he was made an appraiser. Look your records up and find out if he was not appraising property there.

Mr. FAHEY. On the other hand, Mr. Congressman, you wrote me that this man was not employed at your request.

Mr. KOPPLEMANN. No, sir; Mr. Kennedy, as sort of a friendly gesture, did that, and then Mr. Kennedy writes me stating he had no control over the Hartford office. He feels instead of me being belittled that he was belittled. Of course, I do not want to go into that, Mr. Fahey, as that is a political situation, and let us forget it. I only want to talk about correct administration of that office.

Mr. FAHEY. You said that you did not have anything to do with the employment of this man in the Hartford office. Here is your letter which you wrote to the manager in Connecticut on October 3 with reference to this same employment.

Mr. KOPPLEMANN. That is right. I did write the letter with reference to it. Of course I did. After he got the job he came back and told me he was fired, and I wrote a letter about it in view of the fact that Mr. Kennedy hired him. I did not hire him.

Mr. FAHEY. Yes; I know.

Mr. KOPPLEMANN. Your reports will show his name attached to appraisals. He is probably as good an appraiser as some of the appraisers in the Hartford office.

Mr. FAHEY. As a matter of fact, he was suspended because he was found not to be a competent appraiser.

Mr. KOPPLEMANN. This is the first information! have about that matter.

Mr. FAHEY. I beg your pardon?

Mr. KOPPLEMANN. That he was discharged because he was incompetent.

Mr. FAHEY. He was suspended as an appraiser because he was incompetent, and I wrote you that months ago.

Mr. KOPPLEMANN. I would like to see that information. is the first I have of it.

That

Mr. FAHEY. I beg your pardon. It is in a letter here. I covered it by letter to you.

Mr. KOPPLEMANN. Under date of November 21, and some timeaccording to the statement given to us he was relieved, and then given a chance on appraisal work. He did not qualify and was then taken back on clerical work. For your information he was put back on appraisal work.

Mr. FAHEY. He is not on appraisal work.

Mr. KOPPLEMANN. He was after November 21. He was put back to appraisal work.

Mr. SISSON. Without implying any criticism of you, Mr. Fahey, now that you have this information don't you think that warrants a very careful investigation to determine whether there is collusion between your branch manager and the insurance agent?

Mr. FAHEY. Absolutely, but I do want to point out to you the thing I am trying to emphasize, which is this, that we can only get at facts when we have specific information. Now, that is the only basis for it. There may be any number of explanations of cases of that sort. You can never tell what they are until you get into the facts.

Mr. SISSON. Of course, you appreciate, and I am somewhat in sympathy with this idea, that we are held accountable. Our job should be purely legislative, and it should be so that when we set up the machinery we would not be pestered with those things, but we are bothered with them probably more than you think.

man.

Mr. FAHEY. Of course we are fully aware of that, Mr. CongressI would say, on the other hand, that I think Mr. Kopplemann goes pretty far when he suggests that he is responsible for the administration of the Hartford office.

Mr. KOPPLEMANN. In the minds of the constituents they think I am; yes, sir. I have got that many letters [indicating] in which I am complained to as responsible for the administration of your office. Our constituents don't know you are the responsible person. They look to me.

Mr. FAHEY. But somebody has got to be responsible and the Corporation is supposed to be responsible.

Mr. KOPPLEMANN. When it comes down to their registering their approval or disapproval of this administration I am the fellow they get at, and not you. You are out of it. You are apparently nowhere. We are out in the midst of it, and we take the blows.

Mr. SISSON. I have only one question or perhaps an observation, and I want to be entirely fair. I think, gentlemen, you are probably working against great difficulties and we appreciate that. We all appreciate that you cannot possibly know except by accident, even a very small percentage of these particular cases. But, of course, you also appreciate that Mr. Kopplemann does not happen to be a lawyer, I happen to be a lawyer-you should also appreciate that with respect to an investigation those things must be substantiated. You are never going to get a photograph of a man going in or a phonographic or dictaphone record of a man going in and saying, " You have got to place your insurance with such and such a company.' It has to be proved by circumstances.

Mr. FAHEY. That is quite true, Mr. Congressman, but when you get specific cases of this sort of the placing of insurance you can readily investigate and find out in a case of that sort.

Mr. SISSON. Yes.

Mr. FAHEY. We can find out and we have found out in other cases. This sort of thing has occurred in some cases where it has been brought to our attention and we have gotten the facts and we have fired the men involved. Now, that is what we do in every case where we do get the real facts, but you cannot, and it is not justice to these employees to fire them merely on suspicion.

Mr. SISSON. That is absolutely true, and please understand that this little observation I made is not intended in any unfriendly spirit.

Mr. FAHEY. I understand that. We are not only not sensitive to criticism, but we invite criticism, because that is the only way we can be helpful here. We want all of the information we can get with reference to our operations in any section of the country on which you have the facts, as it is helpful to us in what we are attempting to do.

Mr. SISSON. Yes.

Mr. FAHEY. But, the truth of the matter, Mr. Congressman, is in scores and hundreds of these cases people who write in either do not

have the facts themselves or they misrepresent the facts. They continually impose upon the Members of Congress.

Mr. SISSON. They do the same with us.

Mr. FAHEY. That is what I say. You are constantly getting letters, those that come along to us, which show conclusively that the representations they make to you are not correct. Now, we can only get at them by making careful investigation and getting the facts, and that we try to do.

Mr. KOPPLEMANN. May I offer a suggestion?
Mr. FAHEY. Yes, Mr. Kopplemann.

Mr. KOPPLEMANN. When I made my first complaint, I did not know anything about it until I received a general clean bill of health in a few words in your letter. Don't you think it would be well if you find that the information given to you is not substantiated that you ought to take just a little bit into confidence your Congressman and say, "Now, here is this complaint, and here are the facts, what do you think about that?" In other words, giving him the real low-down, instead of accepting someone's word and closing the case. Mr. FAHEY. You suggested when you talked to me inquiring of a number of different persons up in Hartford, various sources of information up there. Now, to the best of our ability, without exciting comment in the community, we endeavored to contact those people directly and indirectly and see what they had to say. We were unable to obtain from a single person, Mr. Congressman, a single case substantiating what you had to say. This case you have brought up here now in response to my letter of last November is the first you. have ever brought to my attention.

Mr. LUCE. If we may take up the bill in question, Mr. Fahey, will you address yourself to section 4!

Mr. FAHEY. Yes, Mr. Congressman.

Mr. LUCE. Section 4 says that

In addition to the authority to subscribe for preferred shares in Federal savings and loan associations, the Secretary of the Treasury is authorized on behalf of the United States to subscribe for any amount of full-paid income shares.

We are likely to be asked when this comes up on the floor, as to what is the significance of that difference. For the sake of the record that ought to be understood.

Mr. FAHEY. Page 6, section 4, is a new provision; lines 19 and 20 authorize the subscription for full-paid income shares in addition to the present authority to subscribe for preferred shares.

Mr. SPENCE. I suggest we are likely to be asked on the floor what is the difference between full paid and preferred.

Mr. FAHEY. Yes. I referred to that yesterday.

Mr. SPENCE. I did not quite catch the explanation of that.

Mr. FAHEY. I explained it in general terms, but Mr. Russell can give that in more detail.

STATEMENT OF HORACE RUSSELL, GENERAL COUNSEL HOME OWNERS' LOAN CORPORATION

Mr. RUSSELL. The original act, as you know, authorized the Secretary of the Treasury to subscribe for preferred shares, which are preferred only in case of liquidation. The shares receive the same

declared return that any shareholder in the association receives, and the amount of those shares subscribed to by the United States are limited to $100,000 in any one association. This would change it to authorize the Secretary of the Treasury to subscribe to the full-paid income shares, which is the same identical type of share that every citizen subscribes for in the association.

Mr. CAVICCHIA. In other words, is that prepaid share, what is called an income share, really a fully paid up, prepaid share, such as they use in New Jersey?

Mr. CHURCH. Prepaid, and what they call deposited prepaid.

Mr. RUSSELL. That is right. The principal reason for this change is that there is a considerable resistance on the part of the public to putting their money into an institution and giving the United States preference in the shares, and, secondly, to raise that from the $100,000 top limit, so these associations may rapidly go forward in the larger cities, especially, and in a substantial volume to increase employment and to provide more homes.

Mr. LUCE. In our cooperative banks in Massachusetts we have what are called "matured-share" certificates. I am not quite certain of the name of them, but I think it is paid-up certificates.

Mr. RUSSELL. Yes.

Mr. LUCE. How would that correspond with this class of shares? Mr. RUSSELL. This full-paid income share is identical with the fully-paid or paid-up share in Massachusetts, and also identical with the matured share in Massachusetts. In other words, the matured share in Massachusetts is a share which a shareholder has accumulated by installments, simply leaves it there and gets the full earnings on that share in a paid-up status.

Mr. LUCE. Yes.

Mr. RUSSELL. A paid-up share in Massachusetts is one which he pays for at one time in a lump sum and gets earnings on his money. Mr. PRALL. Is there a maturity date on these shares?

Mr. RUSSELL. It is paid up at one time just like it is in Massachusetts.

Mr. PRALL. Is there a maturing date when the shareholder and the purchaser of these shares might get his money back?

Mr. RUSSELL. This provides here for the retirement of these shares subscribed by the United States, namely, at the end of 5 years, the United States may request the association to repurchase those shares from the United States in not exceeding 10 percent of the amount invested in any 1 year.

Mr. PRALL. That is, assuming the association has profited enough to do that, is that right?

Mr. RUSSELL. That is substantially correct. Of course, the association lends this money out over about a 12-year period, and it is coming back over that period, and this method of getting the money out of the association is calculated to follow the loans that the association makes and it is set up on a schedule so that when received, the association may get it back from the home owners rapidly enough to turn it over to the United States, according to the method set up in the statute for retiring these shares.

Mr. LUCE. By preferred shares in ordinary corporations, or in the case of preferred shares there is usually a fixed dividend rate, and

the other shares get what the earnings warrant. I wish you would explain that here. The preferred shares do not have that significance?

Mr. RUSSELL. Of course, there are a great many different kinds of preferred shares in different corporations. Probably the most commonly accepted and approved share is the one with a definitely fixed dividend rate, which may be or may not be cumulative. The perferred share fixed in this statute is not referred as to dividend at all. Its dividend is based on the sum of money which is earned. It is only preferred in the event of liquidation, so that the United States would be paid back that money in the event of liquidation. That is the only preference it has.

Mr. CAVICCHIA. Mr. Chairman, may I ask Mr. Russell a question. Mr. PRALL. Mr. Cavicchia.

Mr. CAVICCHIA. In other words, I understand these preferred shares would not have a certain amount of interest accrued to them, such as 4 percent or 5 percent as in the case of the ordinary preferred share, but they would get their dividends out of earnings?

Mr. RUSSELL. That is correct. The original act does not require the association to pay any definite return on that preferred share. It is a share which receives or shares in the earnings of the association just like any other shareholder receives out of the earnings.

Mr. CAVICCHIA. How are you going to distinguish at the end of the fiscal year as to what proportion of the earnings is to go to the preferred share and what is to go to the ordinary or common share holder?

Mr. RUSSELL. At each dividend period all of the earnings after the payment of expenses and the provision for reserve, those earnings are allocated to all of the shares in the association at the same rate.

Mr. CAVICCHIA. At the same rate?

Mr. RUSSELL. Whatever the share pays, be it a preferred share, a full-paid or income share, or what kind of a share it is.

Mr. LUCE. I am anxious to give this system all the help possible; but this, I am afraid, is a deviation from what has been the general policy of our legislation, wherein the investment of the United States in any enterprise gets a preferred status. Possibly Mr. Fahey could show whether it is necessary to depart from that policy here.

Mr. FAHEY. We believe it is, as applying to these home-building associations, and as I pointed out yesterday, Mr. Congressman, in the case of the commercial banks, the United States Government, through the Reconstruction Finance Corporation, has provided great sums of money for which it has taken preferred stock, and it is thus placed in a very much junior position, because that claim is entirely behind that of all the depositors in the bank. So here, under this arrangement, it is placed on an equal basis with the home owners who are paying money into these associations, and when they are operating in normal times the return would be greater than it would be on any preferred stock on which there was a limited dividend. We would probably get back more than 4 percent in the case of preferred stock in the commercial banks. Most of these associations have been able to pay 6 or 7 percent, and some of them even a higher return, under anything like normal conditions, but you will