the failure to guarantee the principal of the bonds has influenced their action in the interest of their shareholders.

The Home Owners' Loan machine is a new one, of course, and has been slow in getting under way. The drivers operating the machine have been going slowly, but all too slowly. That has been true in my State and other States. But the machine has been broken in now, and it is time "to step on the gas." This bill removes the only remaining drawback and we can henceforth go ahead at full speed with the refinancing of homes throughout the country.

I would like to give you for a moment a picture of my local office, which is located at Hackensack, covering Bergen County and also Passaic. There have been filed as of March 10, 1934, 9,287 applications, but of these only 172 loans have been closed, although they aggregate $974,065.17. Most of the applications are still pending, and the delay in effecting a greater number of loans has been in some measure at least caused by the fact these bonds have not been guaranteed as to principal.

The bonds of the Home Owners' Loan Corporation have discounted the guaranty of principal already and there is a very good market for the bonds today. They are offered at 9734 with a bid of 973%, and with a market like that, anticipating as it does the passage of this law, I believe when this law actually does go into effect we are going to have a better market, so that the price of bonds will be maintained at par or better and will prove to be very beneficial to those mortgagees who cooperate.

Not only that, I feel such a guaranty will open the market for existing straight old-fashioned mortgages, and people who have money to invest—and there are some will again perhaps purchase outstanding mortgages, realizing that if they should become distressed there would be a chance, although limited, of exchanging the mortgages for bonds of the Corporation.

One other thing I would like to mention, and that is this: I think every Member of Congress, including myself, ought to resolve to act as a traffic officer to speed up the traffic in these mortgages and make it our business to see they are put through speedily and not brook any delay from now on. If we will do that we do much good; we will help the investor, individual, and institution alike, make available taxes for needy municipalities, and, most of all, lift the worry and anxiety from the backs of the home owners of the Nation. Mr. BUSBY. We thank you, Mr. Kenney.

The committee will now go into executive session.

(The committee thereupon went into executive session.)

TO GUARANTEE BONDS OF HOME OWNERS' LOAN

CORPORATION-H.R. 8403

TUESDAY, MARCH 20, 1934

HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D.C.

The committee met at 11 a.m., Hon. Henry B. Steagall (chairman) presiding.

The CHAIRMAN. Mr. Marsh wants to be heard briefly, and, if you gentlemen are willing, we will hear him 1 or 2 minutes. There are also one or two Members of the House what want to be heard this morning.

STATEMENT OF BENJAMIN C. MARSH, SECRETARY OF THE PEOPLES' LOBBY, WASHINGTON, D.C.

Mr. MARSH. Mr. Chairman and members of the committee, I would first like to ask whether I correctly construed this bill, the Steagall bill, H.R. 8403, to mean that the Government guarantees the principal of $2,000,000,000 of bonds under the Home Owners' Loan Act of 1933, and 4-percent interest on that principal? Am I correct in understanding the bill as doing that?

The CHAIRMAN. The bonds will be floated along with other Treasury operations, and they may be lower or higher, as it is impossible to suppose or anticipate just what conditions will be.

Mr. REILLY. The understanding is to take up all of those 4-percent bonds and to issue new bonds that will pay up to 32 percent. Mr. MARSH. And to guarantee the interest?

Mr. HOLLISTER. Absolutely; the interest and principal?

Mr. MARSH. Not to exeed 4 percent annually, as the bill states. I would suggest that if it is known that a guaranty up to 4 percent, an interest rate of 4 percent is going to be guaranteed, it will certainly have quite an influence upon the public in withholding subscriptions to any loans until they get the maximum which you have provided.

Mr. HOLLISTER. Why?

Mr. MARSH. Because there is a tendency on the part of all of us, which I do not criticize but simply state, to think of the Government as the greatest purveyor of unearned income which there is and that its resources are unlimited. I say that will be the tendency. I cannot say that is going to be so positively, but we therefore want to suggest that the maximum rate of interest which should be guaran

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teed should be 3 percent because that will seem to comport with reasonable payment.

Mr. CAVICCHIA. Don't you think it would be possible for the Treasury Department to give some money at perhaps 22 percent, as it has done in the past? Didn't it borrow money some time ago at 22 percent?

Mr. MARSH. I think unquestionably it would be possible, but any such provision as this would make it more difficult. I stated a maximum of 3 percent. I would prefer 22 percent as the maximum as suggested, and the Government might raise it.

Mr. CAVICCHIA. No; I am not suggesting 22 percent. I say it might be possible for the Government to borrow at less than 3 percent.

Mr. MARSH. It would depend a great deal upon whether the Government adopts a policy of paying most of this so-called "emergency expenditures" which is bound to be recurrent for several years, or whether it adopts a policy of paying by taxes on borrowings. Up to date we have adopted a policy of borrowing practically entirely for the so-called "emergency expenditures ", which I think is a mistake, but frankly, it seems to us inequitable to guarantee 212 percent or 3 percent upon any bonds until the Government guarantees everybody a chance to earn a living at a fair return, or to have a living, because that charge ought to come first.

Mr. CAVICCHIA. Isn't the whole purpose of this legislation to help people so that they will earn a living?

Mr. MARSH. In answering your question, Mr. Congressman, I think perhaps I have been very frank in discussing this matter from Minneapolis to New Orleans, and from Boston to Seattle and Los Angeles. The purpose of the most of this legislation is fatal; it is to maintain the present capitalization of corporations and the present indebtedness which cannot be maintained. I do not want to take your time, but just to get back to the subject, I have three clippings here that I might submit.

Mr. HOLLISTER. Pardon me, I did not get your affiliation?

Mr. MARSH. The People's Lobby, of whom Prof. John Dewey is president, with offices in Washington. I have pointed out the necessity for writing down capital debts. I want to give some figures showing why we do not feel it is proper for the Government to underwrite indebtedness, but that the proper thing to do is to write down interest rates and principal of a lot of these debts.

The CHAIRMAN. How are you going to have the Government say to some man who has a mortgage that is about to be foreclosed that you cannot collect your debt or avail yourselves of your legal right to collect?

Mr. MARSH. I will answer from a decision 2 weeks ago yesterday, I think it was, of the United States Supreme Court, an opinion written by Mr. Justice Roberts, and concurred in by Chief Justice Hughes, and Associate Justices Brandeis, Cardoza, and Stone:

Neither property nor contract rights are absolute. The Federal Government cannot exist if the citizen may at will use his property to the detriment of his fellows or exercise his freedom of contract to work harm.

I cannot see that we are going to get any improvement unless we do exactly that.

Mr. HOLLISTER. That may be, but how can we do it; that is the question.

The CHAIRMAN. Haven't you got to have the question limited in this manner, if you consider the fact that this is only an effort to deal with a very small portion of debts that are secured by mortgages on homes with the purpose of saving those homes from foreclosure, temporarily, to keep citizens from being turned out into the streets so far as that can be accomplished by the use of funds provided in this legislation?

Mr. MARSH. Naturally with the purpose of that I am in entire agreement.

The CHAIRMAN. Can you go beyond that in this bill and deal with this larger problem to which you referred, not for the moment attempting to say how it should be done?

Mr. GOLDSBOROUGH. My friend's contention, whether valid or not, is that it is a creditor's bill and not a debtor's bill.

Mr. MARSH. Precisely; that the creditors should not be given so much consideration, but you have set a precedent, Mr. Chairman, to a relatively small amount; and in this book of the Twentieth Century Club they state, giving the total of urban mortgages, it is $27,554,000,000, and farm mortgages amounting to $8,500,000,000, or a total mortgage debt of all individuals estimates at $35,000,000,000 as of December 31, 1931. The amount of this mortgage indebtedness to which this bill is confined, $2,000,000,000, is roughly a little under one seventeenth, and, assuming there have been many foreclosures since 1931, I address myself to the fact that it seems to us a step in the wrong direction, and it is quite logical that other creditors should come in and say, "Well, if you guarantee mortgage holdings on small amounts"-and if I correctly understand it, it does not affect any home of over $20,000.

The CHAIRMAN. That is right.

Mr. MARSH. That is quite a sizable home. A person must be pretty well fixed to be able to have a $20,000 home. If you start on this thing, the pressure is going to be cumulative, in my judgment, and continue along this line; and we may well make up our minds in which direction we are going to protect the creditors or the debtors.

Mr. GOLDSBOROUGH. We all agree with you.

The CHAIRMAN. We recognize that tendency.

Mr. MARSH. We will say that you guaratee only 25 percent, to be reasonable. I am trying to practice what I preach. I have a small amount of mortgages, and I am trustee for my father's estate, and I have been taking a lower interest rate and writing down the capital.

The CHAIRMAN. Experience has shown that there is great difficulty in persuading mortgagees to accept these bonds even at the present rate. We had to resort to this method of securing the principal, or having the Government secure the principal, in order to make the law effective. If we put that interest rate at the figure that you are talking about, what assurance have we that this bill will function to accomplish its fundamental purpose, which is, namely, to save homes from foreclosure in this emergency.