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The CHAIRMAN. Who made that statement?
Mr. Rand. The National Industrial Conference Board.
They continue:

Not all of the reasons for the embodiment of these objectives in the two measures are stated in the acts themselves; some of the reasons are expressed in statements of public officials, legislators, and others associated with the administration in sponsoring them.

If the authority given to the Federal Trade Commission under these measures were to be fully enforced, and if its powers were to be fully employed under their specific provisions, the economic consequences as they would affect securityowners, the activity of the capital market, and the management of corporate business would probably be as follows:

(a) The measures would not protect security-owners against loss. The lack of a broad market for securities, and the enforced contraction of loans against securities imposed by these measures would so diminish the liquidity of securities as to subject security-owners to great risk of loss. The denial to securities of their present broad market, and consequently of the facilities whereby owners can convert their securities into cash, would necessarily result in an impairment of their value as investments and in considerable and immediate liquidation.

(b) The diminished liquidity of securities would discourage, and might even prevent, their purchase and sale, thus hampering the acquisition of new capital by corporations, States, and municipalities. Furthermore, since Federal securities would be the only securities that could be freely bought, sold, and loaned upon these measures might ultimately lead to general Federal financing of corporate business and to the nationalization of business enterprise.

(c) The detailed regulations of the financial management of corporations by the Federal Government would tend to diminish the profitableness of existing corporate enterprise, reduce the value of outstanding securities, and prevent the raising of new capital, thus causing loss to investors and unemployment of workers.

In order to understand clearly how these general consequences would follow from the full application of these measures, it is necessary to understand the economic functions performed by the security exchanges and to examine in detail the specific provisions of these measures in their bearing upon the protection of security owners, the operation of the capital markets, and the management of corporations.

That is the end of the quotation.

Now, if this were merely a bill to regulate exchanges, in order to make it effective and enforceable, it should have behind it the support of an informed public opinion. Such opinion cannot be developed by hasty high-pressure enactment without time even for analysis and study of its far-reaching economic effects.

But this bill is far more. It starts us toward a regimented stateand that is too serious a decision to be made by indirection.

Secretary Wallace has startled the country by his assertion that "American must choose" between nationalism and internationalism and a "planned middle course." He has mislabeled the road. this and other legislation the power of Congress is being undermined. Are we being pushed along the road from Democracy to Communism?

Here in Washington, a group of theoretical young men have, sincerely but totally inexperienced in government and in business, yielded, or appeared to yield great influence.

The CHAIRMAN. Now, let me just straighten you out. What we are holding these hearings for is to obtain information, and information only. The berating of theorists is not furnishing us information. Criticism of those who drafted this or the original bill is not information, and may I say, for your further information, that the Treasury Department and the Federal Reserve Board, sat on this last draft for 8 days, and we held up our hearings during that time, and Governor Black, of the Federal Reserve Board, I do not think should be taken as a young man without information or having any special pet theories that he wants to voice upon the American people. He says that he is for the redraft of this bill.

And, it is my understanding, when our conferences were closed, that the Treasury was in the same position, although they are not quite as positive about their position as the chairman of the Federal Reserve Board.

Frankly, if you have arguments to make for or against this bill, or any provisions of it, we would like to hear you, but I, myself, have sať in these conferences in the redrafting of this bill, and if you did me the honor to listen to me last Monday night over the radio, I said that I was not one of those who believed in any further regimenting of business. I thought that business ought to conduct itself, if it would, in the interest of the American people, but business does not always conduct itself in the public interest, and therefore congressional and legislative authority must be called in.

Mr. RAND. Mr. Chairman

The CHAIRMAN (continuing): And I trust that you understand that when we asked you here, at the instance of a member of this committee, because we wanted to hear all elements in connection with the controversy, that you will understand that your assertions about who wrote the bill or anything of that sort is not information, because everybody knows that.

Mr. RAND. Mr. Chairman

The CHAIRMAN (continuing): And nobody cares who writes a bill, just so it is the right sort of a bill, and that is why we have been sitting here 5 weeks, listening to everybody we thought had information with reference to this bill, and out of the light of those hearings, we revised the bill and it was introduced by me last Monday, and we find everybody coming here saying they are for stock exchange regulation, but when it comes down to the sections of the bill, or any bill that we seem to write, they find great fault in every section, and if we are going to regulate stock exchanges, we have got to have a law to do it, and Congress cannot pass all of the regulations. We have got to give that to some body like we give the regulation of the railroads to the Interstate Commerce Commission; banks and banking to the Federal Reserve Board, and so forth, and so forth. We have got to do something.

Mr. Rand. Mr. Chairman, I referred to the general scheme that seems to be behind this bill in its entirety, because of the similarity between the revised bill and the original bill, as to its practical effect upon business.

The CHAIRMAN. Well, that is what we would like to hear you on, if you have got anything to say about that.

Mr. Rand. The revised bill retains the provisions which gives to the Federal Trade Commission arbitrary power over the management of business corporations to a degree unprecedented even during the World War.

The CHAIRMAN. It does not do that.

Mr. RAND. Section 12 gives to the Commission wide discretionary powers to require reports by issuers of registered securities, and one section, subsection (c), reads as follows:

If in the judgment of the Commission any report or reports required under subsection (a) are inapplicable to any specified class or classes of issuers, the Commission shall require in lieu thereof the submission of such reports, if any, as it may deem applicable to such class or classes of issuers.

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Well,

now, that power is without limitation. The CHAIRMAN. Well, what do you think about the power of the Interstate Commerce Commission to lay down a line of bookkeeping that the railroads have to follow? That has been in effect for years and the railroads would not have it repealed, if you asked them today. The interstate Commerce Commission has that power today.

Mr. Rand. Well, I believe that the railroads, owing to the relatively few in number and to the similarity of their operation, can very well be required to submit uniform reports; but it is going to be very, very difficult to require that of other corporations.

The CHAIRMAN. Do you not think that we should require some kind or sort of reports from every kind of organization?

Mr. Rand. Not the same kind of reports as are required of the railroads.

The CHAIRMAN. I am talking of corporations outside of the utility field, public service corporations, and corporations of that sort. I am talking about the provisions of this bill.

Mr. Rand. We have reports called for on income taxes today, to the Treasury, of balance sheets and operating statements, that appear to be adequate so far as showing the operations of the concerns are concerned.

And my general feeling that I wanted to express on this bill was that, right now, instead of business being hampered, business needs a helping hand. Business is the instrumentality through which we are going to employ, and we must reemploy millions of unemployed men, and if the management is hampered by the necessity of making out voluminous industrial reports, it is going to interfere with their effective development of enterprises and reemployment of people. It is not any one particular thing

The CHAIRMAN. The attorney for the Chicago and Boston stock exchanges was before us yesterday and he said that if securities were going to be bought and sold freely and in a healthy manner on exchanges of this country, after the experience of the last few years, that there will have to be some kind of legislation passed to reestablish the confidence of the American people. What do you have to say about that?

Mr. Rand. I heartily agree with that, 100 percent.

The CAAIRMAN. What kind of regulation do you think that should be?

Mr. Rand. I think that regulation should be under a regulatory authority or board which is set up with that end in view, and the reason that it warrants a special selected board is because it involves the largest single element in the monetary and financial fabric of this country, namely, 100 billion dollars of securities.

The CHAIRMAN. In order to try to meet that, we have provided in this new bill that there shall be a section in the Federal Trade Commission known as the "stock exchange section", and after the passage of this act, that the President should appoint two additional commissioners, raising the Commission from 5 to 7. Does it make any difference whether that is a division in the Federal Trade Commission, or an independent body, or an independent commission?

Mr. RAND. Not if the personnel is selected to handle the financing of that 100-billion-dollar element in our system.

The CHAIRMAN. Well, does it make any difference what it is called? Mr. Rand. No. A rose by any other name would smell as sweet.

The CHAIRMAN. It does not make any difference, then, whether it is a commission, or an authority, or a division, or what it is called?

Mr. RAND. No.
Legislation which may-
Mr. Mapes. May I ask a question?
The CHAIRMAN. Yes.

Mr. Mapes. One of the things in this bill that has appealed to me is the provision relating to corporate reports.

Do you believe that corporations whose securities are sold on the stock exchanges should be required to make public reports?

Mr. Rand. Yes, sir; ample and full reports as to operations, and assets, and liabilities.

Mr. MAPES. Section 12 provides for certain reports, and the giving of certain information. If the provisions there are subject to criticism, it would be helpful to me if you would give any constructive criticism of them which you may have in mind.

Mr. RAND. As to the nature of reports that would be required?
Mr. MAPES. Yes.

Mr. Rand. Well, by all means, quarterly audited statements of operations should be required, rather than annual statements. Too much can happen within the year to the operation of a business. I should say quarterly statements as to sales volume-not necessarily classified and preferably not classified, because it gives confidential information to competitors; but total sales volume.

Mr. Mapes. Would you require quarterly and monthly reports to be certified to by independent public accountants, for example?

Mr. Rand. Not necessarily.
Mr. MAPES. Not necessarily?

Mr. Rand. Not necessarily. I think that an annual statement is sufficient, and the reasons for this is, now, you get into a practice here, if you ask for reports audited by auditors, more frequently than once a year, you require the taking of a physical inventory, because that is the only basis, on the basis of a physical inventory, that an auditor will put his name to a report.

Mr. MAPES. Writing legislation is a pretty practical matter, and we have to ask these practical questions if we get anywhere.

Would you, for example, object to paragraph (2), of section 12 where it says:

Such annual, quarterly, monthly, and/or other reports, the annual reports to be certified by an independent public accountant or otherwise, as the commission may prescribe.

Mr. Rand. No, I should not object to that, but when you give the commission latitude to call for any reports that they may see fit, as you do, in other sections, you put a tremendous potential burden upon business men, and you frighten all business men as to what is going to be required of them, how much expense is going to be put upon them, and how much time is going to be consumed.

Mr. MAPES. Can you conceive of a situation that might require some special treatment for the protection of the public, which would make it desirable for the commission to have power to ask for a special report from a particular corporation that would not apply ordinarily?

Mr. Rand. Well, the stock exchanges, I believe, now call for those reports if additional stock is to be sold, stating what it is and what it is going to be used for, and special information, before the additional stock will be listed.

Mr. MAPES. You do think the commission should have that power?
Mr. Rand. I think there is no abuse prevalent at the present time.
Mr. Mapes. That does not quite answer the question.
Do

you think the regulatory governmental commission should have that power?

Mr. RAND. I will answer you broadly by saying the less interference with business the better off business will be.

Mr. MAPES. But when we get to considering this bill in executive session, we have to vote concretely, not broadly but concretely, whether that provision stays in this act or not.

What would be your recommendation?

Mr. RAND. I would have to read the provision. On what page of the bill is it?

Mr. Mapes. That is a provision that I thought you were criticizing in your manuscript. It is paragraph (2) (c), of section 12, at the top of page 37.

Mr. Rand. Yes, I would strike that out.
Mr. MAPES. You would strike it out?
Mr. RAND. Yes.
The CHAIRMAN. Why?

Mr. RAND. Because I think that adequate information is obtained by the reports of assets and liabilities, and operating statements of corporations, and by the other provisions of the bill.

Mr. Monaghan. Mr. Chairman, may I ask a question?
The CHAIRMAN. Mr. Monaghan.

Mr. Monaghan. What is the objection to the furnishing of such information? Why should you object to its being in the bill, Mr. Rand?

Mr. RAND. Because of the fact
Mr. MONAGHAN. Because it is available in other places?

Mr. Rand. No, not because of that; because the information would be supplied, in fact, to the Federal Trade Commission if it asked for it. My belief is that any reasonable information would be supplied, but back in the background, the conversation which took place between one of the leading citizens of Gary, Ind., and a group of men who have been instrumental in formulating some of the legislation in Washington, there seemed to be a desire to have in a bill, or the bills that have been passed, an opportunity to "crack down" on business, , which is very undesirable.

Mr. BULWINKLE. Now, just a minute. Let me ask you a question. Who was that group of men that is formulating legislation in Washington, or in Gary, Ind., having the conference?

Mr. RAND. I would like to present this. I will read it, if you desire. This is a letter that I received from a man, and I called him on the telephone and asked whether I might have permission to use it. This is a statement which he wrote that bears on that very subject.

Mr. BULWINKLE. Who wrote it?
Mr. RAND. Dr. Wirt.
Mr. BULWINKLE. Who is Dr. Wirt?

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