any State, and it sold its bonds to its local bank, and afterward, suddenly that bank got into difficulty and wished to borrow upon those bonds or sell them. It would first have to go through the formula of procedure, finding out whether those particular bonds were exempted and if not, would have to get them exempted, and by the time they found out whether some dealer was willing to buy them, or loan upon them, it might be too late.

The CHAIRMAN. We had that in connection with the securities act. That was the argument, that there would be delay, but sometimes a little delay results in a saving to the public.

Mr. GIBBONS. I beg your pardon.

The CHAIRMAN. Sometimes a period of delay between the issue and the putting on the market is a very helpful thing to the vesting public. Mr. GIBBONS. The outstanding issues have been marketed and have been exempted. Now, that exemption might be withdrawn later. You see, these bonds are outstanding now to the extent of about $19,000,000,000.

The CHAIRMAN. I very seriously doubt if there would be anything said about municipal, county, or State bonds in this bill, if they were as in good shape as Government bonds, but they are not. them are not worth a dime on the dollar.

Mr. GIBBONS. Many of the States are in good shape.
The CHAIRMAN. How is that?

Mr. GIBBONS. I say, many of the States are.

The CHAIRMAN. The States are?

Mr. GIBBONS. Absolutely; and many of the cities.

Some of

The CHAIRMAN. Surely. I do not contest that. I am glad they are. I wish they were all in such shape that we could exempt them, every one of them, from this bill.

Mr. GIBBONS. There is not more than 1 percent of them that are in default in any part of the bonds, in something like $19,000,000,000, outstanding, there is not more than about a billion and a half of those bonds that may be said to be in default. That includes $400,000,000 bonds in Detroit.

There is one other difference between dealers and brokers, so far as it affects municipal bond dealers.

Municipal bonds are sold at public sales, as a rule, and on open competition, and this bill would greatly retard or greatly reduce competition for bonds, which would make it costly to the municipalities that sell them, and this is the way that it would work: Take, for instance, a recent sale of $30,000,000 Pennsylvania bonds. Two syndicates bid upon those bonds. One syndicate had some 40 members. They knew in advance, each syndicate did, if they purchased those bonds at their bids that the losing syndicate would have to buy a great many of the bonds from them for their customers.

Now, if the municipal bond dealer cannot act as both dealer and broker, the syndicate that bought the bonds would have to sell them all to their own customers which they would not be able to do, and the syndicate that did not buy them would be prevented by law from going to the other syndicate that did buy them and buy bonds from them for their customers.

In other words, in the sale of every batch of municipal bonds there can only be one successful bidder and if any other broker or dealer intends to handle any of those bonds, he must buy them from the

successful bidder who bought as a dealer and sells to his customers as a broker, and there is no other way he can do, unless he sends his customers over to the successful dealer for them. It is not the same as if he were on the stock exchange, buying one stock and selling, too. It is so utterly different from that that a rule for one does not apply to the other.

Mr. PETTENGILL. There are about $16,000,000,000 or $18,000,000,000 worth of municipal bonds outstanding?

Mr. GIBBONS. So I understand, sir.

Mr. PETTENGILL. And, what do you say is the total percentage of outstanding bonds that are now in default?

Mr. GIBBONS. Well, the bonds of municipalities who are in default on all or a portion of their debt amounts to about $1,500,000,000. That does not mean $1,500,000,000 bonds are all in default; but if one city had $1,000,000 bonds, and were paying on all except one issue, which came due, and were paying the interest on all, the whole issue is counted in default, the entire outstanding of that aggregate of those bond issues, and outstanding by cities or towns which are in default on some portion of their debt amounts to, I believe, about $1,500,000,000. I did not compute it myself.

Mr. PETTENGILL. What is that 1 percent that you were mentioning? Mr. GIBBONS. The number of municipalities that are in default in America is about 1 percent of the total by number.

Mr. PETTENGILL. Total municipalities, or counties?

Mr. GIBBONS. Subdivisions; yes. I do not think that I can state that as a fact. I am simply saying that from computations that are made up by others.

Mr. PETTENGILL. It strikes me that with all of the constitutional questions that are involved in this bill, we have got one over the power of Congress to place any burden upon a State in the marketing of its bonds, a constitutional provision.

Mr. GIBBONS. The mere threat upon the municipality of a refusal to exempt its bonds would mean a lower price, because when the dealers bought the bonds, if they were not to be exempted and not to be listed, they could not borrow on them to advantage and they could not sell them, and the answer is that you would not want to buy them, and if the local banks did buy them, naturally they would buy them cheaper.

Mr. PETTENGILL. Have you thought about the constitutional power of the Federal Government to place any burden on the marketing of the bonds of the 48 States of the Union?

Mr. GIBBONS. No, sir; I have not. I do not know about the constitutional power of the Government. I am just a bond dealer Mr. PETTINGILL. It seems to me there is a real question there. Mr. GIBBONS. I am only interested in the practical application of this act to municipalities and States. And, as municipal bond dealers. we think that it is harmful. It does not matter to the dealer whether he deals in bonds or acts as a broker, whether they are bought at 80 cents on the dollar, or 100 cents. He buys and sells and it goes on, but it means an awful lot to the municipality, to the city or the town, or the district that has to sell a bond whether they have to sell a bond bearing 6 percent, or whether they can sell a bond bearing 4 percent, and anything that hinders them, anything that reflects upon them does them damage.

Mr. PETTENGILL. If there is only 1 percent of the municipal and State bonds of America that are in default, is it your judgment that the municipal bankruptcy bill now pending to save that 1 precent and thus impair the confidence in the other 99 percent not in default is a bad bill?

Mr. GIBBONS. I beg your pardon, but I did not get that.

Mr. PETTENGILL. Would you vote for the enactment of the municipal bankruptcy bill, if you were in Congress?

Mr. GIBBONS. I would not care to answer that. But, I do think that the exemption should apply to them-the defaulted municipalities Mr. PETTENGILL. Well, I voted against it. I did not think we should impair the credit of 99 percent of the municipalities of America in order to aid 1 percent.

Mr. GIBBONS. There are so many things for and against that bill, that I do not like to express an opinion. I have my opinions, too. Mr. MARLAND. Mr. Chairman

The CHAIRMAN. Mr. Marland.

Mr. MARLAND. You do not mean to say that there are only $18,000,000,000, or $19,000,000,000 in State, county, and municipal bonds outstanding?

Mr. GIBBONS. I did not count them, or compute them myself. Those are figures that are commonly taken in the records.

Mr. MARLAND. Is that the figure for municipal bonds, or does that include all?

Mr. GIBBONS. Not Government.

Mr. MARLAND. No; State bonds and county bonds, and municipal bonds.

Mr. GIBBONS. Yes, State and county; State bonds, municipal bonds, subdivisions of the State.

Mr. PETTENGILL. But, that does not include, Mr. Marland, special assessment bonds like street improvement or sewer bonds. There are about $16,000,000,000 of those bonds issued on the general credit of the municipalities.

Mr. MERRITT. I understood your suggestion is that those bonds should be included as specifically exempted bonds, is that right?

Mr. GIBBONS. I think that the bonds of the States and municipal subdivisions and agencies of the States should be totally and absolutely eliminated from the provisions of this act and should not come under the jurisdiction of the Federal Trade Commission, and that it would be very harmful if they did.

Mr. PETTENGILL. Are there any abuses, to your knowledge, sir, that is, in the dealing in municipal organizations?

Mr. GIBBONS. Well, abuses on the part of municipal officials, or dealers?

Mr. PETTENGILL. I did not mean that.

Mr. GIBBONS. I have heard of some of both.

Mr. PETTENGILL. I am not talking about forgeries, and things of that sort, of which we have had some complaints, of course. Mr. GIBBONS. Just what did you mean?

Mr. PETTENGILL. I think, so far as the manipulating is concerned, or window dressing, and things of that sort.

Mr. GIBBONS. So far as that goes, when a municipal issue is sold-take any city you wish, Richmond, Va., or Baltimore. They are offered for sale by the people that buy them and they finally

trickle out of the market. Insurance companies and individuals buy them and when they are gone they are gone, unless some person wants to sell them again, and they are bought by another purchaser. This thing of going on the market, as other securities, that is not done. The bonds are sold, sometimes, when the market is good, and they can sell them, but there is no speculation in them. You can see you think that the market is going to be good, and you will bid more for Baltimore bonds, bid them in at a higher price when they are selling. You might buy such bonds of another dealer. Mr. PETTENGILL. Is there anything about a municipal bond or municipal bonds that will lend themselves readily to dishonest or fraudulent practices?

Mr. GIBBONS. You mean when dealt in by the purchasers?
Mr. PETTENGILL. Yes.

Mr. GIBBONS. I cannot see any. You could not possibly wash the market up. Why? They come out in too great a volume. How could you? If the market gets good, Pennsylvania might sell $30,000,000 and New York might sell $40,000,000. Who can handle them? Nobody. You would not make anything if you did. You may only make 1 percent on a bond, and that is $300,000 on $30,000,000, and a quarter of 1 percent of that, or 75 percent of that is given up to the other dealer who buys the bonds, so that all you can make on $1,000,000 bonds is $750, less your expenses. Now, there are other bonds, in some places, where the profits are larger. But even with that, you cannot tell what the condition is. You cannot see that Detroit is going to go in default. How can you tell? The dealers themselves do not know.

New York City bonds went from 100, down to 70 just last fall, and everyone thought that they were headed down more. Now, their bonds are back near par, between 90 and par. You cannot see those things. The Federal Trade Commission cannot see it. I do not see how they can, or how anybody can see it.

Mr. MERRITT. I do not understand the effect of this section of the bill.

Mr. GIBBONS. It is because municipal bonds are not listed, or are not exempted and they will have difficulty in borrowing on them. Mr. MERRITT. Yes.

Mr. GIBBONS. You cannot borrow on the bonds. People will be afraid of them and will not want to buy them.

Mr. MERRITT. I do not suppose that people buy municipal bonds on margin.

Mr. GIBBONS. They do not.

Mr. MERRITT. You mean that they use them as collateral after they have bought them?

Mr. GIBBONS. Many corporations buy them so as to have them for collateral and have something to sell in time of stress. Insurance companies buy them. Local banks buy them for their income and borrow on them when it is necessary. They will not be benefited in any way by being included in the bill.

Mr. MERRITT. If they want to sell them, can they not sell them just as well with this bill in existence as without it?

Mr. GIBBONS. No; they cannot. If they are not exempted that will be a reflection on the bonds. Suppose that you had the bonds of some particular State and they were not exempted. You could

not borrow on them. You would have to go to the Federal Reserve Bank, or you would have to do a lot of things with them.

The CHAIRMAN. We are very much obliged to you, Mr. Gibbons. STATEMENT OF HON. ADOLPH J. SABATH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Mr. HOLMES. Mr. Chairman, before Mr. Sabath proceeds, may I make a request?

Mr. SABATH. Yes.

The CHAIRMAN. Yes, Mr. Holmes.

Mr. HOLMES. Mr. Sherwood L. Reeder, assistant director of the United States Conference of Mayors, 734 Jackson Place, NW., Washington, D.C., would like to file a little statement on this subject. The CHAIRMAN. We will be very glad to have it filed with the committee.

You may proceed, Mr. Sabath.

Mr. SABATH. I know that you gentlemen are busy. I know that within the last 6 weeks I have received very much on this proposal, and I think that you have heard much about the important bill before you.

I have received hundreds of letters, pamphlets, leaflets, and documents, from various sources, trying to show the alleged harm this legislation would do to the Nation, and that it will really be detrimental to the best interests of the commerce of this country.

Mr. Chairman and gentlemen, ever since November 1919 I have persistently endeavored to secure some act to regulate the stock exchanges of the United States, and I have introduced many bills and many resolutions and have appeared before the Judiciary Committee, also before your committee and a number of other committees, in fact, any other committee that would listen to me, on this matter, as Í considered it the most important question before us, and because I honestly believe, Mr. Chairman and gentlemen, that if we pass this legislation it will reestablish confidence.

As it is now, the people have lost all confidence in the securities in the way they are being sold and bought, or rather manipulated, and it is my opinion, with the enactment of this bill, that we will be able to reestablish confidence whereby millions, yes, millions upon millions of money that is now being held in safety-deposit boxes and other places, will come forward and will be invested in many of these securities that deserve purchases.

Now, I have made, as I have stated, many speeches on the floor of the House and have introduced many resolutions and bills. I have plead with President Hoover, and I have plead with Mr. Symonds and Mr. Whitney, the President, and the former president of the New York Stock Exchange, that they adopt some rules and regulations that would really protect the suffering public. And, though I have appealed to them by letters and by telegrams and every way I knew how, they have always informed me that they knew how to regulate their business without me. If it were only their business, I said, we would have no right to regulate them or say to them how it should be conducted; but if there is anything in which America is interested, it is in that very institution which, due to its shameful