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Dr. BECKMAN. That is right.

Mr. DRISCOLL. I presume he engaged counsel outside the jurisdiction of the R. F. C. to see that all the technical papers were properly filled out. In the event of the creation of the agency you now have in mind, would he have to do those things?

Dr. BECKMAN. It will be simplified considerably.
The CHAIRMAN. How?

Dr. BECKMAN. I know a little something of credit standards, and I know what a good risk is, and certainly in no case should it be necessary to have 89 pages of documents and statistical and accounting information in order to judge the worthiness of a credit risk. I can take one special report issued by such an organization as the National Credit Office, or by Dun & Bradstreet's, and with a few other items of information I could judge pretty well the worthiness of a credit risk without having to go to great expense. As indicated in the Hardy-Viner report, an official of the Reconstruction Finance Corporation estimated that the necessary cost of preparing an application was from $1,000 to $1,500.

Mr. KOPPLEMANN. Why is it necessary to employ counsel?
Dr. BECKMAN. I am simply reporting what they have told us.

The CHAIRMAN. Do you mean to say that a representative of the R. F. C. made the statement on his own responsibility that it was necessary to expend that amount to get an application before them in shape to have it considered?

Dr. BECKMAN. He said that was the necessary cost for preparing an application.

The CHAIRMAN. Who said that?

Dr. BECKMAN. An official of the Reconstruction Finance Corporation.

The CHAIRMAN. Who is it?

Dr. BECKMAN. It is in the published report of the Treasury Department, page 45.

The CHAIRMAN. Who is the official? Let me read that.

Mr. KOPPLEMANN. Did the Treasury Department issue that report? Dr. BECKMAN. The Treasury Department issued that report.

Mr. Sisson. There are not any employees there who would give that assistance?

Dr. BECKMAN. Not on the basis of the investigation. Mr. FORD. At the R. F. C. office in Los Angeles they will do this. There have been a number of people who went there to secure a loan, and they brought in balance sheets and papers, and the officers looked them over, and in many cases they instructed them how to file an application and send it back and have it properly filed, and where they did not come in with the proper kind of an organization to make a loan they referred it to the banks, who later made the loan. For the instructions they were given there was no attorney's fee charged. The loans were afterward made by the banks in the city because they were presented in a shape that the banks could understand, with all the necessary information.

Mr. Sisson. I want to make this statement and say that I happen to know, personally, that the same thing is done. I think there is a great deal in what you say, Professor, about the possibility of simplifying forms in connection with the application. It should not be

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necessary to have a hundred pages, unless there is an enormous amount involved in reference to the appraisement or the inventory.

But the R. F. C., to my personal knowledge, will do this. If a borrower lives near enough to Washington so that he can conveniently do this, he can come down here, and there will not be any charge to him. He does not need to spend a cent except for his car fare and hotel bill. He can present his application and tell them what the set-up is and they will tell him whether he comes within the scope of this law or not. They will detail an examiner to go over it with him, and while the examiner cannot promise him that the Board will pass upon it, or that the local agency will pass upon it, he can tell him whether he comes within the law. They will also tell him whether he needs to have a new appraisal. If he has had a recent appraisal by a firm of reputable appraisers, they will try to cut down his expense, and in no case will they tell him that he has to employ a lawyer. He has his own lawyer who handles the business of the firm, and in that way

he can save a little time. I think the matter in connection with the difficulties that are alleged to be put in the way by the R. F. C. are greatly magnified. I think there are probably some agencies where they are, perhaps, too rigid in the matter of supervising these loans.

But the R. F. C. in Washington is, in my opinion, doing a good job.

The CHAIRMAN. That is a very indefinite, vague statement that you have shown me, Dr. Beckman, and it is almost meaningless in the way in which it is used.

Dr. BECKMAN. I am not undertaking to say what those things mean. There is no question but what the R. F. C. is not going to tell them to employ an attorney, but they give you all those documents which you have to fill out, and that is the only way in which you can have it done, by having an auditing company fill them out, and applicants do that of their own accord.

Mr. GIFFORD. It is inconceivable to me that a small business man would not go to a lawyer right away if he would do business with the R. F. C., or the authorities here.

What department are you assigned to for part-time service?
Dr. BECKMAN. The Department of Commerce.

Mr. GIFFORD. Are you familiar with Jesse Jones' testimony before the committee at the time we were extending the R. F. C., and just what he said on this subject?

Dr. BECKMAN. I am somewhat familiar with it.

Mr. GIFFORD. You know he said something with reference to adequate surety and asked for a modification?

Dr. BECKMAN. There are a great many others who believe, on the basis of the facts that have been found, that the law was only partly to blame, and that many of the defects are due to the administration of the law rather than to the law itself. So you will find most of the arguments advanced in this report. Most of the complaints are arguments only in part against the law. The law sets up certain restrictions upon them, and prescribes certain special conditions. But the principal objections are against the administration of it.

The CHAIRMAN. Since the act of 1935 became effective, is there any liberalization?

Dr. BECKMAN. There is very little change. The amount actually disbursed by the R. F. C. before the liberalization of the act, say up to

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January 31, was $8,651,000, and since the act has been liberalized they have about doubled that figure, but, considering the fact that during the first 2 months of the administration the R. F. C. made very few loans because they had to get started, the condition is about the same now.

The CHAIRMAN. Is there as much demand now as there was in the closing days of 1934?

Dr. BECKMAN. You have heard all kinds of stories about statistics. I had better not get into that field. You can use statistics in so many different ways.

The first thing was that they used the fact that few applications were actually made as an indication that the people did not qualify and were afraid to make applications because so many were turned down. Now they are using that argument to the effect that there must be recovery, because if it had not been for recovery more applications would be filed with the R. F. C. Which one of those is right I do not know.

Mr. GIFFORD. Do you suppose you could give the amount applied for?

Dr. BECKMAN. Up to October 12, 1934.

Mr. Sisson. Along with Mr. Gifford's suggestion, have you included commitments?

Dr. BECKMAN. No.

Mr. Sisson. In order to present a complete picture, have you not got to show how much the R. F. C. had in commitments? These disbursements are usually in installments, are they not?

Dr. BECKMAN. No, sir; these are amounts actually given. Mr. Sisson. I understand they are actually loans, but are not some of these loans, or the applications made, on the basis of disbursing to the applicant in installments?

Dr. BECKMAN. Provided he meets certain conditions, and most of those they claim cannot be met. Since so many commitments never materialize, I left commitments out, and I say so very frankly. You may disagree with me on that score.

Mr. GIFFORD. Do you call a provisional loan a commitment? Dr. BECKMAN. Provided they approve it with certain conditions. Mr. GIFFORD. Usually other creditors' loans are made secondary.

Mr. SISSON. I am sorry to disagree with you, but I have had some experience with that. I do not understand that any loan is approved, if there is a mortgage on a particular property, or if there is a prior lien or any other debt which might come in ahead of the debt of the Government. I do not understand that an application has been approved if other creditors have not been subordinated.

Mr. GIFFORD. It is quite important to have that knowledge.
Mr. Sisson. I think so.

Mr. GIFFORD. I have found, in spite of what the professor says, that they have been making those other loans secondary. The Government has a prior lien.

Mr. FORD. Is there any authority in law for the United States Government to take a secondary lien?

Mr. GIFFORD. I think it will be like the Home Owners Loan, with perhaps 6 months before the loan is made.

Mr. BECKMAN. I could easily find out what is regarded as a commitment.

Mr. Sisson. It may be that they do not follow a hard and fast rule. But I understand, and I should think, as has been said, that the R. F.C. should require, and I think the law binds them to require, that anything in the nature of a lien upon the property which is security for this loan should be suborindated to the obligation of the Government. They have required it in instances I know of, and the loan has never been approved until the bank or the mortgagee or the other creditors are willing to come in and bring themselves into the picture.

Dr. BECKMAN. În many instances, however, you will find that the security is of a tangible character, for example, a building or land which may be entirely unmortgaged. Normally, if you come to a corporation like the one contemplated by this bill now before you, you would find that when the security is accepted that ends it and it is not necessary to say that all other creditors who do not have liens on that particular property which is given as security shall subordinate their liens.

Mr. Sisson. That is so if they do not have a lien.

Dr. BECKMAN. There are a great many individuals who claim their land and buildings were absolutely unencumbered, and yet requirements were made for other creditors to subordinate their claims.

Mr. Sisson. At the same time, suppose you were handling the credit part of this proposition. Suppose there is a business man who owes a bank in his community $50,000. He comes to the R. F. C. for a loan of $75,000. You would want to know, if you had the responsibility for any loaning instrumentality of the Government, that the bank was not going to press him and put him out of business, would you not? I would judge the bank ought to be willing to go along under those circumstances.

Dr. BECKMAN. Under those circumstances the bank probably will. Sometimes it will and sometimes it will not. Other questions can be raised in that connection, but I do not believe this is the place here to argue about it.

Was the R. F. C. bill intended as a recovery measure, or as a banking measure? If it was intended as a recovery measure, I do not think the standard should be as harsh as the standard used for a private organization.

As I read the law, it seems to me that its purpose was intended as a recovery measure, and I might say right now, unofficially, as an individual, that I think it has failed completely as a recovery measure.

Mr. Wolcott. I quite agree with you. The purpose of the act was to provide $300,000,000 to give aid to business, to aid recovery. I do not think it was material whether it was actually paid out of one fund or the other, because it was our original purpose to take out $300,000,000 in as short a time as possible to give an impetus to credit, to aid recovery.

Dr. BECKMAN. That is the feeling of a great many economists.

Mr. KOPPLEMANN. I think perhaps you did not hear the statement of Mr. Gifford. I would like to have your comment on that.

Dr. BECKMAN. I heard it, that the probable length of time that will elapse before a request for a loan would be finally met would perhaps be 6 months, like the Home Owners' Loan Corporation.

Mr. GIFFORD. I am seeking the general viewpoint. If we only loan a billion dollars, why could we not make it very liberal, instead of giving away a billion?

Dr. BECKMAN. I do not think it is necessary to give money away. If you could see the letters that have come from most responsible

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sources, from the presidents of various manufacturing companies, the secretaries and treasurers of such companies, pleading and beseeching them to be more reasonable and saying what they actually want, you would find there is no reason for delay and procrastination running into many months.

Mr. GIFFORD. I want this done in an extremely liberal way.

Dr. BECKMAN. It is my intention to show that with a much smaller amount it would be possible to set up an organization like the one proposed in the bill, putting the money into productive sources instead of giving relief or doles.

Mr. GIFFORD. We do not want to set up another organization that would not act more liberally. What is the use of setting up another one with the same credit conditions?

Dr. BECKMAN. That is right. That is one of the things I was going to contend for, that this organization would be operated in a different manner.

In answer to your previous question, up to October 12, the Reconstruction Finance Corporation stated that private industries have made 2,403 direct applications.

Mr. Gifford. For instance, applications went into my district, but the people were so discouraged that they did not file them.

Dr. BECKMAN. These applications I refer to were actually filed, totaling $93,700,000. Up to that time only 244 of the 2,403 applications had been approved, and on a smaller number than the 244 had money actually been disbursed.

Of the total number of applications filed, more than one-half were rejected by the 32 field offices and only 517 were sent to Washington for consideration, of which 176 were definitely rejected. So the total amount of expenditure, instead of $93,700,000, by that time was but $7,146,000.

Mr. GIFFORD. Can you put your finger on a provision anywhere in the bill under which we could be assured that credit would be defined any differently than credits have already been defined by other Government agencies?

Dr. BECKMAN. There are several provisions in the bill, one providing that the members to be appointed by the President shall be by experience or training qualified in the field of intermediate or longterm commercial and industrial credit."

There are two purposes back of that provision. One is that they should be sympathetic to the needs of small industry; and second, they should use sound judgment in evaluating long-time risks, which are quite different from short-term obligations.

If you were to make a loan of $50,000 to a concern on a 60-day basis you would use criteria quite different from those you would use if the loan were to be made for 4 or 5 years.

The two types of loans require different types of people to handle them. People who have been trained in concerns like the General Motors Acceptance Corporation or other finance companies are some of the people who have had credit experience to handle intermediateterm loans.

Mr. GIFFORD. There are men of such experience, and they are men who, in the nature of things, do not want to lose their money. They do not want to have a balance sheet showing a loss. I do not think there is any criticism to be given against the men who have handled

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