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thetic with anyone who has occasion to come into our office. Whether he is entitled to a loan, or not, he certainly is entitled to courtesy and to the most generous and sympathetic consideration. Mr. KENNEDY. Are these employees selected because of their skill, or are they taken from the civil-service list?

Mr. JONES. They are not taken from the civil-service list.

Mr. KENNEDY. How do you get them? Do you advertise through the trade journals?

Mr. JONES. No; if we need a man for a job we look for a man that we think is qualified to do that particular job.

Mr. KENNEDY. I understand that recently you selected a man from one of the defunct title companies to pass upon applications for mortgage loans, through a new division there. That was one of the companies that failed; he was one of the moving spirits and is now your expert.

Mr. JONES. Do you happen to know what the name is?
Mr. KENNEDY. He has only been there a few months.

Mr. JONES. Well, of course, nearly everybody in the mortgage companies failed. So if you went outside of that crowd to get somebody, you would have a pretty hard time finding him. I think a man who has had difficulties and troubles and knows values is probably a pretty good man to avoid mistakes in the future.

We are not getting a tremendous amount of real-estate loans, and we do not want to. The insurance companies and savings banks ought to make these loans. We are trying to pinch hit and serve the people when neither of the others can, if it is a saving to do it. When we asked you to let us lend to mortgage companies, we did not want to go out and drive the insurance companies and savings banks out of business. We wanted to pinch hit and help when we could. Of course, we cannot do very much when you take into account the entire country.

Mr. KENNEDY. Do you think that the personnel of these offices are experienced enough to pass upon these loans?

Mr. JONES. We are always fussing at them and trying to get them to do a little better job.

Mr. KENNEDY. I do not know what the personnel is, or where it came from, but I do know that there are so few loans going through in comparison to the large city

Mr. JONES. Real-estate loans are slow to make, in any event. Most properties that we will lend on are in difficulties, and you have got many different factors to deal with. You have got the bondholders' committees, and you have got trustees, and you have got different people interested, and you cannot ring the bell and get them all in the room at one time and get them all to agree on something.

Mr. DIRKSEN. In referring to the real-estate loans, you have two classes of loans; first, those that have been made by the Reconstruction Finance Corporation, which are made directly to the person who is in difficulties, and, secondly, you are acting, I presume, under the authority that was set up in the extended power given by Congress to the R. F. C. to loan to finance mortgage institutions?

Mr. JONES. Yes.

Mr. DIRKSEN. For the purpose of loaning or reorganizing realestate properties. I am referring very specifically, of course, to the

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kind of property that came before the select committee of the House and the bondholders' protective committees.

Mr. JONES. Yes.

Mr. DIRKSEN. May I take just a few moments to continue with that, because that bill is pending before Congress?

Mr. KOPPLEMANN. That has nothing to do with this bill.

Mr. DIRKSEN. It has nothing to do with your bill, but it brings up the question of real estate, and I am satisfied, from the conferences we have had about it, that it will be of interest to this committee, and I am wondering how soon you are to make loans to reorganizations or reorganized properties, involving a corporation, for instance, which has been established for reorganizing a theater or hotel or apartment building that has been in default and on which there has been an issue of mortgage bonds.

Mr. JONES. I mentioned being slow in making these loans; we make them through the mortgage companies, and it is very difficult to get all of the contending owners together.

Mr. DIRKSEN. You do not make those loans, of course, until the reorganized corporation makes loan application to the R. F. C.? Mr. JONES. Well, somebody necessarily makes a tentative application.

Mr. DIRKSEN. What I mean to say is this: There is no initiative on the R. F. C. to go out and find those loans?

Mr. JONES. No.

Mr. DIRKSEN. Or to help with the reorganization of these particular properties; but you have to wait until the organization or reorganization has proceeded far enough to make an application through the properly constituted authority to your corporation?

Mr. JONES. Yes.

Mr. DIRKSEN. Is not that one of the difficulties we are facing at the present time, in view of the fact that there has been no much skullduggery in connection with the reorganization of these properties that you cannot get a set-up that is fair to the bondholders and to the equity owners before the application is made and before it gets to your corporation?

Mr. JONES. It is slow, and it will be slow in any event. The mortgage business is slow, even when you have got no trouble. The bondholders' committees have got to represent enough of the bonds to effect a reorganization. When we see the client and see the property and see the income and are willing to lend money on it, we have also got to feel that the plan of reorganization is fair to all interested parties.

Mr. DIRKSEN. Yes; but that does not go far enough in the event that you hope to save the investments of a great many of these people before they are taken out of the picture by dummy sales or by dummy corporations, by a lot of these smart racketeers who are operating in the cities at the present time.

Without injecting any personal note whatsoever, one of the bondholders of one of the corporations wrote me from Chicago that when it was all over they got 20 cents on the dollar. What are you going to do about millions of bondholders in that same shape?

Mr. JONES. That fellow did not want to join in?

Mr. DIRKSEN. He did not join in the plan. But think of the thousands who have gotten 5 cents and 10 cents on the dollar, and we certainly complain that the R. F. C. does not go far enough because, under the law, you do not have to have an initiation to step in where the properties are being organized, under amendments to the Bankruptcy Act, but you have to wait until all that is done. It is done at that time by standing until the bondholder gets it in the neck.

It would be a matter, for instance, for putting through a bill, such as is pending in the committee at the present time, the Sabath bill, setting up a conservator, or some similar agency, that will go into action when you start, so as to give some protection to the bondholder while the thing is pending in court or while it is in process of reorganization, and fit that into the picture, so that every possible protection can be afforded to the bondholder, so he will not be stolen from those organized properties through the instrumentality of fees by the trustees, by counsel fees, by depository fees, bondholders' protective committees' fees, and things of that sort.

Do you not think it is absolutely necessary to have some agency like that to do the work before it gets to you?

Mr. JONES. I do not see how a conservator, as suggested in that bill, could do the job any better. I mean, it just puts another man in the job.

Mr. DIRKSEN. You just admitted that you can take no action until an application is made, and the damage is done before the application is made.

Mr. JONES. The conservator would not get it until the plan was submitted to him.

Mr. DIRKSEN. Under the amendments we suggested to 77 (b) of the Bankruptcy Act, it authorizes the conservator to go into the Federal court for the purpose of seeking to protect the bondholders against the imposition of these fees. You take the properties in New York, millions in fees were taken, washed out, in the Ambassador Hotel and the hotel in Palm Beach. There was no agency there to step in and protect the interests of the bondholders, but they went under the hammer, these $2,500,000 properties that were sold to Henry Doherty for $250,000. If there had been an agency, it could have gone to the State of Florida and had it withhold its tax lien and the value of the property would have been appreciated and the bondholders could have saved a considerable amount of money. As it is, they never got a dime.

Mr. KOPPLEMANN. Mr. Dirksen, I have got so many questionsMr. DIRKSEN. I will not ask any more questions, except to suggest to the chairman that we might have Mr. Jones before the committee tomorrow so we can wind up with the bondholders' bill.

The CHAIRMAN. I would rather you would not say all that. The bank bill has gone to conference

Mr. DIRKSEN. We can do it in the very near future?

The CHAIRMAN. Yes.

Mr. DIRKSEN. Thank you, Mr. Jones.

Mr. KOPPLEMANN. Now, Mr. Jones

The CHAIRMAN. Before you close I want to make one suggestion to Mr. Jones that has been overlooked in this discussion, and it is pertinent to the comparison to be made on loans made by the R. F. C. and the Federal Reserve bank.

The law under which you act only permits making loans eligible to corporations in the case of an applicant who has been unable to obtain credit at prevailing bank rates?

Mr. JONES. Yes. As a matter of fact, they are supposed to go to the Federal Reserve before they come to us.

The CHAIRMAN. That is what I am calling your attention to, that you only begin where they leave off.

Mr. JONES. We fudged a little on it.

The CHAIRMAN. I am sure you did, or you never would have made the number of loans you made.

Mr. KOPPLEMANN. Do you make loans to finance high-priced inventories, to increase inventories of the business or the industry of goods? Mr. JONES. Higher priced, did you say?

Mr. KOPPLEMANN. Yes.

Mr. JONES. Higher-priced inventories?

Mr. KOPPLEMANN. Yes; more inventories, so they could have a large stock on hand.

Mr. JONES. Do we make loans

Mr. KOPPLEMANN. Do you make loans for that purpose?

Mr. JONES. There is no objection to that.

Mr. KOPPLEMANN. Why do you make loans for that purpose?

Mr. JONES. If I understand your question, it is this: Do we lend a factory money to make and store merchandise?

Mr. KOPPLEMANN. Store more goods?

Mr. JONES. Whatever he makes?

Mr. KOPPLEMANN. Yes.

Mr. JONES. There is no objection to that. I mean there is not Mr. KOPPLEMANN. But do you not make loans for that purpose, at all?

Mr. JONES. I did not say that. I think we do. I say there is no objection to it.

Mr. KOPPLEMANN. Do you make loans to replace worn-out machinery and equipment?

Mr. JONES. Yes; we do, within reason.

Mr. KOPPLEMANN. To expand operations to meet a growing demand?

Mr. JONES. When it can be shown that there is reasonable demand and where the expanding operation does not put some fellow out of business in the same general territory.

Mr. KOPPLEMANN. But do you go out and actively solicit business and promote sales to make loans of that kind?

Mr. JONES. I do not know that we have ever had that sort of application.

Mr. KOPPLEMANN. Would you make loans for that purpose?

Mr. JONES. I would have to consider the application when I got it. Mr. KOPPLEMANN. Do you make loans to pay off pressing debts, when small business men are deeply indebted to sources of supply and to banks?

Mr. JONES. In some instances we do, and some we do not. If a bank needs money or if, perhaps, a man's business is in jeopardy, yes; but not just to help some bank get liquid, which does not need to be liquid.

Mr. KOPPLEMANN. Do you ever have applications for a loan for some man who wants to be liquid and does not need to be?

Mr. JONES. We have plenty of people around the country who are trying to collect their slow loans and would like to unload them on the Government. We are trying to prevent that as far as possible.

Mr. KOPPLEMANN. All right, Mr. Jones, I had a great deal of matter that I wished time would permit me to present to you, because it is very important and bears upon the inability of people who are worthy and, to my mind, entitled to loans, who could not get them. However, when Mr. Steagall, our chairman

The CHAIRMAN. Mr. Kopplemann, let me interrupt you there. I am sure Mr. Jones has time to come back to the committee, if it becomes necessary.

Mr. JONES. Anytime at all.

The CHAIRMAN. So you need not curtail your inquiry. You will have plenty of time to pursue it.

Mr. KOPPLEMANN. Congress, I hope, will try to conclude shortly, and I am anxious to have action on this measure.

The CHAIRMAN. That is for you to decide, but we will invite Mr. Jones to come back and let you pursue your inquiries, if you desire. Mr. KOPPLEMANN. All right. Mr. Steagall, the chairman, suggests that you will come before the committee, and I want to get some evidence of the benefit to the small industries who have received loans, to show the value of this function of the Government. So I addressed a few telegrams around. I will read you one to Mr. E. D. Lewis, president, Hartford Battery Sales Corporation, Milldale, Conn., as follows:

Would appreciate immediate information if possible re benefits to your concern since you received R. F. C. loan. Am pressing for further legislation committee meets Monday morning.

Now, that telegram I sent in the hope of receiving some information that would demonstrate the value of this thing that you are administrator of. Here is a letter signed by Mr. Lewis, who is the president of the Hartford Battery Sales Corporation:

In reply to your wire of July 26 regarding benefits received from Reconstruction Finance Corporation loan, we can advise as a whole, our tie-up with Reconstruction Finance Corporation has been very unsatisfactory.

We started our work on the Reconstruction Finance Corporation loan back in 1933. Nothing was really accomplished until new legislation was passed in June 1934, and on July 16, 1934, our final application to the Boston loan agency of Reconstruction Finance Corporation was filed and, after considerable correspondence and trips to Boston, we were finally advised on September 15 that the Boston agency would not approve our application.

On September 24 an appointment was made by you for us with Jesse Jones in Washington and on October 1 in spite of promises that were received that we would obtain assistance, Washington turned down our application. On October 15 another trip to Washington resulted in contact with Mr. Ben Johnson and Mr. C. H. W. Mandeville, who had recently been appointed to straighten out the tangles on loan applications. Through the very hearty cooperation of Mr. Mandeville, Washington finally approved our application and authorized $35,000 to our corporation-$10,000 on the property and the balance to be paid on a basis of one to one and one-half against receivables pledged.

After considerable work by ourselves and our attorneys, we finally received the first disbursement of $10,000 on November 30.

We had been fighting for nearly 6 months to obtain this money so necessary for our operations and had we been able to obtain it at the start of our busy season, rather than at the end, we would have been able to show a substantial profit to carry us over our dull 6 months from the beginning of the year.

Unfortunately the assistance came too late to be of much benefit, even though we went to work full time the month of December.

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