Mr. POPE. No, sir; I do not think so. I do not doubt that the stock exchange can be used as a medium for gambling, but I do saySenator BROOKHART (interposing). Are not the most of its transactions merely gambling?

Mr. POPE. I should say decidedly not.

Senator BROOKHART. Then if it sells the same thing over and over again that is not gambling?

Mr. POPE. Of course I would have to guess, because I can not give you figures of any value as to stock exchange transactions, but my impression is that there are thousands of issues of investment securities sold on the stock exchange that have values, and that parties purchasing them make their purchases as investments and are not gambling.

Senator BROOKHART. This gambling as I call it, or whatever you may call it, that takes place on the stock exchange, affects the investments in your investment business, does it not?

Mr. POPE. Yes, sir; very often it does.

Senator BROOKHART. It also affects the price of commodities, does it not?

Mr. POPE. It affects the prices of commodities very indirectly and sometimes directly.

Senator BROOKHART. It puts the prices of securities up and the prices of commodities down.

Mr. POPE. You are getting pretty deep into the reasons for the depression, Senator Brookhart, and I am not capable of answering the question offhand.

Senator GLASS. We have a great variety of opinion. By reference to the files of that New York paper which takes most pride in claiming it is the representative of the vested interests, it will be seen that in 1929 this journal stated textually that operations on the stock exchange for the preceding week had been as much in the nature of gambling as betting on the arrow of the roulette wheel, 90 per cent, it said. Ninety per cent of the operations for the preceding week on the stock exchange had been as much in the nature of gambling as betting on the arrow of a roulette wheel.

Senator BROOKHART. Have you the date of that issue?

Senator GLASS. I think it was around January or February of 1929. If it is desired, I can look up the record and have an extract from the paper put into our hearings.

Senator BROOKHART. If it was true in that week it was more true during all the rest of the weeks up to October of 1929.

The CHAIRMAN. Mr. Pope, or any other representative of the investment group present here in the room, our attention is called to the comparative value of securities, now and previously, and no one has so far in any of our hearings, or at least so far as I know, suggested what difference there may be in the physical value of properties. During the last 10 or 12 years listed stocks have accumulated earnings that have gone into properties, or the other way that earnings sometimes go. We can not get at the value of property by simply noting the market quotation. We have to go deeper into it. I am suggesting to Mr. Pope that before this hearing is over that he or some one of his group furnish us something along that line if he can. If a concern goes ahead and earns 25

per cent from 1920 on and puts it into surplus, they are entitled to a higher value to-day.

Senator BROOKHART. Unless they issued more stock, Mr. Chair

man.

Senator GLASS. Again, Mr. Chairman, that it may not be imagined your subcommittee has dealt whimsically or inadequately with these problems, I want to put into the record the view of Mr. Davison, the president of the Central Hanover Bank & Trust. Co. of New York, and one of the outstanding bankers of the country, as to the undesirability of commercial banks having affiliates. Mr. Davison at our previous hearing disagreed with the statements several times made here by Mr. Pope, that there should be no legislation in this respect, and he indicated that in his view there should be legislation and that national banks should not be permitted to have affiliates. He points out that they are the subject of very critical abuses and says [reading]:

The Bank of the United States shows what can happen when they are abused. It is a very glaring example, especially when dealing in their own securities.

Then he was asked [reading]:

And there are some other banks that at least might be placed under the same criticism, might they not?

And he answered [reading]:

It has possibilities of abuse and of danger.

It was then pointed out to him that we had in contemplation the requirement of examination and of publicity, to which Mr. Davison responded [reading]:

And a prohibition certainly of dealing in their own stocks.

And he went further. I quote these statements hurriedly taken here. There are many others that were made by experienced and practical bankers before our subcommittee, in order to show that we have not idly thrown together the provisions of this bill.

Senator BROOKHART. În view of that statement I should like to ask why it is, after Senator Glass's subcommittee gave such a thorough investigation of all this, that we are investigating it again now. Senator GLASS. Well, some gentlemen desired to be heard. The CHAIRMAN. Some changed their minds, and some disagreed with the amended bill, and some object to being restricted.

Senator GLASS. Mr. Pope, do I get an accurate view of your general criticism of the bill to the effect that you think now is an inopportune time to have any banking legislation at all?

Mr. POPE. I think now is an inopportune time to have any legislation which acts, as I am using the word again, in a manner to in crease the present deflation; I mean at this time as this bill does.

Senator GLASS. You have spoken of section 11 of the bill dealing with 15-day paper as deflationary. I take it, then, you would not be willing to see a deflation in stock speculation on the exchange. Mr. POPE. Do you mean at the moment?

Senator GLASS. There is no stock speculation at the moment to speak of, or at least I think not. We have frightened off the bears, temporarily, and the bulls do not seem to be quite active.

Mr. POPE. You are asking me a question now?

Senator GLASS. Yes.

Mr. POPE. What is it?

Senator GLASS. Isn't the real purpose of this bill, among other things, to avert a repetition of this situation by forbidding people to use the facilities of Federal reserve banks to inflate prices on the stock exchange to almost an inconceivable degree, and then have the whole business of the country collapse in consequence of that sort of speculation? I take it that you think now is an inopportune time to express the view of the Congress, if it should take that view, that we should not permit that sort of thing to occur.

Mr. POPE. It is an inopportune time now.

The CHAIRMAN. The Senator from Virginia (Mr. Glass) will recall that in the spring of 1928 this committee spent a great deal of time on that question, and that we were told then was an inopportune time, and that was a year and a half before this whole thing blew up.

Senator BROOKHART. Is it the purpose of these hearings to prevent any legislation on this subject?

The CHAIRMAN. These hearings were called at the request of leading bankers and business men, who felt that there were things in this bill adverse to their interest, or to the welfare of the country, and so they asked to be heard, and the request for a hearing was granted. Senator BROOKHART. I take it, then, the primary purpose is to prevent any legislation.

Senator BULKLEY. Mr. Pope, do you mean to imply that prices are now deflated too much?

Mr. POPE. Well, that is a general statement. My impression is to that effect, and I am only conversant with security prices.

Senator BULKLEY. I refer to them.

Mr. POPE. My impression is that security prices are depressed too much, and it is bonds that I am talking about. I am not referring to stocks. I am in the investment banking business and am not interested from a stock standpoint.

Senator BULKLEY. A little while ago you expressed the view that the thing that might have been deflationary a while ago is not deflationary now on the ground that deflation has already happened. If deflation has happened, why can not we go ahead and do the sound thing?

Mr. POPE. Which would be what?

Senator BULKLEY. You were asked about stopping the practice of loans for others, and you said you were satisfied to stop it now because the deflation had already occurred.

Mr. POPE. All right.

Senator BULKLEY. Doesn't that argument apply all along the line? Mr. POPE. The question of values is not brought out in the question reguarding loans for account of others; I mean so far as they are affected, because loans for account of others were some months ago given up, and therefore the fact

Senator BULKLEY (interposing). We are free to fix that matter now and do the sound thing, aren't we?

Mr. POPE. Yes, sir.

Senator BULKLEY. Why does not that apply to other things?

Mr. POPE. Because you now, by applying sections of this act which continue to cause deflation, whereas stopping loans for account of others does not continue deflation.

Senator GLASS. How do we continue it any more than a law that has prevailed for 18 years which prohibits the use of Federal reserve bank facilities for investment and stock speculative activities?

Mr. POPE. Because in my opinion the method by which this section implies that would be done by way of punitive or other methods would necessitate the immediate sale of securities and it would cause excessive deflation, extremely dangerous deflation.

Senator GLASS. Of course, we disagree on that interpretation of the law. What you really mean to say is, and have said, as the record will show, that this provision of the law that has been in effect for 18 years has been a dead letter, and now because we propose to make it effective by a penalty you think it ought not to be done.

Mr. POPE. I did not say that either at the outset or since, but I brought out certain points regarding the measure which I disagreed with.

Senator GLASS. You said the law had been inoperative.

Mr. POPE. I said that this particular bill was inadvisable at this time.

Senator GLASS. No; but when I read to you the provision of the existing law, which has been a provision since the Federal reserve act was first enacted, you said it had been inoperative, and that we know.

Mr. POPE. I do not remember saying that.

Senator GLASS. Now, we want to make it operative. And you think it is an inopportune time to make it operative?

Mr. POPE. Yes, sir.

Senator GLASS. It is there but you do not think it should be obeyed, is that the idea?

Mr. POPE. No, sir.

Senator GLASS. Well, you do not think it should be obeyed if you object to our making it operative, do you?

Mr. POPE. If a law is a good law I can not see how anybody could say they would object to its being obeyed. I certainly do not.

Senator GLASS. You said it had been inoperative, and that we know.

Mr. POPE. I do not remember using that expression, saying it was inoperative. I think you said that.

Senator GLASS. Of course I said so, and that is the very purpose of our provision in this bill.

Mr. POPE. I do not know the extent it has been inoperative. That is a commercial banking matter, presumably.

Senator BROOKHART. If it has been inoperative it wouldn't hurt anything to have it enforced now. It would not change the law, but we would make it operative.

Mr. POPE. If it is in the law it is in operation.

Senator BROOKHART. If it is not enforced it would not be.
Mr. POPE. No, sir.

Senator GLASS. Would it hurt anything to provide a penalty?

Mr. POPE. At this time if the penalty would require an excessive sale of securities, to the extent of jeopardizing institutions and others in the market, I think, and have said, it is not a time to so legislate. Senator GLASS. There is no sentence in that section of the bill that requires a sale of securities.

"

Mr. POPE. I think many provisions of the bill require the sale of securities.

Senator GLASS. I am talking about the 15-day paper provision.

Mr. POPE. That would, in my opinion, immediately drop the 334 per cent 1-year Treasury certificates that were issued a few weeks ago half a point certainly and probably more.

Senator GLASS. That provision of the bill has been suggested since June 17, 1930, and I have not observed that it caused a drop in any Government securities.

Mr. POPE. It is not the law,

Senator GLASS. No; it is not law now.

Senator BULKLEY. You are now referring to the penalty.

Mr. POPE. Yes, sir.

Senator BULKLEY. Would it be a good idea to reduce the rate so as to increase the price of securities?

Mr. POPE. If you reduce the discount rate; yes.

Senator BULKLEY. Then why not discount them free so that we would have a better market for Government securities?

Mr. POPE. Well, the present rates, and I am only familiar with the Federal reserve bank which operates in securities which we have and sell, although I presume it applies in other instances; but that rate, if it is set to-day, applies in the open-market purchase rate.

Senator BULKLEY. I just want to know how far Mr. Pope would go in supporting the market for governments. Would you like to increase the price of them, and instead of emphasizing penalty and rate together, have a premium against borrowing for Government securities; would that be a good way?

Mr. POPE. I wouldn't think the Government's market to-day needed assistance.

Senator BULKLEY. It may a little later on.

Mr. POPE. As far as the operations in governments to-day are concerned, of course nearly everyone who owns a Government bond has seen it depreciate in the last year. But if you mean with artificial means to stimulate supply and demand for bonds, I do not know exactly what provisions you would apply.

Senator BULKLEY. But what artificial means do you refer to?
Mr. POPE. I am not asking any change at all.

Senator BULKLEY. But we are contending with disobedience of the present law as the cause of an artificial situation.

Mr. POPE. Well, I do not think so.

Senator GLASS. Suppose we were to omit the peremptory require ment of 1 per cent increase in loans against Government securities, would you still object to that provision of the act which gives the Federal Reserve Board authority after due warning to suspend a bank from rediscount privileges if it persists in it.

Mr. POPE. It has been stated in the last hearings that it was not a question of preventing a bank from borrowing after due warning that we objected to.