Mr. CARGILL. No; I have not, sir. The CHAIRMAN. Would you furnish that for the record? (The following was later received in response to the above:) Government In accordance with your request, we are submitting herewith information as to Government stocks of grains. These figures are as of May 31, 1950. stockholdings as of June 30 have not been announced. As of May 31 there were 491,832,455 bushels of corn under loan and 59,369,390 bushels of wheat. Senator ROBERTSON (presiding). You may proceed. Mr. CARGILL. We believe that if there is need to temper price rises, there are other effective methods available to government. If our present stocks and the outlook for the coming harvest were unfavorable, we would agree that your committee should consider methods of controlling this and other segments of the economy. We do not think that agricultural commodities alone should be controlled, leaving uncontrolled wages and things which farmers have to buy. The concern of my company-in common with all country elevators, cooperative and otherwise is that you do not jeopardize the fluidity or the very existence of our hedging markets by adopting section 411. If we do not have open, fluid markets, we will have to limit our purchases from farmers each day to the amount of grain and quality of grain that we can sell on that same day. It takes time to find a particular buyer who happens to need a particular lot of grain in a specific location. When a farmer hauls his wheat to one of our elevators and wants to sell it, we do not want to tell him to haul it back to his farm and wait until somebody turns up who needs it. That is what used to happen before futures markets existed. The alternative usually was the farmer would offer his grain so cheap that the elevator man could afford to take the risk of buying it. We do not want to go back to the old chaotic days when there were no organized markets and no one knew what grain was worth. Trading now is watched by the Government, and it is done on the floor of exchanges by public outcry. Prices are telegraphed to all parts of the world and are broadcast by radio in all farming communities in the United States within a matter of minutes after the markets close. Farmers know wheat prices they should receive and they are in a position to demand them. We can buy their wheat whenever they want to sell it and we can handle it for a nominal charge because we can insure against price changes by hedging. We do not care if the market goes up or down, and we have plenty of time to load it in cars, ship it to market, and find the particular buyer who will pay the best price for that particular car of grain. At that point, when we sell it, we buy back our hedge in the futures market. Now, obviously, the hedgers who want to sell and the hedgers who want to buy, do not balance each other at any one moment. Yet when you want to hedge, time is the essence. Your trading profit is so small that you cannot wait-the market might go up or down a half-cent, or a cent, or more, and give you a loss instead of a profit. This is when the speculator performs a real service, whether or not he does it on purpose or even knows he is doing it. It is the speculator's volume of trading that makes it possible to execute hedges, whether buying or selling. Speculative volume is like the flywheel on an engine that gives it momentum and keeps it running smoothly. When there is a good volume of speculation, an exporter can probably hedge the sale of a cargo of wheat-some 300,000 bushels-without putting the market up more than one-eighth of a cent, or a fourth. When speculation is slow, he might put the market up a cent or two in buying his hedge, and then he would have a loss instead of a profit. More likely, in a slow market, he would not dare make the sale and business would stagnate, for neither elevators, millers, or exporters would dare do business in volume. This is our fear of section 411. Raising margins would not keep prices from going up—it would simply make them jumpy and spasmodic, with a cent or two between trades instead of an eighth. Your committee should know this is true, if you recall that commodities that have no futures markets are usually more erratic than those that have. We agree that you can reduce or eliminate volume of trading, both speculative and hedging, by raising margins; but no showing ever has been made that it will control prices. It can definitely wreck the market structure, beyond any question, and that is the concern of all of us who operate country elevators. Senator ROBERTSON. Is there any record kept of transaction of speculators to see whether or not on the over-all they win or lose? Mr. CARGILL. I do not know definitely, sir. I believe some figures have been gotten on that. Senator ROBERTSON. What is your offhand opinion about adding up those who were smart and those who were dumb, how did they figure out? Mr. CARGILL. I have the feeling that I have seen somewhere that they lose in their speculative venture and yet they furnish this price protection at a loss. Senator ROBERTSON. I have heard they always lose in the long-run in the New York Equity Exchange. I did not know how it worked out in these commodity exchanges. The fellow who deals in stocks on the New York Stock Exchange who does not know what he is doing cannot possibly beat the man who does know. Mr. CARGILL. That is right. I have here an article entitled "Grain Trading Cuts Your Bread Bill," by Mr. Harry A. Bullis, chairman of General Mills in Minneapolis, which is very informative on the record. Senator ROBERTSON. If it is not too long, you may. Mr. CARGILL. I am not going to read it, I am just going to offer it. Senator ROBERTSON. Yes, sir. It will be inserted in the appendix. Mr. CARGILL. I also have a wire from the Grain and Feed Dealers Association, which comprises some 12,000 small dealers in the country endorsing our statement. I would also like to file that. Senator ROBERTSON. Without objection it may be filed for the record, and inserted in the appendix. Mr. CARGILL. Thank you, sir. Our exchanges work closely with the Commodity Exchange Authority. We have operated through the war and postwar periods without serious trouble. We respectfully urge that the responsi bility for margins-whose function it is to insure the sanctity of contracts-be left with the exchanges where it belongs, in a free enterprise system. As to section 412, we will not burden the committee further than to endorse the statements of the farm groups and of Mr. Walter Scott before you yesterday. We believe this section 412 should be deleted. (The membership list accompanying Mr. Cargill's statement follows:) MEMBERSHIP LIST-NATIONAL GRAIN TRADE COUNCIL American Feed Manufacturers Association, Chicago, Ill. Barley and Malt Institute, Chicago, Ill. Federation of Cash Grain Commission Merchants Association, Milwaukee, Wis. Grain and Feed Dealers National Association, St. Louis, Mo. North American Export Grain Association, New York, N. Y. Terminal Grain Elevator Merchants' Association, Milwaukee, Wis. Buffalo Corn Exchange, New York Chicago Board of Trade, Illinois Denver Grain Exchange Association, Colorado Duluth Board of Trade, Minnesota Enid Board of Trade, Oklahoma Ft. Worth Grain & Cotton Exchange, Texas Omaha Grain Exchange, Nebraska Peoria Board of Trade, Illinois Philadelphia Commercial Exchange, Pennsylvania Portland Grain Exchange, Oregon Salina Board of Trade, Kansas San Francisco Grain Exchange, California Seattle Grain Exchange, Washington Sioux City Grain Exchange, Iowa Toledo Board of Trade, Ohio Wichita Board of Trade, Kansas Senator ROBERTSON. If there are no questions, we thank you, sir. STATEMENT OF ROBERT P. GERHOLZ, PRESIDENT, NATIONAL ASSOCIATION OF REAL ESTATE BOARDS Mr. GERHOLZ. I am Robert P. Gerholz, president of the National Association of Real Estate Boards. I deeply appreciate this opportunity of presenting our views. Our association has by resolution of its executive committee offered its services to our Government in every way in which our special knowledge and skill in the field of real property can be helpful. This offer has been sent to the President and Mr. Symington. We believe that our national security requires that our Nation be well prepared and we are in accord with an adequate military preparedness program. Title IV of Senate bill 3936, however, gives the President of the United States unprecedented powers over sections of our national economic life. These powers ar e given almost without restraint in the bill as drawn. Senator ROBERTSON. You are familiar with all past grants of powers in wartime? Mr. GERHOLZ. Generally familiar, yes, sir; and how they operated. Senator ROBERTSON. In your opinion, the grant of power in this particular respect, in this bill, is unprecedented? Mr. GERHOLZ. That is right, Mr. Chairman. Mr. GERHOLZ. They are more far-reaching than were found desirable or necessary in World War II. Title IV concerns itself with real estate credit in which our group is vitally interested. In our opinion the Government already possesses, or under other pending measures will possess for the predictable future, adequate control over critical materials and over real estate credit through: 1. The existing Federal agencies, including the Federal Reserve Board, the Housing and Home Finance Agency, the Home Loan Bank System, and the RFC. These agencies set the pattern for real estate credit throughout the Nation and to a large extent control it. Housing credit has already been curtailed by the President through these agencies. 2. An increase in taxes, which is pending and which, as stated by President Truman in his message to Congress on July 19, is "our basic weapon in offsetting the inflationary pressures" and "will make general controls less necessary." 3. Controls which may be imposed by other sections of this bill, which cover such matters as priorities and allocations of materials and facilities. We believe that the existing and pending controls are adequate to achieve the objectives sought and that, so far as real estate is concerned, title IV should not be enacted. In order to supplement our opinion as to the adequacy of present legislation, we cite the recent opinion expressed by Mr. Marriner Eccles, member of the Federal Reserve Board, issued July 18, in which he makes the following suggestions, which are herewith briefed: Senator ROBERTSON. I may interrupt to say that I have already put the full text of his Salt Lake City statement of July 18 in the record but you may go ahead. Mr. GERHOLZ. Thank you, Mr. Chairman. 1. Request every bank to unite in a Nation-wide voluntary agreement to stop bank credit expansion by limiting new loans to the amounts of the loans paid. 2. Request insurance companies and mutual savings banks not to sell Government securities for the purpose of getting money to increase loans on other investments. Senator ROBERTSON. May I ask you, what does that license system mean? Mr. GERHOLZ. What does it mean? Senator ROBERTSON. Yes. Mr. GERHOLZ. It means you could license every single thing. You could license the person, you could license the service. It is just a Federal licensing authority to cover every single phase of the industry as I understand it from the sections in the bill. Senator ROBERTSON. And determine by Federal action who could be in that business, because you could not be in business without a license? Mr. GERHOLZ. That is right. Senator ROBERTSON. Is there some provision in this title IV that allows the Government to appraise real estate loans, while the Government is not making the loan and not insuring it? Mr. GERHOLZ. We will have to quote from the bill, Senator. On page 11, starting at about line 15: Property, trade-in or exchange values, maximum maturities, maximum amounts of credits, rules regarding the amount, form and time of various payments, rules against any credit specified, circumstances, rules regarding consolidations and so on. I think that the control is absolutely complete as counsel interprets it, yes, sir. Senator ROBERTSON. Does that mean in your opinion that this bill would confer upon a Government agency the power to appraise a loan that the private bank would make in which the Government has no other concern except this power that might be given? Mr. GERHOLZ. I would interpret it as such, yes. Senator ROBERTSON. Are the building and loan associations a part of your organization? Mr. GERHOLZ. Not affiliated with our organization, Senator. Of course, it is one of the segments of the industry. It is one of the mortgage-lending institutions all of which is a part, of course, of the over-all real-estate industry. Senator ROBERTSON. I have received a good many telegrams from them, and I was wondering whether you are speaking for them or not. Mr. GERHOLZ. Not officially; no, sir. Senator ROBERTSON. But your views seem to be somewhat similar. Senator CAPEHART. Mr. Chairman, let us read this again to make sure. On page 11, line 12, it says, "Such regulations may, among other things, prescribe maximum loan or credit values." This certainly answers the question. "Minimum down payments in cash or product, trade-in or exchange values, maximum maturities, maximum amounts of credit." I think that is broad enough to mean that they could limit the amount of credit of anyone to whom they gave a license. If they gave a license to a bank, they could limit their credit to $1,000,000 or $500,000. Either the total amount of credit they issued or the amount of credit they issued on each transaction. It says: Such regulations may classify persons and transactions and may apply different requirements thereto and may apply such administrative provisions necessary to effectuate the purpose of this subtitle and prevent evasions thereof. Do you agree with me that under this title IV that anyone-when I say anyone, I mean everyone-who sold anything on two or more payments, regardless of what it was, whether for physical things or service, would have to secure a license from the Federal Government? Mr. GERHOLZ. Very definitely so. It would affect the home owner, the owner of an individual piece of property, or anyone who has any interest whatever in the sale or purchase of property. Senator CAPEHART. Every real-estate operator, every finance company, every bank, every individual, company, or corporation, if it sold anything on two or more terms, would have to have a license. Is that your understanding of how broad this is? Mr. GERHOLZ. Thati s stated exactly as we understand it. |