frozen, but which, taken over by an institution where a quick repayment was not demanded or expected, in the very nature of the transaction it relieved the pressure on the commodity markets to such an extent that the price level responded and permitted a liquidation and thawing out of frozen assets on a scale that nobody could have promised but which was the most effective thing, I believe, at the time in that picture, in easing the whole credit situation throughout the country.

At that time there was one other fundamental difference that I want to call your attention to, and I think it is important. I will just interrupt a moment to say that in all the history of this country easy money has always acted as a business reviver; that is, easy money for any considerable period; and the reason for that has been that with our growth of population on a 3 per cent basis normally, compounded annually, we had a normal building construction program in this country which if interrupted for a year or two began to create a demand for construction which with easy money was remedied very quickly in new activity, which is one of the most important and fundamental in our whole business situation; i. e. construction activity. Even where our overbuilding activity existed it only existed for a limited period and the overbuilding did not after a period of temporary suspension in the building activity interfere with the renewal after a couple of years.

One of the things that was quite evident in 1921 I remember I had occasion to point out to the Interstate Commerce Commission in connection with some of their decisions in the financing of railroads at that time because they were liquidating the railroad administration. One of the notable features in the 1921 comeback and the comeback of subsequent years was that beginning in 1921 we had a period of eight years of subnormal construction in this country. I just happen to have a chart which will appeal to the eye very quickly.

As I will show you, that was due to the fact that 1913 and 1914 being inactive years in business and the subsequent years being war years, and even before we were in the war, and, of course, during the war construction was almost forbidden except for the most essential purposes, a deficiency in housing and office space and all kinds of construction developed compared to the normal requirements of the growth of the country. There is your picture which is based on the per capita value of building permits in 50 cities on the 1913 cost basis, showing the great deficiency in building, which, with the return of normal money market conditions in 1921 and 1922, permitted with the ability to get money on mortgages again, beginning in the spring of 1922, a revival in construction that really was the basis of what proved to be a period of prolonged upward swing. In other words, the construction activity had in 1921 a very solid basis, a very solid foundation in a legitimate answering of the requirements of the people of the country. In the spring of 1922 building started on an extensive scale; mortgage money was available freely and values of lands and buildings on account of the rental increases and on account of the rise in the cost of building, as compared with pre-war, raised old buildings of a substantial and useful character to a new level. creating a good deal of speculative activity and, of course, further increasing the interest in real-estate activity and construction not only for homes, apartments, and office buildings but also through that

expansion in building activity a tremendous expansion in production to take care of that building activity.

Nothing increases the movement of goods and the employment of labor more than the construction activity. It affects the mine and the forest; it employs great quantities of labor in transportaion; it adds to the gross revenue of railroads. It seems to have the most general stimulating effect, and I think it was in that providing of space to meet the deficiency of construction, which had not lasted several years, that the so-called real-estate boom had its origin, a perfectly legitimate basis in its foundation, but unfortunately carried on too far, too long, and in the end in the latter part of the activity on a very unsound and dangerous basis with dangerous valuations and a good deal of very weak and unsound financing.

Now, I think it is a question as to whether or not, even taking the facts and figures as they are, there has been such an enormous overexpansion in providing space in this country, taking it as a whole on the normal basis of growth, and I would not like to pass on that; but I feel, personally, that the situation is more characterized by weakness in financing than actual overprovision of space, although, of course, it can not be denied that there has been a great deal of overbuilding in certain areas; however, it must be remembered that space for housing or offices or any purpose is not liquid and movable. You may have overbuilding in the suburbs of Chicago, you may have overbuilding in certain areas of New York and you may have it in the Twin Cities, down in the South or in the West, and then there may be still a demand for space in other areas.

Even now, in the suburbs of the larger cities generally throughout the country there is a building activity going on, and that is due to the fact that people more and more are moving from the town to the suburbs of the country with the good roads and with the automobile and bus transportation. I believe that the prompt liquidation of the unsound financing in the real-estate field in most important, because as long as mortgages are being foreclosed on properties which have been unsoundly financed, as long as properties are in a deficiency that furnishes a competition to honestly owned and operated properties, it is detrimental and confidence destroying. That is going on, and in some States the laws make it necessarily slow, but the real-estate situation is one of the big situations in the country. The building and loan associations, which under normal conditions serve a very useful purpose where they are well managed are suffering from the depression and demoralization in values which I will not say in every case but I believe in many cases is carried on to an

extreme.

This building activity, as I suggested, is one of the most fundamental factors in the situation and the cessation of building, or, rather, the very extensive decline has affected the employment of labor, commodity prices, consuming power, and the volume of goods transported on the railroads, so that it is, as far as this country is concerned, I believe, the most important single economic factor of an unfavorable character.

Of course, foreign conditions are a major factor and without our going into that at this time, because they are large and complicated, with many ramifications, and without undertaking to analyze it for you gentlemen, because I am sure we will all have our own views

and thoughts on the subject, I think at this time we have to recog nize that the political and financial disaster in Europe is a fundamentally important factor in our country, entirely apart from the question of the investments that this country has made there or bank loans and relationship of debts or reparations or intergovernmental relations. We have in Europe a disturbed financial situation, a disturbed political situation, and particularly from the point of view of the consideration of this bill, we have disturbed exchanges which materially interfere with commerce in the marketing both of our agricultural and mineral and commercial products.

Building and loan associations are mentioned in this bill. and savings banks, as being institutions that can be assisted. I believe in many of these situations experience will prove under careful and sound administration that a support of the situation will come more from a moderate amount of lending and from the strong support a corporation organized along these lines can give rather than from the actual loans made, although they should be made in sufficient quantity and maybe will be necessary in a very considerable quantity: but I consider that the ability to support the weaker situations will do more to enable the stronger resources to function is the important factor.

If I may, at this point, I should like to go over some of the details of the bill as written. Mr. Strong's digest here in reference to the capitalization and the authorization to borrow is just the same as it was in the War Finance Corporation at the time of the agricultural relief act-five hundred million capital and the authority to borrow a billion and a half.

The board of directors to consist of three ex officio, as stated in the bill, the two others to be nominated by the President with the consent of the Senate. It seems to me here that perhaps there ought to be four to be nominated by the President and confirmed by the Senate, and possibly it might be well to consider that, in view of the Secretary of the Treasury acting on so many boards ex officio, some general provision be inserted relating to an Under Secretary in lieu of the Secretary. I mean he might be an alternate, or in some other way might be added or substituted for the Secretary. I think the Under Secretary would be better, because Mr. Mills is not ex officio on so many institutions as Mr. Mellon.

Now, then, the authorization leaving a great deal of authority and judgment to the directors is, "to make loans, upon such terms and conditions as it may determine, to any bank, banker, savings bank, trust company, clearing house, or other association of banking institutions, building and loan association, insurance company, or other financial institution in the United States." I think that is drawn more or less along the line of the War Finance Corporation during the war, with the exception that "clearing house or other association of banking institutions " is added, and which were not in existence at that time. Clearing houses were organized, but in connection with the national credit organizations as an association of banking institutions, both locally and nationally, which might serve as a type. Such associations, I think, were provided for in the Aldrich bill, and they are evidently in this bill for the purpose of broadening the area. Whether they would be used or not I do not know.

Mr. LUCE. May I ask if Mr. Meyer would like to have questions asked of him as we go along?

Mr. MEYER. I think it was before you came in it was agreed that I might go along without questions, although I love to be questioned by you, Mr. Luce. br

The CHAIRMAN. The chairman made that announcement, Mr. Luce, before you came in.

Mr. MEYER. "All loans must be fully and adequately secured in such manner as the corporation shall require, and they will be made as such interest or discount rates as the corporation may approve." It is hard to anticipate what particular situations such a corporation, if authorized by you gentlemen, would have to meet, and I rather think these provisions with reference to security and the reliance on sound administration rather than restrictions in the law are, as a matter of policy, justified by the circumstances in the exceptional conditions which we are confronted with. I think the whole bill is written with a view to attacking the problem in a big way and with very broad powers and large resources. In that respect I can heartily support the bill. The restrictions that you as a committee undertake to work out probably will be helpful in certain respects that could not be earlier anticipated. I am frank to say that the bill as written seems to me to place an extraordinary amount of authority and responsibility on the board of directors, and it therefore relies; and Congress, in passing this bill, of course, knows that the administration of such an act is synchronous, both from the point of view of success in producing the greatest result for the benefit of the people, also for saving the Government from any ultimate loss.

Now, then, the period for which the corporation is authorized is one year, with authority in the President to extend it for any part of a year up to an additional year, making a total of two years. I think that is wise. It is hoped that one year would be enough, and still the bill provides a little leeway in case of need. The loans of the corporation may be made for not exceeding three years, with authority to grant additional time up to five years. I think that loans made on so-called slow or frozen assets or any other kind of assets for a period of three years would be ample; but if they are not, I think the extension ought to cover the requirements.

The railroads are mentioned here specifically, and I think that that has to be considered from this point of view, that to-day the railroad situation--the buying power of the railroads is hampered by their financial condition, and the railroads perhaps, next to the construction industries, are the most important single buying power in the country. If they could be put on a better basis financially and their buying power restored it would be probably very important in restoring business. But, entirely apart from that, we recognize the fact that the railroads to-day are owned by the people of the country in a most extraordinary degree, in the fact that the bonds, which are the investments of trusted institutions all over the country, rather than of individuals, or certainly more than individuals, are a matter of important interest, not to stockholders alone much as they are to the holders of life-insurance policies, savings in savings banks, and depositors in all banks. That is a matter, gentlemen. for you to consider, and it would seem that the interest of the

people of the country as a whole is very considerable in the soundness of railroad securities, by which I mean bonds.

Now, funds may be had from the Treasury up to $5,000,000. The corporation is authorized to borrow for not exceeding five years and they may sell short-term obligations on a discount basis. These securities would all be tax exempt from all kind of taxation, similar to the farm loan system bonds and intermediate credit banks.

The Treasury is made ultimately liable for the debts of this corporation if they can not be made otherwise. That will, if accepted, be very important in the ability to market the bonds in the first place, and, in the second place, it will add to the assurance that the corporation will be able to command the funds which it is authorized to borrow under the act, if passed in this form.

The Federal reserve banks under this provision are authorized to discount notes, secured by obligations of the corporation and to make advances to member banks on the notes, secured by said obligations and to use all such paper so acquired and to purchase and sell such obligations as they have with respect to bonds of notes of the United States. That is a provision, of course, on the basis that these are ultimately Government obligations and their eligibility in the Federal reserve system is made practically identical with that of Government bonds. That is a matter which will, no doubt, be discussed a great deal on the theory that these are in fact Government. That may be seriously considered.

On the other hand, it is only fair to say that this whole question of eligibility which is up for general discussion is considered by many who are sincerely interested in the welfare of the Federal reserve system and the protection of the system as to make it undesirable to make these securities eligible, but it is to be noted that the rate at which any loans are taken or any advances made under this provision of eligibility is at 1 per cent above the 90-day commercial rate in the bank. So there is a penalty rate there which would, I believe, tend very strongly, if not quite effectively, to prevent their being presented to the Federal reserve banks. However, the question is a question that I would not want to undertake at this time in this first discussion to explore in all of its ramifications with you gentlemen. It is at this time one that I would rather direct your attention to for your own consideration and for further discussion with myself if you desire.

Under the next provision, the amendment to section 5202, removes the restrictions from national banks which limits their borrowings and permits them to borrow without regard to the restriction on borrowing in national banks for the purpose of borrowing from this corporation if they so desire.

Then the Federal reserve banks in the next paragraph are authorized and directed to act as depositories, custodians, and fiscal agents for the corporation and the reports of the various departments of the Government are made available for operation of the corporation in ways that are to be determined by the examining agencies, and the examining agencies are also authorized to make examinations of institutions contemplating loans or where the corporation wants the examinations made in connection with advances.

The moneys of the corporation not otherwise employed may be deposited with the Treasury, and the corporation is required to act