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Mr. BEEKMAN. Mr. Gibboney can answer that better than I can, because I am not very familiar with it. I have just come into this situation.

The CHAIRMAN. Can you inform us on that point, Mr. Gibboney?

Mr. GIBBONEY. Mr. Chairman, the brief filed by us was not filed until after the Clayton bill of May 2 had been reported; therefore, we did not request the exception until afterwards.

The CHAIRMAN. And you did not participate in the reasoning upon which it was based

Mr. GIBBONEY. No, sir.
Senator POMERENE. This seems to be dated May 6.

Mr. GIBBONEY. I have not seen any since the bill of May 2, but our brief was filed on May 4 with the committee, and I was informed by Judge Clayton after filing the brief that they would take under consideration the amendment which we asked for. I have not seen any member of the committee since.

The CHAIRMAN. Then, are we to understand that the Clayton bill does not relieve you of the conditions that you fear in connection with the Senate bill?

Mr. GIBBONEY. No, sir; the Clayton bill does not, as now drawn. Mr. FLEXNER. I think I can answer the chairman's question. I did appear before the House committee at that time.

Mr. GIBBONEY. That was before the Clayton bill was drawn?

Mr. FLEXNER. Yes; before they had drawn the bill; and they asked me at that time to submit to them a draft that would exclude utilities from the operation of the proposed holding company bill, and I did send in subsequently to the secretary of the Judiciary Committee of the House substantially the suggestion that is embraced in this brief-almost, I think, in identical terms.

The CHAIRMAN. Was that accepted by them?
Mr. FLEXNER. No; it was not incorporated in their bill.

Mr. GIBBONEY. The brief so far as I am concerned was only filed on May 4.

The CHAIRMAN. Now, are these holding companies as at present organized instrumental in foisting upon the public exaggerated issues of stocks and bonds that represent water and not real investments or services?

Mr. BEEKMAN. I say they have exactly the opposite effect. If local companies are left to themselves, struggling to get money, trying to give everybody $2 in securities for every dollar invested, the danger of inflation is much greater than through these holding companies, which go on the advice of responsible bankers, whose securities are listed on the stock exchanges and carefully scrutinized, and which get their money wholesale rather than retail. My claim is-and I think it can be absolutely proved—that these companies avoid inflation, discourage it; and the local company, all by itself, is sorely tempted to inflate, to get its money, because it is harder for it to get money unaided.

The CHAIRMAN. You claim your holding company has two advantages: One is the advantage in getting its money in the cheapest money market, which does away with the necessity for extraordinary inflation which the local company meets; and, in the second place, that it has an experienced corps of engineers and operators who are detailed to make a study of the special plan-men of national and world-wide reputation, who study all the economic problems relating to that particular plan in the light of the experience of the entire world, of which they are masters; and that thus the operating expenses are diminished ?

Mr. BEEKMAN. Exactly. The city of Bloomington could not afford to pay the salary of one of those men; it could not think of it.

The CHAIRMAN. What about the purchase of supplies? Mr. BEEKMAN. I was coming to that, which is the most important of all. That also touches on this question of the possible violation of the bill. I have shown you how one of these public-service corporations holding the stock of gas and electric-light companies could not, under the Blue Sky decision, sell its securities. It might be prevented, also, from fulfilling one of its most important functionsthat is, buying supplies for the companies—because it might be said that the parent company, which goes out into the markets of the world and buys supplies in great quantities and ships them from State to State to its local companies, is in the highest degree engaged in interstate trade; and yet that is one of the most important functions that a holding company performs. It is able to discount its bills; its credit is of the best. As it pays cash, it gets its bills discounted, which means a cheaper price, and it buys in great quantities and gets large trade discounts. All that goes to the benefit of the local company, and that figures in the pocket of the local consumer. He has got that much less to pay for what he gets—for the finished article, for the electricity delivered at his house, or for the gas delivered through his pipes--and that is one of the most important functions of these great public service companies.

The CHAIRMAN. Now let me ask you whether you have had experience at all in the issue of stock without

par

value? Mr. BEEKMAN. I have. The CHAIRMAN. Do many of the States provide for such issues?

Mr. BEEKMAN. Mr. Francis Lynde Stetson, of New York, for many years has been endeavoring to persuade the New York Legislature to make a departure by providing for the issuing of stock without par value, as the only logical and way of issuing stock. If stock could be issued that way, all these problems would not exist.

Senator POMERENE. That is, if you could persuade the public to take it?

Mr. BEEKMAN. I think we could educate them up to it. heartily in favor of it.

The CHAIRMAN. Has that been accomplished in any State as vet?

Mr. BEEKMAN. Mr. Stetson drafted a bill and submitted it, three years ago, to the New York Legislature. It went through the house, and the senate refused to pass it. It come up again I was doing quite a little to assist Mr. Stetson in accomplishing it—and it was adopted in committee. It finally passed; but at the last moment, for some unknown reason, the legislature expressly omitted publicservice companies from the operation of the statute. So in New York to-day you can incorporate a company, with stock without par value, in every case except in the case of a public service company. Why that exception was made, nobody knows.

The CHAIRMAN. Are there any other States?
Mr. BEEKMAN. No other States that I know of.

I am

The CHAIRMAN. Now, as I understand it, the complaint generally against exaggerated security issues by corporations applies to the common stock rather than to the bonds or the preferred stock. Is that not so?

Mr. BEEKMAN. That is so.

The CHAIRMAN. As a rule, cash is received for the bonds; and as a rule, cash is received for the preferred stock?

Mr. BEEKMAN. In the case of the public-service companies, for the common too.

The CHAIRMAN. For the common, too?

Mr. BEEKMAN. Yes, sir. As a matter of fact, they never sell the common stock locally. They can not find a market for it, because they have to sell it at par. They are financed entirely on bonds, and in a few cases on preferred stock.

The CHAIRMAN. What becomes of the common stock issues?

Mr. BEEKMAN. They have all been gotten out years before there were public service commissions. Common stock is not issued any more, or very rarely.

The CHAIRMAN. But they have some common stock out, have they not?

Mr. BEEKMAN. Those stocks were issued before the companies were regulated; before these public-service commissions came into effect.

The CHAIRMAN. Suppose you created a public service corporation in the State of Indiana ; you would certainly have, in addition to bond and preferred stock issues, a common stock issue, would you not?

Mr. BEEKMAN. I do not believe, since the companies were regulated, since these local commissions came in and strictly enforced the law--which always was on the statute books—that any common stocks have been issued.

The CHAIRMAN. Then who owns the equity after the satisfaction of the bonds ?

Mr. BEEKMAN. Those stocks were issued in the old days, before these public service commissions were created.

The CHAIRMAN. But suppose you go and create a new publicservice corporation?

Mr. BEEKMAN. A local operating company?
The CHAIRMAN. Yes.

Mr. BEEKMAN. You would have great difficulty in doing it. These public-service laws, while they have been very good for existing companies, and have made their investment's secure, have absolutely stopped development. The State of Massachusetts was one of the first that went into this regulation of public utilities, and since that happened I do not believe there have been five new publicservice companies started in Massachusetts in the last five years. It kills; it may be good for the companies in existence, but it kills development.

The CHAIRMAN. Is there anything further that you wish to say? Mr. BEEKMAN. No, sir; I am very much obliged to you for your patience.

(Whereupon, at 5.50 p. m. the committee adjourned.)

WEDNESDAY, MAY 13, 1914.

UNITED STATES SENATE,
COMMITTEE ON INTERSTATE COMMERCE.

Washington, D. C. The committee met at 10.30 o'clock a. m.

Present: Senators Newlands (chairman), Robinson, Cummins, Brandegee, Oliver, Lippitt, and La Follette.

STATEMENT OF MR. LAWRENCE CHAMBERLAIN, REPRESENTING

THE INVESTMENT BANKERS ASSOCIATION OF AMERICA, CHICAGO, ILL.

The CHAIRMAN. Mr. Chamberlain, will you go on? It is pretty hard to get an attendance of the committee. However, they will have an opportunity to read the hearings.

Mr. CHAMBERLAIN. Mr. Chairman and gentlemen, I should like to leave with you this morning when I go a copy of this bill that is before us, with some textual emendations that I shall suggest and and discuss as I go along. A number of them relate to legal matters, and in one or two instances, I think, there has been a clerical error made, which I am sure you will be glad to have called to your attention.

The CHAIRMAN. Have you stated your residence ?

Mr. CHAMBERLAIN. Yes, sir. You might add my occupation. I 1 am a dealer in bonds—a private banker, in other words.

Senator CUMMINS. Where do you live, Mr. Chamberlain!

Mr. CHAMBERLAIN. In Montclair, N. J. I am chairman of the publicity committee of the Investment Bankers Association of America.

As long as I am to leave this text with you, I shall take up the bill with you, if you will, section by section, with such comments as I have to make. Beginning with section 3, paragraph B

Senator CUMMINS. Section 3? Mr. CHAMBERLAIN. Section 3, paragraph B, a little below the middle of the paragraph where it reads: and to require the production for examination of all documents, etc.

Here I would suggest the insertion, after the word "production,” of “by any such corporation,” so as to make it readand to require the production by any such corporation for examination of all documents, etc.

The point that I wish to bring out is that it seems to me that only such bodies should be subject to the submission of their documents,

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correspondence, etc., as come within the jurisdiction of the commission. This whole section 3 I do not wish to comment on adversely, except simply to call your attention to the tremendous scope of it.

There were reporting, to the Commissioner of Internal Revenue, 305,336 corporations in this country. I do not know, and do not believe, it is possible to obtain any figures showing what proportion of these corporations do an interstate business, but ever since these trust bills have been subject to discussion in Congress I have made inquiries of various people as to what proportion of all corporations would come within the scope of these bills, and I should judge that the average person estimated that fully 95 per cent of all corporations in the United States come within the scope of these various bills, and, therefore, of this section.

Now, just for illustration, referring to our own business, that of unincorporated bankers-private bankers, that is to say-buying and selling municipal and State and corporation bonds-all of these bankers would come within the scope of th bill. I called that to the attention of the House Committee in reference to their bill, and I should judge from their inquiries that this thought had never occurred to them. I showed them how the fixation of prices and the prohibition of joint account arrangement between banking houses, which would be accomplished by their bill, would prevent municipalities and governments of all sorts from obtaining the highest prices that were possible for their securities, giving a concrete illustration in the sale of New York State bonds, where the State would have lost over one-half per cent of the par value of the bonds sold.

Senator CUMMINS. Do you think that a company located in New York simply engaged in buying or selling the municipal bonds throughout the country is engaged in interstate commerce?

Mr. CHAMBERLAIN. I do.

Senator CUMMINS. I do not. There is a very marked difference between the word “business” and the word “ commerce.”

Mr. CHAMBERLAIN. I have taken that very point up with the attorneys of our association, and the question at issue is largely whether the securities that we sell are articles of interstate commerce, and while our attorneys will not give us a definite, categorical statement that we do come within the provisions of this bill, they do say that they believe that we do come within the scope, under a proper interpretation.

I have taken this matter up with attorneys who are in no way connected with our association, and have been told, in illustration, that if a trolley company is doing business entirely within a State, but receives its power from a power company without the State, it probably comes within the scope of all these bills.

However, that, as I say, is a legal question, and being a dealer in bonds myself I simply call it to your attention as showing how section 3 would entirely revolutionize the business of the country, not only the big corporations but practically all corporations of any size whatever, merchants dealing in any sort of commodities, etc., where those commodities cross a State line, as they do, of course, in almost all cases.

Senator CUMMINS. How do you mean revolutionize--what would be the revolutionary thing?

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