Mr. JONES. Well, the Government guarantees the Federal farm mortgage bonds and the H. O. L. C. and they are behind the F. H. A. There is a contingent liability. If the agencies are properly administered there is very little loss. Although we have loaned $100,000,000 that is regarded as an expenditure but I think the loaning on security should not affect the Budget. Mr. CRAWFORD. From year to year. Mr. JONES. From year to year. Mr. CRAWFORD. Then there is just one other thought. That is you were expressing the thought a while ago that this might not work out as set forth in this plan, because the people would not go along with it. What particular phase of this bill could you point out which in your opinion will cause the public to now go along? Mr. JONES. You could not pass a more liberal act than that. If people will not go along with that, I don't think you can do anything else. Mr. CRAWFORD. In other words, the liberalism of the bill is what you have faith in? Mr. JONES. Yes. Mr. LUCE. One other feature of the bill that I think you have not touched upon is that the bill contemplates the Government taking a hand in regulating the interest paid. What would be in your judgment the effect upon your institution, the R. F. C., if we established a precedent by legislation, rates of interest? Mr. JONES. You mean by Congress? Mr. LUCE. Yes. Mr. JONES. I think that we prefer to fix our own rates. I heard you ask some question as to interest. I wonder if that is what you had in mind? Mr. LUCE. Yes. Mr. JONES. This rate is around 54. Mr. FISH. Five. Mr. JONES. I think it is high enough. Mr. CRAWFORD. At the present time. Mr. JONES. I think it is high enough even taking into account savings banks and building and loan associations, I do not believe, if properly administered, it will be expensive to the Government. Mr. LUCE. Of course you must have gathered yesterday my apprehension as to the effect of the Government embarking upon a policy which will endanger the prosperity of the thrift institutions of the country. Mr. JONES. I do not believe this will have that effect. There is so little difference, and after all there is always more fear in these thngs than is justified. Mr. LUCE. Undoubtedly; but the camel gets his head under the tent and goes in. Mr. JONES. He has not done much so far. Mr. GIFFORD. Since we can follow the corporate-device method, the Budget would not be affected. The losses would not be reflected until finally shown when the corporation was dissolved or liquidated. Mr. JONES. That is right. Mr. GIFFORD. You have given away perhaps 2% billion dollars. What do you think of our being asked to appropriate the money and save this distorted picture? Mr. JONES. You appropriated it. Mr. GIFFORD. The Treasury subscribed to 500,000,000 stock and took 4,000,000,000 bonds? Mr. JONES. Yes. Mr. GIFFORD. And that is still carried as an asset? Mr. JONES. But you turned around and gave 2% away. Mr. GIFFORD. The Treasury does not reflect it. Mr. JONES. I think they do. Mr. GIFFORD. If you can find it I will be glad to see that. Mr. JONES. I think it is reflected. Mr. GIFFORD. It is reflected in one particular way, but nowhere does it reflect the actual losses. The capital stock of your concern is worth nothing. Mr. JONES. It is when you give us back the money you have taken away. Mr. GIFFORD. Shall Congress be asked to put in their Budget 21⁄2 billion dollars? Mr. JONES. I think we will be up here talking to you about it later. I do not think that will affect the current Budget. Mr. GIFFORD. We are looking to the future. Mr. JONES. This is the past. Mr. GIFFORD. You have given away our money. Mr. JONES. We did not give it away. You gave it away. Mr. GIFFORD. You still carry it as an asset. Mr. JONES. I do not know whether it is an asset or not. We have it charged up to the individual members of Congress. [Laughter.[ Mr. CRAWFORD. On this question Mr. Luce asked and you answered with reference to 5 percent being high enough, would there be any relation to refunding the present short-term obligations of the Treasury into long-term obligations and the rate of interest likely to prevail? In other words, suppose we converted 15 billion short paper into long paper, would that affect the rate? Mr. JONES. Yes; make it higher. Mr. CRAWFORD. So when that time comes this 5 percent might not be reasonably high? Mr. JONES. Oh, no. I believe Government borrowing will go on as long as we have a Government. Mr. CRAWFORD. In this large volume? Mr. JONES. I do not see why not. Mr. McGRANERY. I just wanted to ask one question in relation to this matter of interest. The Government has been augmenting private loaning facilities at a rate under that of private institutions. Do you think that activity thus far has resulted in a lowering of private lending rates? Mr. JONES. I think it has some. Mr. MCGRANERY. Have you any idea what the result has been? Mr. JONES. No; but the rates are not too low now. Mr. MCGRANERY. Would you say they are about the average? Mr. JONES. I could not answer. The CHAIRMAN. Mr. Ford wants to ask a question. Mr. FORD. Mr. Wolcott insists the present recession is due to Government interference with business. Mr. WOLCOTT. I do not. Mr. FORD. You said there was no confidence in the Government. Mr. WOLCOTT. I insist the present recession is due to the threat of the President that he was going to withdraw governmental credits. Mr. FORD. There was no threat in 1929 there was going to be any withdrawal and yet we all know what happened. Mr. WOLCOTT. That is no answer. Mr. FORD. Yes; it is. Mr. WOLCOTT. The mere fact some Republican, if you want to put it that way, is to blame for the recession does not make it any different as far as I am concerned. Mr. FORD. You are blaming it on a Democrat. Mr. WOLCOTT. I am facing the conditions in 1937 and I cannot answer for what happened in 1929. Mr. FORD. There is no parallel. Mr. MCKEOUGH. Mr. Chairman. The CHAIRMAN. I just did not want to interrupt this discussion. Mr. HANCOCK. Mr. Jones, do you think it is sound business practice to encourage a man to purchase a home in excess of $6,000 and only have a 10 percent interest or equity in it? I am thinking primarily of the borrowers' welfare and protection in asking this question. Mr. JONES. I think it is a good thing. Mr. HANCOCK. You think it is a good thing? Do you think a man who is able to own and maintain a home costing in excess of $6,000 should be encouraged to purchase with only a 10 percent payment? Mr. JONES. Yes; that is better than renting. I do not think there harm in it. is any Mr. SPENCE. Where is the law passed giving the R. F. C. authority to come to the assistance of the National Mortgage Association? Mr. JONES. Have you that, Mr. Ferguson? Mr. ABNER H. FERGUSON. It is printed as an appendix to our act. Mr. SPENCE. It gives permission to purchase stock, does it not? Mr. ABNER H. FERGUSON. Yes. Mr. SPENCE. Do you think that might authorize you to organize a Federal mortgage association? Mr. ABNER H. FERGUSON. I think if we got individuals to put in a small amount of money. Mr. SPENCE. But isn't the purpose of this thing to have the individual organize this? Does not the initiative come from the local fellows that want to organize? Mr. JONES. We furnish most of the money. We require 50 percent. Mr. SPENCE. The fact you have the right to purchase stock does not give you the right to organize. We in our individual capacities have a right to purchase the stock, but we do not have the right to organize a corporation. Mr. JONES. How does that read? Mr. ABNER H. FERGUSON. The R. F. C. is authorized to subscribe to mortgage-loan organizations under title III. Mr. JONES. That does not mean we would organize it. Mr. SPENCE. It does not mean you would effectively direct it. In other words it would be a decentralization of a centralized function? Mr. JONES. That is right. Mr. FARLEY. I just wanted to bring out this one thing. Who fixes the interest rates that the Government pays on their bonds? Mr. JONES. The Treasury. Mr. FARLEY. The Treasury itself? It is not done by any legislative action? Mr. JONES. No. Mr. FARLEY. That is just the answer I would like. I do not think we ought to set interest rates by legislative action, but I think rather it ought to be in the hands of the Administration to handle that as the market goes. Mr. JONES. My understanding is you limit them, but do not set them. Mr. FARLEY. Limit it to 5 percent as a maximum? Mr. JONES. I think that is about right. Mr. FARLEY. Do you think that is the proper thing to do? Mr. TRANSUE. My question is this, in addition to help, Would it not help to have more cooperation from business? Mr. JONES. Yes. Mr. TRANSUE. That is a material thing. Mr. JONES. It must be material. Mr. TRANSUE. If one has helped to bring about the recession had not the other also brought about the recession? Mr. JONES. I do not know what part it had. Mr. TRANSUE. I am asking for your opinion. Mr. JONES. I think you have got to have cooperation between business and government. Mr. MCKEOUGH. You surely do not take the position, Mr. Jones, in the light of your wide experience as head of the Reconstruction Finance Corporation that anything the President or the present National Administration has attempted to accomplish has caused the temporary recession? Mr. JONES. No. Mr. MCKEOUGH. On the contrary, I presume you would be willing to make the statement it has done everything possible within human ingenuity to create a better picture? Mr. JONES. Yes. Mr. WOLCOTT. What inducement has Government given to business to cooperate at all? Just a couple of weeks ago they were going to do something for business. Mr. JONES. I think it has given business a lot more than I could enumerate. Mr. WOLCOTT. I wish you would do so because I was foolish enough to think I might prepare a speech along that line. Mr. JONES. I will help you prepare it. Mr. GIFFORD. Is it not something like this, you say to the grocer "Send me two dozen eggs and if they are good I will send you my check." He says, "No, you send me your check and if it is good I will send you the eggs." That is about the attitude between Government and business at this time. [Laughter.) Mr. JONES. That is your question and the answer to it. Mr. TRANSUE. Who do you suggest throw the eggs? [Laughter.] Mr. GIFFORD. Everything has come out as we told you. Mr. FISH. Let us get away from this political subject. I meant to ask about the interest rates. I am fearful it will come down to the question of your establishing the National Mortgage Association and private capital may not come into it, judging by the past. If you set up a National Mortgage Association and put your money in it and loan your money Mr. JONES (interposing). Does the law provide that? Mr. FERGUSON. No. Mr. JONES. We will assist as far as we can. I have in mind also other people in the business, like building and loan associations trying to cooperate with the F. R. C. Mr. FISH. You built these houses. You probably know more about it than all of us on this committee, and it is important to keep the interets rate as low as possible if the owner is to keep the home. I am very much interested in getting the interest rate as low as possible. It seems to me the Government does not want to make a profit. Mr. JONES. No; but it should not take a loss. Mr. FISH. You can raise money at 3 percent and less. Mr. JONES. That is tax-free money. This is not. You can buy a Government bond and get about 3 percent. That is no trouble and no risk. If you buy a small loan or make a mortgage loan on it costs money to service it and it costs money to make it and I think if we would get this down to about a 5 percent rate that is as low as we ought to go. Mr. FISH. How much can the Government get the money for? Mr. FISH. If they can borrow it at 3 percent why should they have to dole it out at 5? Mr. JONES. When you put it out in small quantities the cost of administration would probably be 5. We are operating on one-half in the R. F. C., but we have had big figures. You take a Nation-wide organization and I suspect it would cost about 11⁄2. Mr. FISH. We hope it is going to be enormous. Suppose it goes to three or four billion dollars, why could you not get that down as you do, under 1 percent? You operate under 1 percent. Mr. JONES. We have volume. When you get volume you can lower the rate. Mr. FISH. If you have volume enough you can get it down to 4. Mr. JONES. Or 42. Mr. FISH. That is 1 percent. I am willing to go further. I think the Government ought to take a loss on operating expenses not only to put people to work but to put them in their own homes, and I think you and I agree that it is a thing that does more to promote the well-being of the country than any other one thing. Mr. JONES. That is right. Mr. FISH. Can you make every effort to get this down to 4 percent? Mr. JONES. We are not the operators. Mr. FISH. You will own one-fifth of the National Mortgage Association. Mr. JONES. If we had the limit it would be the rate fixed in the bill and we would not start under that probably. Mr. FISH. Do you know what rate is fixed in the bill? Mr. JONES. 5 percent. The CHAIRMAN. No. Mr. McGRANERY. That is the top limit, not to exceed 5 percent. Mr. FISH. That does not mean it cannot be 4 or 5%1⁄2? Mr. JONES. That does not mean it cannot be 4 or 32. Mr. FISH. Would it not be your desire to cut that down to 3% or 4? Mr. JONES. Yes; but if you tell me to operate on my own capital then I have got to get enough out of it to operate. |