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r Minutes of actions taken by the Board of Governors of the Pederal Reserve System on Monday, July 23, 1951. PRESENT: Mr. Szymczak, Chairman pro tern Mr. Evans Mr. Carpenter, Secretary Mr. Sherman, Assistant Secretary Mr. Kenyon, Assistant Secretary Memorandum dated July 19, 1951, from Mr. Leonard, Director, °4 of Bank Operations, recommending an increase in the basic 4°4,17 of Mrs H. Pauline Franklin, Statistical Clerk in that Division, fr°1/1 $2'875 to $3,100 per annum, effective August) 1 1951. Approved unanimously. Memorandum dated July 20, 1951, from Mr. Marget, Director, (311 CA* International Finance, recommending that Mrs. Myrtle B. 0Baci ell, Clerk-Stenographer in the Division of Personnel Administration, be , —'"-erred to the Division of International Finance with no change -- aria —4411mi, that her basic salary be increased from $2,875 to $3,100 effective as of the date she enters upon the performance of dlities. Adrai The memorandum also stated that the Division of Personnel tl'atien was agreeable to this transfer. Approved unanimously. teklIko Letter to Mr. McConnell, Vice President of the Federal Reserve Minteapolis, reading as follows: 7/23/51 -2- "In accordance with the request contained in your letter of July 18, 1951, the Board approves the designation of Arthur I. Lee, an assistant exarainer who was transferred to the Fiscal Agency Department of your bank, as a srecial assistant examiner for the Federal Reserve Bank of Minneapolis." Approved unanimously. Letter to Mr. Norman Freehling, Frech1in41 Meyerhoff & Co., 120 s outh LaSalle Street, Chicago, Illinois, reading as follows: "This is in reference to your letter of June 11, 1951, inol,4 A—rIng whether Regulation T permits a creditor to pay out to a customer dividends and interest received on the 2acurtties carried in a special subscription account mainfled under section 4(h) of the regulation. You also dis,!ussed this matter with Governor Szymczak and certain mem'Jere of the Board's staff on July 17. "In this regard, you referred to the exception in section 6(e)oi the regulation which, subject to certain l aimitation, Permits a creditor to pay to a customer from t,, elleral account Interest or cash dividends collected by u' e creditor for such account, even though the account is _ndermargined and other withdrawals from the account are -uestricted by the general rule stated in section 3(b). "Section 4(h) was designed to provtde certain conCe28 4 4ons for the acquisition of securities through the 11;:reise of subscription rights. You will note that m" all of the exceptions applicable in the case of a account are applicable with respect to a special ' ti ecription account in which transactions on the preferen413.1 terms permitted by section 4(h) are to be effected. etch exceptions, of course, become applicable in appropriate aj ellmstances after the securities in a special subscription at have been transferred to a general account as proIn section 1 (h)(2). Except for such transfer, that °11 813Z'' forbids withdrawals of cash or securities from a subscription account so long as there is a debit 41ce in the account. n 7/23/51 -3- "In the light of the foregoing, the exception in section 6(g) concerning the payment of interest or dividends from a general account should not be regarded as permitting 81101 payments in the case of a special subscription account. "The arguments made by you in support of a contrary view have been carefully considered. however, such contrary ;Jew, in the Board's judgment, not only would further rethe regulation to an extent not intended, but would alSO be at variance with the language of the regulation." Approved unanimously. Letter to the Honorable Leroy Johnson, House of Representatives, t°11, D. C., reading as follows: "This refers to your letter of July 2, 1951, to Chairman Martin, with which you included excerpt from a letter you received from Mr. James T. Secretary - Business Representative, Building d'Id Construction Trades Council of Sacramento - YoIo ,nnties. The quotation from Mr. Harvey's letter and ;711r own comments refer to Regulation X, Real Estate k,redit add r "In the excerpt from Mr. Harvey's letter, he states that i 'this regulation is penalizing the low and moderate ! o c°111e groups and eliminates these families from the iTortunity to purchase new homes. . of the bore "Regulation X was issued under the authority 10, 11e0 Production Act of 1950 and Executive Order No. L°1) and is designed to conserve materials and labor lor the defense effort end to restrain inflationary forces. considering the terms prescribed by the regulation and th Administr:+"c°mPanying restrictions of the Federal Housing u-"Ion and the Veterans Administration, the Board and pains to other Governmental agencies concerned took great ,11 establish requirements which would be as equitable as u aeible in their effect on the various income groups. As mereetat we established after prolonged study, down payyalilt requirements which start at 10 per cent for houses .4 1 1ed at $7,000 or less, and increase gradually to 50 cent for houses valued at more than $24,250. The 1 7/23/51 -4- ft regulation, therefore, is proportionately much more restrictive, as we think you will agree it should be, on those persons buying more expensive residences. If, however, the regulation is to be effective it must be restrictive to some extent with respect to all classes °II Persons; that is, some persons must defer the purc48." of a new house until they have accumulated greater " rines, or perhaps buy an older or lower-priced house. .1116 Board is deeply concerned that the impact of the 1. tegu1at1on be as equitable as possible, and stands ready make whatever adjustments may be necessary to achieve end. "With respect to your own comment as to whether it (31111- be possible to relax Regulation X if proposed ; eEislation is passed providing lower down payments °r Ilex Veterans in certain price classes and under "rtain specified conditions, the Board has consistently sl:tated t4at the terms of the regulation will be modiled- if it is demonstrated that they are too restrictive. At the time Regulation X was issued, the several 0 , °7ernmental agencies responsible for real estate credit ilegulatioa estimated that a volume of 300,000 to 850,000 sing starts for 1951 would be consistent with the uectives of the enabling legislation. This volume 0°111c1 represent a substantial reduction from the rebreaking 1,400,000 units started in 1950 but i°111d not be materially out of line with the volume 0 ; 3.ther years since the war. In the first six months L951, approximately 575,000 units have been started, or' , 114 average of nearly 96,000 a month. The goal of 80 ,0°00 to 850,000 for the year could be reached if ! re Itsaverage only about 45,000 units a month in the 111ing six months of the year. Current trends would 11;;`ucate that it is reasonable to expect the number of hg starts over the next six months to average at le " 4 as high as this. au We would like to see the building industry proas many houses In all price classes as would be Bo'sistent with defense and economic stabilization efforts. 4" . r, Federal expenditures for defense and related a011 y e. llities are scheduled to rise sharply over the next and to place heavy pressure on our resources of t Z 1/23/51 -5- manpower, industrial capacity, and materials. If infla”onary pressures arising from expansion of defense spendare to be held in check, it appears essential to limit Postponab3e or less essential public and private spending, esPecially such spending as is financed by borrowing. During the first four months of 1951, nonfarm mortgage recordings of $20,000 or less totaled nearly 5.3 billion dollars, an increase of nearly one-fifth as compared with the same period a year ago. Until the needs of the defense program 4.a;ve been taken care of and the dangers of further inflaa have moderated, liberalization of real estate credit ' l egulations would be of doubtful wisdom. "Despite all these considerations, we wish to assure Yoll that we believe the regulation should be as equitable as Possible to all income classes, and we are glad to ye consideration to any proper means to assure the " eonplishment of this purpose. We hope we have adequately responded to your letter, : le114 if you need further information about the Board's views e shall be glad to furnish it." Approved unanimously.
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