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If this man could procure $5,000 on a long-time credit basis, it would be a great help to him. His business at the present time is making money, not very much, but he is able to come back, and he now sees a way by which to get in the clear if he could procure the $5,000; but the local banker apparently is unable to help him in his present situation, because the banks have to insist on 30-day, 60-day, or 90-day notes, which runs his interest rate entirely too high.
If this bill is passed, this man will be able to procure his $5,000 loan, and in doing so he will keep 23 or 24 people off of the F. E. R. A. rolls. He will be able to keep a business going that has been going for a great many years, although up until the time of the depression he, no doubt, made some errors in buying too much and in having bought too much when the crash came.
His story, gentlemen of the committee, is really the story of thousands of small business firms, at least throughout the extent of the Mississippi Valley.
It is our sincere hope that the intent of the R. F. C. Act may be carried out in the spirit of this particular bill, giving us a poor man's, or a junior, R. F. C., if you please, whereby we may be able to take care of that exigency until normal times come back again, when banks can extend credit on long-time notes.
I think it is a foregone conclusion that the average banker is afraid of long-time notes, and must require such paper that makes it impossible for the average small business man to take advantage of a long-time loan.
Finally, gentleman, I think we need this bill in this country for recovery, under which we set up a long-time loan process whereby the small business man can come out on even terms with the big business man.
Mr. WILLIAMS. What kind of a bank have you in Miami, Okla.? Mr. KRIEGER. To which bank are you referring?
Mr. WILLIAMS. In connection with the case in Miami to which you referred.
Mr. KRIEGER. There are three banks there; there is a national bank and a State bank.
Mr. WILLIAMS. One national bank and one State bank?
Mr. KRIEGER. One State bank, I think.
Mr. WILLIAMS. Two banks?
Mr. KRIEGER. Yes, sir.
Mr. WILLIAMS. You referred to one agency which asked them to be more liberal, and then another one came along requiring them to contract credit. To whom do you refer?
Mr. KRIEGER. I am merely repeating the statements of bankers I have talked to throughout the Mississippi Valley out there, saying that the Federal Government requires them to be more liberal, and at the same time the officers who come through there and go over the banks' books and look over the note cases, are not letting them extend the credit as they did in the old days.
Mr. WILLIAMS. Were these banks closed during the bank holiday? Mr. KRIEGER. Some of them were.
Mr. WILLIAMS. Let us take this particular instance that you refer to. They were closed temporarily, of course. Did they open up again without restriction?
Mr. KRIEGER. Yes; I believe they did.
Mr. WILLIAMS. They have been going along just the same as they did? In what way has their credit policy changed?
Mr. KRIEGER. That question I am not able to answer.
Mr. WILLIAMS. They are extending credit on short-time paper, as
I understand you.
Mr. KRIEGER. That is right.
Mr. WILLIAMS. Then they are giving the printer credit along that line; he has a line of credit there, has he not?
Mr. KRIEGER. I do not know that he has.
Mr. WILLIAMS. I understood you to say he could get a short-term loan.
Mr. KRIEGER. He could, if he would apply for it, but he has not applied for it recently.
Mr. WILLIAMS. What rate of interest do they charge him?
Mr. KRIEGER. Six and eight percent.
Mr. WILLIAMS. Of course, they have a limit, have they not, under the State law?
Mr. KRIEGER. Yes, sir.
Mr. WILLIAMS. His complaint is that that is too high a rate of interest to pay; is that right?
Mr. KRIEGER. That is right.
Mr. WILLIAMS. What security does he give, if any?
Mr. KRIEGER. He has around $65,000 worth of machinery and stock in his place of business.
Mr. WILLIAMS. Of course, that is a moral obligation and a financial responsibility of himself. Just what additional security does he give? Does he give a mortgage?
Mr. KRIEGER. Yes.
Mr. WILLIAMS. In other words, he gives a chattel mortgage on his equipment.
Mr. KRIEGER. On his machinery and stock.
Mr. WILLIAMS. Does he own any real estate?
Mr. KRIEGER. I am not sure about that; I think he owns his home. Mr. WILLIAMS. Would you expect any governmental agency to make a loan for 5 or 10 years on a chattel mortgage? You would not expect them to do that, would you?
Mr. KRIEGER. Well, I do not know.
Mr. WILLIAMS. That is not your idea of loaning, is it?
Mr. KRIEGER. We did it in the old days.
Mr. WILLIAMS. Made a loan on a chattel mortgage for 5 or 10 years?
Mr. KREIGER. No; not for 5 or 10 years. The conditions now are a little bit different.
Mr. WILLIAMS. Do you think it would be sound financing to do that now?
Mr. KREIGER. No; I do not think particularly it would be sound financing at all. But here is a business that is surely but slowly coming out. If we can find a way to extend this man's long-time loan, then this man will come out and will keep a certain number of families off of the F. E. R. A. roll.
Mr. WILLIAMS. He has paid his interest on his obligations right along?
Mr. KREIGER. Yes; and he has paid off some of his debts.
Mr. WILLIAMS. And still the bank will not accept further credit?
Mr. KREIGER. They will take him on for 30, 60, or 90 days.
Mr. CROSS. And deduct the interest before they give him the money?
Mr. KREIGER. That is right.
Mr. KOPPLEMANN. But he has no assurance that he can renew those notes?
Mr. KREIGER. No; none whatever. What bank will give you that assurance? They want to see you and have you pay month by month. Of course, that is correct.
Mr. KOPPLEMANN. That is the reason why he does not make an application for a 30-, 60-, or 90-day loan?
Mr. KREIGER. Yes; that is the reason.
Mr. WILLIAMS. Has he made application to the R. F. C.?
Mr. KREIGER. Yes, sir.
Mr. WILLIAMS. On what ground have they turned him down? I would like to know what was the general principle involved.
Mr. KREIGER. I know his statement to me was, and it was made in the presence of an R. F. C. official-he said, if he could meet all the rules and requirements that they have set up, he would not need a loan.
Mr. WILLIAMS. Suppose you set up this institution provided for in this bill, and they required the same rules and regulations that are now in effect; then where would you be?
Mr. KRIEGER. You would be exactly where you are now.
Mr. WILLIAMS. So, after all, it is a question of administration. Mr. KRIEGER. I am glad you said that; I want to agree with you. I think the R. F. C. intent is perfectly clear, and I think this bill will probably carry out a small proportion of the intent of the R. F. C. Act.
Mr. WILLIAMS. The same rules of credit would apply here as would apply to a R. F. C. loan?
Mr. KRIEGER. Yes.
Mr. FORD. Jesse Jones, in a statement in this morning's paper, says that the R. F. C. has actually loaned $78,000,000 to small business firms, and that 40 percent of that was in loans of less than $10,000, and 88 percent of it in loans of less than $100,000.
That is his statement in the morning papers. He says that they have loaned $78,000,000, and they had $300,000,000.
Mr. WILLIAMS. Has this man you referred to made any application to the Federal Reserve bank?
Mr. KRIEGER. I do not think he has, sir.
Mr. CROSS. I want to make this remark. I know of several small concerns in my city of 60,000 people who have made application to the R. F. C., who have spent twelve or fifteen hundred dollars in getting up their statements, and so forth, and in going backward and forward, only to have the hope that was held out to them shattered at the end, and they got nothing. None that I know of so far have ever gotten a dollar. I do not know how general that is over the country.
Mr. KRIEGER. It is quite general.
Mr. WILLIAMS. If this system provided for in this bill is set up and put in full force and effect, and these loans were made to small business men and small industries, what field of activity would be left to private banking in this country?
Mr. KRIEGER. I am not certain, because I am not a banker, but I think this paper could be handed back through many of our banks and through those other agencies, could it not?
Mr. WILLIAMS. I am asking you, if you established another credit system, what would happen to the banking system of the country? Mr. KRIEGER. As I understand it, many of the banks could participate in the use of the paper that would come through this agency, and the time will come also when we reach the normal conditions. You asked a question a while ago in reference to loaning money on a chattel mortgage. You, with me, must have known of many business men who in the past have gone into their home banks, and because they were known there, and they needed 10 or 15 thousand dollars because of some orders that they had, and that many of those men have been able to get a credit loan of 10 or 15 thousand dollars for 120 days on chattel mortgages. But conditions do not warrant that today.
Mr. KOPPLEMANN. Let me say for the purposes of this record that this $78,000,000 that Mr. Ford mentioned includes provisional commitments.
Mr. FORD. The newspaper did not so state. I am simply telling you what is in the newspaper this morning as Mr. Jones' statement. Mr. KOPPLEMANN. That includes commitments, and between commitments and loans there is a big difference.
Now, Congressman Williams asked you a very significant question, namely, as to this set-up having the same requirements that are now in existence with the R. F. C., and I presume he means also the Federal Reserve System, because there would not be any difference there.
I want to call the attention of the witness as well as the committee to page 7 of this bill, subsection (2), where there is this language:
(2) To make loans direct to any corporation, partnership, association, or individual in, or organized under the laws of any State or Territory or the District of Columbia, and composed of a person engaged in producing or marketing goods or services if the notes or other such obligations representing such loans are secured by warehouse receipts, or shipping documents covering such goods, or mortgages upon land, other real estate, plants, warehouses, or equipment, or other evidences of probability of repayment of the loan when due: Provided, That no such loan or advance shall exceed 75 per centum of the appraised market value of the goods covered by said warehouse receipts, or shipping documents, or of the land, other real estate, plants, warehouses, or equipment covered by said mortgages or of said other evidences of probability of repayment of the loan when due.
That is liberalizing the present law and requirements, so that loans under this bill may be made which are not permissible under the present law.
This system is being carried on now in Canada and in other countries where it has proven most successful.
Mr. REILLY. Why could not the R. F. C. do just what you want done under this bill, if we gave them the power?
Mr. KOPPLEMANN. The only way in which I can answer that is to say that under the present law, according to the evidence so far before this committee, and the evidence which I have in hundreds, or perhaps thousands, of cases, they are not doing it.
The difficulty lies in the attitude and philosophy of those in our present governmental agencies who are opposed to making this kind
of intermediate loans because their minds run as bankers' minds do, and as this witness said a few moments ago, if these requirements could be met by small business and industry, requirements that are now imposed before a loan can be made, then they would not need the loan. Had they these requirements, they could go on in business without a loan.
They simply have not those material things which are now required of them, therefore they need the loans. In other words, it is simply impossible for small business or industry to secure loans. The exceptional cases where loans have been made are such that you and I, if we had the money, would be very happy to have the opportunity of making those loans, because of their great safety and because of their tremendous financial security.
The purpose of this measure is to make it possible for those who are not strong financially, but whose prospects for repaying the loans, based upon their security, is good. For them a loan would enable them to go on with their business, to employ more labor, to buy more goods and materials, and particularly enable them to go out in the markets and buy from other industries that are today staggering along.
Mr. REILLY. What assurance have you that on any new board so set up you would get men who have any different attitude toward this kind of a loan than you have at the present time?
Mr. KOPPLEMANN. Because this bill calls for men in this new set-up who are industrialists, credit men, financial men, and it does not provide for the present type of men who are administering loans for the Government.
In other words, the men in control of this new set-up would be men who have an understanding of business and credit, and who look upon the entire question of loans from the standpoint of a business man rather than from the standpoint of a banker.
Mr. WILLIAMS. I understood you to say that in the case you cited a while ago, the objection was to paying 6-percent interest. What rate of interest would you expect a small businessman to pay for his loans if this agency was set up?
Mr. KRIEGER. If you will pardon me, the objection was not to the 6-percent interest; the objection was to the constant necessity of renewal.
Mr. FORD. That would not increase the interest?
Mr. KRIEGER. Not necessarily.
Mr. WILLIAMS. Of course, you get back to the fundamental proposition of making long-time loans simply on personal credit, that nobody will recognize as sound.
Mr. KRIEGER. That is true.
Mr. WILLIAMS. What do you think the rate of interest ought to be under this set-up?
Mr. KRIEGER. If it will be possible to keep it within 6 percent on long-time loans, it would be perfectly all right.
Mr. WILLIAMS. Would you hope, if this agency was set up, to get it for any less than 6 percent?
Mr. KRIEGER. I think you might make trouble for our entire banking system. Personally, I see no objection to the 6-percent rate. It is a difficult thing to get a long-term loan. As you know, many businessmen are unable to get long-time loans.