Senator GORE (interposing). And that adds something to their merchantability, I take it.

Mr. HARVEY. It adds a great deal. Georgia bonds, as a result of their very excellent laws, are among the most popular municipal bonds in the country. Insurance companies and savings banks want them, and they sell higher. In other words, the borrowing of money by municipalities in Georgia costs a lower average rate of interest than any other southern State or any western State today, I believe.

Senator GORE. The purchaser knows he is not buying a lawsuit. Mr. HARVEY. Yes, sir. The purchaser is being protected. In the case of a corporation bond, Mr. Chairman, you asked me what the investment banker did in case of trouble. If something unforeseen brings trouble, like in the case of the Hotel Clinton, it is certainly the responsibility and the duty of the investment banker to do everything he can to protect the interests of the holders of those bonds which he has sold. So it is his duty to form a protective committee so that everything may be done that can be done to save all of his cutomers' money, to get it all back out of the defaulting company if possible, or to at least get the maximum amount possible. They certainly must see these things through, and see that they are handled in the best interests of their bondholders.

The CHAIRMAN. Do they advise their investors of conditions from time to time?

Mr. HARVEY. If anything happens in connection with an issue of bonds which we have sold, we have a list of all holders of those bonds who have purchased from us. We keep carefully such records, and we send out a circular to all holders of the initial bonds. If there is any development in connection with the issue which we think they should be advised of, that is one of the things we must do, that we feel we must do.

Senator NORBECK. How would an investor fare if there were half a dozen more hotels constructed in this city and bonded at 60 percent of their value? Would they save their money or lose it?

Mr. HARVEY. I do not think I understand your question.

Senator NORBECK. Suppose there were half a dozen more hotels honestly built in this city and bonded for 60 percent of their value. Would the bondholders save their money or lose it?

Mr. HARVEY. I think under present conditions they would lose it. Senator NORBECK. Isn't that the point exactly, and isn't it the responsibility of the investment banker to have that in view also? Mr. HARVEY. Absolutely.

Senator NORBECK. Isn't that the trouble in Washington today, that apartment houses and hotels were erected to an extent far beyond the need, just because people would buy the bonds?

Mr. HARVEY. That assisted in the overbuilding.

Senator NORBECK. And it was an overbuilding that any prudent business man could see.

Mr. HARVEY. Well, I do not know whether I could go that far with you or not, because I do not know just where the prudent business man would stop, or where any two prudent business men would agree that they ought to stop.

Senator ADAMS. Have you seen anybody who has demonstrated that he was really a prudent business man?

Mr. HARVEY. No, sir. Or, if anyone would point out such a man I should be glad to get him into a business I expect to go into.

Senator GORE. I think Senator Norbeck has put his finger on a serious difficulty in our financial set-up.

Mr. HARVEY. Oh, yes. Senator Norbeck is correct, in that there was a point somewhere where it should have stopped.

Senator NORBECK. Well, the investment banker ought to have been able to see it before the investor saw it.

Mr. HARVEY. I do not think you were in the room, Senator Norbeck, when I made the point that an investment banker can only thrive upon the confidence of the public to whom he is going to sell bonds, and if he cannot command that he must go out of business. Senator NORBECK. I was here when you said that. But I presume there are a lot of short-sighted men in your business as well as in others?

Mr. HARVEY. Yes, sir.

Senator NORBECK. And they will continue to sell bonds as long as anyone will buy them?

Mr. HARVEY. That is according to goodness.

Senator NORBECK. Therefore it is the buying public who determine whether it is a good investment or not, and they are not in a position to know.

Mr. HARVEY. I think the provisions of the bill you have under consideration requiring more complete information will do a good deal to correct the thing you are talking about. I am in favor of that. If you will agree with me that there are people in the investment business who are honest, it is certainly to their interest to preserve the investment wealth and to turn it into good channels rather than to let it waste down the sewer and be lost.

Senator NORBECK. Isn't that true of all businesses?

Mr. HARVEY. Yes, sir.

Senator NORBECK. And isn't that a thing that the American public have forgotten in the last 15 years?

Mr. HARVEY. Apparently so.

Senator NORBECK. They have been so anxious to get dollars quickly that they have ruined their business.

Mr. HARVEY. Yes; but that does not apply alone to the investment banking business.

Senator NORBECK. But the investment bankers have handled very large sums of money.

Mr. HARVEY. Yes, sir.

Senator NORBECK. And therefore attention has been focused on them.

Mr. HARVEY. Yes, sir.

Senator NORBECK. All right. That is what I wanted to bring

out.

Mr. HARVEY. Now, Mr. Chairman, I wish you would stop me whenever you so desire. I would love to sit here and talk to you the whole afternoon, but I realize that your time is limited.

The CHAIRMAN. Mr. Harvey, when I suggested that you appear here, on yesterday, you seemed disinclined to make any statement to us. I just wondered why.

Mr. HARVEY. I am glad you asked me that question, because I think I would have felt very much embarrassed to answer unless you

asked the question. I would put it this way: This is something interesting. In England it so happens that London is the financial capital of the British Empire, and is also the political capital of the British Empire. Paris is the financial capital of France, and is also the political capital of France. Berlin is the financial capital of Germany, and also the political capital of Germany. But in the United States we have the misfortune of having our financial capital in New York and our political capital in Washington, 250 miles away.

Senator ADAMS. Do you regard that as a misfortune?

Mr. HARVEY. Yes, I do.

Senator ADAMS. Some of us think we are too close together now. Mr. HARVEY. I will say that I think the people of New York, the financial men in New York, and our legislators in Washington, would, if they could mingle with each other now and then, come to the conclusion that the other fellow is just an ordinary, good, honest man. If you could sit down at the table in the evening and play bridge, or sit in a drawing room and converse with bankers in New York, I am quite sure you would find they were the same as your associates here in Washington.

Senator ADAMS (interposing). That is the trouble, and

Mr. HARVEY (continuing). That their intentions were honorable, and when those men came down here to Washington you would look upon them as just the ordinary, good, honest men that you find in every section of the country.

Senator ADAMs. But they feel they are the cheese factory, and it is run from the milk in the West.

Mr. HARVEY. I fear I have not made my point very well. I think there should be more physical contact between the bankers and business men in New York and the legislators here in Washington, and that in that case each would think better of the other, and neither would be suspicious of the other.

Senator NORBECK. Well, we had some contacts here about three weeks ago, and the result was not such as to encourage more confidence.

Mr. HARVEY. Well, do you think that that situation should be considered representative?

Senator NORBECK. Well, it was one of our contacts.

Mr. HARVEY. Well, I do not believe in condemning everybody because of some one act that some person may have committed. I believe it would be much better to drive out people who are not doing the right thing, to send them to jail. But you are not particularly interested in those doing the right thing. I want to assure you that there are a great many people in New York who are sticking to good business principles, and who are doing the right thing. And, you understand that I am not a New Yorker. I am from Florida, where Senator Fletcher comes from.

Senator NORBECK. I am casting no reflection upon the people of New York.

Mr. HARVEY. I know you are not.

Senator NORBECK. We are speaking about certain bankers now. Mr. HARVEY. But I think the banking fraternity has as many honorable people in it today as any other kind of business. When anybody is called to Washington to testify before one of your com

mittees, immediately they feel that they have been called because there is something about them that is not just right, or that there is some suspicion about them, and they are very much afraid that if they come to Washington they are going to be embarrassed by being classified.

Senator ADAMS. No honest witness is ever embarrassed.

Mr. HARVEY. I see no reason for it. I am not embarrassed, sir. I have been honest. I regret to say I have used bad judgment at times, but I am not embarrassed about any wilful wrongdoing; and I think most of them would feel that way. But we do not think you want us down here, sir, frankly. I address that reply to you, Mr. Chairman. I was quite flattered when you suggested that I come. I am not a witness; I have never been a witness before, except once, and that was in a case where a friend of mine took a dose of camphor oil instead of castor oil, and I was a witness. That was the only time I was ever "put on the spot" before. I have been glad to have an opportunity to say what I have said, and I appreciate that opportunity. I have been very courteously treated here, and I would like to go back to New York and say to my associates that I have been most courteously treated here; that I have not been treated as a blackguard.

The CHAIRMAN. There is quite a feeling around Washington that perhaps the influence of some members of the banking fraternity in New York is not a very wholesome influence for the country.

Mr. HARVEY. It is not wholesome for us who are trying to make an honest living out of it, and we are just as much interested in seeing the business purged of that phase of it as you can be. I must say that I think that is a minority. We want to get that element out of the business and we would like to have the business restored to the confidence of the country; because we cannot do business and make an honest living at it until there is greater confidence on the part of the public in the bankers in New York than there is today.

The CHAIRMAN. We seem to have the impression down here, too, that the big bankers and the little bankers have not been very wise guides and prophets to industry in this great collapse of business.

Mr. HARVEY. No, sir; but when the mistake has been so universally made, I think it is a little hard to indict the whole fraternity. You cannot indict a whole nation; and it is a little difficult to indict a whole profession.

Senator ADAMS. In a typhoid fever case we always try to find the source of original infection.

Mr. HARVEY. Yes; and we are with you in trying to find and eradicate it.

Senator NORBECK. The question is whether we are going to punish those who lack confidence or those who destroy confidence.

Mr. HARVEY. I think there is some fear that in your desire to punish, you will also get some innocent ones with the others. There is that fear. I do not know whether it is justified or not. I do not make any comment on whether it is justified or not.

The CHAIRMAN. Thank you, very much, Mr. Harvey. Senator COSTIGAN. Mr. Chairman, before these hearings are concluded I desire to ask leave to place in the record a memorial of the Legislature of the State of Colorado which specifically protests against the provisions of section 14 of the pending bill, because of their belief

that it will interfere with the present mining revival in our State; alss four telegrams and one letter from well-known and responsible citizens of Colorado dealing only only with section 14 but with other sectionof the bill. These communications are presented for the considerao tion, use, and benefit of the members of the committee.

The CHAIRMAN. I think this is a very good time to put them in, and it may be done.

Senator COSTIGAN. I should like to have these made a part of the record and then the originals returned to my office, because I have some memoranda on them which I wish to use.

The CHAIRMAN. The committee reporter will copy them into the record and return the originals to you.

Senator CoSTIGAN. I thank you.

(The documents referred to are as follows:)

HOUSE JOINT MEMORIAL NO. 4

(By Representatives Palmer, Constantine, Fisher, and Hirshfeld)

Whereas the State of Colorado has been throughout its history one of the most important mining States in the Union, and its growth and prosperity has been and will continue to be intimately connected with and dependent upon the mining industry; and

Whereas there is a noticeable and increasing tendency toward a revival of the mining industry in this State which, if consummated, will create new wealth, assist in relieving the unemployment problem, and stimulate a like revival both in agriculture and commerce; and

Whereas to accomplish the expected revival of the mining industry in this State a constant flow of new capital will be required for the financing of the industry, and no obstacle should be placed in the way of such financing; and

Whereas there is now pending in the Congress of the United States a bill "To provide for the furnishing of information and the supervision of traffic in investment securities in interstate commerce", known as the "Federal Securities Act", section 14 of which provides in substance, among other interstate sale restrictions, that it shall be unlawful to use the facilities of interstate commerce in the sale of securities in any other State without complying with the securities acts of that State; and

Whereas compliance with the provisions of said section 14 would so hamper, restrict, and cripple the issuance of securities by mining companies in this State in the sale of their securities in other States, that none could be sold, thus the present mining revival in this State would be brought to an abrupt close and the progress of Colorado would to that extent be stopped: Now, therefore, be it

Resolved by the House of Representatives of the Twenty-ninth General Assembly, the Senate concurring herein, That the Congress of the United States is hereby respectfully memorialized and urged to eliminate said section 14 from the Federal Securities Act or to make such necessary amendments therein as will prevent the unjust economic results to the State of Colorado as are herein set forth: And be it further

Resolved, That the Senators and Representatives of the State of Colorado in the Congress of the United States be requested to take such necessary steps as will correct the evil herein denounced, and that copies of this memorial be forwarded forthwith to the President of the Senate, to the Speaker of the House of Representatives of Congress, and to the Senators and Representatives of the State of Colorado in Congress.

RAY H. TALBOT,

President of the Senate. BYRON T. ROGERS,

Speaker of the House of Representatives.

JAMES H. CARR,

Chief Clerk.