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NATIONAL RECOVERY ADMINISTRATION
WASHINGTON,
D.C.
MEMORANDUM
April 9, 1954
TO:
Mr. M. S, Eccles
Assistant Secretary of the Treasury
FROM: Nelson Slater
Special Ass't to the Administrator
With General Johnson's approval I have had
prepared the enclosed memorandum.
In my opinion such
a method of taxation Y/ould encourage industries to
make durable goods expenditures without causing any
harmful effects. The Durable Goods Committee appointed
"by General Johnson follovdng the code conferences is
now studying this subject and I would appreciate having your views on the matter, if you consider such a
plan
NSje
practical.
Nelson Slater
C 0 ? I
II, R. A. Cft>IIT j^tiOGRAa AND POLIC.
1.
BRA not responsible for financial and credit d i f f i c u l t i e s of commerce
and industry, but i £ inters. stt.<? in eeelag that sound and adequate credit
f a c i l i t i e s are availabl: to
can busin-S:.-- concerns, especially
t . e sr?.all eneE,
basis for c r e d i t .
k.
Basic er
oiicies:
(a) Avoid extension of Industrial ere i t through official Government
.«nnels, either by uir. ct gov
MM or by guaranteed loans,
(b) Finance private busin--Sb throng private cr-dit c annals, decentralized and localised ai
possible.
(c) &erap a l l t ree pending imtersadiati cv ait b i l l s and substitute
measure to preside as follows:
(1) intermediate Cr
financing up to, L
i t Corporation to ncjadls capital
'50,000, any maturity.
(2) Federal fl*BT¥t Banks I
subscribe to capital stock.
institutions to
-or&ry aut ority (£ years) tc
t l&rg>: refunding issues whics, will be r»l
public M soon ss
market develops, RFC to supply a.Iditional capital in
form of preferred stock if
. ?&ture i s adopted.
(4) Give banks or ot.fr suppli-r of new r.ongy for current
business op rationL
Hal lien on a l l unpledged
assets of a basin
I
65$ of uns:cur
rs
so agree. Xfedi will recuire a^endaent of bankruptcy act.
Small business concerns wil_
ficlaries of
this r;for.:, md will re—l¥B a l l credit to
r
entitl
i r local banks.
(5) Distinguis-i clearly between:
a.
B.
c.
lurking i
1 loans ( 2 to 5 years )
Capital laflM proper ( 5 to 25 years)
Loans for current business operations only
( 5 to
9 IGOS.
}
Only (c) E: ould be sade fcy cosLierciial banks, (a) and (b) will be handled
try the Intermediate Credit Corporation Is .
AM of •illwa llied lofins up
to
,000* Larg
• I
thfovgl regslM1 private
invsstu-ent banking houses.
C O P Y
TO
:
Mr. Leon Henderson, Director of Reseerc. iBd Planning Division,
Fr.
;
l
MJICItl
.
. Dunn.
MOSKmt P U i FOE ,J;tfDIlSk
"
thrv* credit Millfff are no
1.
If L QISUT2
fort Congress, viz:
Governor Black's b i l l setting up 1£ Federal Reserve latermed!:
Credit Banks (tCtf limit),
I nator 03
*l b i l l authorising
rve Banks them-
selves to mxtaad imtafaadlmi
5.
RFC b i l l peraAttin
I t as In Black b i l l .
ct gov-
t loans by RFC to replace
present mortgage lean plan (.75j6 limit).
T
I bill
putt
int
] . obviously b; abandon
Lti pr»MBt for...
. .
ft
s for wnich i t Sftfl
iao for «hicb i t does not
pmte capital.
r-acticablc' ttd daxigtrou^, ax beat t
con,
It
.
A& toofa op-rations
18 b i l l could only be
political gestare.
T.e RFC b i l l Is fundasentally miowd, as direct gov
official off
sound principle.
.istrat
sott
political influ
Furt
;
. i
t-up r
rfieiiftt basis.
sdl
-
il roott of t
.. vitablv
r i s an un-
os not hav tin tgrpi of p rsonnel nor
be
long delays and false nopes woul
M to 1
.
,ag by an
Lrect ...:• ns on a thoroughly
.
lit*
;ii in '
As c,
Di lit probl
,
tattj
Jid
•tur*f not intended to
RJFC b i l l would be fla
but i t i s based on srwuoni u>rlnc
Black b i l l i s mor- soundly coii
than
r two b i l l s ,
but involves a
utcti
priaolple.
By assuring coraurcial banks tnat
tuey can get rid of £ to 5 year paper a t any t i i - , prewtod
l e a s t 20% of any loss I
roa, banks will I
long-t^ra, non-co » rci&l type of loans i
•at y^ars.
I
positors 1 fundiB in iiuc
r
;ot tbea into troubl
I • Tor
111 does net cov
i s limited to working c
t
.
whol, .
.
-
of int
.
Bklas £y I
, and ar
-.. •-
bill eoald
working a
:
.
.
-
. ,ct lo&ns only in
t
iks to
-
>niy In ca.
a longer maturity of fro.:- & to 5 y
If t
rould obviously' m
urity i s avaj
.
y
i
-end any losBJ
real stumbling block.
.
3
bulk of
•
r
;;bst£.cle to the exr t i a l risk, banks
of adaqtuite security i>: or
rafe%f
but longer W?
to encourage bank loans, altftoa
.
m p -
ciks aust assume a t 1 ast kOjL of
r i s k , present credit stringency
tension of a
J aiinor modi-
La broader need.
cal co:\ re.
iransactions.
It
• Hew
i
.
i t , but
-kdecuate f a c i l i t i e s for sue. lo&n.
As i t no?? stands, t i Bidck b i l l
tion 1 car-
My cr
of longer fsaturlty
:inery for t •
fications, t
r de-
t an 5 years' maturity.
does not SO3F . t ••
tad*
.
wrlod*
X loans oi
which cannot
rig
I busks to make,
,--• encouraged to u t i l i i
I
never been availab-
at
uraged to tnink again in
Sue: loans are not prif> r loaai for co.
and i t i s doubtful
•.
t
Black pi ui would tend
I
B
MOrlfloa of th« princi
•OBiaercial banks shoul i not attempt to supply funds other than for current
business operations.
In England a plan was recently announced for financing aediira-sized
sec-
-5-
concerns ihicfa cannot
.
offerings of t . d r s e c u r i t i e s .
handle tr,
p t
.• . I
amount of capital stock*
'oi resents IhroBfli c>ublic
A private banking corporation was i
Bank of England subscribing to %:•- largest
Ike maturity of Ltaai say- run from. 2 to £0 years,
Thi Black b i l l coul
. ily be Milfled to M m • similar purpo< .
A new corporation could b
a
Federal Reserve and private
i n t e r e s t s would tak~ th€ eo^; on stock .
.
could subscribe for pr
tertl
new c:.
stock.
RFC, i n MUM of me€m*el%y9
could be issuer/, by tT-.i£
don, against sound. iaftBStrlal ••ooritl** in I t s portfolio.
•a:.er i
directort:, r
terest^.
.
n
bot
Prefer ace we
en f
I
.
is not to
rtMHO
I
to remain
c u r i t l c Act or ot tr
tat orl
<
-ly to
sise or a a t u r i t i
rii«Bf
C
i
i
Corporation
C oa ng
•"- • •
of
be pold later t roia
if & MUket
-^; -. -ea:,
tion of t
.n-
.
closed, if.
la
of
.
exceed £750,GOG Mfl , but i f private laTttStaeat
coul
to
A detail
corporation bat b
iff r fro.
1.
fiiphasis
oil
ocripin a separate
lack b i l l as follows:
—-
lo us, not limited to 5 j
maturity.
Co
re:
coafin
:.
;L not to be use
to supplying fuadc for current operations*
ikiLj rvision b v
under Federal RiB rv
4.
to supply working c a p i t a l , but to
. .
f
ctors and not exclusively
Board.
Hew i n s t i t u t i o n to b^. creai
,
rmanent so fae as aediua-sized
-
loans are concerned, t f p o f i y as regards larger refunding operations.
This would be a sii&J-
.ion, idtii as many branches and
agenciei M necessary,
5.'
PJXJ to supply additional f\
, rougr. sale of p r ^ f t f j
stock, if
necessary to carry otti Les^orary authorization to handle larger
refunding opyr^tion^ in M N H of
Loans for current btisin
rOQ.
rations should be made by local commercial
banks, v i c I
on in t.. . for. of corporate working capital,
•
as a result of t
safely fe>;tend credit for current oj r - t i o n s .
Government to I
, banks cannot
I t would bf uns und; for the
-£ing workin^ c o i t a l cushion, and
i t would be unwise for t . Pi eral IrtN rv
to WUp§Hj i t
I
is ordinary
resources,
are on:y
rand, ways to rfliev-
1.
Liquidation iftd bankruptcy,
£•
Reorgani-i:ii.n
abordination of claims of present creditors
in favor of the new Ch
latter •
Is preferabli.
• •:
'
It ;
I
gage loans, and if HPC were entirely f
Congr^
in sucii an a
;
imcr.
But th< f;:.,cl.
atlon as PJFC i s &t
for preBcat RFC mort-
L
in
.t ta^r cannot be so handled
.
t ti^ .
joaatrrtll b&nks t : i s N M CUK ion
:ihordination of prior %lMh
rent business operations.
I
1, sucn lo:JIS cc
A partial solution
thro.
a new mDnqy,
p o l i t i c a l pressure fros mesb rs of
fully
a. thoroug. ly
frozen c?; i t situations:
Loans of t
fitable operations, ptntittll
• I
banks supply n«» funds for curracter will presumably be based on
- leaving a margin
of profit which will nelp tiaw out Hie frosen situation of prior cr^^tore.
If
-5-
thesc cr.Alton: cannot br in M
to nbordlaat , i
r^ i s no sound w^r of
relieving the present fcozen condition of May business concerns.
i t of t..
ments in eac
resent cr<-.liters can ha obtained by individual agree-
cas^, or i t aig t bi
plication to American
banking and business practice of • formla sifiiular to teat authorised un-ler
Section 88 of the C&n&di&n Bank Act.
T is formula would Involve an aaeadstent to the bankruptcy law giving &
bank orofcber source of turn funds for current operation© I
p
uns^cur^d creditors to the a^ i
-
|
65^ of sue::, creditors agreed to the trill••>>!«.
cushion in mmj
lackin .
for giving
T i s ^;ould give the bank the
....
ilcjn
ould work in the United
I t has not b?en 100$ satisfactory in Caru;,.. ,
by constant vigil^i
Ivice
rfMiaining i*Q the custody of -
r fixea.
States i s problematical.
£o advanced, provided
S ction 38 la virtually •
• blanket l i e s on |
borrower,
11
iMUEtasM l a
s on3^
lien be had under
conditions.
It is UUfl
sitting cr
t however, that aid, «a an .
itor adjustments
itors in favor 6
_ .
.
i icy act ptr-
it of onl;- 65^ of a l l BMMHTed cred-
of ^sw operating funds lotild tend to encourage
banks to go back tc
r former position &.s • eourct of current funds for
^r lociJ.teasin f
rate, i t
.
ffioolt Is
seesjs wor:
trying i t out.
current business operation, I
•applied.
T.
I couic to • -ii,
Clearly if banks will not EH
no Mtt
| .-^age. of suen 1^-gislati.on
which i s now lacking.
ich m
•
..
i
-
At any
it
• for
HMfa fkmdi cun b£
curity in wmy cases
-6~
or Conclusions^
1,
Modify t.
tion {.:-•-
A b i l l ec
U
•
.1 Zattfaldlata Credit Cor
, not I
brtM i I or Kg ncl&s as may
intert;£tc, including t . c 1
c.
aaturities), wit
on stock to b
11 subordination In favor of
r of BftvraMgrrib«B6&% of the aaifenrwl cr
.7 to t
itora eo agree, and
n t of sucu MM uon'-y AdVHWad* I i i v i l l glfi b.iiks a
cushion n^.
tag, Ad ?d.ll justify \
rating purposes v.- -ic
|«
arj rc-funding feature
Federal Reo£.rvc. p ysicai f & o l l l t l o ;aig^;t be- tttili fd<
fi« ilMMi t,;,"- bankruptcy Act fco fti I
fossil
by private
. ru L rvc t ^ s t .., in£;urancti compttrteSg e t c . ,
and K^refemd stock to b- MtoMftLbsd If BK it
.acorporated.
:
tiiey ar
forking G&pitiC
profits anJ n
I
B ftaklBf uiany loans far current
..raid to make*
did be b u i l t up agaia cut of
\
SOUMBMBI
funais into tl
IMM&MHMI
I la of frosao
.uatioas.
! Bonn
Liaison Officer
,1 7, 1954
@FedFRASER