Why, one can borrow in normal times, 40 percent on second-class real estate, which generally is difficult to move and sometimes quite impossible.

The idea of applying a rule of thumb method to the fixing of margin limits is really incongruous.

For instance, 2 or 3 days ago, one of our customers, a man of large means in the West, at that time in Washington, telephoned me to the effect that his sister-in-law was about to be sold out by a Chicago bank. The account had a debit balance of about $8,500. In it was $15,000 Chicago & Eastern Illinois 5-percent bonds, for which there is a good market; 100 Sears, Roebuck, for which there is a good market. The total value of those issues was about equal to the amount of the loan. That loan had been carried for months and the minute it got up where the value of the securities approximated the amount of loan, the bank informed that woman that she had to sell out her position or take up her loan before 12 o'clock the following day or they would sell her out.

The banks, some of the banks, at least, have been pretty awful during these 4 years, and some

Mr. CROSSER. What?

Mr. PIERCE. Pretty awful, and some brokers as well.

Mr. KELLY. What do you mean by that?

Mr. PIERCE. I think they have been pretty raw.

Mr. KELLY. Was the bank doing a brokerage business?

Mr. PIERCE. No; the bank was carrying the loan.

Mr. KENNEY. Practically, they are doing a brokerage business, under your statement.

Mr. PETTENGILL. They are accessories after the fact.

Mr. PIERCE. Well, they are pretty good competitors, or pretty bad ones, as you will have it.

Now, if you will pardon me, the fact is that many banks have been very fine all through this period, and many brokers, but I maintain that, so far as the family doctor business is concerned, the broker has been a bit more sympathetic than the bank.

Now, if you had these rigid margin requirements, we could not have done a thing for that woman. We could not have taken a bit of chance. Knowing her family as I do, and knowing her problem, and knowing that she will, within a week or two, or something like that, put that account in shape, and that if she doesn't, the man who asked me to take it over will do it for her-her brother-in-law-I did not hesitate.

The stock exchange requires, under the rules its business conduct committee administers, that a minimum shall be maintained at all times, but they obviously are in a position to exercise some degree of flexibility. If we had been operating under a statutory rule, we could not have taken care of that account.

Mr. KENNEY. What do you say is the rule of the stock exchange with respect to margin?

Mr. PIERCE. Fifty percent or thirty percent of the debit balance, according to the size of the account.

Mr. KENNEY. Would you be violating any rules of the stock exchange in acting as you did in that case?

Mr. PIERCE. Yes, sir. Just therein lies the advantage of a personal flexible management.

Mr. KENNEY. In other words, that departure from the rules is in the nature of a white lie or minor infraction?

Mr. PIERCE. I would not say that at all. Representatives of the business conduct committee visit our office two or three times a year and go carefully over every account we have.

Mr. KENNEY. What do they say when thay meet a situation like that?

Mr. PIERCE. They would say that we did just right, "Pierce, get the account in shape just as soon as you can."

Now, whatever of risk we are taking on that account, it could not amount to more than about $8,000. And the action certainly, as the account stood, was justified. Whatever of temporary risk was involved, the capital of our firm was not jeopardized in any real degree. The worst that could have happened, if the account turned out to be worthless, would have been that we would have lost $8,000, provided somebody did not make good. If the client did not made good, I am quite sure her brother-in-law would. He has been on our books ever since 1918 and is a man of large means.

Mr. KENNEY. What would you do if the client did not make good? Mr. PIERCE. I should go to my friend, her brother-in-law.

Mr. KENNEY. But you might be compelled to go to your lawyer? Mr. PIERCE. No, sir; in this instance I would not have to go to my lawyer.

As a matter of fact, many brokers know their customers as well as the family doctor knows his patients.

Mr. KENNEY. But you sometimes fall out over debit balances. Mr. PIERCE. Sometimes there are good reasons. If there are no good reasons, we do not generally fall out.

Now, the business conduct committee would never permit the accumulation of any considerable aggregate of such uncovered debits. I am not speaking as a representative of the exchange. There is one here. But I think Mr. Mason will agree with me on that argument, and I cannot see why we are not serving the public, at no material risk to ourselves, if we take care of a case like that, which we could not do if we were operating under a statutory regulation. That is, Federal statute regulation.

Mr. KENNEY. Under this bill, what would happen?

Mr. PIERCE. Well, under this bill, after it had been running 3 months, I would say that, selfishly, I could be very happy. It would probably put 85 percent of my competitors out of business, and if I were not outside of Leavenworth, or Atlanta, for having told somebody that Canadian Pacific paid a one-dollar-and-fifty-cent dividend instead of saying a dollar and a half, I would be sitting pretty. Mr. KENNEY. Would this bill tend to keep you in Atlanta? Mr. PIERCE. Would it keep me there?

Mr. KENNEY. Would it tend to keep you there?

Mr. PIERCE. I would rather be there than anywhere else I know of, if this bill goes through. It would mean that I would be sure of three meals a day.

Mr. HUDDLESTON. Mr. Chairman

The CHAIRMAN. Mr. Huddleston.

Mr. HUDDLESTON. Mr. Pierce, do you understand that if you had carried out that transaction with this bill in effect, you would have

been subject to the penalties provided by section 24 of the bill, on page 43?

Mr. PIERCE. Yes; I think I would have to pay a $25,000 fine, if I had that much left.

Mr. HUDDLESTON. And suffer an imprisonment of not more than 10 years?

Mr. PIERCE. I probably could stand that better than I could the $25,000 if the bill were in effect.

Mr. LEA. Mr. Chairman

The CHAIRMAN. Mr. Lea.

Mr. LEA. Mr. Pierce, what is your suggestion as to what the rules as to the margin requirement should be?

Mr. PIERCE. I think that could be quite properly left to the New York Stock Exchange. Or there could be, if it were any source of satisfaction to the public or the Government set-up, some official agency which could establish maximum loan values on stocks. I do not mean on individual stocks, save in isolated cases.

In July of 1929, when the market was booming, I sent a message to all our branch offices to the effect that until further notice, we would carry no Chicago Stock Exchange stocks on margin. They were bringing them out at 20, and running them up to 40 or 60 in a few months. When I say "they", I mean the public, and it looked to me like a danger spot.

Next morning at 8 o'clock I was called up by the executive vice president of one of the big Chicago banks, and asked to rescind the rule. I recall that one of the prominent Chicago Stock Exchange members advocated that Pierce be expelled from the exchange.

Two or three times, during 1928 and 1929, we increased our margins on our wire accounts, running them up from 25 gradually to 35 percent, running up our margins gradually on our individual accounts in some cases as high as 60 percent, and in many cases refusing to carry certain stocks altogether.

It is my thought if at that time the stock exchange had adopted the policy of fixing a maximum loan value on stocks as the market progressed, there would have been no such debacle as there was. We were all to blame, the banks, the brokers, the public, everybody.

Mr. LEA. If we were going to establish a regulatory body for the control of exchanges, the rules of course, would have to apply to all of the exchanges of the country; that is, the authority of the regulatory body would necessarily have to be defined some place in this law. Now, what kind of authority should the regulatory body have, in your judgment, as to margin requirements?

Mr. PIERCE. You know, sir, attempting to fix a margin schedule to apply all over the country, is a good deal like telling the Interstate Commerce Commission to bring into being a law that would compel an engineer seeing an open switch ahead, to pick up a manual and see who to telephone to to find out what he should do. I am not attempting to be funny. That is, to my knowledge, a perfect parallel. A condition might obtain in a certain stock that warranted a margin of 100 percent, which would not mean margin, that is, that warranted refusing to permit members to carry it at all.

Mr. LEA. Now, those variable conditions might require a flexible margin requirement, but, nevertheless, would it not be necessary to, for the regulatory body to have power to make such provisions?

Simply because this regulatory body has power to fix margins does not seem to me to mean that such rules shall be applied uniformally to each of the varied conditions.

Mr. PIERCE. This bill provides that the Federal Trade Commission shall fix this is relevant shall fix the hours of opening and closing the exchange. Last Tuesday we went down to the exchange and found that there were not telephone clerks enough, by reason of the heavy snowfall-that there were not telephone clerks enough on the exchange floor to admit of the handling of business, and the governors of the exchange concluded not to open it until 11 o'clock.

Now, there are many conditions, many instances arising in connection with stock-exchange operation, where you have to work immediately, if you are going to get results.

Mr. LEA. Undoubtedly, that is true.
Mr. PIERCE. And that is important.

Mr. LEA. I am asking you for your suggestions as to how we should, or might, act in that situation; what powers we should give the regulatory body. I presume that it should have the necessary discretion to adjust it to the variable conditions that might exist on the different exchanges.

Mr. PIERCE. It could not do it.

Mr. LEA. Well, how do the exchanges do it? Mr. PIERCE. The exchange does not do it. am kicking about.

That is just what I

Mr. LEA. Well, your suggestion is that nothing can be done about it?

Mr. PIERCE. No; my suggestion is that something should be done, but it can be done only by the exchange, or, if you will, say, the Federal Reserve authorities in a city where an exchange is located. Anywhere, where it can be done immediately. It can be done only by people who are in intimate and immediate touch with the situation. Mr. LEA. Do you think that the controlling body set up to regulate the exchange should have no authority to make requirements as to margin?

Mr. PIERCE. No, sir; I do not think so.

Mr. LEA. That is, they should not have that power?

Mr. PIERCE. I think that they should have that power, but I think that they should know something about a business, before attempting to exercise it.

Mr. LEA. We have to assume that, if we are going to have regulation.

That is all.

Mr. CHAPMAN. Do you think, then, Mr. Pierce, that the coordinating authority suggested by Mr. Whitney should have that power and exercise it?

Mr. PIERCE. I think that that coordinating authority—that is the body of seven that was suggested?

Mr. CHAPMAN. Yes.

Mr. PIERCE. I would think so, so long as it included a representative of the stock exchange; so long as he knew he could get the ear of the remaining six men in case of an emergency.

Mr. CHAPMAN. You do not think that the Federal Trade Commission should exercise such power?

Mr. PIERCE. Well, I do not know. It has been my strengthened conviction, the longer I live, that it takes a good man or a good group of men to do one big job well. Now, you know better than I do whether as a result of its multitudinous duties, its personnel, the Federal Trade Commission is in a position to do that job.

Mr. CROSSER. Mr. Chairman.

The CHAIRMAN. Mr. Crosser.

Mr. CROSSER. I have just one question, Mr. Pierce. Assuming that the Federal Trade Commission were to make the selection of a representative technically qualified and who knows his business, and we were to have such a man in each stock exchange who could act instantly.

Mr. PIERCE. You mean that the Federal Trade Commission were to have a representative in each stock exchange?

Mr. CROSSER. Yes.

Mr. PIERCE. Yes, sir.

Mr. CROSSER. And, a qualified man. Would that meet your objections?

Mr. PIERCE. Yes.

Mr. PETTENGILL. Mr. Chairman

The CHAIRMAN. Mr. Pettengill.

Mr. PETTENGILL. Mr. Pierce, as I understood you a few moments ago, you stated that the failure of the governing board of the New York Stock Exchange to step up margins to a higher limit in 1928 and 1929 was one thing that occasioned the debacle.

Mr. PIERCE. I did not say so, if you will excuse me, if I recall correctly. Certainly what I meant to say was that it would have been helpful.

Mr. PETTENGILL. My memory is that you said that the debacle would not have occurred if they had done that.

Mr. PIERCE. If I said that, I certainly did not intend to.

Mr. PETTENGILL. Well, I am interested in it, because it was one of the first admissions I have heard that the New York Stock Exchange had anything to do with the debacle of 1929. And, you think if they had done that it would have been helpful?

Mr. PIERCE. I certainly do.

Mr. PETTENGILL. And they did not do it.

Mr. PIERCE. They did not do it.

Mr. PETTENGILL. Now, in the next big bull market that we have, is there any further assurance than judged by the experience of the past, that they will not then simply permit it to be blown up until it bursts again? That is what I would like to know, what assurance have we that that will not occur.

Mr. PIERCE. You are attempting to prevent something that won't happen again in our lifetime. Did you ever hear of Bernard M. Baruch? I imagine that you have.

Mr. PETTENGILL. Yes, sir.

Mr. PIERCE. Up until 1903, he was a partner in our firm. I do not know any man-I have not seen him much in the intervening years-who has a better knowledge of markets and of men than he had. I stood alongside him at a ticker in May 1901 on the occasion of the Northern Pacific panic. He had not said anything for some time. He was studying the ticker. Finally he turned and said,