Section 401 of title IV would permit the President to prescribe regulations to prevent or reduce excessive or untimely use of, or fluctuations in, real-estate credit. This would permit the President to control conventional housing credit, where necessary and to the extent needed for national defense, in a manner consistent with credit restrictions on Government insured or guaranteed mortgages. In the absence of such authority, there is a real danger that the effectiveness of the limitations placed on insured and guaranteed mortgages will be weakened by a shift to conventional loans.

Section 402 would extend the authority of the President with respect to loans on real estate made, insured, or guaranteed by the Federal Government. The President would be authorized to reduce or suspend any Government program of loans on real estate, and to restrict, in various ways, real-estate loans hereafter made, insured, or guaranteed by the Government. The proposed authority is desirable in order to permit the President to control real-estate credit in these cases in a uniform and consistent manner.

Section 403 of the bill would permit the Home Loan Bank Board by regulation to increase the liquidity requirements of members of Federal home loan banks (up to a maximum of 20 percent of the institution's share capital, as compared to 8 percent under provisions to be effective on December 27, 1950, under existing law). The higher maximum would appear to be a reasonable one in the light of the present situation, and in view of the fact that currently member institutions are holding approximately 17 to 18 percent of their resources in liquid assets. The enactment of section 403 would also permit the Home Loan Bank Board to adopt, upon passage of S. 3936, reasonable regulations designed to prevent the undue diversion of institutional assets needed for liquidity purposes to extensions of mortgage credit.

I should like to call to the committee's attention the fact that, in the present situation, the control of housing credit, insured, guaranteed, or conventional, must be integrated with the basic housing responsibilities of the Federal Government. While housing considerations must be subordinated to the necessities of national security, the Nation's housing standards should be maintained at as high a level as is consistent with defense needs. Orderly readjustment of the home-building industry to meet changing requirements is also essential. Under current conditions, it is of paramount importance that whatever restrictions are necessary are equitably applied without requiring undue sacrifice from those least able to pay for housing.

In the interests of conserving scarce materials and manpower and stabilizing prices, a control of the total volume of housing credit is clearly indicated. However, the selective application of housing credit controls, coordinated with considerations outside of the credit field, is called for in the management of the Government's housing programs in this emergency situation. The recent changes in FHA regulations, for example, and the complementary changes in VA regulations, were designed to maintain the relative advantages available to veterans and to concentrate construction activities in the field of moderate-priced housing. Similarly, if it proves necessary to utilize in the construction area the priority powers contemplated in title I of S. 3936, controls over all types of mortgage credit will have to be adjusted. In a defense economy, the provision of adequate housing as a necessary adjunct to military production is an important positive need where housing of defense workers is required. A policy of strategic dispersion may create substantial demands for civilian housing. Certainly the application of credit restrictions affecting housing construction must be compatible with the group of related housing objectives.

I have given to this matter of the control of housing credit serious and careful personal study and consideration. In view of the considerations outlined in the preceding paragraph, which are based upon the objective lessons learned as a result of our actual experience with the complex problems of housing and home finance in World War II, I am convinced that the provisions of S. 3936 relating to the control of housing credit represent legislation which is urgently needed under present conditions. I wish to assure your committee that the Housing and Home Finance Agency stands ready to carry out such functions as the President may assign to it when the legislation is enacted.

INITIAL STEPS ALREADY TAKEN TO CONTROL HOUSING CREDIT

As I know you and the members of your committee are aware, the Housing and Home Finance Agency has already taken a number of initial steps, within the limits of authority now available, to curtail the use of housing credit as a means of conserving resources for defense. Thus, at the request of the President, the Federal Housing Administration has reduced the maximum loan ratios for all of the major types of insured mortgages by five percentage points. The higher down payments now required will place a brake on new housing production and on the inflationary effects of current home mortgage financing. Potentially even more significant is our decision to freeze construction costs for mortgage valuation purposes to those in effect on July 1, 1950. Any increases in construction costs occurring subsequent to that date will not be reflected in FHA valuations and must, therefore, be reflected fully in higher down payments. The maximum mortgage amount for single-family houses has been cut back from the statutory maximum of $16,000 to a total of $14,000. We have also instituted, effective August 1, 1950, a requirement of a minimum down payment of at least 10 percent on modernization and repair loans insured under Title I of the National Housing Act.

You will further recall that under the provisions of the Housing Act of 1950 the Federal Housing Commissioner was authorized to increase maximum mortgage limits in those localities where he found, after careful study, that the current level of construction costs justified such higher limits. Only two such actions had been taken at the time of the President's request that the Housing Agency exercise its existing authorities to curtail the volume of residential building in the interests of our more urgent defense needs for critical materials. Both of these determinations have subsequently been revoked, and the Federal Housing Commissioner does not now plan to make any high-cost area determinations until the effect of the steps already taken can be adequately measured, nationally and locally, and as to both volume and type of housing.

We have also suspended commitments for loans under title IV of the Housing Act of 1950 which authorized the Housing and Home Finance Agency to make direct loans to educational institutions to finance the construction of dormitories and family housing.

The Home Loan Bank Board has taken action to reduce the maximum credits which may be advanced by Federal home loan banks to member institutions for business expansion purposes. It is also instituting a 10 percent down payment requirement on all uninsured modernization loans made by Federal savings and loan associations. Further, the Board in its supervisory activities is taking steps to bring about a reduction in construction lending by member home financing institutions of the Federal Home Loan Bank System.

The Public Housing Administration is limiting the number of public housing units started to not more than 30,000 during the current six-months' period. This action represents a substantial cut-back from the volume of public housing which was anticipated.

The Veterans' Administration has, to the extent permitted by law, taken steps parallel to those adopted by the Federal Housing Administration, The general policy is now to require a 5-percent down payment on both guaranteed and direct loans. These down payments would be further increased by the full amount of cost increases after July 1, 1950. The Veterans' Administration is also reducing the immediate impact of its direct-loan program by restricting commitments each quarter so that there will be an even distribution of the $150,000,000 authorized over the current fiscal year. As requested by the President, we are consulting with the Veterans' Administration in these and further actions which may become appropriate.

The Housing Agency has also been working closely with the Reconstruction Finance Corporation, which was requested by the President to reexamine the

secondary market activities of the Federal National Mortgage Association, with the objective of holding mortgage purchases to a minimum and accelerating sales. All of the foregoing actions, as well as those recently announced by the Department of Agriculture in its farm housing program, have been the subject of review and study within the National Housing Council. At my request, as Chairman of the National Housing Council, all of the member agencies are now initiating accelerated reports designed to give on as current a basis as possible a factual picture of the results of the actions already taken by us, and of the total situation affecting housing and housing credit. By following the situation closely, we hope to be able to determine promptly what additional actions may be necessary. Thus, the National Housing Council, which was established as a statutory coordinating group within the general framework of the Housing and Home Finance Agency, can be an effective and valuable means of reorienting the entire housing program to the needs of these critical times.

Sincerely yours,

RAYMOND M. FOLEY,
Administrator.

UNITED STATES SENATE,

COMMITTEE ON AGRICULTURE AND FORESTRY,
SUBCOMMITTEE ON UTILIZATION OF FARM CROPS,
July 21, 1950.

Hon. BURNET R. MAYBANK,

United States Senator, Washington, D. C.

MY DEAR SENATOR: In reviewing S. 3936 it is noted that in subtitle B "Commodity speculation” provision is made to govern margins required with respect to the purchase or sale of any such commodity for future delivery. Then on page 19 under E it is provided that the term "Commodity" shall mean, in addition to those commodities specifically mentioned in section 2 (a) of this act, any other agricultural or forest product or byproduct.

As you perhaps know coffee and sugar do not presently come under the Commodity Exchange Act. Hearings conducted by the Subcommittee on Utilization of Farm Crops with reference to coffee show conclusively that the low margin required by the New York Coffee and Sugar Exchange have contributed to rampant speculation in coffee and the recent rises in the prices of this product. In the attached copy of the subcommittee's report on coffee you will note on page 40 recommendation No. 3 urged a 50 percent margin for coffee futures trading. The exchange has refused to comply with the subcommittee's suggestion.

So that there can be no doubt as to coffee and sugar being covered it is recommended that in S. 3936, page 19, line 15, there be added the phrase "whether of domestic or foreign origin.'

Sincerely,

GUY M. GILLETTE, Chairman.

(The recommendation referred to by Senator Gillette follows:)

3. That the New York Coffee and Sugar Exchange, Inc., be urged to immediately place in effect regulations which will require margins on coffee futures contracts at 50 percent of the going value of the coffee covered by the contract. NEW YORK COFFEE AND SUGAR EXCHANGE, Inc., New York, July 27, 1950.

Hon. BURNET R. MAYBANK,
Chairman, Senate Committee on Banking and Currency,

Washington, D. C.

DEAR SENATOR MAYBANK: With reference to Senator Gillette's letter to you of July 21, in which he states that his subcommittee report recommended on page 40 a 50 percent margin for coffee futures trading and that the exchange has refused to comply with the subcommittee's suggestion.

The present margins on coffee are roughly 13 percent of the contract value for all months except the spot month where the margin represents roughly 18 percent of the contract value. These percentages are in line with margin requirements on other commodity exchanges and appear to the board of managers of the exchange and the board of managers of the New York Coffee and Sugar Exchange Clearing Association to be adequate to insure the integrity of the contract. The exchange, of course, takes the subcommittee report as a recommendation only.

There seems to be some misunderstanding in the subcommittee's mind as to the difference between margins on commodity futures trading and margins as required on the stock exchange, where the subcommittee gets in its mind the figure 50 percent. With the stock exchange the buyer of a security is immediately in possession of all the rights of that purchase including the right to vote the stock and receive dividends on that stock. The margins on commodity exchanges do not represent part payment of that contract but are in a sense more of a performance bond to guarantee the performance of a contract for future delivery which may run as much as 18 months in the future with sugar. The buyer does not receive that sugar until the period of delivery is reached.

DEAR SENATOR: During World War II the Croll-Freeman Co., in my home town, Yankton, S. Dak., was able to make thousands of small machined parts for airplanes, tanks, etc.

Yankton is a town of 8,000 people, and this little industry gave about 300 people steady employment, and definitely helped the war effort. A large plant was erected, and it could not have been erected if the Congress had not passed legislation authorizing quick amortization of the cost of that plant.

I have had legislative assistance in making up a proposed section for the defense production bill, S. 3936. It is as follows:

"SEC. In the case of facilities constructed, reconstructed, erected, installed or acquired in furtherance of the purposes of this Act which the President shall find to be necessary in the interest of national defense, there shall be allowed, in the computation of net income for Federal tax purposes, a reasonable deduction as determined by the President for the amortization of such part of the cost of such facilities as has been borne by the tapxayer, but not again including any amount otherwise allowed as a deduction for exhaustion, wear and tear, and obsolescence."

Personally, I am not wedded to the above language, for I believe it would be better for our committee to determine the number of years during which the cost of necessary construction for defense purposes could be charged off.

This letter is sent as a suggestion, in the hope that it might be helpful, and I would like to have it included in the record.

Sincerely yours,

CHAN GURNEY.

STATEMENT BY SYD J. HUGHES, VICE PRESIDENT, INDUSTRIAL BANK OF
COMMERCE, NEW YORK CITY

Recommendation on the part of the Administration for the restoration of consumer credit controls is not essentially a product of the war emergency.

Since the cessation of hostilities of World War II, the President has consistently sought from the Congress the authority for such intimate and far-reaching domination over the purely personal customs and habits of every individual and of every family in the Nation.

Consumer credit regulation, conceived in the early stages of World War II and imposed upon the public by Executive decree under a concededly dubious interpretation of the Trading With the Enemy Act of 1917, has since been described by its peacetime proponents as antideflationary or antiinflationary in character, whichever objective was in currency.

In war it is supposed to contribute toward the conservation of essential materials and to remove obstacles from the channels of production and distribution. In peace it is supposed to have some profound influence upon the leveling of the peaks and valley of the Nation's economic cycles, as well as constituting a blend of moral and economic discipline as concocted by the philosophy or whims of its administrators.

In fact, as an instrument of total war, regulation of consumer credit contributes absolutely nothing to the necessary regimentation of an economy already firmly gripped by allocations, priorities, and rationing.

It is a cumbersomely superfluous restriction or prohibition upon the acquisition by the public of manufactured articles what are not being manufactured, or are subject to the strict limitations of priorities and rationing.

In peacetime such regulation is an unwarranted and discriminatory invasion and abridgment of individual's rights. It is at most, only a spoke in the cycle of national economics and not a force of propulsion.

The course and volume of consumer credit is charted by the indices of the national product, the national income and personal income. It may have some barometric significance in the gyrations of inflationary and deflationary factors, but it is not, in itself, an important pressure upon, or a potent motivation of, these gyrations.

To contend in time of total war that credit restrictions upon a nonexistent product is logical, or that in time of peace and prosperity such credit be conserved for the inevitable days of adversity, is an indulgence in pure fantasy.

Even if the public in time of peace, but in its hour of economic adversity were to seek out the channels of credit as a panacea, which by practical experience it does not do, what of the vendor of credit who blithely acquiesces?

He is quickly out of business or, if a quasipublic institution such as a bank, he is under new management.

Now in neither the black of total war nor the white of total peace but in the fuzzy area of military grayness, we again have the subject shoved to the forefront as a specific for our national and international ailments.

Thus its proponents defend the potency of consumer credit control as an instrumentality of great consequence in total war, in total peace, in deflation, in inflation, in partial war and in partial peace.

In short, it is control for the sake of control-and whatever national or international condition or situation appears conducive to the attainment of this end, they ar utilized with great declamatory vigor.

Those who point to the feebleness of such control as a war victory measure and its unwarranted intervention as a peacetime abomination of the police state, expose themselves to the risk of being branded as enemies of the common good. It is not paradoxical that some large financial and banking organizations advocate such controls, in or out of war. Such advocacy is another manifestation of that peculiar hybrid evolution of some business and industrial leaders who proclaim for Government control when it appears to be their competitive business advantage and conversely denounce Government interference.

As this Nation confronts the awful possibility of total war and the ghastly ravages of inflation, it is flicking at the target with a tack hammer when it toys with such controls instead of wielding the sledge hammer blows of wage and price control, priorities and rationing and greater productivity.

By means of its specific and far-reaching powers to regulate bank reserve requirements and marginal trading, the Government has an effective instrument for the curtailment of credit in a quantitative sense.

If by its own excesses in credit ventures, such as domestic construction, the Government now finds it advisable to retreat to a more conservative policy, such a retreat was long overdue without the provocation of national emergency. But such governmental excesses are no criteria by which to measure the credit responsibility of non-Government agencies.

H. R. 9176, the House bill for the reimposition of Government controls over consumer credit, following on the heels of the Government's overdue self restraints, would appear to be a handy device for further confusing public thinking on the whole subject of autocratic Government controls.

At the State levels there have long been laws and regulations governing consumer credit both as it applies to the supervision of the vendor and the protection of the consumer.

Interjection of the Federal Government into what is essentially a State and local domain, only contributes to the expansion of an ever expanding bureaucracy. And in this instance a dead hand of bureaucracy, without the redeeming justification of benevolence, protection or incentive.

Through the Government's right of levy upon the individual income it already determines what proportion of an earned dollar the individual or the family head can retain for his own disposal.

Through further control of individual and family credits, Government drives the entering wedge of dictating how and for what the public's remaining dollars may be expended.

A high Government official has been known to take the position that by "sopping up" through credit control any excess funds the individual or family may have

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