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arrange that the applicant is put to as little expense as possible in the execution of his application or in negotiations subsequent thereto.

Then we limit the amount of money to $500,000, in order to get at the small- or medium-sized enterprise. We limit the interest charges so that they shall not be unreasonable, and most of the loans will probably be made at a rate of from 5 to 6 percent, as figured by that provision.

Mr. CAVICCHIA. Will you point out that provision in the bill? Dr. BECKMAN. That is page 10, section 6. There is a limit put on the interest charges.

Mr. SISSON. If it will not interrupt your continuity of thought, I would like to ask you a question about the provision on page 16, subsection (b) of section 10, where it is provided, that

The Corporation shall have the power to charge costs incident to making the loan, discount or rediscount: Provided, That such costs shall not exceed 2 per centum on loans up to $25,000, and shall not exceed 12 per centum on loans from $25,001 to $50,000, and shall not exceed 1 per centum on loans from $50,001 to $100,000, and shall not exceed one-half of 1 per centum on loans over $100,000. Dr. BECKMAN. There is no justification for higher costs.

Mr. SISSON. Are you going to undertake to see that there shall be included in that the cost of an appraisal of the property? Are you going to make the appraisal and take the Corporation's expense of making the appraisal out of the 2 percent?

Dr. BECKMAN. Yes; and that can be done every easily.

The whole thing should not cost, under any circumstances, more than 2 percent on loans up to $25,000, and on other loans the amount should be less, so we have put the figure at one-half of 1 percent on loans over $100,000. That would provide ample money, if the business is managed with any reasonable degree of efficiency, to cover all expenses, so a business man will not be afraid to apply for a loan. Many of them are refraining from doing it now because the cost is prohibitive.

Two percent on loans of $25,000 is $500. On a small loan like that, if an appraisal cannot be made and the application filled out and the whole thing handled on $200, I do not think they have any business with a small loan of that kind. A bank does not incur such expenses, nor does a finance company. I know what it costs them to operate. Mr. CAVICCHIA. Two percent on $25,000 is $500.

Dr. BECKMAN. I think that is more than ample.

Mr. GIFFORD. I want to call your attention to section 4 (c). That provides that

It shall be the duty of the corporation to prepare from time to time bulletins setting forth the principal features of this Act and to distribute the same, particularly to the press, to industrial and commercial journals, and to professional associations of firms or individuals engaged in commerce or industry; to prepare and distribute in the same manner circulars or other publications setting forth the principles and advantages of loans made pursuant to this Act.

That is propaganda with a limitation.

Dr. BECKMAN. I think that is the same as you have in a number of acts which have been passed.

Mr. GIFFORD. And that has resulted in the employment of a huge number of newspapermen who have been employed for propaganda


Dr. BECKMAN. I can go through the different provisions, of course, as to which you would like to have any answers. But I would like to sum it up in this fashion:

It seems to me this particular bill provides for loans to deserving business enterprises at reasonable rates on reasonable security and on a reasonable basis.

In the second place, it cuts red tape. There are two or three different provisions taking care of that.

Assuming it will be carried out

Mr. GIFFORD. Assuming that.

Dr. BECKMAN. Yes. It makes for a separation of commercial banking and investment banking, which has been one thing for which authorities in the field of banking have been fighting for some time.

If a commercial bank wishes to have its paper rediscounted under this system it will separate its long-time business from its commercial business and have a complete separation as far as departments are concerned, subject to some supervision.

In the fourth place, this is a real recovery measure. There is no relief or dole in this measure because the loans are merely provided for self-supporting business enterprises.

Finally, it insures competitive capitalism instead of monopolistic capitalism, by keeping small business enterprises in the picture by giving them a little sustenance and aid at a time like this, when they need it.

I think most of us believe capitalism is still the system which will prevail here for many years to come. It is the system which has been responsible for the tremendous progress made through the decades. The CHAIRMAN. You recognize this bill is a departure from that general practice.

Dr. BECKMAN. No, sir; because this bill would enable the small business man to stay in the field, and as long as he stays in the field we will have competition.

Mr. WOLCOTT. It is State capitalism, is it not? You are setting up an institution to actually loan money?

Dr. BECKMAN. Money is to be loaned directly only after the banks refuse to loan to good credit risks. I do not call that State capitalism, if I may disagree with you.

It may be carried to extremes. Anything which is carried to extremes, of course, becomes an absurdity.

We can take several pieces of new legislation and we can argue by going logically, step by step, and 10 steps from where we started we can show that we will have fascism or socialism, but it will not happen at all under these pieces of legislation which have been enacted so far.

It is merely a question of carrying an idea to extremes.

It seems to me that our President has set up a program of what he calls the three R's, Relief, Reform, and Recovery. For many months a great many of us have felt that perhaps a little more emphasis might well be placed on the R that stands for recovery.

In addition to the other things, this is the first piece of legislation so far enacted, which is really constructive and aims at the foundation of the recovery movement, because it gives the vast majority of our businesses that are small and medium-sized, an opportunity to compete on a fair basis, and as long as they compete according to rules,

we need not fear monopoly or fascism or socialism, or any of the other "isms".

Mr. GIFFORD. Would you mind having a clause in this bill providing that for 1 year, in order to carry out the purposes of the Recovery Act, loans shall be made to industries where the prospect of a loss is not more than 50 percent?

Mr. CAVICCHIA. That would be making an eleemosynary institution of this.

Dr. BECKMAN. I do not think the losses will be even 5 or 10 percent, and yet we are going to be liberal.

Mr. GIFFORD. Relief comes first in the three "R's"; why not give them relief?

Dr. BECKMAN. I do not think you will find that is what they want. They do not want hand-outs. They have orders on their hands, and they have machinery and equipment and stores, but they cannot operate without financial assistance.

Let me give you one illustration of a firm that has been in business since the 1860's. Trade credit has been restricted to them. Instead

of obtaining trade credit for 4 months it has been cut down to 30 days under the N. R. A. They have plenty of business, but they do not dare to accept it because they cannot get the capital with which to finance it. That concern can operate on a profitable basis in a short time if they can get loans.

Mr. GIFFORD. I would like to prove to myself that what you want is a good banking institution and not a real eleemosynary institution. Dr. BECKMAN. We hoped that the R. F. C. would be liberal. We wanted it to give temporary relief to business men; that is what we tried to do.

The CHAIRMAN. I think it is fair to say that that question was fought out when the Reconstruction Finance Corporation Act was first under consideration in this committee. Perhaps it is not exaggerating to say I am somewhat responsible for putting in the act the provision which required the Board to exact full and adequate security. I did that because I think that is a sound principle of legislation, in a spirit of caution, not as to anybody personally, but as a principle which I think should underlie legislation for the protection of the public welfare.

I am frank to say that possibly my views have been somewhat modified, but not greatly. I am of the belief that the Government certainly went far enough; whether we went too far or not might be a subject of controversy, but it went far enough in providing accommodation for solvent institutions that could furnish security to protect the Government. I still cannot see how we can be justified in going further than that.

Mr. CAVICCHIA. When you use the words "adequate security" you did not have in mind that the Government agency to whom these applications come would not insist on receiving $10 in security for every dollar that the Government puts out, did you?

The CHAIRMAN. I am not attempting to lay down any definite yardstick at that point. We gave the Board general directions; and of course, they would exact whatever collateral in the sound judgment of the Board would be required to live up to that rule. I do not know that they have not been too exacting in some instances. I think we

could find somewhere where they were just the reverse, but not intentionally.

Mr. KOPPLEMANN. I know of one instance where the Boston agency was told by the men with whom this man conducted his negotiations that the R. F. C. law required 10 times as much as the bank before they would make a loan.

The CHAIRMAN. I do not think anybody could find where the R. F. C. attempted to law down such an unvarying rule as that. They may have been justified in some instances. You are speaking of one or two cases.

Mr. SISSON. That has not been the rule, I know. Some statement made by some man is certainly not binding upon the policy of the R. F. C.

Mr. KOPPLEMANN. Dr. Beckman, you have read some excerpts from the report; and without having the whole report made public, I would like to ask that you leave it here for the benefit of the committee, because we may want to look through it.

Dr. BECKMAN. I will be glad to leave it with the committee.

The CHAIRMAN. We thank you very much for your interesting


(Thereupon, the committee adjourned to meet tomorrow, Tuesday, May 28, 1935, at 10:30 a. m.)


TUESDAY, MAY 28, 1935


COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The committee met at 3:30 p. m., Hon. Henry B. Steagall (chairman) presiding.

The CHAIRMAN. The committee will please come to order. Mr. Marx, will you please state your name, address, and occupation?


Mr. MARX. I am in the real-estate business in St. Louis, specializing in commercial and industrial real estate.

The CHAIRMAN. The committee will be glad to have you discuss H. R. 5918, and you may proceed if you wish in your own way, without interruption, until such time as you desire to be interrogated.

Mr. MARX. I was asked by Mr. Koppelmann to come before you gentlemen and express my views on the pending intermediate industrial credit bill, particularly as it affects real estate. I am in the real-estate business in St. Louis, specializing in leasing and selling commercial and industrial property in the St. Louis area. I feel that my experience has given me as many contacts and has brought me close to as many different varieties of business as anyone, so that you will believe me when I say that the present set-up of credit extension as offered by the H. O. L. C., F. H. A., and the R. F. C. Mortgage Co. is inadequate to take care of all classes of financing on commercial and industrial property.

I can best explain by illustrating several experiences I have had with clients during the past few months. It was with regard to one of these cases that I became acquainted with Congressman Kopple


The Keep-Klean Cover Co. of St. Louis, manufacturers of seat covers and automobile-tire covers, wanted to branch out in the reflector advertising business, but their present plant was too small.. They contacted me to locate them in a larger building, and they were willing to buy if they found a right building. There was one building which met exactly with their requirements. I have to give you a brief history of the building to illustrate my point. This building was owned by a paper-box manufacturing company, who had it built for their use back in 1927. The building and grounds cost them $28,500, of which they paid off during the next few years $9,500. The LacLeade Trust Co. of St. Louis carried the mortgage. This company finally became delinquent in their taxes and interest,.. and the bank foreclosed. Shortly thereafter President Roosevelt issued his proclamation closing all banks during the banking holiday.

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