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to be passed regulating stock exchanges, and it also seems to be generally conceded that this bill before us has some provisions in it that ought not to be enacted into law.

Now, we have got to figure out in a concrete way what should be put into the law and what should not be. I wonder if this provision that authorizes the Commission to take away the license of the stock exchanges will mean very much. No commission, in my judgment, is going to say to the New York Stock Exchange, it cannot continue to do business.

Mr. DICKINSON. For that reason, Mr. Mapes, in the second line of authority we suggested in our report that without going so far as to take away the license of the stock exchange, the Federal authority, if it felt that there was an evil situation which needed remedy and that it could not go so far as to take away the license, should be given the authority to step into the situation and put all of the members of that exchange under licenses and itself take over, for the time being, the disciplinary functions in connection with that particular exchange. Now, they could do that.

Mr. Mapes. The Twentieth Century Fund book discussing margins advances the theory that the loan value of stock ought to be based upon the earnings of the stock rather than upon the price of it. It advanced the idea that that would have a tendency to make the public earning-minded instead of price-minded so far as stock is concerned. It seemed to me that that was a rather good theory. I don't know whether it would work out in practice or not. What do you think about that?

Mr. DICKINSON. As a general proposition, I think that individual investor or member of the public is the wiser man who places his valuation on a property in accordance with its earning power; but when you have an entire people valuing a commodity on some other basis, it would be extremely difficult, I think to have a flat regulatory rule which requires that a different basis should be applied from that which was applied by the Nation as a whole. I think that it is unfortunate, perhaps, when the Nation as a whole gets into a psychological state of mind where they apply a different basis for determining value from that which, to my mind, seems to be the basis of the wise man.

Mr. Mapes. You think the law could say that the amount loaned on any security should depend upon the earnings of that security over a period of 5 years for example?

Mr. DICKINSON. I would hesitate to say that.
Mr. Mapes. Rather than at the price of the security?

Mr. DICKINSON. I would hesitate, sir, to say that I thought a regulatory provision of that kind would be sound unless I had sat down and attempted to frame the definite specific language in which such a provision could be expressed without possibly doing a great deal more harm than good and I have not made that attempt. I would regard it as a very difficult task.

Mr. Mapes. Even though you have not read the book, perhaps you tell us about this Twentieth Century Fund. I am not familiar with it.

Mr. DICKINSON. Well, the Twentieth Century Fund, sir, is one of these foundations to which contributions are made in an eleemosynary way for the purpose of conducting research. There are quite a number of them at present operating in the country. There is the Laura

Spellman Rockefeller Foundation, which contributes funds for writing books to authors who are regarded as worthy and who have some project that meets with the approval of the directors of the fund, and there is the Commonwealth Fund, which represents a similar venture and which is largely maintained by Mr. Harkness, the great benefactor of the Yale University, and then there is this Twentieth Century Fund, which I believe is largely maintained by Mr. Filene, of Boston.

I know about these funds, because I have something to do with some of them. These funds are usually administered by a group of disinterested trustees who employ a director of research and projects for investigation and are submitted to the director of research, who takes the projects up with the trustees of the fund and if they regard it as a worthy one they make a contribution for the conduct of the research.

Mr. Mapes. Do you happen to know who some of the directors of the fund are?

Mr. DICKINSON. I know some of them. I think that Mr. Baker, Mr. Newton D. Baker, is one of the trustees of this fund, and I think Mr. Filene himself is, and I think my friend, Col. John Fahey, who is now with the Home Loan Board, is one of the trustees of the fund. Of course, the character of the investigation, if I may say so, depends primarily not upon the trustees of the fund, but upon the director of research. That is to say, the man who actually supervises the work of research and prepares the report and that, in this case, I believe is Mr. Evans Clark.

Mr. WOLVERTON. I would say, in answer to the question of Mr. Mapes, that I have a copy of the Twentieth Century Fund report and that gives a list of directors as Edward Filene, president; Newton D. Baker, Henry Dennison, John Fahey, James K. King, Roscoe Pound, Owen D. Young, and Evans Clark, director.

Mr. DICKINSON. Yes, sir; but as I suggested to Mr. Mapes, that does not necessarily mean that all those have read the book.

Mr. MAPES. Can you go a little further and tell us who Mr. Clark is?

Mr. DICKINSON. I do not know Mr. Clark, personally. I knew of him 20 years ago when he was an instructor at Princeton University. He has been the director of this Foundation for quite a number of years.

Mr. MALONEY, of Connecticut. Mr. Chairman
The CHAIRMAN. Mr. Maloney.

Mr. MALONEY of Connecticut. I want to ask a question Mr. Secretary but first I will make an observation if I may. Mr. Marland asked you if you thought this bill, as it is written, would stop the wheels of trade and commerce and you answered, in part, by saying that you thought that it might slow up the wheels of trade.

Several witnesses, testifying as investment bankers from smaller eities, have made special reference to section 10, and the witness who just preceded you this morning, Mr. McKeon, suggested that the enactment of that section as it is might, or probably would, force the investment banks out of business, and would result in the establishment of small branches of large brokerage houses in these various cities.

I agree with that testimony because I have a slight knowledge of the service rendered by these companies to municipalities, and to the people throughout the States, and I am wondering if you agree with me.

Mr. DICKINSON. I agree with you.

Mr. MALONEY of Connecticut. It would slow up some the wheels of trade?

Mr. DICKINSON. I agree with you that section 10 would, in my opinion, operate as a very powerful leverage toward the further centralization of the control over the investment business of the country and would operate very severely against those local agencies that finance the localities throughout the country.

I may say also that I see very slight reason for section 10. The only evils which I can see that section 10 is aimed at are first, that if a man is doing a margin brokerage business in a small town and is also engaged in the business of dealing in securities, he may make bad investments as a dealer in securities which would impair his ability to meet his obligations to his margin customers; but that is equally true of a bank in its relation to its depositors. The bank may make bad investments and so be impaired in its ability to meet its obligations to its depositors.

The second evil is that the dealer operating in his own capacity as a dealer may sell some of his own stuff to his margin customers. Well, now, the rules of all of the first-class exchanges require that when a person engaged in this dual capacity deals with his customer he shall state to his customer, on his receipt or something of that kind, in what capacity he is dealing with him.

Mr. MALONEY of Connecticut. Do you not think that in that instance that is sufficient information?

Mr. DICKINSON. Yes.

Mr. MALONEY of Connecticut. Do you think, Mr. Secretary, as I do, that if we again went through such a crisis as we have suffered during the past 2 years, and the municipalities of the country were denied the services of these investment bankers, that the Government, the Federal Government, would be in a pretty serious situation?

Mr. Dickson. I think that any degree of regulation which not merely regulates, but cripples the agency regulated, tends to throw upon the Federal Government the responsibility and the necessity for taking over the functions, to some degree, at least, that were previously performed by the agency that you are crippling. It creates à situation, I mean, within which the demand upon the Federal Government becomes so great, that the Federal Government cannot resist. Perhaps I do not make myself clear. What I mean is that if you cripple the private agencies to which our municipalities can resort for their credit needs, why then they will all come here to Washington, to the Federal Treasury.

Mr. MALONEY of Connecticut. Do you think it is a dangerous section, section 10?

Mr. DICKINSON. Well, I think it would have the consequence that you and I have agreed upon and I think those are undesirable consequences.

Mr. HOLMES. Mr. Chairman-
The CHAIRMAN. Mr. Holmes.

Mr. HOLMES. May I ask about a condition such as this. Some 4 or 5 weeks ago the city of Worcester advertised for bids for $275,000 serial loans running about 10 years. Now, there were 12 houses jointly or individually appeared and bid on those bonds. Now, naturally, they are investment houses or dealers. They bought these bonds from the city of Worcester to sell to investors.

Now, under this bill how could the city of Worcester dispose of its bonds under section 10?

Mr. DICKINSON. Well, of course, in the first place, it is highly probable that if these bonds were not available for collateral loans from banks and otherwise, their value would be somewhat impaired. Therefore, in order to make them available for such loans, under this bill, they would have to be listed or registered, and therefore the first thing that the city of Worcester would do would be to register these bonds under the provisions of section 11 (a), with the Federal Trade Commission which would then subject the city of Worcester to the requirements which section 18 (a) of the bill imposes, namely, a supervision of its accounts and accounting practices.

Having so registered these bonds, and subjected its finances in that way to the control of the Federal Trade Commission, it would then presumably market these bonds to a dealer and the dealer would buy them in the ordinary course of business, but that dealer would have to be a man who was not at the same time acting as a broker on the stock exchanges.

Mr. HOLMES. In other words, according to my own version of the bill, as written, it would place restriction and prevent the city of Worcester from continuing its own finances.

Mr. DickINSON. Well, I am not so fully assured about that, Mr. Holmes, because undoubtedly there are concerns in New York which are large enough to be able to go forward simply as dealers. There are a great many of them-well, I would not say a great manybut there are some of the large New York houses now which are not members of the stock exchange. They may be members of the stock exchange, but they do not act as brokers. They do not derive any income from brokerage activities. Now, the city of Worcester would have to go to those people rather than to local people.

Mr. Holmes. Well as a matter of fact, they sold these at an advantageous price. They carry 376 interest rate.

Under this set-up the city of Worcester would not be allowed to finance itself or to sell its bonds under such conditions as it deemed advisable. I do not see where the city of Worcester can under those conditions ever attain that financial advantage under the registration of this bill.

Mr. DICKINSON. Well, bonds of the city of Worcester might be very highly regarded by some houses in a large financial center that were strong enough to be able to get along without doing a brokerage business. I do not know. That is a speculation.

Mr. HOLMES. I think that they are. I know they are. But, this would have the effect and the harm of prohibiting the municipality from financing itself or selling its bonds in the community.

Mr. DICKINSON. Personally I regard the regulatory authority given to the Federal Trade Commission over municipal finances under section 19 as of great importance to the municipalities.

Mr. Holmes. I appreciate that, Mr. Dickinson. I view with very much alarm that power, because from its inception, the Federal Trade Commission has certainly had certain defined duties in connection with legislation pertaining to the control of commerce and under that act, Congress declared unfair methods of competition unlawful and directed the Commission to prevent persons, partnerships, and corporations from using unfair methods of competition in commerce.

During my thirty-odd years in dealing with municipal and trade organizations, in that work, I have never seen industry demoralized to such an extent as it has been during the last 4 or 5 years and still the Federal Trade Commission has not regulated it, regulated unfair competition and even cut-throat competition.

One other point, Mr. Chairman, while I am on this subject.

In my county, there are about 1,100 individual corporations and

Mr. DICKINSON. That is Worcester County?
Mr. HOLMES. Worcester County.
Mr. DICKINSON. I am well acquainted with it.

Mr. HOLMES. And in my own city there are practically 600 individual concerns.

Now, I should say possibly, in all probability, out of these 1,100 industries, I doubt very much whether there are 25 concerns of a local nature that have their stock registered on any exchange whatsoever. These are mostly old New England concerns that have been there for generations. They have never resorted to registering their securities. Now, these securities not being listed, many of our banks are not going to be able to accept them as collateral, and our concerns are going to have difficulty in using those unlisted securities as collateral to help themselves in the various industries to finance their necessary operations from time to time, during the year and as I view this bill it would absolutely drive out of existence many of those small corporations in my section of the State, if this bill is put into effect, as drawn up at the present time.

Mr. DICKINSON. I think that, as it stands it would place a burden upon local financing under section 10, this segregation provision, just as that would drive many of the local financing houses out, so it would place a burden on the small industrial concern that was trying to finance itself by issues of securities locally.

Mr. HOLMES. Of course, that would have the same effect on industries small and large all over the United States. It would not be confined to my area.

Mr. KENNEY. Mr. Chairman-
The CHAIRMAN. Mr. Kenney.

Mr. KENNEY. Mr. Dickinson, of course, any bill to regulate stock exchanges will be aimed at evils.

Mr. DICKINSON. It should be so.
Mr. KENNEY. You agree with that?
Mr. DICKINSON. Yes, sir.

Mr. KENNEY. And, of course, in aiming at evils, we do so for the public good.

Mr. DICKINSON. Yes, sir.

Mr. KENNEY. Now, in your report you had something to say about the public good or general welfare of our people?

Mr. DICKINSON. Yes, sir.

Mr. KENNEY. I wonder if you would refer to that part of your report.

Mr. DICKINSON. Could you give me a little bit clearer guide, Mr. Kenney? I thought that we referred to the general welfare very frequently through the report.

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