Mr. PATMAN. And it is thought by doing that so that homes can be constructed at much lower cost. I just wondered, Mr. Jones, if we should do it just another way so as to give the same encouragement to local people. I am apprehensive if some concern should go to Houston, Tex., to engage in the building of a project embracing four or five hundred homes and expect to deal with people out of Houston, Tex., all the time, buy the lumber from some other place, buy the hardware from some other place and the plumbing and electrical equipment from some other place, and everything that is needed, I am just wondering what effect that will have on the local people, and especially the local dealers. I just wonder if something should not be done to encourage those local people to do it instead of having some large concern or some outsider do it. Do you see what I am driving at? Mr. JONES. I do. Mr. PATMAN. What do you think of that? Mr. JONES. I think that will be the effect of this act. Mr. PATMAN. You think that will be the effect of this act? Mr. JONES. I do not believe the mass producer will reap the principal benefits of this act. Mr. PATMAN. You do not believe that they will? Mr. JONES. No. Mr. PATMAN. You think the individuals will make their own contracts under this act and deal with local people entirely? Mr. JONES. I think there is plenty of competition all over the United States. Mr. PATMAN. You think there is plenty of competition all over the United States? Mr. JONES. Among the material people; yes, sir. Mr. PATMAN. And you think this will encourage the building of individual units? Mr. JONES. Yes, sir. Mr. PATMAN. As much as it will encourage mass production? Mr. PATMAN. It has been suggested to me by having mass production, like some contractor was expected to build some four or five hundred units there in Houston and the carpenters and electricians and plumbers should become just a little bit unreasonable about their wages that public sentiment would be against them by reason of the size of the project and the number of people engaged in the work and the number of people expecting to occupy the homes when finished and therefore it would be more desirable to have mass production than individual effort. Do you believe that to be true? Mr. JONES. I do not think that will be the effect. Mr. PATMAN. I have a list of the independent people involved. Mr. PATMAN. There are 21,000 retail building and material firms and they employ 101,000 people, and 31,000 retail hardware dealers, employing 88,000 people; sawmills 9,000, employing 26,000 people; heating and plumbing 5,000, employing 21,000 people; and then I have paint, glass, wallpaper, electrical supplies, radiators, household appliances, tools, and cabinet work, all of them amounting to 96,922, employing 349,000 people with an annual pay roll of $300,000,000, so I am glad to get assurance from you that this legislation will not have a tendency to cause these peopel to be discriminated against and that they will be encouraged under this law just as much as the mass producer. Mr. JONES. I think they will. Mr. PATMAN. Mr. Jones, of course one of the objects of this is to afford relief, is it not? Mr. PATMAN. Do you not believe it would be a fine thing if this Government would take the billion two hundred million dollars sterile gold and use it for relief to go out in the grass roots? Mr. JONES. I would not care to enter a discussion of that kind as I have made no study of it. Mr. PATMAN. If it was used to buy bonds it would increase the excess or reserve of the banks, but if used for relief purposes, even on the farm bill, do you not think it would have the effect of extending more relief than anything else that has been done? Mr. JONES. I would not want to attempt to answer you because I do not feel qualified to do so. Mr. PATMAN. I feel you are as well qualified as any man in America. Mr. MCKEOUGH. Following that line of questioning by Mr. Patman, this proposed bill has a maximum of $6,000 on individual homes having a 90-percent mortgage. From your study, do you believe that is high enough to cover the entire picture of a transcontinental country such as this with a view to stimulating the business that we seek to have stimulated? Mr. JONES. I do not think it makes a great deal of difference if you can get 80 percent on a home costing more than $6,000. Mr. MCKEOUGH. On the other hand we are seeking to bring homes to the mass workers and a $6,000 maximum I think might be somewhat rigid in certain cities such as New York, Chicago, and Philadelphia, and other largely populated centers, and I wonder if you would have any objection to there being some elasticity in the provision such as $7,000 to $7,500 maximum in cities of 500,000 population or over? Mr. JONES. I think it would make no difference. I had nothing to do with drawing the bill. Mr. McKEOUGH. I am seeking your opinion. Mr. JONES. This is a F. H. A. bill. I do not think it would be seriously objected to if you increased it some. It might be helpful. Mr. WOLCOTT. To go back to this question of national mortgage associations, in the law now we provide for a capitalization of $5,000,000 and we require that all be paid in cash or Government securities and in the amendment which is proposed we require that 25 percent of the capital be paid in in cash or Government securities or first mortgages or such other liens as are described in section 301 of the act. That is apparently for the purpose of inducing private capital to come in so that these national mortgage associations may be organized. Do you not think that if that is the purpose of this amendment it might not be well to reduce the required capital of the National Mortgage Association to say $3,000,000 or $2,000,000 and a half? Mr. JONES. What is it now? Mr. FERGUSON. It is $2,000,000 now. It was reduced in 1935. Mr. WOLCOTT. I have a pamphlet of the laws here which was issued in 1937, page 42, subsection (d) of section 301, title III, under "National Mortgage Association." Mr. WILLIAMS. The amendments are in the back of that. Mr. JONES. I made the suggestion that they make that a little more elastic as people might not have the cash or Government bonds but may have good first mortgages, and they should be allowed to issue debentures against insured loans. I think that is just as sound and as safe. Mr. WOLCOTT. That is written in here. Mr. JONES. That is one reason they could not get anybody to organize. Mr. WOLCOTT. Now there is a fundamental question involved here in which I have been interested. From the statement the President made in his message it appears that for the 7-year period preceding 1930 the average annual construction was 800,000 units and from 1930 to 1937 the average annual construction of units has been only 180,000. Who furnished the capital and credits for the construction of the 800,000 units previous to 1930? Mr. JONES. Private capital. Mr. WOLCOTT. The fundamental question we have to consider here is why private investors have not furnished those same credits since then. Mr. JONES. There are a good many contributing reasons. One is the thing we have referred to, the unhappy experience in mortgagemoney lending. Another is, there is still timidity among those with capital to invest. Mr. WOLCOTT. Why is capital timid about investing? Mr. JONES. You tell me. Mr. WOLCOTT. I do not want to use your expression as an argument against you. Mr. JONES. I do not mind. Mr. WOLCOTT. Was it at Seattle, Wash., that you made the statement in a speech that prosperity had returned? Mr. JONES. I do not claim to be infallible. Mr. WOLCOTT. Was it at Seattle you made a speech in the summer wherein you said prosperity has returned and business is good everywhere? Mr. JONES. It was when I made that speech. Mr. WOLCOTT. I have been told that you made that speech in July. Mr. JONES. I did not speak in Seattle. Probably I have been talking too much. I know that. [Laughter.] Mr. WOLCOTT. I do not recall whether it was Seattle or not. I may be confusing that with a speech made by Miss Perkins for which you are of course not responsible, but in that speech some time this summer you expressed yourself as optimistic because we had had a return of prosperity and business was good, and as a matter of fact I inferred from your remarks that we were in a boom period. Mr. JONES. Out of the woods. Mr. WOLCOTT. I was told that at that time our business was about 90 percent normal and the report of the Federal Reserve Board about that time disclosed the fact that the bank credit was only about 50 percent normal. Now, we may safely assume therefore that 40 percent of our business was being done on Government manufactured credit. Mr. JONES. A very substantial percentage. I do not know what it is to be exact. Mr. WOLCOTT. I do not pretend that those are the actual figures. Mr. JONES. Yes, sir. Mr. WOLCOTT. Now, has it not been apparent then that until business gets over this timidity and creates its own credit to the extent that credit will continue to flow from natural and normal sources that the Government has got to continue to furnish the credits upon which business does its business? Mr. JONES. I think to a very large extent. Mr. WOLCOTT. What can we do to thaw out some of this slushy credit lying around in the banks idle? I ask that because if we can do that it probably will not be necessary to extend the powers of the Government to extend credits which private capital otherwise should extend. Mr. JONES. I think this is a small step in the right direction. Mr. WOLCOTT. It might be a small step in the right direction but the right direction in the opinion of the administration seems to be we have got to continue to furnish Government credit until such time as private enterprise is induced to resume the furnishing of credits. That is why I say this question is fundamental, what can we do here in Congress to induce industry to create its own credits? Now, we can see the result of doing business under Government control and on manufactured credits. The moment that the President makes a sincere statement that he is going to balance the Budget there is an immediate reaction in commodity prices and stock prices because of course if we balance the Budget the balancing of the Budget must be predicated upon withdrawal of Government credits. In other words, we have got to stop spending Government money to create those credits. I may have been mistaken, but I have blamed the recession in business and the drop in the value of stocks to the statements by the President that he was going to balance the Budget which presupposes we were going to stop manufacturing credits, and I think I am justified in that statement. Are we not just putting the cart before the horse in this prticular thing? Can we not accomplish this same purpose by holding out the olive branch to business and give it assurance that the Government is going to have from now on a stable and perhaps more friendly poilcy concerning business relationships, especially the Government's attitude toward business? Do you not think that if we were to do that then we would find it unnecessary to furnish credit such as we are doing in this bill? Mr. JONES. I think that there ought to be a better understanding between Government and business. Mr. KOPPLEMAN. Louder. Mr. JONES. Perhaps I do not want to be too loud. Mr. WOLCOTT. I do not want you to commit yourself to any program how that should be done, but if that were done Mr. TRANSUE (interposing). May I interrupt? Mr. JONES. I have stated publicly I do not understand the recession in business. Mr. WOLCOTT. I hope I have been able to inform you somewhat on that question. I say that facetiously, of course. Mr. SPENCE. May I interrupt? Mr. JONES. I would like to make one statement. I think the Government can extend credit, I think we have proved the Government can extend credit that is not available from private sources without affecting the Budget. Mr. WOLCOTT. If credit is not available from private sources it becomes increasingly necessary for the Government to manufacture credit, and does it not all get back to this? You have said that business was timid about credit, about creating credit. Are they not timid because of the lack of certainty concerning governmental policies and is that not due to the fact that the different agencies of the Government have never been able to get together and follow a definite policy? When you were making that speech which I hope at least reflected the business conditions at the time it was made, the Federal Reserve Board was apparently getting concerned about the velocity of credit to the extent they wre raising the reserve requirements to stop this flow of credit. Although we had not approached our goal of 1926 prosperity we were up to 90 percent of it and they were so fearful we would go way beyond that even when we were at 90 percent they started putting the brakes on. Why was one department of the Government urging a rise in prices as the panacea for all our economic ills and another Federal agency, through which the banks have been furnished these credits, putting the brakes on to prevent further rise in commodity prices? As a consequence was it not obvious the business reaction was "We do not know whether we are in for another period of inflation or deflation" and they became static in their planning? Mr. FORD. May I interject? Mr. GOLDSBOROUGH. Mr. Crawford has been seeking recognition for some time. Mr. CRAWFORD. Mr. Jones, you made two very brief observations which have been touched on by Mr. Wolcott. One was that few applications had been made because of the hazards in the real estate realm. Mr. JONES. Yes. Mr. CRAWFORD. I do not know whether you would like to elaborate on that a little bit. Mr. JONES. Mortgage bonds. Mr. CRAWFORD. You have reference to mortgage bonds? Mr. CRAWFORD. There was one other thought you brought out that I am very much interested in and I think the country should know about it, and that is the fact the R. F. C. had demonstrated that credit can be furnished to private industry without affecting the Federal Budget. Would you clarify that just a little bit, because I think there are a lot of people who do not understand how that can be done. |