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We have got to get going so as to spend about $30,000,000,000 to $40,000,000,000 a year in this country to get anything approaching the prosperity or normal prosperity, and as I said a few moments ago, we have borrowed now $5,000,000,000 or $6,000,000,000 or $7,000,000,000, or $8,000,000,000. We are fairly happy up in Boston as compared with what we were a year ago when everybody was down in despair, but the people are watching out to see what is going to happen, and in my judgment there is a little fear now when the C.W.A. was ordered the other day to drop some thousands of men up our way, and I presume that that is true all over the country. And I think that the people of the country are in a mood now to invest and what kind of enterprise to put that money into, I do not know. I do not know. My own thought about the matter is that we ought to spend millions for housing

Conditions are disgraceful in all of the big cities of the United States, and impoverished Germany and England, with twice the debt per capita we have in the United States, has shown us the way, and yet nothing is being done, and I think billions of money could be spent all over the United States, in the city areas particularly, and in the country areas, in order that building labor could be put to work, and they constitute, I think, 28 percent, if I remember the figures correctly, of the industrial income of the United States, and yet, according to these figures that were printed a short time ago, we went from 109 in building in 1929 to 14 last year, and—imagine it, 14 last year. So that we have got to get into the spending of money for capital goods, raised by private enterprise, because I think we are at the end of our row, or almost, in matters of borrowing money from the Government to keep the people of the United States living somewhat happily, freeing them from starvation, and therefore I want to say, as a man who has given practically all of his life to the public-it is 40 years ago since I was elected to Congress-I was the only Democratic Congressman from six New England States. I have dealt in securities but never sold a stock short in my lifetime. I never bought on the exchange, but have bought and sold a number. I know a good deal about the stock-exchange atmosphere.

There are some wonderful men, some wonderful people, in the business, like

in New York, with whom I have done business for a great number of years, and like Hayden Stone, of Boston and New York, who did not lay off an employee in 1929 and has not since reduced their wages, and like my good friend, J. K. Bates, who is very honorable. I have found him to be one of the most honorable men I have ever known in business and, of course, there are some that are not so good, and as I said a moment ago, my interest in appearing here today is for the tens of thousands of men and women that have given their lives to this business and have got no place to look. They are not unionized and the order comes to discharge them, to discharge so and so, and out they go. The order comes to reduce their pay, and out they go. And you are going to add them to the white-collar club of unemployed, and we know that that is discouraging in every part of the country, because nobody is looking out for them.

The CHAIRMAN. Let me ask you a question.
Mr. FITZGERALD. Yes.

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The CHAIRMAN. You want money to get into productive enterprises?

Mr. FITZGERALD. Yes.

The CHAIRMAN. Do you not think it would be helpful to the average American investor and helpful to the public in general if he believed that these places of trade and the things that they traded in are clean?

Mr. FITZGERALD. Oh, positively; that is what I want; surely.
The CHAIRMAN. That is what we are attempting.
Mr. FITZGERALD. As I said a moment ago, that is what I want.
The CHAIRMAN. I again say, that is what we are attempting.

Mr. FITZGERALD. As I said to you, I was for incorporating them back when I was a candidate for the United States Senate, and they ought to be regulated, and they ought to be held strictly accountable like every business, and as I said, I think that this body of men should report a bill, frame a bill that would properly regulate these exchanges so that these men would be compelled to keep an honest accounting of their business, and I would be glad to see that done, and they should be made to issue reports that are intelligible, and at times when they ought to be issued, and not wait a year, sometimes, and keep themselves hidden. They ought to be compelled by law to do the same thing that the railroads do now, only to issue the kind of report that is intelligible to the ordinary person.

There are tens of thousands of reports issued about the big companies, various companies in the United States today, and almost as many ways of writing them up. I believe that, Mr. Chairman, and I thank you for calling my attention to that fact. And, before I finish, I hope that the committee will do something.

I was glad to see publicity given the other day and glad to see the attitude taken about the large salaries, and their ought to be some way to get at those fellows that vote themselves $100,000 and $125,000 a year, and then vote themselves bonuses. There ought to be a list of public enemies, and they ought to be listed as public enemies no. 1, no. 2, and no. 3, and those men ought to be made unfit for decent society.

I thank you, Mr. Chairman.

The CHAIRMAN. The committee will stand adjourned until tomorrow morning at 10 o'clock.

(Thereupon, at 12:27 p.m., the committee adjourned to meet the following day, Friday, Mar. 2, 1934, at 10 a.m.)

NATIONAL SECURITIES EXCHANGES—H.R. 7852

FRIDAY, MARCH 2, 1934

HOUSE OF REPRESENTATIVES,
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D.C. The committee met, pursuant to adjournment, at 10 a.m., in the committee room, New House Office Building, Hon. Sam Rayburn (chairman) presiding.

The CHAIRMAN. The committee will come to order.

STATEMENT OF G. HERMAN KINNICUTT, REPRESENTING THE

INVESTMENT HOUSE GROUP, DEALERS, BROKERS, AND UNDERWRITERS, NEW YORK, N.Y.-Resumed

Mr. KINNICUTT. When my time expired on Tuesday morning, we were about to indicate to you what in our belief the results of complete segregation would be.

Section 10 of the bill makes it unlawful for any member of a national-securities exchange or any person who, as å broker, transacts a business in securities through a member, to act as a dealer or underwriter in securities, whether listed or unlisted. This in effect means that all security dealers, whether members of an exchange or not, who now act as brokers, will be prohibited from continuing to act as dealers if they continue to act as brokers.

You have already heard much testimony that the registration requirements of the bill, to obtain listing, unquestionably means that many of the securities now listed on different exchanges will no longer be listed. Another great mass of securities such as the whole list of State obligations, municipal bonds, and equipment trusts, for practical purposes cannot be listed. Almost all State and municipal bonds and equipment trusts are issued in serial maturities. You can readily see that for practical purposes you could not list, say, an equipment trust having a relatively small amount maturing every 6 months for 10 or 15 years, or 20 or 30 different maturities.

As a matter of public policy, bank stocks and insurance company stocks should not be listed. Another great class of perfectly sound small issues of local securities from every substantial community in the country obviously will not be listed because, aside from the cost of the audits, they are only of local interest.

If we have demonstrated the value to the country of the dealerwe feel he is an economic necessity—we have next to see if he can survive if this bill becomes law.

During the past 4 years the dealer organizations which have taken years to create-at an infinite cost of effort, labor, and money, and employing many thousands of people from the “white-collar” class of labor, which is finding it possibly harder than any other to get work-have with difficulty kept alive. In many cases they have greatly shrunken or disappeared. Those who have survived have done so primarily because of the combination of earnings from their brokerage and dealer business. This refers to both large and small organizations in the big cities as well as in small cities.

The result to the dealers throughout the country is self-evident when they no longer have any income from the commission business. The great majority could not survive solely as brokers or solely as dealers.

It is undisputed that there are isolated cases of unsound practices and high-pressure methods among dealers. So there are in every profession and industry, but such bad practices and high-pressure methods are far more likely to increase than to diminish under the economic pressure to keep alive.

Perhaps the most dangerous result of all will be that if every member of every exchange is barred from acting as a dealer in investment securities, the business will be thrown into the hands of persons subject to no control by any exchange, and extremely difficult of any control by any body, governmental or otherwise. A big, uncontrolled “bootleg” market will rapidly develop, with great danger to the public welfare, and the danger to the investor will be greatly increased rather than diminished. It is a rather delicate subject even among friendly competitors such as we all are, and I have not cared to ask the information, but it would be a safe guess that on their commission business alone, or on their dealer business alone, or on their underwriting business alone, every firm in this group- and they are a pretty good cross section of the industry--would show a loss rather than å profit.

We submit that the dealer and underwriter performs a necessary and essential function as the intermediary between private capital and industry; that there is no other machinery to perform this vitally important function; that he performs an essential service to the investor; that the segregation clauses of this bill will largely cripple or destroy him, and that such clauses, therefore, should be stricken from the bill We think the whole argument as to segregation can be thus summarized briefly.

I would like to amplify the recommendations which we were unable to make at our last appearance.

We think we have shown that the dealer, as dealer, is a very definite benefit to the investor and to the public. We believe we have proved that the dealer is an absolute necessity. We think we have also shown that the underwriter performs an equally necessary function,

You have heard testimony to the effect that there was too much underwriting of new securities in 1928 and 1929. Perhaps there was. There was too much of many other things for the good of all of us. This, however, does not answer the question as to the necessity of underwriting for refunding purposes and the legitimate capital requirements of expanding business.

The reasons advanced for segregation at the hearings before this committee and before the Banking and Currency Committee of the Senate are two:

First, the temptation said to be inherent in the combination of the broker-dealer functions on the part of the dealer to sell securities to

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