trickle out of the market. Insurance companies and individuals buy them and when they are gone they are gone, unless some person wants to sell them again, and they are bought by another purchaser. This thing of going on the market, as other securities, that is not done. The bonds are sold, sometimes, when the market is good, and they can sell them, but there is no speculation in them. You can see you think that the market is going to be good, and you will bid more for Baltimore bonds, bid them in at a higher price when they are selling. You might buy such bonds of another dealer. Mr. PETTENGILL. Is there anything about a municipal bond or municipal bonds that will lend themselves readily to dishonest or fraudulent practices?

Mr. GIBBONS. You mean when dealt in by the purchasers?
Mr. PETTENGILL. Yes.

Mr. GIBBONS. I cannot see any. You could not possibly wash the market up. Why? They come out in too great a volume. How could you? If the market gets good, Pennsylvania might sell $30,000,000 and New York might sell $40,000,000. Who can handle them? Nobody. You would not make anything if you did. You may only make 1 percent on a bond, and that is $300,000 on $30,000,000, and a quarter of 1 percent of that, or 75 percent of that is given up to the other dealer who buys the bonds, so that all you can make on $1,000,000 bonds is $750, less your expenses. Now, there are other bonds, in some places, where the profits are larger. But even with that, you cannot tell what the condition is. You cannot see that Detroit is going to go in default. How can you tell? The dealers themselves do not know.

New York City bonds went from 100, down to 70 just last fall, and everyone thought that they were headed down more. Now, their bonds are back near par, between 90 and par. You cannot see those things. The Federal Trade Commission cannot see it. I do not see how they can, or how anybody can see it.

Mr. MERRITT. I do not understand the effect of this section of the bill.

Mr. GIBBONS. It is because municipal bonds are not listed, or are not exempted and they will have difficulty in borrowing on them. Mr. MERRITT. Yes.

Mr. GIBBONS. You cannot borrow on the bonds. People will be afraid of them and will not want to buy them.

Mr. MERRITT. I do not suppose that people buy municipal bonds on margin.

Mr. GIBBONS. They do not.

Mr. MERRITT. You mean that they use them as collateral after they have bought them?

Mr. GIBBONS. Many corporations buy them so as to have them for collateral and have something to sell in time of stress. Insurance companies buy them. Local banks buy them for their income and borrow on them when it is necessary. They will not be benefited in any way by being included in the bill.

Mr. MERRITT. If they want to sell them, can they not sell them just as well with this bill in existence as without it?

Mr. GIBBONS. No; they cannot. If they are not exempted that will be a reflection on the bonds. Suppose that you had the bonds f some particular State and they were not exempted. You could

not borrow on them. You would have to go to the Federal Reserve Bank, or you would have to do a lot of things with them.

The CHAIRMAN. We are very much obliged to you, Mr. Gibbons. STATEMENT OF HON. ADOLPH J. SABATH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Mr. HOLMES. Mr. Chairman, before Mr. Sabath proceeds, may I make a request?

Mr. SABATH. Yes.

The CHAIRMAN. Yes, Mr. Holmes.

Mr. HOLMES. Mr. Sherwood L. Reeder, assistant director of the United States Conference of Mayors, 734 Jackson Place, NW., Washington, D.C., would like to file a little statement on this subject. The CHAIRMAN. We will be very glad to have it filed with the committee.

You may proceed, Mr. Sabath.

Mr. SABATH. I know that you gentlemen are busy. I know that within the last 6 weeks I have received very much on this proposal, and I think that you have heard much about the important bill before you.

I have received hundreds of letters, pamphlets, leaflets, and documents, from various sources, trying to show the alleged harm this legislation would do to the Nation, and that it will really be detrimental to the best interests of the commerce of this country.

Mr. Chairman and gentlemen, ever since November 1919 I have persistently endeavored to secure some act to regulate the stock exchanges of the United States, and I have introduced many bills and many resolutions and have appeared before the Judiciary Committee, also before your committee and a number of other committees, in fact, any other committee that would listen to me, on this matter, as I considered it the most important question before us, and because I honestly believe, Mr. Chairman and gentlemen, that if we pass this legislation it will reestablish confidence.

As it is now, the people have lost all confidence in the securities in the way they are being sold and bought, or rather manipulated, and it is my opinion, with the enactment of this bill, that we will be able to reestablish confidence whereby millions, yes, millions upon millions of money that is now being held in safety-deposit boxes and other places, will come forward and will be invested in many of these securities that deserve purchases.

Now, I have made, as I have stated, many speeches on the floor of the House and have introduced many resolutions and bills. I have plead with President Hoover, and I have plead with Mr. Symonds and Mr. Whitney, the President, and the former president of the New York Stock Exchange, that they adopt some rules and regulations that would really protect the suffering public. And, though I have appealed to them by letters and by telegrams and every way I knew how, they have always informed me that they knew how to regulate their business without me. If it were only their business, I said, we would have no right to regulate them or say to them how it should be conducted; but if there is anything in which America is interested, it is in that very institution which, due to its shameful

manipulations, has brought about wrecking and ruin to the entire Nation.

It is the manipulation that took place in 1928 and 1929 that brought about the crash and caused thousands upon thousands of banks to close; plants and factories to go out of commission, and over 10 millions of people lost nearly all of their life savings; therefore I say it is of the greatest importance that this legislation should be enacted. I have 3 or 4 bills pending before you, but I admit that your bill here today and I have had no chance to examine the bill that was reintroduced on March 19-is more comprehensive than any of my bills.

I am not wedded to any proposition, but I do say this, that we should eliminate the abuses. Mr. Whitney and his committee will not do it, no matter what they promise. They have had ample opportunity to do so in the last 4 years. They may come down here and promise you. They have promised. They promised 4 years ago, but they have not acted. You cannot rely on any of them, and it is up to the Congress to legislate at this time in the interest of our country.

Mr. WOLVERTON. Mr. Chairman, I think that Mr. Sabath has almost stated what I wanted to hear from him. Mr. Sabath, it seems to me that it must be very gratifying, indeed, after the number of years you have given to the study of this question for you to realize the favorable position that this bill is now in, at this time, and I am very much interested in knowing, after your close study of the subject, over so many years, whether you give your apprvoal to H.R. 8720, the bill we now have before us.

Mr. SABATH. As I said, I do give approval to the principles of the bill. I must admit I have not had a chance and an opportunity to read it as yet; but I presume it is similar to the first bill that has been introduced. There may be some modifications, or practices, or changes that are justified due to the evidence that you have heard. It may be that that is necessary, but the thing in which I am interested is eliminating the dishonest activities, the reprehensive manipulations, that have been testified to, and which have been and are in existence today. Short selling, to my mind, is criminal. The pool operations should be stopped. The floor traders; the specialists; the selling against the box; the matched sale, or washed sale-all of these should be eliminated and made impossible in the future.

Mr. MARLAND. This bill, as it is written, does nor prohibit short selling; does not prohibit selling against the box; does not stop the doing of those things that you say ought to be stopped.

Mr. SABATH. Well, as I say, I have not read this bill, but that I hope it does contain those provisions. If it does not, we are not going far enough. It should regulate them.

Oh, I am not going to say that we should close the stock exchanges. I will not go that far, although I said to Mr. Whitney and to his confederates years ago that if they did not adopt some proper rules to protect the public, the time would come when proper laws would be enacted whereby that institution, which I consider a thieving institution, would be closed. It would have been much better for the country if it had been closed in November 1929.

The CHAIRMAN. We do have in this bill, however, Judge, regulation he people you are talking about.

Mr. SABATH. Well, if there is a provision for that, I have the utmost confidence in the Federal Trade Commission. I believe it is composed now of men that understand the questions that are of interest to the people and who have the interest of the people at heart; and if in this you have given that worthy body the power to adopt rules and regulations to control these activities, I think we are at least accomplishing something.

I recognize we cannot do everything at one time; but if I cannot get a whole loaf I will take a half a loaf, and if we cannot eliminate all of the abuses, well, let us eliminate as many as we possibly can.

Now, I could today show you, Mr. Chairman and gentlemen, the reasons I have given in my telegrams and in my letters, as Í have said, to President Hoover, to the Attorney General, to the Postmaster General, to Mr. Whitney, to the House of Morgan, and to others. I have copies of these telegrams and letters, wherein I appealed to them that something be done to save the impending grave situation; but they refused to act. Now they are going to try to bulldoze or cajol you by sending here men representing commerce associations and chambers of commerce and self-designated specialists, and everything else by way of intimidation to mislead you or browbeat you.

Mr. BULWINKLE. Nobody has been browbeaten around here.

Mr. SABATH. They are trying to do it. I know if I receive hundreds of letters and telegrams, as I have, what must have been sent to the members of this committee. I do not mean to infer that they can deceive you.

I do not know whether it is possible for you to read all those communications; but I do know that they have been and are working hard. I know what the stock exchange has done. They have sent out to all of their brokers, and the brokers have put out word to all the touts they have in their offices, in every office they have opened in the smallest hamlet in the United States, and I think it is an outrage and a shame that this has been perpetrated and permitted.

If someone opened up a gambling house in your city, or your city, or your city, or your city, and you were to ascertain that they are playing with marked decks, or loaded dice, you would see that those houses were closed; but this nefarious institution has been playing with marked decks. They control the dealers and they look into the hands of each and every one to see what he holds, and then they make their bets accordingly.

I say to you that these men have sent out word to every town within which their agencies are, to every one of their agents, and every one of their divisions and subdivisions, appealing to the employees, and the employees to their friends, to send letters to Congressmen allegedly showing what will happen to the nation if this damnable bill should be passed.

If there ever was a transcendental duty imposed upon this committee, it is at this time to report the pending bill and put an end to the thieving practices of this thieving institution.

Of course, they are gentlemen who look nice. They are fairhaired, high-class men. Personally, why, they are as fine-looking men as I ever had the pleasure to meet, when you look at them; but you know, basically, the real character of fellows they are. They are finely dressed, have much ill-gotten money, and they make a

wonderful appearance, and that is why they charm us; that is their enduring policy.

Mr. BULWINKLE. May I ask you a question?

Mr. SABATH. Yes.

Mr. BULWINKLE. Where would you put the power to regulate the stock exchanges, in what body?

Mr. SABATH. What body?

Mr. BULWINKLE. Yes; what body would you put that power in? Mr. SABATH. The Federal Trade Commission, I think, is in position to regulate and control them. I have the utmost confidence in the personnel of that Commission.

Mr. BULWINKLE. You would not have it put anywhere except in the Trade Commission?

Mr. SABATH. If you were protecting your home, would you want one of the known thieves to help watch it? No; you would not.

Mr. BULWINKLE. I am trying to find out whether you would give any part of this authority to the Federal Reserve Board.

Mr. SABATH. I think that the Federal Trade Commission is sane enough, sensible enough, wise enough, to know who to engage, how to engage these men with years of experience, and you can get many of them that have been broke

Mr. BULWINKLE. Just a minute.

I am asking for information.

Then, we are making a mistake when we give any part of it to the Federal Reserve Board at all?

Mr. SABATH. The Federal Reserve Board?

Mr. BULWINKLE. Yes.

Mr. SABATH. Oh, well, that is supposed to be another governmental institution, but it is not a governmental institution. It was originally. I thought it still was. But during the last few years I have learned, to my sorrow, that it is not. As originally created it was all right, but these amendments have weakened it. If it had worked that way, we would have had a really good institution.

To my mind, it has not functioned as I thought it would function when I voted for the bill, but then I took the best I could obtain, and I am willing to take this bill or any bill that will eliminate at least some of these lamentable conditions and abuses.

Mr. BULWINKLE I am asking you, would you have any part of this authority lodged in the Federal Reserve Board?

Mr. SABATH. I, myself, would not.

Mr. BULWINKLE. All right.

I know

I know

Mr. SABATH. I would leave it to the Trade Commission. that the membership of that Commission can properly do it that they are able, honorable men, and I know they can engage, as I said to you, many experienced men whom the very institution that we are trying to control or regulate has ruined or destroyed.

Now, you have heard so much I do not want to keep you here. It is getting late; but I want to make this observation, thatMr. MARLAND. I would like to ask you a question, if I may. Mr. SABATH. Yes.

Mr. MARLAND. I have been interested very much in one of the subjects you previously mentioned, the practice of selling against the box. We have not had a witness here that seemed to know anything about it. Tell us what you mean by it.