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these loans. I think they are men who have had experience, and they are sympathetic, and want to do the best they can. But I doubt that you so far have said anything convincing to show that the credit terms will be more liberal.

Dr. BECKMAN. There are several provisions in that direction. There is one which provides that certain security can be presented for these loans which is easier to obtain from small business men.

Mr. GIFFORD. What section is that?
Dr. BECKMAN. That is section 2 on page 7, which provides:

To make loans direct to any corporation, partnership, association, or individual, in, or organized under the laws of any State or Territory or the District of Columbia, and composed of a person or persons engaged in producing or marketing goods or services if the notes or other such obligations representing such loans are secured by warehouse receipts, or shipping documents covering such goods, or mortgages upon lands, other real estate, plants, warehouse, or a shipment, or other evidences of probability of repayment of the loan when due.

Mr. GIFFORD. That is more liberal.

Mr. Sisson. Here is a specific case that I might mention, which I happen to know about, which occurred in my own district. I had that particular case in mind when I asked you a question when you were talking about liberalizing this and making it easier.

I had this particular case in mind when you said that one of the things that was holding us up was the requirement in certain cases of a guarantee on the part of the officers and directors of the corporation applying for the loan.

Here was a proposition that had to do with 400 shares of stock. Two men owned 300 of the 400-odd shares of stock. The two men are actively engaged in the management and operation of that particular manufacturing concern.

They came to the New York agency and applied for a loan. I thought they were within the scope of the law. I knew they were a good concern, but they were up against it.

I personally interested myself in it and tried to help them out, but the New York agency turned them down. They went there first

' before they had talked with anybody who was very familiar with the operations. .

They wrote to me, and I advised them to come here and see some of the directors here, or Mr. Hoeltzel, and they detailed a man to go over the matter with them. He spent a lot of time going over it with them; and it did not cost them a penny, except for their traveling expenses and their hotel bill, except that they did have to have an appraisal.

Finally, the R. F. C: practically directed the New York agency to review the matter and to make the loan in an amount that would have been ample to keep them going and enable them to retain their employment of 150 people. But because of this last thing that came up they were very much disappointed, because they were asked personally to guarantee the payment of the loan.

My position is, and I have spent some time on the matter--I was very much disappointed, in fact, that they could kick about the guiaranty of the loan. They are the men interested; why should they not guarantee the loan with all their personal possessions?

Mr. CAVICCHIA. Do you not find that the local agencies use the same criterion that is used by bankers?

Mr. Sisson. I think that is so.

Mr. CAVICCHIA. I have had that from the New York agency. I was told by one man that they had 57 loans and only 3 were approved, and he was so discouraged by the iron-clad rules that he said it was just a waste of his time.

Mr. Sisson. Is not this committee made up of industrialists?

Dr. BECKMAN. When the summary of my report first came out, inadvertently, one of the members of one of the industrial committees wrote to me confidentially that he was heartily in agreement with everything that was said in the report about the R. F. C.

I think for every such case like the one you have cited—and there are cases like that—that there are plenty of other cases.

Mr. Sisson. These men were fine men, men of fine character, but I think they had been led a little too far to think that the Government is going to underwrite any obligation they are willing to put their stock into.

The CHAIRMAN. And the Government will go further than they

will go.

Mr. REILLY. Did they get the loan?

Mr. Sisson. It is approved, subject to whether they will personally, guarantee it.

Mr. BECKMAN. I would not sign away everything and deprive my family of every bit of security I had and stake all on that business. That is the reason why we incorporate; we want to have a little protection.

Here we have an illustration of what we were talking about awhile ago in reference to the surbordination of other loans. Here is a case where the R. F. C. has approved the loan on condition that the banks subordinate the mortgage. According to this excerpt from a letter from one of the manufacturers, the requirement to subordinate claims of private creditors often works undue hardships upon the small-business man.

It says: We are in a predicament because the bank that holds our mortgage is in process of liquidation. The R. F. C. has approved a loan on condition that bank subordinate the mortgage. Bank has our mortgage pledged with R. F. C. and can't subordinate without court order. We are caught between the two and don't seem to be able to get anywhere. Concern is 54 years old and has a fine business; less red tape and more reconstruction is what is needed.

That is the tenor of at least 50 of these excerpts from letters of manufacturers that are typical of the whole group.

If I may, I would like, following my previous statement, to make this further, statement, that the need for an intermediate credit system is great and urgent. It was recognized before the depression, but it has never been felt as keenly as during the trying times of the past 5 years.

There is one little except on page 219 of the report on credit requirements that I would like to read:

In the report of the National Industrial Conference Board on the availability of bank credit, published in 1932, it was pointed out, first, that commercial banks prior to the depression extended “a considerable volume of intermediate credit”; and second, "that it is natural that business demands for such credit should be greater after 3 years of operative reverses than formerly” due to an inpaired working capital condition.

The question is then raised in this report as to whether there is not a “real defect in the American banking system because of the absence of specialized” institutions dealing in intermediate-term

credit, just as in the case of the Federal intermediate credit banks established for agriculture.

That was the conclusion reached by that group. Again in a report on the commercial and industrial credit needs of small business concerns, resulting from a meeting of the code authorities of group V, on March 6, 1934, the following statements appeared:

Urgent need for intermediate loans to small business.concerns.

Such concerns do not want short-term commercial-bank loans, as they are afraid they cannot repay them at maturity.

There was a decided indication that many small concerns distrust the banks and do not wish to get involved in loans, the repayment of which may cripple or kill their business. They want more time in which to turn around.

There was a general feeling that N. R. A. must do something to avoid destruction of small business, and resolutions were adopted calling for drafting of a credit plan on a sound basis.

Mr. Jesse Jones, in a letter sent to Senator Fletcher, made an interesting observation on this subject. This letter is dated March 21, 1934, and Mr. Jones said:

Banks ultimately will meet most credit requirements for business and industry, and the Credit Banks for Industry when organized, should be of assistance, but this Corporation may need to supplement both of these. There are crippled industries of the smaller and medium-sized type that will need nursing for several years and while some are risks that commercial banks should not take, though ultimately good, and that the Credit Banks for Industry might decline, many of them deserve a chance to reestablish themselves, and society generally will be better for it.

Mr. CAVICCHIA. May I say that Mr. Jones modified his view since he wrote that letter, because later he said he thought the banks did not give the cooperation he thought they would?

Dr. BECKMAN. When that little summary was inadvertently released there was an avalanche of newspaper comment, and it is interesting that in only one case was opposition expressed to the intermediate credit bank idea. That one case was that of the Wall Street Journal. If you take the Journal of Commerce in New York you will find that they have endorsed the plan in the following words

Mr. GIFFORD. That was the time when Mr. Jones asked the bankers of the country to loosen up, and all the answer he got was “loosen up yourself”.

Dr. BECKMAN. That is right. Here is what the Journal of Commerce said editorially on November 12, 1934:

If conservatively conducted, such institutions can fill an important gap in our existing financial structure. Commercial banks should properly be concerned chiefly with financing the seasonal and temporary working capital needs of industry and trade, for only in that way can they maintain the liquidity of their portfolios. Larger concerns can borrow or sell stock in the security markets. The middle-sized and small business, on the other hand, has never had organized facilities to which they can resort regularly for part of their permanent working capital and fixed capital. Under suitable safeguards the industrial and commercial intermediate credit bank system

which corresponds to industrial mortgage lending and similar institutions long operating abroad, can prove a very desirable reform.

Business Week, on November 17, 1934, stated editorially that, perhaps that leaves a niche for the suggested intermediate credit bank.

The editorials of the Scripps-Howard papers had the same note.

All of these editorials were in praise of the idea, with the exception of the Wall Street Journal.

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Mr. GIFFORD. Will they continue in that strain after the pending banking bill passes?

Dr. BECKMAN. There is no question that that will not solve the problem. It will aid considerably. I do not know that I am qualified to express any feeling toward that measure, but it will not solve the problem.

Mr. CAVICCHIA. That is because commercial banks are not going into long-time loaning. Is not that the reason why the pending bank bill will not help, because the commercial banks will not go into longtime loaning?

Dr. BECKMAN. Yes. The commercial banks do a different kind of banking, and they must operate on a short-time basis.

The presidents of two pretty good-sized banks in Ohio and Wisconsin told me personally that this bill, in section 210, where it authorizes loans on real estate "will not make any difference to us, because we will not do it, because we do not think it is good banking. We think that has been one of the troubles which led up to the bank collapse."

If that is going to be the general attitude of the banking fraternity, the pending bank bill will not help in that respect, although it has most admirable features in other ways.

The Hardy-Viner report came to the same conclusion. Let me read you just a sentence or two from that report. It

says

in the Summary of Findings as to the Facts, thatThere exists a genuine unsatisfied demand for credit on the part of solvent borrowers, many of whom could make economically sound use of woking capital.

The authors further said "that so far as small business.s concerned, the difficulty of getting bank credit has increased more, as compared with a few years ago, than has the difficulty of getting trade credit.' They also said "that there is a larger unsatisfied demand for longterm working capital credit than for one-turnover loans.” They have reached about the same conclusion, and the conclusions are practically unanimous, as if they were made by the same individual.

Now, Mr. Chairman and gentlemen, I would like to refer to the bill itself, just to call your attention to a few of the important sections.

Mr. REILLY. Why set up a new loaning institution when you have one already in the business? Could you not write, if Congress is disposed to do so, a provision in the law liberalizing the R. F. C., and handle the whole proposition in that way?

Mr. GIFFORD. That is my question. There are no liberalizing features in this bill.

Dr. BECKMAN. The answer to that is that most of the criticisms against the R. F. C. are not so much against the law, as they are against the administration of the law, and many of them state that as long as the administrators are imbued with the spirit of the big banker, no help to the small business man is possible.

Mr. RUSSELL. What assurance have you that another institution will not be similar?

Dr. BECKMAN. There is no assurance that we are going to live tomorrow, but we are assured that the other one is wrong, and there are several provisions in this bill which, in my opinion, would improve that.

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The CHAIRMAN. There is a fundamental difference in this legislation that should not be overlooked. This bill contemplates a permanent Government loaning institution for this class of business which is distinguished from the R. F. C., which is designed to meet an emergency.

Mr. REILLY. Why not continue the life of the R. F. C.?

The CHAIRMAN. It probably will be continued after the time, we expected it would be.

Mr. REILLY. The Congress has limited the R. F. C. and the -Federal Reserve bank in their making of loans. In other words, the .legislation contemplates a paying back.

The CHAIRMAN. Yes. Mr. REILLY: This contemplates loaning with the idea of the employment of men, and thereby reducing the relief rolls.

Mr. CAVICCHIA. It also contemplates paying back, does it not?
Mr. REILLY. Only at a long distance.
Mr. CAVICCHIA. It is a long-time credit.

Dr. BECKMAN. May I introduce one idea as to the difference, and why some of us do not see eye to eye on some of these arguments? It is hard to see all of these ramifications in one glance.

The R. F. C. Act provides that loans shall be made for 5 years, but in actual practice, loans are being made to people only for 1-year terms, with the understanding they will renew them.

But the business men are afraid to commit themselves on something that they know they cannot possibly pay back in 1 year. They might pay back in installments, and despite the fact that the law gives the R. F. C. authority to make loans for several years the administration insists on making notes payable only in 1 year.

Mr. CAVICCHIA. Mr. Jones says that if there is a chance to get the money back ultimately they will extend the loans, but if it appears that a concern may be going on the rocks, the R. F. C. wants to be assured of its money; they want to get it back.

Mr. Sisson. I think Mr. Cavicchia has had a similar experience to mine.

What is the trouble with the New York agency, not speaking of personalities? I have known of a number of loans where the people were turned down by the New York agency, and where they came down here, and as the result of the influence of the Board here, the New York agency reversed itself. I do not mean the employees of the R. F. C.; I mean their committee of industrialists. They turned them down.

Mr. Cavicchia. My experience is that the New York office turned down loans, and I went to the R. F. C. here and Mr. Costello sent an investigator to New York and asked them to revise their opinion.

They finally recommended $160,000, and when it came back to Washington, Washington insisted that they increase it to $200,000. They were reluctant to do it.

A week ago I spoke to Mr. Costello and Mr. Holtzel, and Mr. Holtzel said he had been up there and gone through the books and examined the plant and he said he would recommend, on the following Wednesday that the Board pass a loan for $200,000. But, he said, “I will have to do it over the objection of the New York office."

Mr. Sisson. That is the same as my experience. I want to say this—and of course my observation is very limited—I have known quite a number of instances where they have come down here, and I

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