law

enacted.

Senator KEAN. But there are many people all over the United States who will be involved in this thing if this provision is included.

The CHAIRMAN. Precisely.

Senator KEAN. And just the same you can assume, even with the enormous forces of every State and every city, as well as those of the United States, in the way of protective matters, and policemen, the laws are violated every day.

The CHAIRMAN. Precisely. But we won't argue that matter now. The question is, what do you wish to ask Governor Black?

Senator GOLDSBOROUGH. One other question: Governor Black, did 1 understand in the statement you submitted, that the Federal Reserve Board approves all provisions of this bill as now written?

Mr. BLACK. Yes, sir; with the request that we may make further suggestions, especially as to details of the technical operations of exchanges as may appear necessary from a further study of these technical operations.

Senator GOLDSBOROUGH. And that you are not now prepared to submit to us.

Mr. BLACK. No.

Senator ADAMS. But you are making a further study of the bill? Mr. BLACK. We have been continually studying the bill since first requested to do so a week ago.

Senator KEAN. Were you requested to study the entire bill or only certain sections of it.

Mr. BLACK. I understood that we were requested to study the entire bill, sir.

Senator KEAN. And you have studied the entire bill?

Mr. BLACK. I have studied every word of it, Senator Kean, 6 days and 6 nights:

stances and conditions to restrict credit through this medium if t power is given to the Board.

Mr. BLACK. If I have said something that was misunderstood, regret it. Of course, in restricting speculation you have to do through restriction of credit under the provisions of this billmean, so far as the marginal requirements are concerned.

Senator STEIWER. Well, to what extent would you feel justified restricting credit in order to restrict speculation?

Mr. BLACK. Wherever there is excessive speculation or undue u of credit in speculation.

Senator STEIWER. Has the Federal Reserve Board set up a standard to which it would adhere in the determination of matte of that kind?

Mr. BLACK. It had not had the time to do that, and could n properly attempt to do it until the occasion for doing it was a proaching.

Senator STEIWER. I assumed that that would be your answe However, the net result is that if the Federal Reserve Board clothed with power to restrict speculation through the medium restriction of credit, the extent to which it would do it would be matter for further judgment.

Mr. BLACK. Precisely.

Senator STEIWER. And from time to time.
Mr. BLACK. Yes.

Senator STEIWER. And Congress could have no way of knowin now, while considering proposed legislation, the extent to which y might see fit to restrict credit to business of this country.

Mr. BLACK. Well, I would prefer to use the expression: "Restri credit in prevention of undue or unwise or excessive speculation I would rather leave out, "of the business of the country" I do n think that is comprehended in this bill. Further answering you question, Senator Steiwer, of course the Congress, if it gives th

an over-use of credit, accelerated a misuse of credit, and paved the way for the crisis in 1929 and the depression which followed. Other people felt that the Federal Reserve Board could have raised its rediscount rate in 1928 and 1929 even more than it did, could have then put on the brakes. I rather doubt the latter, but think there is a good deal of truth in the former charge.

Now, Governor Black, what is your conclusion about it, if you have given it any critical thought?"

Mr. BLACK. Senator Gore, you are now taking me back to 1927, 1928, and 1929, I believe?

Senator GORE. Yes. When the rediscount rate was very low, in September of 1927, some people alleged that in that action, to get gold, it was not for our own purpose

Mr. BLACK (interposing). Of course, I was not on the Federal Reserve Board at that time, although I am not saying that by way of excuse, and I think they were really doing it to try to spur business in America. And I think in 1928 and 1929 we did everything on earth we could to stop, as far as we could, the drunken debauchery in speculation. But I do not believe any board on earth could have stopped it at that time.

Senator GORE. I doubt it, too. But do you think it is possible to devise any sort of mechanism that can stop the runaway passion for gambling, like that was?

Mr. BLACK. I do not believe at that time it could have been stopped. I think marginal requirements, with stocks going up every day, would not have been effective. They might have been a deterrent. I think the discount rate, when men were making 20 or 30 or 40 percent a day on stocks in gambling would not have stopped it. It might have been a deterrent. But I think we are now coming into saner times, and

Senator GORE (interposing). Well, that is what we always think. Mr. BLACK. Well, I hope so at least.

from time to time to meet the conditions as they may develop?

Mr. BLACK. Senator McAdoo, my own opinion about that in the beginning was that there should be perfect flexibility in the matter of margin requirements, and that it should be left to the regulatory body. Now, since that time, I have thought about it a great deal. I think the whole purport of this bill is to restrict speculation, to prevent undue speculation, to guarantee fair practices in speculation and to get undue credit out of the excesses of speculation. And so far as I am concerned as Governor of the Federal Reserve Board, I am perfectly willing for Congress to give expression, and that is what this is meant to be, to what they think the marginal requirements should be. Now, then, there is a further provision in this bill, in the same section, that the Federal Reserve Board under certain circumstances can change the margin requirements. Personally, I would rather that were more flexible. But

Senator KEAN (interposing). In other words, do you mean to say that you would prefer, because this margin business figures out into absurd figures in some cases, to have it left entirely to the Federal Reserve Board?

Mr. BLACK. I would be perfectly willing for the Federal Reserve Board to take the responsibility for that.

Senator GORE. Do you think it could resist the pressure when the flood tide comes? Don't you think the dam would break? This is imperfect, of course, and we appreciate it, but I remember in 1929 when the race was running high, any suggestion by way of raising the rediscount rate provoked a storm of protest, and I do not think any human beings would have been able to withstand it, or at least not any in politics.

Senator McADOO. The rediscount rates attempted to control it, but they did not have either the teeth or the capacity to control it or to properly influence it. I think as Governor Black says a provision for increased reserve requirements would be very much more

effective. But, Governor Black, I should like to get you back, if I may, to the other question, as to whether or not I am correct in my understanding that you prefer to have minimum marginal requirements established in this bill rather than to have a determination of those marginal requirements established through regulation from time to time by the Federal Reserve Board.

Mr. BLACK. Senator McAdoo, I think the wisest course would be for Congress to express its opinion in the bill. And then widen the provision as to flexibility, leaving variations from the expressed opinion of Congress, to the judgment of the Federal Reserve Board. Senator MCADOO. Well, that would cover the point. That gives it some flexibility. Are the provisions of the bill such that you do have that flexibility?

Mr. BLACK. The provisions of the bill do not give us that degree of flexibility.

Senator McADOO. You think it would be wise to insert it after the expression of opinion of the Congress in the bill?

Mr. BLACK. If the Congress is in accord with me, with my view about that; yes.

Senator MCADOO. Well, now, one other question: You heard the brief statement made by Mr. Cotton a moment ago about municipal bonds, State bonds, and bonds of political subdivisions. What is your idea about exempting them?

Mr. BLACK. My recollection about that is that they are not listed as exempted securities, but that the power is vested in the Federal Trade Commission to exempt them.

The CHAIRMAN. That is right.

Senator TOWNSEND. Should that power be vested in the Federal Trade Commission or in the Federal Reserve Board?

Mr. BLACK. In the Federal Trade Commission.

Senator KEAN. That will only leave them subject to every little school district, every little town in the country, having to apply to a bureau of the United States for permission?

Mr. BLACK. So far as I am concerned I would not object to making municipal, county, and State bonds as exempt securities, if that is what you are asking me.

Senator McADOO. Yes; that is what you are being asked.

Senator GORE. It has been suggested that if the margin dropped down to 59 percent a customer would be sold out arbitrarily. Is that your understanding?

Mr. BLACK. That is as to new loans. As to old loans, they are protected.

Senator GORE. That is, current accounts are exempted?

Mr. BLACK. Yes, sir.

Mr. PECORA. The revised bill modifies that section of the original bill.

Senator GORE. And that was in the original bill?

Mr. PECORA. Yes.

Senator GORE. That was too arbitrary, in my judgment.

Mr. PECORA. That has been considerably modified in the revised version of the bill.

Senator GOLDSBOROUGH. To what extent has it been modified? Mr. PECORA. To the extent that the revision allows for a sag of 20 percent in the market price before

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