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BOARD OF GOVERNORS
OF

THE

FEDERAL RESERVE SYSTEM

Office Correspondence
To

Governor Eccles

From

Mr. Haekley

Date APru 19,1951.
Subject: E x t e n t t o which V - l o a n program
does n o t meet f i n a n c i n g needs
o f defense c o n t r a c t o r s t

I n connection w i t h the argument t h a t the guaranteeing
f u n c t i o n s o f RFC are now unnecessary i n the l i g h t o f the present
V - l o a n program, I t h i n k i t should be borne i n mind t h a t i n one
r e s p e c t a t l e a s t the V - l o a n program c l e a r l y i s not meeting the
c r e d i t requirements o f defense c o n t r a c t o r s .
The guaranteeing agencies, w i t h the e x c e p t i o n o f General
Services A d m i n i s t r a t i o n , take the p o s i t i o n t h a t they w i l l n o t guarantee
loans unless the proceeds are t o . b e used p r i m a r i l y f o r working c a p i t a l
purposes. I n - o t h e r words, they w i l l not consider a p p l i c a t i o n s f o r
guarantees o f l o n g - t e r m loans t o f i n a n c e p l a n t c o n s t r u c t i o n o r f a c i l i ties.
I t was a p p a r e n t l y contemplated t h a t f i n a n c i n g f o r p l a n t cons t r u c t i o n would be p r o v i d e d by the RFC on c e r t i f i c a t i o n o f c e r t a i n
" d e l e g a t e agencies 11 under the p r o v i s i o n s o f s e c t i o n 302 o f the Defense
P r o d u c t i o n A c t . That program, however, has n o t succeeded. We a r e
c o n s t a n t l y r e c e i v i n g complaints and i n q u i r i e s r e g a r d i n g the i n a b i l i t y
o f defense c o n t r a c t o r s t o o b t a i n l o n g - t e r m c a p i t a l funds f o r t h e
purpose o f b u i l d i n g p l a n t s and p r o v i d i n g a d d i t i o n a l f a c i l i t i e s which
t h e y r e q u i r e i n o r d e r t o c a r r y o u t t h e i r defense c o n t r a c t s .
L e g a l l y , we b e l i e v e t h a t guarantees o f f a c i l i t i e s loans
might be made by the guaranteeing agencies under t h e present l a w .
However, t h e r e are many p o l i c y c o n s i d e r a t i o n s i n v o l v e d , one o f which
i s t h e f e e l i n g t h a t t h e V-loan program o f World War I I worked so v e r y
s u c c e s s f u l l y because i t was l i m i t e d t o working c a p i t a l l o a n s , and t h a t
the i n j e c t i o n o f l o n g - t e r m f a c i l i t i e s loans i n t o t h e present program
might so complicate the program as t o i m p a i r i t s u s e f u l n e s s . I n a d d i t i o n , guarantees o f f a c i l i t i e s loans would (and have) r a i s e d questions
r e g a r d i n g m o d i f i c a t i o n o f the schedule o f guarantee f e e s , changes i n
forms and procedures, and a v a i l a b i l i t y o f funds on the p a r t o f the
guaranteeing agencies.




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