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STffifE MUT1^ 1 IIT7C 516 t t / u m c e G E O R G E A V E R Y W H IT E P R E SID E N T October 31, 1946 Mr. Marriner S. Eccles, Chairman Board of Governors Federal Reserve System Washington 25, D. C. Dear Mr. E c c l e s î As a former Chairman of The N ew E n gland C o u n c i l s Bank Manage ment Conference I was particularly interested in your appearance on its program last week. Among the m a n y favorable comments I h e a r d were references to your suggestion of a government obligation w h i c h would be p a r t i cularly attractive to savings institutions and individual savers. It would seem to me that the present ”G ” bonds are ideal for this purpose and would eliminate the necessity of issuing a new type of security. It is difficult for me to see w h y "G" bonds should not be made available to life insurance companies in larger amounts than at p r e sent. Other types of trustees and individuals m a y purchase MG" bonds to the extent of $100,000 a year, and a corporate trustee may, of course, purchase this amount for each individual trust. A life in surance company is just as truly a trustee of the funds of its policy holders, and yet it is limited to the purchase of $100,000 a year in the aggregate. W h y would it not be feasible for the government to permit life insurance companies to purchase ”G M bonds to the extent of $1,000 per policyholder, w h i c h would m e a n that in the aggregate life insurance companies might invest up to approximately 50$ of their assets in this type of security? I realize that the government might want to place some r e striction on the surrender of these securities, if it were thought there were any danger of large scale surrenders proving embarrassing. Personally, I doubt whether there would be any such danger. Also, I realize that the government might be concerned over the possibility that present holdings of government securities would be dumped in order to make funds available for the purchase of nG ,s ” , but again I question w h e ther there would be any such result, and if there were that hazard, there could be a further limitation on the purchase of - 2 - Mr. Marriner S. Eccles October 51, 1946 "G" bonds b y life insurance companies, limiting their purchase to the increase in assets of the company, or to funds becoming avail able for investment other than through the sale of present h o l d ings of other government securities. Perhaps I have not thought this through, and there m a y be reasons w h y ”G ” bonds cannot be offered in the manner suggested. However, i f appears to me that at the present time the poli cy holders of life insurance, who ar$ as truly b eneficiaries of a trust administered for their benefit as are the beneficiaries of other trusts, are b e i n g discriminated against in the matter of ttG ” bonds, and it w o uld further seem to me that the MG W b o n d offers all of the factors that are desirable in a security such as y o u apparent ly h a d u n d e r consideration in your discussion at Boston. I shall v e r y m u c h appreciate your consideration of this m a t t e r which is of great consequence to the seventy million policyholders of life insurance as well as to those who feel that a further de monetizing of the national debt is essential as an anti-inflationary measure. If ’’G ” bonds were made available as suggested, it would seem to m e that m a n y of the h i g h grade corporates n ow selling on a basis of little'more than would p r o v e u n a t t r a c t i v e in comparison, and that the spread in yield between government obligations and c or porates, which m o s t investors think should widen, would be so effect ed. Respectfully yours, November 5, 1946. Ur. George A v e r y White, President, State Mutual Life Assurance Company, Worcester, Massachusetts* Dear Mr. White: I was interested to have your letter of October 31, and I find myself generally in agreement with your viewpoint, particularly with regard to the type of security which the Treasury might issue for insurance companies, savings banks, and other fiduciary institu tions. It seems to me that you have thought this matter through very carefully. Possibly we would not see eye to eye as to the time when such an issue might be appropriate. In other words, I would not favor the issuance of a special G-type bond as long as the Treasury is not in need of new money and is paying off debt out of its cash surplus and the net proceeds from the sale of !, F and G bonds. Also, it seems to me that the insurance companies and other investors are not burdened with overly large accumulations, and that with the demand for mortgage money and other outlets for capital, together with the fact that long-term Governments can be purchased in the market on fairly favorable terms at this time, sufficient opportuni ties exist for investment. The time will come, no doubt, when under other conditions it may be desirable to make available to insurance companies, savings banks, etc., a bond of the general type that you have in mind and that I sought to describe in my talk in Boston. It should have a longer maturity, however, in my opinion, than the present G bonds. I appreciate having your letter and the benefit of your suggestions. Sincerely yours, M. S. Eccles, Chairman. ET:b
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