousness of the entire matter has been recognized by the administration and other agencies, with the result that several investigations have been made in an attempt to ascertain the true facts and discover possible remedies.
As early as 1932, the National Industrial Conference Board investigated the availability of bank credit from the standpoint of the small business man. Here is a copy of their report, and they have come to substantially the same conclusions as we have reached.
Mr. GIFFORD. Who is "we"?
Dr. BECKMAN. We were discussing this special report.
Dr. BECKMAN. I had a staff; I was the chief economist in charge of that particular survey, and there were numbers of others who worked with me on that subject, and I also consulted with the central statistical board and other people during the preparation of the report. Mr. GIFFORD. For whom are you speaking?
Dr. BECKMAN. This survey was made for the small industries committee of the Business Advisory and Planning Council, and the funds were supplied in part by the Ñ. R. A., with a little bit from the Treasury Department. The rest was supplied by the Department of Commerce.
Mr. KOPPLEMANN. So that report, Doctor, is a governmental document, if you consider the financing of it, and this committee, you said, was appointed by the Secretary of Commerce.
Dr. BECKMAN. Yes, sir. This investigation of the National Industrial Conference Board in 1932 was followed by the Presidential appointment of a committee, chairmanned by Clarence Darrow, and by investigations carried on under the auspices of the Treasury Department, which culminated in the so-called Hardy-Viner official report of last December, a copy of which I have here with me, and to which I shall refer briefly, and certain other investigations, to which we have already referred on several occasions.
To summarize it briefly, the investigation with which I was directly connected, governmentally, had to do with 6,158 manufacturers, and we found
Mr. GIFFORD. I want to know whether you are employed by the Government.
Dr. BECKMAN. Part time, as a consultant. I may say this, if I am permitted to comment on it. I had absolutely nothing to do with this investigation at the beginning. I did not know such an investigation was being made. It started in July, during the latter part of July, and I was called on and asked to take charge of it about August 15. I absolutely had nothing to do with the kind of a schedule or questionnaire which was prepared, and I did not know the purpose of the thing.
My field is credit, from the standpoint of the pure economist or scientist. I am merely interested, if I undertake any project, to present the facts as justified by whatever we discover.
Mr. GIFFORD. We have been having a lot of propaganda right along, and I wondered if this was one more effort at propaganda.
Dr. BECKMAN. No, sir; I hope I do not ever get into the category of a propagandist. I did not even wish to have any recommendations contained in the report. All I was interested in was in presenting the findings, and let the other people work out their recommendations.
They insisted on recommendations, however, and so I made recommendations based on what was found. I sincerely believe in those findings, unless the reporting manufacturers have lied to us which is highly improbably.
Mr. GIFFORD. Are you planning to discuss and criticize the R. F. C.
Dr. BECKMAN. No, sir; I was not planning to discuss the matter at any length in my statement unless the Members of Congress ask questions on the subject.
Mr. GIFFORD. Of course, those questions will be asked.
Dr. BECKMAN. In that case, I shall have to tell the truth. If questions will be asked, I shall have to tell exactly what we found. It is not a question of personal judgment, it is just a question of what we have discovered, and what these manufacturers have to say, and what the Hardy-Viner report had to say. The latter is in published form.
They have criticized the R. F. C. rather severely. Even if questions are asked, I shall refrain as much as possible from criticizing any governmental agency.
Mr. GIFFORD. That is natural, if you are in the pay of the Government.
Dr. BECKMAN. I believe in telling the truth, gentlemen, and that is one of the reasons I am only on a part-time basis with the Government. I should hesitate a great deal about working on a full-time basis if it should mean being muzzled in telling the truth. Of course, I do not have to go out of my way in criticizing, and I shall not, as a matter of courtesy,
Mr. GIFFORD. You believe the R. F. C. has done a good job?
The CHAIRMAN. How large a fund do you think it would require to do this job?
Dr. BECKMAN. You mean the intermediate credit bank?
The CHAIRMAN. What do you think would be required to supply this credit?
Dr. BECKMAN. My plan of procedure was something like this, if it meets with the approval of the committee, to discuss this matterThe CHAIRMAN. I am glad to have you do so, but I wanted to see whether the R. F. C. is equipped to do the job.
Dr. BECKMAN. Only in part. I am planning to take up the bill section by section, and comment on those sections as I go along. I think that would probably bring a number of questions to your minds that you may then wish to ask.
The CHAIRMAN. I am familiar with the bill; there is not anything complicated about that. And I am wondering whether this is the proper fund.
Mr. REILLY. I think it would be more useful to the committee if we could hear from you more about the reasons for this bill. The bill itself can be changed or modified. We want to know about the necessity for any bill of this kind.
Dr. BECKMAN. That is what I was trying to lead up to. found in this investigation that of these 6,158 manufacturers reporting, 71 percent were usually borrowing money either from banks, from governmental agencies, or from private organizations. The
rest of them never did borrow. They always secured their capital either from their own funds or accumulations.
Of those manufacturers who borrowed money from one source or another, 45 percent reported that they experienced difficulty in securing either any credit at all, or the amount of credit which they felt was necessary to enable them to do business and to fill the orders which they had on hand.
This 45 percent of manufacturers, as well as the others, have been studied very carefully. We have had financial statements from each one of them for 3 years, for 1926, 1929, and 1933, in order to see what has happened during that period, and we found, on the basis of a careful investigation of the financial statements, checked up with the Dun & Bradstreet's ratings, that at least 40 percent of those that experienced difficulty would normally be regarded as satisfactory credit risks.
Credit is one field in which I can speak with some degree of confidence, because I have studied financial statements for many years and have analyzed many of them, and I know what the normal standards are.
If the standards had been reasonable, 40 percent of those who had experienced difficulty would have secured all of their necessary credit requirements.
Mr. SISSON. Do you mean there were bankable loans?
Dr. BECKMAN. Most of them, yes.
Mr. SISSON. But they could not borrow money at any bank?
Dr. BECKMAN. Under normal circumstances they would have. They were the kind of risk that possessed a combination of what are called the three C's of credit, that is, character, capacity, and capital, which any reasonable credit man would have accepted, had it not been for the drastic change in our standards during the depression when we became unreasonably harsh and strict. That is the point I am trying to make.
The need for financial assistance was great and was felt throughout the whole United States. There were some districts in the South, including Texas, which did not rate quite as harsh as other districts, but generally speaking, manufacturers all over the country were experiencing the same sort of difficulty in all lines of business, not only in durable goods, although in durable goods the degree of restriction seemed to be a little greater than in the consumers' goods field.
The need was particularly keen in the field of what we call intermediate credit. It is true that a great many of the reporting manufacturers had difficult in getting bankable credit, namely, 30-day credit, 60-day credit, or 90-day credit. But during this time, apparently, the need seemed to be the greatest in the field of intermediate credit.
They did not want so much 30-day credit. They wanted credit for a year, for 2 years, or for 5 years in order to rejuvenate their businesses, to replenish their working capital, and to get back on their feet. In many instances they expressed a desire for credit up to a period of 3 years or 5 years. Of course, that kind of credit would not normally be secured from commercial banks, and should not be.
For that reason special enabling acts like the Reconstruction Finance Corporation Act and the Federal Reserve Act were changed or modified to permit small business men to borrow for an intermediate term.
You may be interested in these figures, which have been brought up to date, up to May 22. Up to that time the Reconstruction Finance Corporation disbursed $17,142,098 out of the $300,000,000 authorized by the Congress on June 19, 1934, which is a little less than 6 percent of that amount.
After the Federal Reserve banks
Mr. GIFFORD. How many offers were there?
Dr. BECKMAN. We did not have that. We secured this information over the telephone. I have the number of applications filed up to the time the report was completed, how many were turned down, and how many accepted.
Mr. GIFFORD. Can you give us that?
Dr. BECKMAN. Yes.
Mr. KOPPLEMANN. Up to what time was that?
Dr. BECKMAN. That is up to May 22. That was after 4 months of the liberalization of the act.
Then the question of commitments is very interesting. I found that so many of the commitments are of such a character that they are practically meaningless. They would authorize a certain amount provided the officers of the company would sign away their lives, or something of that sort, and any number of them have come to me personally and told me of those circumstances, and they have said' they would rather see the business lost than have all of their officers sign personal notes for such obligations. Whether the thing is reasonable or not, I am not here to judge.
Mr. SISSON. Suppose you had two officers in a corporation, and it was practically a personal corporation, where the stock was closely held, and those two officers owned, we will say, more than 50 percent of the stock, and they were engaged in running the business. Do you not think they ought to guarantee that loan? Would you not require that if you were an officer of the R. F. C.?
Dr. BECKMAN. No, sir; and for this reason.
The CHAIRMAN. Do you think they have a right to expect you and me and others constituting the citizenship of this country to do more for their business than they are willing to do themselves? Mr. SISSON. That is it exactly.
The CHAIRMAN. We all know what is proposed is to have a limited liability; they are limiting theirs, but they do not want to limit ours. They will not take any more risk.
Dr. BECKMAN. It is a question of how much risk is actually being assumed. That is where some of these excerpts are useful, because you can determine whether a concern is such a bad risk under certain circumstances.
The banks are either on strike to loan to industry on adequate security, or else they haven't got the money. I find that the Government R. F. C. interpretation of the Thirty-fourth Congressional Act of $300,000,000 for industry is more onerously administered than are the banks in the United States. But I do not exactly subscribe to that.
The CHAIRMAN. We all admit that banks have gone on strike. The officers of these corporpations whose good names are involved and who are responsible for the management have also gone on strike, and are asking the Government to come in and rebuild and reestablish their business for them.
Dr. BECKMAN. Here is what the manufacturer goes on to say-
Dr. BECKMAN (reading):
They required 10 times adequate security to the amount they will loan, and I am safe in saying that no industry in the country can give that security for a loan from the R. F. C.
Unless more liberal requirements are initiated by the Government R. F. C., it is hardly worth while to say to bankers they must loan to industry. I re cently had this argument from banks that they only require 80 percent for dollars loaned. The R. F. C. is requiring from 5 to 10 times what they do. My experience of 30 days in the R. F. C. is that there is not an experienced industrial official on their staffs. They do not know what industrial securities
The CHAIRMAN. Who makes that statement?
Dr. BECKMAN. A manufacturer. There are excerpts here from communications from 50 out of 143 who have specifically complained. Mr. SISSON. Does he say he was an employee, or an officer, or a member of the committee of the R. F. C.?
Dr. BECKMAN. He says, "My experience of 30 days in the R. F. C. is that there is not an experienced industrial official on their staffs. They do not know what industrial securities are."
Mr. SISSON. He is complaining. Is he a manufacturer who refused to go along?
Dr. BECKMAN. He is a manufacturer who apparently was refused a loan.
Mr. SISSON. Did he apply for a loan?
Dr. BECKMAN. He applied for a loan. Of course, we had 143 specific criticisms in the form of letters against the R. F. C., and of the 143, 113 had credit difficulty and 25 of the criticisms came from those who did not have credit difficulty. Five came from those who had no credit experience and never had borrowed, and that was practically based on observation.
The CHAIRMAN. Of course, if you want to, you can read other criticisms of the R. F. C. to the committee and you can select them from disinterested and undisappointed circles.
Dr. BECKMAN. That is right. However, many of these have not had any experience. They have no experience on which to base a criticism.
Here was a case where a man applied for a loan and it cost him $725 to file an application. If he had secured the loan, the cost of making the application would have been 2 percent of the amount obtained, in addition to the interest.
The CHAIRMAN. How did he incur that expense?
Mr. SISSON. Who would get the 2 percent?
Dr. BECKMAN. Here is the way he spent the money. He had given him
The CHAIRMAN. How did he spend the money?
Dr. BECKMAN. He had to use an accounting firm to see that all the forms were properly filled out. There were 39 different documents to be filled out, and the accounting firm charged him $175. Then he paid counsel, used in preparation of the papers $200, and for legal services he had to pay $350, or a total of $725.
As a matter of fact, the R. F. C. itself admits, in the Hardy-Viner report, that the average cost of an application is about $1,100.
Mr. DRISCOLL. The reason he paid an accounting firm was so that he might set up a correct picture of the condition of his business for the information of the R. F. C.