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Nomination of Eugene Meyer to Be a Member
of the Federal Reserve Board

HEARINGS
BEFORE A

SUBCOMMITTEE OE THE
COMMITTEE ON BANKING AND CURRENCY
UNITED STATES SENATE
SEVENTY-FIKST CONGRESS
THIRD SESSION
ON

NOMINATION OF EUGENE MEYER TO BE A MEMBER
OF THE FEDERAL RESERVE BOARD

JANUARY 27, 28, 31, FEBRUARY 2, 3, 5, 6, AND 7, 1931

Printed for the use of the Committee on Banking and Currency

38819

U N I T E D STATES
GOVERNMENT P R I N T I N G O F F I C E
WASHINGTON : 193t




COMMITTEE ON BANKING AND CURRENCY
P E T E R NORBECK, South Dakota, Chairman
L A W R E N C E C. P H I P P S , Colorado.
SMITH W. BROOKHART, Iowa.
P H I L L I P S LEE GOLDSBOROUGH, Maryland.
JOHN G. T O W N S E N D , JK., Delaware.
F R E D E R I C C. WALCOTT, Connecticut.
JOHN J. BLAINE, Wisconsin.
R O B E R T D. CAREY, Wyoming.
JAMES J. DAVIS, Pennsylvania.

DUNCAN U. F L E T C H E R , Florida.
CARTER GLASS, Virginia.
R O B E R T F. WAGNER, New York.
ALBEN W. BARKLEY, Kentucky.
TOM CONNALLY, Texas.
WILLIAM E. BROCK, Tennessee.
R O B E R T J. BULKLEY, Ohio.
C YMERON MORRISON, North Carolina.

JULIAN W. BLOUNT, Clerk.

S U B C O M M I T T E E ON N O M I N A T I O N OF E U G E N E

MEYEK

R O B E R T D. CAREY, Wyoming, Chairman
S M I T H W. BROOKHART, Iowa.
DUNCAN U. F L E T C H E R , Florida.
P H I L L I P S L E E GOLDSBOROUGH, Maryland. R O B E R T F. WAGNER, New York.




CONTENTS
Testimony of:
Faze
Pau.rBestor, F e d e r a l F a r m L o a n Bureau, W a s h i n g t o n , D . C
258,323
Alfred A. Cook, 630 P a r k Avenue, New York City
51
Hon. Louis T. M c F a d d e n , a Representative in Congress from t h e
State of Pennsylvania
1, 263
Oliver E . P a g a n , special assistant t o t h e A t t o r n e y General Washington, D . C
327
Hon. Eugene M c , er, governor of t h e F e d t n J Reseivc Board
79,
97, 133, 185, 259, 263, 317
Hon. H e n r y T. Rainey, a R e p r e s e n t a t i v e in Congress from t h e S t a t e
of Illinois
229
Mr. George F . Rand, president T h e Marine T r u s t Co., of Buffalo,
Buffalo," N. Y
57
Hon. J a m e s G. Strong, a Representative in Congress from t h e S t a t e
of Kansas
26
Roy A. Young, governor of the Federal Reserve Bank of Boston
68




m

NOMINATION OF EUOENE MEYER, TO BE A MEMBER OF
THE FEDERAL RESERVE BOARD
TUESDAY, JANUARY 27, 1931
UNITED STATES SENATE,
S U B C O M M I T T E E O F T H E C O M M I T T E E ON
B A N K I N G AND C U R R E N C Y ,

Washington, D. C.
T h e s u b c o m m i t t e e m e t a t 10 o'clock a. in., in r o o m 212, S e n a t e
Office Building, S e n a t o r R o b e r t D . C a r e y presiding.
P r e s e n t : .Senators C a r e y ( c h a i r m a n ) , G o l d s b o r o u g h , Brookharfc,
Wagner, a n d F l e t c h e r .
S e n a t o r C A U E Y . T h e c o m m i t t e e will please c o m e to order. S e n a t o r
B r o o k h a r t , do you w a n t t h e witnesses sworn?
S e n a t o r B R O O K H A R T . Yes,

sir.

Senator C A R E Y . J will call C o n g r e s s m a n M e F a d d e n .
TESTIMONY OF HON. LOUIS T. McFADDEN, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF PENNSYLVANIA
(The 'witness w a s d u l y sworn by t h e c h a i r m a n . )
Senator C A R E I . You m a y proceed, M r . M e F a d d e n .
Representativ e M C F A D D E N . M r . C h a i r m a n and g e n t l e m e n of t h e
committee: T h e s t a t e m e n t t h a t I am a b o u t to m a k e 1 a m s u b m i t t i n g
from i n h u m a t i o n t h a t has come to me as a M e m b e r of Congress, a n d
in coiuiecfion with Ihe work t h a t 1 h a v e h a d relating to m a t t e r s t h a t
have come before the B a n k i n g a n d C u r r e n c y C o m m i t t e e of (he H o u s e .
I am not speaking as c h a i r m a n of the C o m m i t t e e on B a n k i n g a n d
Currency , but I tun referring to information and knowledge w h i c h
have come to me in the position to which 1 h a v e been a^sismed in the
House. It covers a period of service of a p p r o x i m a t e l y 16 \ e a r s , a n d
for aboul 11 y e a r s as c h a i i m a n of t h e C o m m i t t e e on B a n k i n g a n d
Currency. Durum: this period of t i m e the e o m m i t U e h a v e had m a n y
hearings and h a \ o been in a position to observe t h e o p e r a t i o n s of the
Federal reserve s y s t e m , the Federal farm loan s y s t e m , and the i n t e r mediate credits act, because of t h e fact t h a t t h e c o m m i t t e e has t h e
responsibility of passing on legislation p e r t a i n i n g to all of these systems; th ; s also included the o p e r a t i o n of Ihe W a r Finance C o r p o r ation act
As i s:iy, the c o m m i t t e e have held hearings at \ a r i o u s times a n d
have m a d e a study of Federal reserve opeialion^, Federal farm loan
operations, i n t e r m e d i a t e credits operations, and W a r F i n a n c e ( ' o r p o r a tion activities. M u c h of what. 1 shall sa\ to > on this morning, sis 1
have previously said, lias been gained from a careful s t u d y of these
problems which h a v e been presented to the c o m m i t t e e .



1

2

NOMINATION OF EUGENE MEYER

I would like to say at the outset that I have no personal animosity
toward Mr. Eugene Meyer and never have had; but I have come into
possession of information and have formed some ideas in connection
with these observations of the activities of the various organizations
with which he has been connected here, beginning with the War
Finance Corporation and the Federal farm loan system and as these
activities have affected the Federal reserve system.
Mr. Meyer was a member of the board of the War Finance Corporation during its early days; and later, when the War Finance
Corporation activities began to wane, Mr. Meyer made a trip out
through the agricultural sections of the South and Middle West with
Sentor Calder, observing agricultural conditions, and worked up
considerable sentiment in favor of the continuance of the War Finance
Corporation. This activity on his part was largely responsible for
the revival of the War Finance Corporation, and he was appointed
manager-director.
I t would appear from Mr. Meyer's activities from the time he came
to Washington that he has been a seeker after public office. It was
noticeable in the revival of the activities of the War Finance Corporation that he was looking toward leadership as the head of that institution. I do not care to go into more than one phase of the operations of the War Finance Corporation.
When again the activities of the War Finance Corporation began to
decline it appeared that Mr. Meyer was seeking his next connection,
and it so developed that this next connection was with the Federal
farm loan system.
The first acts which synchronized with earlier activities in securing
his connection with the War Finance Corporation were apparent in
the appointment of a Mr. Williams, of Texas, on the Federal Farm
Loan Board at the instance of Mr. Meyer. Mr. Williams was a former employee of the War Finance Corporation in the State of Texas.
At the inception of Mr. Williams into the Federal farm loan system
more or less turmoil was evident. Questions arose as to the administration of its operations. The other members of the board became
exercised and alarmed with apparently no consultation back and forth
except of an antagonistic nature, and it v as readily understood among
the people who knew of the operations there that Mr. Williams was
Mr. Meyer's man and that there was to be brought about a reorganization of the Federal farm loan system.
Senator CAREY. Whom did Mr. Williams succeed in that position?
Representative MCFADDKN T . I do not recall whom lie did succeed,
but subsequently there was a reorganization of the Federal farm loan
system; there were three resignations or dismissals from the Federal
Farm Loan Board, end members of the War Finance Corporation
were made members of the board of the Federal farm loan system.
Mr. Mej^er was made farm loan commissioner or head of the Federal
farm loan system.
These men, who came in from the War Finance Corporation besides
Mr. Williams, were Mr. Harrison, Mr. Cooksey and Mr. Meyer, a
majority of the board. It was generally understood in and around
Treasury circles that the old organization of the War Finance Corporation was taking over the operation of the Federal farm loan
system. Again you had an indication of Mr. Meyer's desire to hold
public office in the operation of the Federal farm loan system.



JTOMHTATCOX OF EUGENE MEYER

3

Almost immediately after the new hoard was organized, a good
deal of publicity was caused through the failure of the Kansas City
Joint Stock Lund Bank and the Ohio Joint Stock Land Bank. I am
not going into any angle of that, hut it would he well, I think ,for
your committee, in connection with these hearings, to clsoely analyze
the operations that I am referring to here, with particular reference
to the failures of some of these joint-stock land banks.
Now I want to pass from this to the situation in regard to the
Federal reserve system, and to invite your attention to what appears
to me to be a synchronization of effort to arrange a distribution of
important financial positions in connection with these various bodies.
Senator BROOKHART. Before you go to that, would it bo proper to
inquire something of the intermediate credits acts?
Representative M C F A D D E N . The intermediate credits acts were
passed and were operated by the Federal Farm Loan Board as a
separate agency under the management for each of the 12 districts
where the banks are located. I do not care to go into any of those
operations at this time.
Senator FLETCHER. The membership of the Farm Loan Board
was increased by two, making the membership of the board seven
instead of five, as originally provided for in the act.
Representative M C F A D D E N . Yes; you are quite correct about that.
Senator FLETCHER. 1 think Mr. William? went on at that time.
Senator WAGNER. Who increased it, Congress or Mr. Meyer?
Senator FLETCHER. Congress.
Senator WAGNER. I thought that perhaps Mr. Meyer had done all
of these things.
Senator FLETCHER. I do not know whether Mr. Meyer recommended it nor not, but the board was increased from five to seven
when the intermediate credits act was passed.
Representative M C F A D D E N . J think you will observe also that
about that time, when this reorganization took place and the members
of the Board of the War Finance Corporation were moved into the
Federal farm loan system, there was a large increase in the operating
and general expenses of the Federal farm loan system. T am not
criticizing that, It may have been necessary, but these cos* s doubled.
Senator BROOKIIART, Did not the business of the association
decline?
Representative M C F A D D E N . 1 think it is fair to state that because
of the situation that was created at that time the Federal farm loan
system was tightening up all along the line and paying more attention
to the collection of its obligations than to the extension of its facilities
to the public. There are many statements that have been issued to
indicate that. 1 have not made a detailed examination of it, but I
think it is fair to say that at or about that time they began to tighten
up on their loans and became more drastic on collections.
Senator BHOOK!IAKT. That is one thing that needs to be examined
info by this <• •mmittcc in connection with this matter, is it not?
Representative MCFAUDEN". I would presume so; yes.
KOWT 1 want to place in the record at this time a copy of my letter
to Hon. Peter Norbeck, chairman of the Senate Committee on Banking
and Currency, under date of January 5, 1931; and in addition to t h a t
I want to place in the record, with the permission of the committee,
a speech that I made in the Flouse on December 20, which has a



4

NOMINATION OF EUGENE MEYER

bearing on certain things to which I have referred to here before this
committee in regard to the international relationship of our Federal
reserve system with foreign countries and banks.
Senator CAREY. If there is no objection it will be admitted.
Representative M C F A D D E N . M y letter to Hon. Peter Norbeck,
under date of January 5, 1931, is as follows:
J A N U A R Y 5,
Hon.

1931.

P E T E R NORBECK,

Chairman

Committee on Banking

and Currency,
United States Senate.
D E A R SENATOR N O R B E C K : In connection with the confirmation of the pending
nomination of Eugene Meyer, jr., to be a member a n d Governor of t h e Federal
Reserve Board which was some days ago reported favorably by your committee
a n d is now, I u n d e r s t a n d , by agreement to be voted on by the Senate on J a n u a r y 9:
Before this m a t t e r is finally passed upon, should not your committee and t h e
other m e m b e r s of t h e Senate ascertain t h e circumstances leading up to this a p p o i n t m e n t a n d to t h e resignation of Roy A. Young as Governor of t h e Federal
Reserve Board and E d m u n d P i a t t as Vice Governor of the Board?
At t h e t i m e of t h e resignation of Governor Young, he was appointed Governor
of t h e Federal Reserve Bank of Boston. Simultaneously with t h e resignation of
Vice Governor P i a t t from t h e board, he was m a d e vice president of the Marine
Midland group of banks, new position created by this institution to fit the emp l o y m e n t of M r . P i a t t . I have been informed t h a t t h e negotiations leading up
to Mr. P i a t t ' s resignation a n d his a p p o i n t m e n t as vice president in charge of
public relations of t h e Marine Midland group were largely conducted by Mr.Alfred
A. Cook, a New York City lawyer, located at 20 Pine Street, who I am told is t h e
brother-in-law of Eugene Meyer, jr., and Mr. George Blumenthal, who has long
been a m e m b e r of t h e international banking house of Lazard Freres & Co.
I h a v e already pointed out Mr. B l u m e n t h a l ' s activities with t h e French
G o v e r n m e n t a n d J. P. Morgan & Co. Mr. Cook, I understand, is also a t t o r n e y
for t h e New York Times. I t is perhaps needless for me t o explain t h a t t h e New
York Times is probably t h e strongest exponent in this country of t h e t y p e of
internationalism which is leading gradually t o our involvement in international
financial a n d political affairs t h r o u g h t h e Bank for I n t e r n a t i o n a l Settlements and
its use of our Federal reserve system through J. P. Morgan & Co., who are a n d
represent t h e American stockholders in this b a n k .
I should like to r e s t a t e here t h e expressed official position of this Government
as set forth in t h e s t a t e m e n t of H e n r y L. Stimson, Secretary of State, under date
of M a y 16, 1929, in regard t o participation by officers of t h e Federal reserve
system in t h e Bank for I n t e r n a t i o n a l Settlements. I q u o t e :
" I n respect to t h e s t a t e m e n t s which have appeared in t h e press in regard to t h e
participation of any Federal reserve officials in t h e creation or m a n a g e m e n t of
t h e new proposed international bank, I wish to m a k e clear the position of this
Government:
" W h i l e we look with interest a n d s y m p a t h y upon t h e efforts being made by
t h e committee of experts t o suggest a solution and a settlement of t h e vexing
question of G e r m a n reparations, this Government does not desire t o have anyAmerican official, directly or indirectly, participate in t h e collection of German
r e p a r a t i o n s t h r o u g h t h e agency of this bank or otherwise. * * * It does not
now wish to t a k e any step which would indicate a reversal of t h a t a t t i t u d e and
for t h a t reason it will not permit any officials of t h e Federal reserve system
either t o themselves serve or to select American representatives as members of
t h e proposed i n t e r n a t i o n a l b a n k . "
N o t w i t h s t a n d i n g this definite prohibition, officers of t h e Federal reserve system
a n d of t h e Federal Reserve Bank of New York are continuing conferences and
a p p a r e n t l y collaborating with t h e officers of t h e bank for International Settlements.
Under these circumstances, t h e Senate and t h e country are entitled to have the
full facts.
T h e position of Governor of t h e Federal Reserve Board, as you know, a t this
t i m e is one of t h e greatest positions of t r u s t in t h e United States, and the procurem e n t of an i m p o r t a n t position of t r u s t like this should not be acquired in any
doubtful m a n n e r .
If this a p p o i n t m e n t has been secured through such methods, t h e country is
entitled to know it, a n d these facts, if established, are sufficient basis for t h e
rejection of this nomination.



5

NOMINATION" OF EUGENE MEYER

Do you not think the way to ascertain the truth is to call before your committee,
prior to this confirmation, the following persons: Hon. Roy A. Young, Governor
Federal Reserve Bank of Boston; Hon. Edmund Piatt, vice president of the
Marine Midland group of banks; Mr. George F. Rand, president of the Marine
Midland group of banks, Buffalo, N. Y.; Mr. Alfred A. Cook, 20 Pine Street,
New York; and Eugene Meyer, jr.?
In further substantiation of what I am saying, I am inclosing copy of an
address which I delivered in the House of Representatives under date of December 16, 1930.
I should also like to make it clear to you that in the delivery of this speech
and in the writing of this letter I am not assuming to lecture or direct your committee or the action of the United States Senate. I am thoroughly aware of the
impropriety of such a course. What I am saying in this letter and what I have
said in the inclosed speech is on my own responsibility as a Member of the House
of Representatives. Because of the fact that I am so much concerned about the
future welfare of the Federal reserve system on account of its effect on the
people in the United States, I am forced to resort to the only method at my
command to bring this to the attention of those who have the responsibility now
before them of the confirmation of this appointment.
Respectfully vours,
L. T.

MCFADDBN.

The speech to which I referred is as follows:
SPEECH OF HON. LOUIS T. MCFADDEN OF PENNSYLVANIA IN THE HOUSE OF
REPRESENTATIVES, DECEMBER 16, 1930

Mr. MCFADDEN. Mr. Chairman and ladies and gentlemen of the committee,
this country is in the midst of a serious business, economic, and financial depression. Several times during the last session of Congress I took occasion to direct
the attention of the House and of the country to the possible serious involvement of our Federal reserve s\'stem in not only international finance but in
international politics.
I am now taking the time of the House to further direct the attention of this
House to international finance, and I hope that the few remarks that I may make
will be heard somewhat in the other end of the Capitol, because of the fact that
before the Senate at this time are matters which tend to further involve the
Federal reserve system in internationalism, praticularly as regards such financial
activities.
The seriousness of this situation is perfectly apparent. You Members heard
several of the things that I said during the closing days of the last session of
Congress about the involvement of the Federal reserve system, or possible involvement of it, in the organization of the Bank for International Settlement. Those
people who attempted to answer my remarks in regard to this attempted to
minimize the importance of the operation of the Bank for International Settlement. Subsequent events, however, have confirmed everything that I said last
spring as regards the magnitude of this important financial institution. We are
now beginning to get the facts pertaining to the important part which this institution is to play with regard to international financial and political operations.
I need only cite in this connection the recent visit to the Capitol and to the
White House, to the Treasury, the Federal Reserve Board, and to the Department
of State of the head of the I3ank for International Settlement, Mr. Gates W.
McGarrah.
I also call attention to a speech which that gentleman made in the city of New
York only 10 days ago, in which he pointed out the important part which this
institution is to play in the future in regard to world finances. He said it was the
purpose to mobilize, and the reports indicate that mobilization of the world's gold
is beginning. They propose to deal with international operations. He also told
us in this New York speech of the important part which the Bank of International
Settlement played in upholding the plan of the Finance Minister in Germany,
Mr. Bruening, in the last session of the Reich. I want to point out to you just
prior to that an important step that was taken by the same international banking
group; that is, they financed and sold in this country $300,000,000, or a part of it,
of the commercial reparation loan. You gentlemen, I am sure, will remember my
criticism of that and my attack upon the legality and the unwisdom of the sale of
these securities in this market as a possible involvement of our people in international affairs to an extent that they did not realize.



6

NOMINATION OP EUGENE MEYER

This morning I simply want to point out the facts that those bonds have declined
from a value of 91% to a low of 68. The market on Saturday was 70, representing
a loss to American investors in these particular securities of over $20,000,000.
The particular reference which I make to this financing is that it was a private
undertaking. The syndicate was headed by Lee Higginson & Co., which is
really the back door of J. P. Morgan & Co., who financed an additionalloan of
$125,000,000. This is a new loan that was given Germany subsequently to the
sale of the $100,000,000 commercialized reparations loan—that was not even
advertised locally in this country, but taken by nearly the same group of banks
that handled the first loan—but this time instead of the J. P. Morgan firm heading
the syndicate it was headed by Lee Higginson & Co. This makes a total of apparently $225,000,000 given to Germany since the Young plan was adopted, and we
do not now know how much more was granted by the Bank of International
Settlements.
That last loan of $125,000,000 was made for the purpose of aiding Mr. Bruening
in organizing the Reich, in order to put through his financial plan for the stabilization of Germany. Imagine, if you please, any financial house in Europe coming
into this body and granting loans and bringing pressure to bear on the organization of the House of Representatives. Yet that is almost exactly what the Bank
of International Settlements has done, and our banking houses here have been
placing this tremendous financial power in the hands of the Bruening financial
leader of the Reichstag.
In connection with what I have further to say here this morning, I want to
point out to you the serious additional step that is about to be taken.
Mr. STRAFFORD. Will the gentlemen yield?
Mr. MCFADDEN. I yield.

Mr. STAFFORD. DO I understand the gentlemen is criticizing American banking institutions for loaning money to the accredited representative of the
German Government?
Mr. MCFADDEN. NO; I am not suggesting that. I am suggesting that American
financiers who are international financiers
Mr. STAFFORD. And properly so.

Mr. MCFADDEN. Are using American money to help organize the Reichstag's
financial operations.
Mr. STAFFORD. That was a governmental function—loaning money to the
recognized representatives of the German Government. What is wrong with
that?
Mr. MCFADDEN. I am speaking of the possible involvement of our Federal
reserve system in internationalism. 1 would like to point out further to the
gentleman, and to the Members of the House, that that which I am referring to
here is a possible further involvement in this situation. There is pending before
the Senate at this time, having been reported favorably by the Senate Banking
and Currencj- Committee, the nomination to be a member of the Federal Reserve
Board, and its governor, the name of Mr. Eugene Meyer, jr. This appointment
should not be confirmed by the United States Senate, and I want to make that
just as positive as it is possible for me to make it. If you want to turn the
Federal reserve system over to international financiers, place Mr. Meyer in that
particular post at this time.
A careful analysis discloses the fart that Mr. Meyer has been very closely
connected, during his whole financial career, with banking houses of international
reputation. He has a very close connection with J. P. Morgan & Co., and as the
head of the War Finance Corporation, and in carrying on its activities, those
close relationships were actively disclosed. He is a Wall Street man. I want
to point out just what has happened in order to make that nomination and
appointment possible. Gov. Roy Young, from Minnesota, was the Governor of
the Federal Reser\ e Board. His resignation was secured by appointing him as
governor of the Federal Reserve Bank of Boston, and, because of that clause
in the Federal reserve act which prohibits two members serving on the Federal
Reserve Board from one Fcdeial reserve district, Mr. Edmund Piatt, the vice
governor of the Federal Reserve Board, with eight ja'ars yet to go, was likewise
removed by giving him a position with the Marine Midland Bank in New York.
I understand that a new position of vice president was created, and two operations had to be performed in order to create a vacancy which would permit of
the appointment of Mr. Meyer.
The Senate of the United States should not confirm his appointment without
going into the details as to why these changes were made and why the appointment of Mr. Meyer was made necessary. He is recognized as an international



NOMINATION OF EUGENE MEYER

7

financier; he is a.Wall Street banker and closely affiliated with these international
banking groups.
I want to point out in connection with t h a t t h a t a t t h e present t i m e we have a
particularly pertinent and interesting situation as regards t h e mobilization of t h e
world's gold. Over 60 per cent of t h e world's gold is now in F r a n c e a n d in t h e
United States, controlled by t h e Bank of France a n d t h e Federal Reserve System.
I want you to u n d e r s t a n d t h a t situation because of w h a t I a m going to say to you
next. I w a n t to point o u t t h e close relationship which exists between this proposed member of t h e Federal reserve system a n d t h e F r e n c h a t this t i m e .
Mr. O ' C O N N O R of New York. Will t h e gentleman yield?
Mr.

MCFADDEN.

Yes..

Mr. O ' C O N N O K of New York. I have seen m a n y contradictory s t a t e m e n t s as
to where t h e gold reserve is t h r o u g h o u t t h e world. T h e last figures I saw were
t h a t there was aboug §4,000,000,000 here and a b o u t $2,000,000,000 in F r a n c e ,
b u t t h a t there was a b u t $4,000,000,000 or $5,000,000,000 distributed t h r o u g h o u t
t h e rest of t h e world. W h a t are t h e gentleman's figures with respect to t h e gold
reserve?
Mr. M C F A D D E N . Between 60 and 62 per cent is deposited in t h e United
States and in France.
Mr. O ' C O N N O R of New York. W h a t are t h e figures in dollars?
Mr. M C F A D D E N . Well, t h e t o t a l world's gold is something like $10,000,000,000,
and 62 per cent would be something over $6,000,000,000.
Mr. O ' C O N N O R of New York. In b o t h the United States a n d France, the
gentleman means?
Mr. M C F A D D E N . Yes. T h e gold in t h e United States is principally under t h e
control of t h e Federal reserve system and t h e gold in France is largely u n d e r t h e
control of the Bank of France, and t h a t has an i m p o r t a n t bearing on this whole
situation.
I want to point out t h a t Mr. Meyer is a brother-in-law of Mr. George Blumenthal, a member of the firm of J. P. Morgan & Co., who, I understand, represents
the Rothschild interests, a n d t h a t he is liaison officer between t h e French Government and J. P. Morgan & Co. T h a t has a v e r y j m p o r t a n t bearing on this p a r t i c ular situation.
I want to m a k e it perfectly plain t h a t in placing Mr. Meyer a t t h e head of t h e
Federal reserve system you are turning it over completely to this international
financial group. I do not believe t h a t t h e people of the United States w a n t this
thing to happen. This is an unpleasant d u t y for me to perform. But, ladies a n d
gentlemen of t h e House, I am interested in our country a n d its institutions, as is
every man, woman, and child in the United States.
The Federal reserve system controls t h e credit system not only of t h e United
States to-day b u t is t h e dominating factor in finance t h r o u g h o u t t h e whole world.
I could not let this opportunity pass without a t least directing this to t h e a t t e n tion of the House, and, I hope, t h e a t t e n t i o n of t h e Senate, before t h e y t a k e this
additional step.
There is no question t h a t the Federal reserve system is playing with international financial operations through t h e Bank of I n t e r n a t i o n a l Settlements.
Otherwise, why would Mr. M c G a r r a h be here reporting to t h e President of t h e
United States, the Treasury D e p a r t m e n t , t h e governor of t h e Federal Reserve
Board, and t h e State D e p a r t m e n t ? W h y would he be m a k i n g s t a t e m e n t s with
regard to the operations of t h e Bank of International Settlements?
I am simply throwing out these t h o u g h t s to you to show how extensively we
are becoming involved a n d how our financial system is becoming involved in t h e
affairs of international finance.
At t h e opening of my r e m a r k s I pointed to t h e fact t h a t we are in t h e midst
of a terrific business and financial depression in the United States, a n d it is j u s t
at such times t h a t deals of this character are p u t over.
Gentlemen, I do not w a n t to be too pessimistic with regard to our financial
situation, b u t the fact remains t h a t this year practically 1,100 banks will h a v e
failed in t h e United States. I t is a serious financial crisis, and I a m hoping t h a t
before this session is over the committee over which 1 preside as c h a i r m a n
m°y hfA "• an -Mportumty to look into ike c a ' i ^ s of ..he failures of these particular batiks, i ma\ say to you t lat t h e a m i \ sis I have already made of t h e
causes of the failure of some of these b a n k s indicates clearly t h a t these failures
are not due entirely to agricultural depression in t h e country districts. An
examination of the portfolios of tiiese b a n k s will disclose t h a t in m&ny instances
the impairment in t h e capital of these b a n k s is caused by t h e investments in
their portfolios.



8

NOMINATION OP EUGENE MEYER

You are going to find t h a t these large big-city financial institutions—that in
t h e past few years have been floating and financing these various consolidated
enterprises t h a t « e have been in a mad rush to p u t together, where practically
every business t h r o u g h o u t t h e country t h a t has gained any standing or any
basis of earnings has been merged or mobilized and financed in New York and
elsewhere—have been emitting securities, after pulling out t h e cream of t h e
values in securities, and unloading t h e remaining worthless securities not only on
t h e b a n k s b u t on innocent investors t h r o u g h o u t the country; and in mentioning
this I p u t a t t h e t o p of t h e list t h e international banks who are financing these
domestic operations and t h e Large a m o u n t of foreign securities as a whole, many
of which have depreciated in this country over 50 per cent. T h e failed banks
are full of these worthless securities, and they have been sold to the banks and to
t h e innocent investors in this country by banking houses of t h e t y p e which I
have just mentioned.
Mr. O ' C O N N O R of New York. Will the gentleman yield?
Mr. M C F A D D E N . I yield.

Mr. O ' C O N N O R of New York. Does not t h e gentleman also think t h a t one of
t h e underlying causes for t h e condition of some of t h e banks is t h a t they have
left t h e strictly banking business a n d h a v e gone into t h e financing business with
their side companies called finance, and so forth, companies?
Mr. M C F A D D E N . T h e gentleman is quite correct. T h a t is one of t h e serious
phases of this question. Banks have not been content to do a legitimate banking business, b u t they have organized affiliated companies under State laws t h a t
h a v e permitted t h e m to do those things which are prohibited dirccthy under the
law. There is no doubt b u t t h a t t h e m a t t e r which t h e gentleman has referred to
is responsible for a lot of things t h a t h a v e been going on and for a large p a r t of
t h e losses t h a t have been sustained; in fact, t h e y are responsible for a lot of t h e
speculation which occurred last year, where affiliates of some of these large
houses were the violators.
T h e y have been t h e sources from which h u n d r e d s of millions of dollars' worth
of these fancy securities have been unloaded on t h e innocent public. This resulted in t h e wide speculation of last year; in fact, t h e very thing t h a t caused
t h e crash of last October was t h e fact t h a t early in t h e s u m m e r these reorganization a n d financing houses t h a t had all of these reorganizations and financial
operations in process became aware of t h e fact t h a t pressure was on from t h e
Federal Reserve to reduce credit lines and t h a t an economic depression was
imminent, a n d they all tried to get rid of their securities a t one and the same time.
W h a t happened? I t was just like t h e meeting of t w o locomotives. T h e excess
a m o u n t of the issues of these new securities to which I have referred and t h e
tightening of t h e credit of t h e financial system brought t h e m together exactly as
two locomotives come together, and there was nothing to prevent a crash.
Mr. BLACK. Will t h e gentleman yield?
Mr.

MCFADDEN.

Yes.

Mr. BLACK. Does t h e gentleman's committee int end to do a n y t h i n g about
all this?
Mr. M C F A D D E N . SO far as t h e chairman is concerned, I will say the committee
is going to t a k e up very actively a s t u d y of this particular phase of t h e financial
troubles t h a t confront this country.

In connection with this letter to Chairman Norbeck
Senator WAGNER. May I interrupt a moment?
Representative M C F A D D E N . You may.
Senator WAGNER. I want to ask whether or not the speech that
you made was a discussion of the qualifications of Mr. Meyer for this
office?
Representative M C F A D D E N . No; it was not, but it had to do with
the international connection of the Federal reserve system referred
to in this letter. I t is part and parcel of this argument that I will
present to this committee, and I thought it would serve the purpose
and save time to insert it into the record.
Senator W A G N E R . I do not want to be technical about this, Mr.
Chairman, but I was hopeful that to some extent at least we would
confine this inquiry to the qualifications of Mr. Meyer rather than
have a discussion of the whole system. I do not think this committee



NOMINATION OF EUGENE MEYER

9

should go into the whole Federal reserve system. Other subcommittees are doing that now.
Senator BROOKHART. I agree with that, but the question of Mr.
Meyer's administration of these institutions is certainly material in
determining his qualifications.
Senator WAGNER. That is why I asked the Congressman whether
this was a criticism of Mr. Meyer in the administration of his offices.
Representative M C F A D D E N . N O ; it is not, but it shows what we
are coming to in Federal reserve operations, which Mr. Meyer, if
he is confirmed, will administer. I believe it is material to this particular subject.
Senator WAGNER. YOU mean as to whether it should be Mr.
Meyer or somebody else?
Representative M C F A D D E N . Yes.
Senator WAGNER. You arc going to connect that up, are you?
Representative M C F A D D E N . 1 think I have connected it up
already. I t is connected up at this time.
Because of the common reports, and because of the things that
I have just stated to you about the various movements of Mr. Meyer
since he came to Washington in connection with these positions which
he has held, it is rather interesting to note the matters to which I
have referred in this letter to Senator Norbeck, in which I have
pointed out the fact that Gov. Roy A. Young, who came to Washington from Minneapolis as governor of the Federal Reserve Bank at
Minneapolis, retired as governor of the Federal Reserve Board just
at the particular time that Mr. Meyer was to be appointed.
I call your attention to and emphasize the fact of this vacancy at
that time and also the resignation of the vice governor of the Federal
Reserve Board, Mr. Edmund Piatt, because there is a provision in
the Federal reserve act that only one member of the Federal Reserve
Board may be appointed from any one Federal reserve district.
Mr. Piatt was representing the same Federal reserve district in which
Mr. Meyer has his official residence; and, of course, even with the
resignation of Governor Young, it did not make a vacancy so that Mr.
Meyer, if he were appointed, could be governor of the Federal Reserve
Board. In fact, he was prohibited from being a member of the
Federal Reserve Board because of the residence restriction in the
law.
My attention was directed to the fact that Mr. Piatt was appointed
by President Coolidge a member of the Federal Reserve Board to
succeed himself about two years ago for a term of 10 years. He had
eight years yet to serve as a member of the Federal Reserve Board;
and it is a well-known fact in Federal reserve circles—I do not care
to have you feel that I am reporting rumors in this connection—
that Mr. Meyer was after the job on the Federal Reserve Board.
I had personal knowledge of his ambitions in that respect several
years ago. In a conversation with Mr. Meyer he expressed the desire
to be governor of the Federal Reserve Board and to sell this board to
the country, stating that it never had been properly sold to the
country. And in connection with this whole matter these notices
which appeared in the press at that time are of particular significance.
I want to call attention to a notice in the New York Times, under
date of September 5, 1930, reading:
Mover to get post; P i a t t will resign.
Federal Reserve Board announced.



Selection of New Yorker for governor of

10

NOMINATION" OF EUGENE MEYEE

Then an item in connection with that says:
T h e law creating t h e Federal reserve system provides t h a t no two members of
t h e board shall be from t h e same reserve banking district.
Officials explained informally t h a t Mr. Piatt had been contemplating resigning
from t h e Federal Reserve Board for a long time, with a view t o accepting an imp o r t a n t position with w h a t t h e y described as an organization having h e a d q u a r t e r s
in New York, b u t which was not a New York organization. T h e understanding
obtained was t h a t onh r within t h e past few days Mr. P i a t t had decided to accept
t h e position mentioned.
P i a t t on vacation. I t was said a t t h e Treasury t h a t Vice Governor P i a t t was
on vacation in Connecticut. T h e identity of the organization with which he is
expected to become affiliated could not be ascertained.

Here is a clipping from the New York Times, under date of September 3, 1930. I t is headed:
Hoover for Meyer on Reserve Board. A p p o i n t m e n t of ex-war finance chief
hinges on a legal point. Way likely to be cleared. Difficulty lies in fact t h a t
a n o t h e r New Yorker, E d m u n d Piatt, is also a member.

I t goes on to say:
Eugene Meyer, jr., of Mount Kisco, Westchester County, N. Y., will be a p pointed governor of t h e Federal Reserve Board if a legal difficulty offered by the
fact t h a t a n o t h e r New Yorker is a m e m b e r of the board can be overcome.
While on t h e surface this legal difficulty appears to be insuperable, it is significanl t h a t t h e present vacancy will remain unfilled pending an effort on the p a r t
of t h e administration to clear t h e way for Mr. Meyer's a p p o i n t m e n t to this
i m p o i t a n t position if it is possible to do so. W h a t is known of the situation
indicates t h a i t h e u l t i m a t e a p p o i n t m e n t of Mr. Meyer appears to be assured.

Then under date of September 4, 1930, this item appears in the
Washington Post:
Meyer will head Federal reserve. Hoover reported decided on selection of
New Yorker.
E d m u n d P i a t t , vice chairman of t h e board, like Mr. Meyer, is from New York
district. However, w i t h o u t disclosing w h a t steps are to be taken to meet this
legal restriction, G o v e r n m e n t authorities indicate t h a t they believe a sohition
can be found.

I t would be interesting to the committee to know what Government
authorities are referred to in a statement like that. I have suggested
that a plan was introduced here for the deliberate removal of Mr.
Piatt from the board. I do not believe that Mr. Piatt voluntarily
resigned from the Federal Reserve Board. I think this committee
should ascertain just what the circumstances were that led up to that.
I know something of the pleasant affiliations that Mr. Piatt had
with the board from many conversations I had wTith him, and I know
how highly he regarded his opporunity to serve the country on the
board ; he liked his job.
Then in the United States Daily of September 5, 1930, there
appeared this item:
Mr. Meyer selected for Reserve Board. When Mr. P i a t t retires, according to
t h e information which t h e Treasury had, Mr. Meyer will be given a recess appointm e n t as a board member and will immediately be designated by the President as
governor under t h e procedure regularly followed heretofore. T h e formal nomination to t h e board t h e n will be forwarded to t h e Senate when Congress convenes again in December.

Then,
appears
Reserve
removes

undef date of September 6, 1930, this additional statement
in the New York Times, headed, " N a m e s Meyer head of
Board. President states resignation of Vice Governor Piatt
obstacle." The article says:




11

NOMINATION OP EUGENE MEYER

Following t h e a n n o u n c e m e n t earlier in t h e week t h a t t h e a p p o i n t m e n t would
be made if certain legal obstacles could be overcome.
These were s u r m o u n t e d t h r o u g h t h e resignation of E d m u n d P i a t t of P o u g h keepsie from membership on t h e Reserve Board, also announced to-day.
Mr. Meyer will succeed R o y A. Young, w h o retired from t h e governorship of
t h e Federal Reserve Board to become governor of t h e Federal Reserve B a n k a t
Boston.
Under t h e law creating t h e reserve system no t w o members of t h e b o a r d m a y
be from t h e same reserve district. Shortly before President Hoover gave o u t
t h e news of M r . Meyer's a p p o i n t m e n t it was announced in Buffalo t h a t M r .
Piatt, who was vice governor of t h e Federal Reserve Board, would become a
vice president of t h e Marine Midland Corporation of t h a t city.

Under date of September 15, 1930, in the United States Daily,
there is this heading, " M r . Piatt explains resignation in letter."
The letter from Mr. Piatt is as follows:
DEAR

M B . P R E S I D E N T : I n s u b m i t t i n g m y resignation as a m e m b e r

of

the

Federal Reserve Board effective September 15, a n d of t h e vice governorship
which I have h a d t h e honor t o hold u n d e r four Presidents, m a y I say t h a t it is
not easy t o sever t h e pleasant relationships t h a t have continued for more t h a n
10 years. While it is t r u e t h a t t h e salary of m e m b e r s of t h e Reserve Board is
not in purchasing power as m u c h as was expected when t h e Sixty-third Congress,
of which I was a Member, passed t h e Federal reserve act, a n d probably should
be increased, there are compensations which t o some of us have more t h a n m a d e
up for t h e deficiency.
INTERESTING WORK

The participation in conferences a n d in i m p o r t a n t decisions on m a t t e r s of
credit policy, t h e study of banking a n d economic problems, of domestic a n d
world-wide business conditions a n d of t h e policies of t h e central b a n k s of other
countries, involved in t h e hoard's work, have been to me most interesting a n d
inspiring. Since m y r e a p p o i n t m e n t about two >ears ago by President Coolidge
I Lave not given much consideration t o propositions t h a t involve resignation
from t h e board; b u t comes now an offer to take some p a r t in t h e development of a
system of banking in which 1 have been greatly interested, a system which gives
promise of solving some of our most serious banking problems.
I have long studied branch a n d group banking with special reference t o preventing bank failures, belieiing t h a t only b y some extension of branches beyond
city limits from strong institutions, or by some grouping together or consolidation of small banks in rural communities so as t o form larger corporate entities,
can anything substantial be done towards giving a d e q u a t e a n d safe service t o
the smaller centers.
SECOND RESIGNATION

The offer of a vice presidency of t h e Marine-Midland Corporation, one of t h e
largest and strongest of t h e recently formed group systems, appealed to m e as an
opportunity for useful service in the practical operation of branch a n d group
banking-, a n d I have accordingly accepted it, having received assurance t h a t
you are prepared to appoint m y successor a n d t h a t m y resignation following so
closeh upon that of Gen e r r o r Young will not cause you embarrassment.

The President's letter in reply is as follows:
M Y D I ' A E M R . P L A T I : I have received your letter of resignation in confirmation of information previously com eyed to me.

I t is important to know what that previous information was, if it is
possible for this committee to obtain it. Apparently this resignation
of Mr. Piatt's was a matter of discussion between Federal reserve
authorities, perhaps the Treasury Department and the White House,
and Mr. Meyer.
I have intimated in this letter to Senator Norbeck that in addition
to the calling of Mr. Meyer and Mr. Piatt before this committee,
Governor Young of the Federal Reserve Bank of Boston might also
be called. Governor Young is a very able banker, and is experienced



12

NOMINATION OF EUGENE MEYER

in Federal reserve operations, coming from a section of the country
which has indicated that representation on the Federal Reserve Board
for a man like minded to him was important rather than a man who
is interested in Wall Street finance and international financial and
business operations.
In that connection I would like to point out also that Mr. Meyer,
before he came to Washington, was a stock broker in the city of New
York. His associations indicate that the type of business he did was
confined largely to the business of brokerage. He was a very active
man in the market. So far as I have been able to learn that is his
only qualification to be tremed a banker, except the experience which
he has gained since he came to Washington in the operations of the
War Finance Corporation and the Federal farm loan system.
I t is pertinent to know in that connection what some of these stock
brokers engaged in New York do. I would make particular reference
to some of Mr. Meyer's early operations in stocks in New York,
because it has considerable bearing on his oprations as managerdirector of the War Finance Corporation and as the farm loan commissioner. The policies carried out in previous operations indicate
to me that they will be carried into the Fedderal reserve system.
I want to point out that his mind is more that of a slock broker
than that of a banker. I am led to this conclusion because of the fact
of his operations as a stock broker before he came to Washington
and the operations incident to the purchase and sale of Government
securities in the War Finance Corporation where he carried on what
is well known in stock brokerage circles as maintaining a market.
In connection with the hearings which the subcommittee of my
committee carried on we had ample opportunity to look into the
operations of the War Finance Corporation's activities.
Senator BROOKHART. Have those hearings ever been printed?
Representative M C F A D D E N . The particular healings to which I
am referring now have not been printed.
Senator W A G N E R . The Senate committee went into this whole
question, as I recall, when Mr. Meyer's nomination was pending for a
membership in the Farm Loan Board.
Senator BROOKHART. I t only made a very casual inquiry into it.
As far as getting at the bottom of it is concerned, we never did.
Senator WAGNER. Everybody was at liberty to ask any questions
in connection with it. I am wondering what our function here is;
whether we are going to rehash all these matters which both the
committee and the Senate passed on before.
Senator BROOKHART. There are some important phases of this that
were not brought out that I want to bring out at this time. I do not
think there is a lot of detail either when w? get to it.
Senator FLETCHER. The subcommittee in connection with the
Farm Loan Board membership did not undertake to go into any
great detail.
Senator WAGNER. We did go into the operations of the War Finance Corporation at the time of the hearing.
Senator FLETCHER. T O a limited extent; we heard Mr. Meyer, who
said its books had been audited and they were available.
Senator W A G N E R . Were not you and Senator Brookhart at liberty
to ask any questions and call any witnesses as you desired?



NOMINATION OF EUGENE MEYER

13

Senator FLETCHER. No. I offered a resolution to investigate the
administration and transactions of the War Finance Corporation—
Senate Resolution 84—which was referred to the Committee on Banking and Currency and on December 20, 1927, the committee took
it up. A statement was made by Mr. Meyer. The committee never
acted on it; that was the extent of the investigation.
Representative M C F A D D E N . I say to the Senators that apparently
what is being referred to here now is the inquiry into the supposed
duplication of Government bonds. That is not the part of this particular hearing to which I am referring, and from my observation of
the conduct of the hearings before the committee previously I do not
believe that the matter 1 am referring to here has ever been before a
committee of the Senate.
Senator BROOKHART. 1 am afraid it is new to me.
Senator FLETCHER. What the committee inquired about in questioning Mr. Meyer was the War Finance transactions, the purchase and
sale of Government bonds by the War Finance Corporation, of which
Mr. Meyer was the head, through Eugene Meyer's office in New
York. We went into that to some extent. T h a t examination, socalled investigation, appears in full in a document printed December
20,1927, for the use of the committee. Mr. Meyer was doing business
not as a broker, I believe, but as an investment banker. That is the
term he used instead of broker; and as an investment banker his house
in New York bought and sold, at his instance here, Government securities from time to time. That was the extent of our inquiry at that
time shown by the document now in your hands.
Senator WAGNER. AS I recall it, Senator Fletcher, that was gone
into very thoroughly, including an audit which was presented, and
everything that was established at that time was very creditable to
Mr. Meyer.
Senator FLETCHER. Those hearings were printed and are available
and show precisely what occurred.
Representative M C F A D D E N . During the closing days of the Wilson
administration the then Secretary of the Treasury presented to the
Ways and Means Committee a request to give the Treasury the right
to buy and sell Government securities below par. The Ways and
Means Committee very properly refused that authority to the
Treasury. The War Finance Corporation being organized, and in
order to give it legal status and make it constitutional, was given the
right to act in a fiduciary capacity and to buy and sell Government
securities.
It so happened that under the administration of Mr. Meyer—I do
not want to prolong this—the Government securities were somewhat
below par. The Treasury, instead of placing orders direct with the
bankers and investment dealers for the purchase and sale of bonds
for the sinking fund, saw fit to place these orders for purchase and
sale by and through the War Finance Corporation. These transactions were handled almost exclusively by Mr. Meyer as manager of
the War Finance Corporation.
During a period of six months to a year our hearing disclosed, as I
recall it, that they ran into, I am safe in saying, I think, $2,000,000,000
worth of these securities that were bought and sold. I mention that
because of the fact that it was well known, and I think so stated from



14

NOMINATION OF EUGENE MEYER

time to time, that this was a stabilizing of the market program on
Government securities.
Senator CAREY. Did I understand you to say that Mr. Meyer
handled this business through his own offices in New York?
Representative M C F A D D E N . I have not said that, but the hearings
in the committee disclosed, very much to the surprise of the committee, that Mr. Eugene Meyer, as manager of the War Finance
Corporation engaged in these important Treasury operations placed
those orders, many of them, if not all of them, first with the banking
house in New York located at 14 W'all Street, in the name of Eugene
Meyer.
When the committee's activities were stopped, because of the ending of the session of Congress, Mr. Meyer was engaged in explaining
to the committee the fact that Eugene Meyer, jr., got no commissions on these transactions. He had not at that time convinced the
committee of that fact, but had convinced the committee of the fact
that commissions were paid in the usual manner on transactions of
that kind coming about because of the purchase and sale of securities.
Those hearings should have been completed but they were not
completed; they were stopped at that very interesting phase of this
undertaking.
Senator W A G N E R . Are you speaking of the Senate hearings now?
Representative M C F A D D E N . N O . I am speaking of the hearings of
the subcommittee of the Committee on Banking and Currency of the
House.
I would like to mention in this respect that I have no knowVdge,
except by hearsay, of the hearings that w ere held by the Senate committee which have been referred to here but I do not believe that
any members of the subcommittee of the House that had that particular matter in charge were heard before the Senate committee in
regard to this particular proposition.
I mention this because of the fact that it carries through the same
kind of operations which stock brokers in the market in New York
often carry on. I t is a practice with people who have securities that
they want to float on the market to go to brokers and brokers help
them to make a market. Some times we have wash sales. But they
organize a group of brokers and they begin to send out favorable
reports in regard to securities, making the matter attractive to the
public. I do not need to go into detail because the Senators are
familiar with those transactions.
Those same practices were largely introduced in these transactions
that were carried on with Mr. Meyer under the Treasury undertakings,
the purchase and sale of these securities. That is a matter which the
Senators who are to pass on the fitness of Mr. Meyer to be Governor
of the Federal Reserve Board should have explained fully and in
detail.
I t seems to me to be most unethical for a man holding such a
Government position to carry on Government transactions, even
with the consent and approval of the Treasury, to use his own private
brokerage house in New York for the purpose of carrying on these
transactions. It is fair to say that in connection these orders his
house in New York distributed to other brokerage houses; as I recall
it, six were favored in that connection, and they passed out these
orders to something like 75 or 80 houses.



NOMINATION' OP EUGENE MEYER

15

Senator BBOOKHART. Can you name those six?
Representative M C F A D D E N . I can not now. These unfinished
hearings will disclose that full information.
Senator W A G N E R . My recollection is that the evidence established
clearly that the hearings to which you refer showed that the board
had no accommodations in New York and Mr. Meyer gave over to
them his old office space and charged nothing to the Government for
the use thereof. That is how the transactions happened to take
place in that office.
Representative M C F A D D E N . Even if that were the case, I am sure
that the Senator is not attempting to defend the ethics of that.
Senator WAGNER. If he did not occupy them himself and gave his
own offices to the Government free of charge, I should call that a
contribution.
Representative M C F A D D E N . I would say that it was very unethical
for the manager-director of the War Finance Corporation to carry on
transactions, either gratuitously or otherwise, with his own brokerage
house in New York.
Senator BROOKHART. Would not any other brokerage house have
welcomed the Government coming in in that sort of way, and would
it not be improper for a Government officer to go into any brokerage
house in that way?
Senator WAGNEK. Where the offices are used exclusively for the use
of the Government?
Senator BROOKHART. They were not used exclusively for the use
of the Government.
Senator CAREY. I think we can question Mr. Meyer on that
subject.
Senator FLETCHER. Mr. Meyer's office in New York was not
known as the War Finance Corporation office at all. I t was Eugene
Meyer's office.
Representative M C F A D D E N . In connection with these operations
the unprmted minutes will show that millions of dollars worth of
these securities were bought and sold through this channel daily;
transactions were recorded of sales in the morning of millions of dollars
worth of these securities and repurchased in the afternoon at different
prices. The whole thing was a clear indication of the process of
manipulating the Government bond market; and the hearings show
that losses were frequently sustained and profits were made. I t is
fair to Mr. Meyer to say that in whatever profits were made or losses
incurred the Treasury of the United States was the beneficiary or the
loser. I mentioned that because of the fact that it is a manipulation of securities markets; this time for the benefit supposedly of the
United States Treasury, but, nevertheless, it shows that the facilities,
the activities, and the knowledge of Mr. Meyer were put to work in
this particular case.
Senator BROOKHART. I believe you said that the Treasury had
asked authority to do this from the Ways and Means Committee of
the House.
Representative M C F A D D E N . And it has been directly refused to
the Treasury.
Senator BROOKHART. Then they carried it out through Mr. Meyer?
Representative M C F A D D E N . Through the War Finance Corporation that provided capital out of the Treasury of $500,000,000, which



16

NOMINATION OF EUGENE MEYER

was used to carry on practically the same operations that the Ways
and Means Committee had refused to the Treasury.
Senator CAREY. Mr. McFadden, did you not state that the Treasury asked the Ways and Means Committee for consent to sell securities below par?
Representative M C F A D D E N . Yes.
Senator CAREY. This effort on the part of Mr. Meyer and the
Treasury Department was to keep the Government securities above
par, was it not?
Representative M C F A D D E N . That was the effort; yes.
Senator CAREY. And the Treasury Department was back of whatever Mr. Meyer did in this particular instance?
Representative M C F A D D E N . Yes; the point that I am making in
this connection is that his knowledge and acquaintance with the
manipulation of the securities market was utilized in this particular
transaction. The record of the hearings which have not been printed
will disclose the details of these various transactions to which I am
referring here.
Senator BROOKHART. It is your theory that the Treasury should
not go into that gambling up and down the market at all?
Representative M C F A D D E N . I am not expressing here an opinion
as to what the Treasury should do or should not do. I am attempting
to deal with the kind of service that Mr. Meyer has rendered and is
finding readily available to carry on these transactions.
Senator CAREY. Was not the Government attempting to stabilize
Government securities?
Representative M C F A D D E N . Apparently so; yes, Senator.
The Whaley-Eaton Service, which is a news service, on September
6, 1930, had a very interesting article which I desire to read. I t
referred to the matter under consideration here before the committee
at this time. I t follows:
New York, on t h e other hand, needs help a n d was embarrassed when Mr. Piatt,
representing t h a t district, did not, for a period, see eye to eye with t h e metropolis.

Then, on page 4 of this same letter of September 6, 1930, this significant statement occurs; and it has a bearing on that which I have just
been saying:
Mr. Meyer knows t h e security m a r k e t s ; he is one of the best bond men in
America; he is intimately acquainted with international finance; he has learned t o
love public service a n d he mixes well. He is independently wealthy and salary
considerations do not weigh with him.

T h a t checks up with what I have been saying about his qualifications
for carrying on the well-known stabilization processes.
In the Whaley-Eaton Service letter which came out under date of
January 17, 1931, on page 3 there appears the following:
T h e way is being m a d e ready for some substantial
it is in t h e power of financiers to do so, therefore, t h e
strengthened. I n t e r n a t i o n a l b a n k elements continue
stabilizing t h e commodity m a r k e t s , a n d t h e y m a y be

international financing. If
bond m a r k e t is going to be
to discuss t h e possibility of
able to get somewhere.

That is a clear indication that in the future operations of the
Federal Reserve under Mr. Meyer these previous practices are going
to be put into play and the Federal reserve system is going to be
operated largely as a securities bond market, and the international
situation rather than serve the great business interests of the country



NOMINATION OF EUGENE MEYER

17

and the rank and file of the people of this country. I mention this
because it has a bearing on the future operations of the Federal
reserve system.
Among the gentlemen that I suggested that you call before the committee was Mr. George F. Rand, the president of the Marine Midland
group of banks, and Mr. Alfred A. Cook, a lawyer of New York, who
I understand is attorney for the Marine Midland group. They might
be able to give you additional information pertaining to the suggestion
that Mr. Piatt's resignation as vice governor of the Federal Reserve
Board was an arranged affair.
Regarding this whole matter of these various connections with the
international situation, I desire to make a few observations here
referring to some of my previous statements.
I desire to call attention to the fact that under the emergency of
war, which demanded the extension of almost unlimited credits to
the Allied Governments, the Government at Washington permitted
the growth of power in the Federal reserve system until it became
almost autonomous. This power was not reduced or curbed after
the war by Government action. So far as its exercise has been restrained, it has been restrained only by the influence of public opinion.
A year ago 1 invited the attention of the Congress to this fact, and
to the need for supervision of the policy of the Federal Reserve Bank
of New York.
Last sprint 1 called attention to the developments of the Stresemann policy m Europe, which disclosed itself primarily as an AngloFrench political policy having for its object the floating of over
$3,000,000,000 worth of German reparation bonds chiefly on the
American investment market.
I showed that circumstances plainly indicated that the Federal
Reserve Bank of New York was entirely willing to see the consummation of this policy and that the private international bankers of New
York, who were in intimate association with the board of the Federal
Reserve Bank of New York, were among the chief movers in the
development of the Stresemann policy, and were strenuously endeavoring to float the reparation bonds on this market. It was quite clear
that under the guise of an economic transaction this was an attempt
to commit the United States Government to a political policy which
it had avoided taking up when the Treaty of Versailles was signed.
It was an attempted usurpation of the prerogatives of the Congress.
1 also called attention to the progressive use by the Federal reserve
bank since 1923 of credits to the Bank of England, the Bank of Belgium, and the Bank of Italy, and to its practice of buying bills abroad
in order to enable foreign banks to avoid shipment of gold to the
United States.
Every transaction of this kind ought to come before the Congress
for its action because the political elements involved are invariably
paramount.
Unchecked by the political government at Washington, the Federal
Reserve Bank of New York has extended its commitments in Europe
progressively over a period of 10 years and is now following a course
where the political status quo in Europe is dependent upon its will.
It deals with political considerations in Europe upon a vast scale.
Undoubtedly Europe can make use of colossal credits. I t is
expecting them to come from the Federal Reserve Bank of New York.



18

NOMINATION OF EUGENE MEYER

I t is the inclination of the Federal Reserve Bank of New York to make
them. Following the stock collapse of 1929 the bulk of the liquid
wealth of the country has been drawn into the New York banks. As
the situation is to-day, the Federal Reserve Bank of New York has
the power to pour this great fountain of credit into Europe instead of
pouring it back into the interior of this country.
Mr. Eugene Meyer belongs to the school of financiers who would
make liberal use of this fountain of credit for the states of Europe.
His training and associations are such that he could follow no other
school of financial thought. The confirmation of this appointment
by the Senate would mean more than approval of the personal and
professional qualifications of the nominee. I t would fix a national
political policy.
The decision of the questions involved ought not to be made indirectly, offhand, and without consideiation of their merits, as it
would be in taking favorable action in this case.
No man of the school of finance to which Mr. Meyer belongs ought
to be appointed governor of the Federal Reserve Board at this time.
The Federal Reserve Board ought now to await the settlement of
certain questions by the Congress before seeking to determine its future
policy. A governor of that board should be appointed at this time
who is willing to await congressional action upon questions which will
determine the future policies of that board.
The question " W h a t are the purposes of the Federal reserve syst e m ? " calls for decision by the Congress now. What use is to be
made at this time of the bulk of the country's liquid wealth which
has been drawn into the Federal reserve district of New York?
Is it to be sent out of the country, reducing industrial activity here
in order that industrial activity may be revived abroad, or is to go
back to revive trade in the interior? This is a political question to
be decided by the Congress of the United States.
Now, I want to point out in this connection that there was observed
during the hearings had by this subcommittee in the House the close
business relationship by and between Mr. Meyer and these various
brokerage houses in New York, and particularly the association and
connection with J. P. Morgan & Co. All through the study of these
transactions that were carried on in connection with this so-called
stabilizing of the bond market the relationship between the managerdirector and the house of Morgan was very intimate and close, in
that when certain issues of securities that were designated by letter
were desired to be called by the Treasury, invariably these bonds were
always ready and available by and through the cooperation of the
Morgan firm and the Federal Reserve Bank of New York.
In this connection there has already gone before the Senate—I
think it was referred to in Senator Brookhart's statement on the
floor of the Senate—a clipping from the New York Times of December 5, 1930, in which Hairison leports conditions abroad, and states
that the Governor of the Federal Reserve Bank meets the directors
M
'
after a trip to E n n n p ; that,',. V. M- <'g.'-i< rnak~s a < < ai.-1 'hm Owe:
D . Young joins Harrison in telling of a conversation with r,reign
bankers.
I would like to suggest right here that along with other things that
should be gone into in connection with Mr. Meyer's qualifications, or
his business connections and his affiliations at the present time,



NOMINATION OF EUGENE MEYER

19

is ihe report that Air. Meyer is one of the large stockholders of the
Allied Chemical Co. and that the Morgans are also very largely
interested.
The qualifications of the governor of the Federal Reserve Board,
so far as his business relationships, directly or indiiectly, aie concerned, are vitally important to the Federal reserve system and to the
people of this country, particularly so when wc review the experiences
of the past two years in which great readjustments have taken place
in regard to transactions of New York financial houses and the stock
market and the debacle of October, 1929.
T want particularly to direct the attention of the committee to this
item in the Times to which I have just referred. This news item
avoids very carefully any reference to what Mr. Morgan said at this
meeting. Mr. Morgan had no more business attending a meeting
of th<> boajd of directors of the Jvderrl Reseive E.mk in New York
than one of these newspaper boys present here at this meeting. I
mention this to show how completely tbat affiliation is working out.
Mr. M E Y E R . Mr. Chairman, may I interrupt for just one second?
Mr. Morgan was not at a meeting of the board of directors of the
Federal Reserve Bank of New York.
Representative M C F A D D E N . I am very glad to know that. This
newspaper article indicated that he was present.
Mr. M E Y E R . I was at the meeting and Mr. Morgan was not present.
If Mr. Morgan was in that bank that day I did not see him. He
was not at the meeting and the only information I have is what is in
the newspaper item to which Mr. McFadden referred. I might say
for the benefit of the committee that I have not seen Mr. Morgan
since 1921, to my knowledge, when he was called down to Washington
to the office of the Secretary of the Treasury to assist in organizing
a cattle livestock loan pool of $50,000,000 for the benefit of the stock
raisers in the West.
Senator BROOKHART. Was that what ruined the stock raisers in
the West?
Mr. M E Y E R . I do not know what ruined them. I t saved a great
many that would have been ruined.
Representative M C F A D D E N . I want to call the committee's attention to a colloquy that appears on page 273 of the hearings on H . R.
7895 relative to a loan which was made to Great Britain by J. P .
Morgan & Co. contributing $100,000,000 and the Federal Reserve
Bank of New York $200,000,000. I desire to read for your benefit
tl.is information:
The CHAIRMAN. Are you of t h e opinion t h a t it is t h e spirit of t h e F e d e r a l
reserve act t h a t there might be invested these legal reserve deposits or t h e capital
of the Federal reserve system to t h e extent of ,$200,000,000 in foreign securities
such as is provided in this agreement?
Mr. SEAY. Beyond any question; we have t h a t right to deal a t home or abroad.
The CHAIRMAN. Under section 4?
Mr. SEAY. Yes, sir; a t home or abroad in foreign exchange, and no l i m i t is
placed on t h a t .
The CHAIRMAN. T h e newspaper reports of this loan indicate t h a t when this
credit was granted t h e Federal reserve banks p a r t i c i p a t e d t o t h e extent of
$200,000,000 to either t h e Bank of E n g l a n d or Great Britain, and it indicated a t
t h e same t i m e there was a credit of similar n a t u r e granted by J. P. Morgan & Co.
Newspapers also reported t h a t J. P. Morgan & Co. was getting a commission on
t h a t transaction, so far as their loan is concerned, b u t t h a t t h e Federal reserve
system was getting no profit from t h e transaction; and I h a v e here a newspaper
clipping from a recent issue of t h e New York Times which I w a n t to read t o t h e
committee
 [reading]:


20

NOMINATION" OF EUGENE MEYER

" M O R G A N S I L E N T ON F E E

R E F U S E S TO T A L K O N $1,125,000 C H A R G E F O R $100,000,000
C R E D I T TO B R I T A I N

"Officials of J. P. Morgan & Co. refused to c o m m e n t yesterday on t h e statement
of Winston Churchill, British Chancellor of t h e Exchequer, t h a t t h e cost of the
$100,000,000 credit which G r e a t Britain obtained from t h e Morgan firm a t t h e
t i m e of t h e r e t u r n to t h e gold standard, was $1,125,000 to t h e end of t h e first
year.
" T h e interest charge in connection with t h e credit never has been announced
here, b u t it was said yesterday t h a t it was a m a t t e r of public record in London
a n d was published there when t h e credit was obtained last April. The Bank
of E n g l a n d obtained a $200,000,000 credit from t h e New York Fed end Reserve
Bank a t t h e same time the British Government arranged t h e Morgan credit.
Neither credit lias been d r a w n upon. Both were obtained as a precaution
against exchange pressure when Great Britain resumed gold p a y m e n t s . "
T h a t naturally raises t h e question as to who negotiated this $200,000,000
credit, whether J. P. Morgan & Co. or whether it was arranged jointly with the
Federal Reserve Bank of New York; and if t h e Federal Reserve Bank of NewYork arranged their p a r t of it, why d i d n ' t they m a k e a charge for this service
t h e same as J. P. Morgan & Co.? Is there any agreement ;io regards p a y m e n t
for this service?
Mr. STRONG. Because J. P. Morgan & Co. got all the traffic would bear;
t h e r e would be nothing left.

Now, since this loan was made by the Federal Reserve Bank of
New York, which tied each one of the other 11 banks into a participation in this, the Federal Reserve prior to this date was carryingon conferences with the central banks of Europe in regard to gold
movements, international exchange, and so forth, a part of which
was probably all right. This relationship, however, was not contemplated in the law, and much of it is being carried on without
considering a strict interpretation of the law.
I am not attempting to criticize or to say that the Federal reserve
system should not have relationships with these central banks of
issue in the major countries of the world. There is much that this
country has to do financially and in a business way with these countries, and relationships of a financial nature are necessary.
I do say this, and I want to stress this to the committee, that there
is plenty of evidence to show that all international financial transactions, many of which have a bearing on the political angles of the disputes in the various countries of Europe, aie carried on by and
through these international banking houses, principally J. P. Morgan
& Co., who are not, under the law, in any respect whatsoever, authorized to act for this Government or any of its branches.
I want to point ont clearly to you that J. P. Morgan & Co. constitute a private banking house engaged in the business of financing
and investment banking, both domestic and international, for the
purpose of making money. They have at times rendered great
public service to this country.
I t has been repeatedly asserted that they were also the fiscal agent
of Great Britain, France, Belgium, and Italy. They have connections both in London and in Paris, and I presume in other central
financial markets of the other countries of Europe; I do say this,
however, that in many of these financial transactions there is involved financial, economic, and political issues, and oftentimes, and
practically at all times, when this firm appears in Europe on financial
operations they are speaking, maybe by acquisition or by deference,
for the combined financial resources of the entire United States.
T h a t is the way they are regarded by the financial interests and the



NOMINATION OF EUGENE MEYER

21

countries abroad. I want to point out the danger of the tendency of
those kinds of relationship and the carrying on of them clandestinely.
If those relationships are essential to the best interests of the
people of the United States they should be authorized by law and if
they are authorized by law they should be supervised.
This question of foreign loans, this question of these great financial
operations, has a bearing and effect on the Federal reserve system.
They have a bearing and an effect on other international financial
transactions and a direct bearing on the welfare of 120,000,000
people living in the United States.
I have no quarrel with J. P. Morgan & Co. as such in this matter,
but I do think it is of the utmost importance to the people who have
regard for the maintenance of this country's welfare and the welfare
of the Federal reserve system that these kinds of financial operations,
which involve the shipment of gold, the political determinations of
the countries of the world, the determinations of the welfare of the
people of this country, should have some supervision. They can not
be carried on without effective operations of the Federal reserve system and the business structure of this country, and I point out that
they are being conducted to-day without that authority.
It has a direct bearing on the particular financial and economic
operation which confronts this country to-day because of the fact that
the savings and the equities of probably 20,000,000 people have been
taken from them through this orgy of speculation which to those who
are best qualified to speak is indicated as having been brought about,
to a very large extent, by the mistakes in the operations of our
financial system.
I do not need to go any further than to point out to you the evidence
that was submitted to the Glass committee last week when Mr. George
L. Harrison admitted these mistakes.
I have repeatedly pointed out how in the summer of 1927 the heads
of the foreign banks of Europe came over here and persuaded the
heads of the Federal Reserve Bank to the idea of lower discount rates
which stimulated the stock speculation which resulted so disastrously
in the fall of 1929.
That is now admitted by the Federal reserve. They have also
confirmed the statements which I have repeatedly made, and which
have been disputed from time to time, r-s to the other change of
policy in the spring of 1929, in February, when they announced a
complete change, which was the beginning of the decline, not only in
business but in the prices of securities that led up to the catastrophe
in 1929.
The influences of the international group and the manipulation of
securities in the so-called well-known plan of the stabilizing of securities are important in connection with this very matter here, because
you have here the question as to the type of man who is going to
guide the future of the Federal reserve system. My observation of
Mr. Meyer is that he is a dominating influence. The experience of the
different boards on which he has served has been that he is a strong
power in all of these operations.
I want to go a step further in connection with this particular situation in which the country and the people of the country find themselves in regard to the present financial position; and that is that
during this period of inflation, which started back in 1922, and gradu


22

NOMINATION OF EUGENE MEYER

ally worked" up to a period of extreme height when the credit was
released in 1927, these financial houses located in New York and elsewhere, principally in New York, under the system that had been
developed by mass production saw an opportunity to consolidate and
reorganize thousands of institutions of this country, and they did not
lose their opportunity; they reached out all over the country, and
-every concern practically that had arrived at a point where it had an
earning power and ability was picked up at a price. They took them
over and reorganized them into new institutions and financed them
through these houses in New York, issuing, oftentimes, twice the
amount of securities of the value of the property. They developed
this well-known basis of the value of securities depending on the
number of so many times their net earnings, and they took out the
cream by their operations and sold the residue to the investing public
of this country at the high prices.
We now find that the banks of the country are holding the bag and
are holding these investment-adulterated securities. It is a situation
with which the Congress or some authority should have something
to do, because it has deflated the purchasing power of the public to
the extent of billions of dollars.
Now, I want to make this suggestion that has a bearing on this
whole matter, there has to be some kind of regulation over that angle
•of things, and I want to ask you whether the type of man that is
being suggested here as governor of the Federal Reserve Board is the
type of man to direct this situation?
M y own thought is that we should have a recreation of a board in
this country along the lines of the old capital issues board, which
was a part of the war finance corporation act. That board should
have supervision over the issuance and sale not only of domestic but
of foreign securities in the United States. I do not believe you are
going to correct this situation in the United States until there is
recreated some supervisory board or power over the sale in this
country of not only domestic but foreign securities.
Perhaps I am taking altogether too much of the committee's time,
M r . Chairman.
Senator CAREY. There are several witnesses here from out of town
who would like to be heard to-day.
Representative M C F A D D E N . If it is agreeable to you, then, after
these other witnesses that I have suggested have been heard, perhaps
I can complete other phases of this statement. If that is agreeable
to the committee I will take my leave at this moment.
McFadden
( Scnator GOLDSBOROVGH. 1 would suggest that Mr.
proceed.
Representative M C F A D D E N . In this international relationship I
want to point out that the firm of Morgan & Co. have been interested
in all of these great international problems which are so vital now to
a solution of the world situation, »nd they have a bearing and effect
on our own d o n a t i o , cconomicd, arc* fin: iicial "iLut , ; on. They
financed and sold in this country one-third of the reparations loan a
year ago. Those bonds were floated at 90 and they are now selling
in the 70's. Subsequently to that Lee Higginson & Co., closely
affiliated with the Morgan house, with foreign connections, floated a
loan to Germany of $125,000,000, and now the same house is in
negotiation to grant an additional loan of $40,000,000 to Germany.



NOMINATION OF EUGENE MEYER

23

These relationships are made possible by the assent of the management of the Federal reserve system, and they have a vital bearing, as
I have said previously, on all of these international relationships.
£" Mr. M E Y E R . Under what authority has the Federal reserve system
control of the floating of bonds of banking houses?
Representative M C F A D D E N . They have not any authority.
Mr. M E Y E R . But you said they had.
Representative M C F A D D E N . When did I say that?
Senator BROOKHART. I did not understand that. I understood him
to say that there should be a board that should have such authority.
Mr. M E Y E R . That is a different question. Will the reporter read
the remarks of the Congressman on that subject?
(The reporter thereupon re;„d fron the record as follows:)
These relationships are made possible by the assent of t h e m a n a g e m e n t of t h e
Federal reserve system, and they have a vital bearing, as I h a v e said previously,
on all of these international relationships.

Mr. M E Y E R . That is what I am talking about.
Representative M C F A D D E N . I do not mean to infer that they have
the legal authority vested in the law.
Mr. M E Y E R . You used the word "assent," implying that permission is asked and given.
Representative M C F A D D E N . Not necessarily.
Mr. M E Y E R . What does " a s s e n t " mean?
Representative M C F A D D E N . I t means that the Federal reserve are
sympathetic to the carrying on of these transactions by this group.
Mr. M E Y E R . Assent does not mean sympathetic. Assent means
authority; it implies authority.
Representative M C F A D D E N . I do not care to get into an acrimonious
discussion on this, but I would point out, however, that the Federal
reserve system is first charged with the responsibility of m a i n l i n i n g
a gold standard and supervision of the total volume of credit la the
United States. Those are two main functions of the Federal reserve
system.
Senator BROOKHART. Would it not be worse if the Federal reserve
assented to this without authority than if they had authority?
Representative M C F A D D E N . Yes. The point that I do want to
emphasize here is that during all of this inflationary period the operations of the Federal reserve system synchronized in such manner with
all of these houses that wore handling international operations and
domestic flotations that they had access to the credit facilities of the
Federal reserve system, and Federal reserve credit was made readily
available to this class of financing or dealing. I reiterate that statement now, and 1 can say to you that under the change of policy that
was recently announced by the Federal reserve system an inflationary
policy is now again being established and those in authority are being
admonished to use it for purposes of improving the market; so that
these houses that are engaged in these transactions are synchronizing
their operations now to use these Federal reserve credits which are
available at this time. I t may be worthy and it may not. I am not
saying that it is not.
I want to see business stimulated in this country and put back
to normal but at the present time the policy of the Federal reserve
is that all inflation and all of the powers are to be used to improve
the bond market. I am not saying that it is detrimental, but I am



24

NOMINATION OF EUGENE MEYER

showing how under the well-known plans of stabilizing, that policy
is being carried out at the present time.
Senator W A G N E R . Are you criticizing it, although you do not know
whether it is good or not?
Representative M C F A D D E N . I am not criticizing it. I am just
pointing out that the administration is admonishing the investment
houses to do everything they can to improve the bond market.
Senator BROOKHART. Are you familiar with the fact that these
stocks in New York on Prof. Irving Fisher's Review are still 208 per
cent above the level of 1914?
Representative M C F A D D E N . I have not made that comparison.
Senator BROOKHART. And that the 1914 level was 33 per cent
above the 1904 level, all of which would indicate that we are still
on top of a volcano, so far as this stock booming is concerned.
Representative M C F A D D E N . In connection with the examination
which the committee are to make, inasmuch as I have suggested the
calling of these various witnesses, may I outline to the committee
certain phases of this on which I think it would be proper to question
these witnesses? I do not want to attempt to suggest to the committee, but there are certain angles on which I think it would be well
to have information.
I have already referred to the possible business connections, financial connections, of Mr. Meyer, and have stated that they should be
set forth fully to this committee as having a bearing on the future
operations of the Federal reserve system.
I will take these up in order. First, there is Mr. Alfred A. Cook.
I know that Mr. Cook was special counsel of the War Finance Corporation in railroad matters here in 1919. He is now attorney for
the Marine Midland Corporation, formerly with the Fidelity Trust
Co., which was merged with the Midland; and is attorney for and
brother-in-law of George Blumenthal, Lazard Freres & Co., referred
to in my speech, and is attorney for the New York Times and is a
brother-in-law of Mr. Meyer.
Senator WAGNER. Are you now suggesting questions that should
be asked?
Representative M C F A D D E N . 1 was giving an outline here.
Senator WAGNER. Those questions should be submitted to the
chairman.
Mr. COOK. 1 should like to submit to the fullest examination, Mr.
Chairman.
Mr. M E Y E R . I do not know whether it is out of order or not, but
Mr. Strong just happened to come into the room; I did not ask him
to come, but he was a member of the subcommittee that studied
bond matters about which Mr. McFadden expatiated so much, and
I would like to ask the chairman to let Mr. Strong speak for five
minutes on that matter at this time.
Senator CAREY. 1 would rath >r defer calling Mr. Strong, as some
of these gentlemen who have been brought here are very busy and
would like to return home.
Senator WAGNER. I think we owe it to a Congressman, who is a
busy man, and I suggest that we call Mr. Strong after we get through
with Congressman McFadden.
Representative M C F A D D E N . 1 was going to suggest that you not
only call Representative Strong, but that you call Representative



NOMINATION OF EUGENE MEYER

25

Steagall and Representative Stevenson, who are also members of the
committee. If you are going into that matter, these other gentlemen
should be here to make their statements as well.
Senator CAREY. I would like to go ahead with the hearings to-day,
if the other members can remain. On account of these witnesses
being from out of town we should get through with them to-day.
Senator GOLDSBOROUGH. That is agreeable to me, sir.
Senator BROOKHART. Mr. Chairman, I am interested in a matter
before the Senate to-day.
Senator C A R E T . The Senate convenes at 12 o'clock noon, but these
gentlemen are here and they would like to get away. I think we should
hear them to-day, if possible.
Senator BROOKHART. Suppose we go as far as we can.
Senntor GOLDSBOROUGH. Suppose we let the witness proceed and
then we can hear Mr. Strong.
Representative M C F A D D E K . To ascertain what part Mr. Cook took
in the employment of Mr. Piatt by the Marine Midland, you should
know whom he saw and what connections and what conversations
were had either between Mr. Piatt or Mr. Cook or the Marine Midland
people, or anyone else connected with the Federal reserve, the Treasury,
or anyone who had anything whatsoever to do with these negotiations.
The question of salary and consideration should also be fairly
known in this matter, because in Mr. Piatt's letter he refers to the
fact that the Federal reserve members arc drawing a small salary
and that one of the considerations of his change was that he was paid
a much larger salary.
You should also understand and know whether any bonuses were
given to Mr. Piatt, or whatever other inducements were given to
him to retire from the membership of the Federal Reserve Board,
which to my mind is one of the outstanding positions in the country,
almost equal to a membership on the Supreme Court of the United
States.
You should also know what stockholdings are held or what changes
took place in connection with stockholdings, if any.
You should also know if the resignation of Mr. Young was discussed with Mr. Meyer and Mr. Piatt. I t might be interesting to
know, although I realize how difficult it would be to know, whether a
suggestion of the retirement of Mr. Piatt was made by the President,
or whether it was a voluntary matter. The press reports indicate
that it was a matter of consideration in the Treasury and the Federal
reserve and the White House. I t should be known also to the committee how long this resignation had been in contemplation or
whether it was a decision promptly arrived at and executed.
In connection with Mr. Young's appointment it might clarify the
situation to know whether or not when Mr. Young left the position
of governor of the Federal Reserve Bank of Minneapolis at twice
the salary he was drawing and came here he had any arrangement
as to future salary after he retired from the Federal Reserve Board.
This all has a tendency to show whether the Federal reserve
system is being used other than for purposes of carrying out their
functions under the law.
In that connection I am reminded that the governorship of the
Federal Reserve bank at Boston is being largely used for retirement
positions of the Federal Reserve Board. It may be all right, and it
may not.




26

NOMINATION OF EUGENE MEYER

I think it is important to know what conversations took place
between Mr. Piatt and Mr. Meyer or Mr. Rand or anyone else who
may have had anything to do with this matter. I think that covers
all I have to say this morning, Mr. Chairman.
Senator BROOKHART. Mr. Chairman, there are some questions that
I would like at some time to ask Mr. McFadden.
Senator CAREY. Can you return, Mr. McFadden?
Representative M C F A D D E N . Yes; I wTould be very glad to. May
T be excused now?
Senator CAREY. Yes.

Senator WAGNER. M a y we now hear from Representative Strong,
of Kansas.
TESTIMONY OF HON. JAMES G. STRONG, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF KANSAS
(The witness was duly sworn by the chairman.)
Senator WAGNER. Congressman, there was some testimony given
by Congressman McFadden which had to do with the investigation
held by a subcommittee of the House in to the transactions of the
War Finance Corporation and particularly into Mr. Meyer's activities
as a member of the War Finance Corporation. Will you, in your
own way, just tell us of your inquiry and what conclusions you
reached?
Representative STRO.YG. I would like to say to this committee that
I had no idea when I walked into this room of being a witness. The
committee to whi^h you refer was a special committee appointed by
the Speaker, consisting of five Members of the House, its announced
purpose being to investigate alleged duplication of Government
bonds. I was a member of that committee.
Tee Committee had an employee on the committee, a Mr. Brewer,
who had been conducting investigations along this line as a special
investigator of the Attorney General's office, and who was not employed by my vote, and who, I believe, was convinced there had
been a great duplication of bonds issued by the Government.
Having practiced law for over 20 years and having been a city and
county attorney and an assistant attorney general, I entered upon the
investigation, with the determination to try to ascertain from the
facts whether or not any duplication of bonds had been perpetrated
or had occurred. I did not find during the investigation that any
duplication of Government bonds had been made, although it was
very evident that some bonds had been numbered in duplicate, and
I so announced, and thereby there arose a division on the committee.
In regard to the proposition of the investigation about Mr. Meyer
I think Mr. Brewer brought the charge that Mr. Meyer collected on
his own account and for his own interest a small amount for bonds sold
during the time that he had charge of the stabilizing of the market
price of bonds for the Treasury Department.
I went into the matter very carefully, and my recollection is that
Mr. Meyer came before our committee and the evidence that he produced showed conclusively that that small amount per thousand went
to the bonding houses which sold the bonds and that Mr. Meyer did
not have any part or share in it.



NOMINATION OF EUGENE MEYER

27

Senator WAGNER. Was any question raised as to the occupancy by
the Government of the premises formerly occupied by Eugene Meyer?
Representative STRONG. Yes; and my recollection is that the testinioney was that Mr. Meyer wont to New York with some one connected with the Treasury Department for the purpose of securing
suitable rooms for use by the War Finance Corporation. T h a t was
before the present Federal Reserve Bank building was built. There
was no room found available, and Mr. Meyer offered to give the use
of rooms that had been formerly occupied, or were occupied, by the
bonding house that he had and the business of which was suspended
by reason of the activities of the Government engaging in the selling
of bonds. Those rooms were so used; and, if my recollection serves
me correctly, they were used without expense to the Government.
Senator FLETCHER. Were these transactions in New York in
reference to the buying and selling of bonds conducted through the
War Finance Corporation or through Eugene Meyer, investment
banker?
Representative STRONG: My recollection is that they were being
conducted by Mr. Myer as director of and for the War Finance
Corporation at the request of the Treasury Department and had no
connection with his private bonding business that had been discontinued.
Senator FLETCHER. And his business was still being conducted
there, was it?
Representative STRONG. N O . Through his donation of the use of
such offices to the United States, his business, as I understood it,
was discontinued.
Senator FLETCHER. He carried on his business as an investment
banker all this time.
Representative STRONG. My recollection is that the testimony
showed that he did not; that when the Government went into the
sale of bonds he abandoned his bonding business. If I remember
correctly, he was ready to sail to Europe and he was asked by the
Treasury to forego his trip and take charge of the sale or the stabilizing
of the bonds being sold by the Treasury Department.
Senator FLETCHER. D O you know when he gave up that business
as an investment banker?
Representative STRONG. I do not know personally anything about
Mr. Meyer's business at all, but I so understood such to be the fact.
Senator BROOKHART. Was it not the other way? Had he not
planned to close his business as an investment banker or broker and
then did he not revive it again when this War Finance Corporation
work was taken up?
Representative STRONG. That was not my understanding. I did
not understand that he revived his business, but rather that he went
out of business because the Government went into the bonding
business.
Representative M C F A D D E N . May I suggest that the best evidence
is the hearings which were held and which are available to your
committee? May I suggest also that there be placed in the record
at this point the report that was filed by the gentlemen referred to
here as being members of the House committee so that your committee
may know exactly what the business was. I will place it at this
point in the record.



28

NOMINATION OP EUGENE MEYEE

(The report referred to, being Eept. No. 1635, 68th Cong., 2d
sess., is as follows:)
[House Report No. 1635, Skty-eightb. Congress, second session]
REPORT OF SPECIAL BOND COMMITTEE UNDER HOUSE RESOLUTION 231
Your special committee, appointed under House Resolution 231, Sixty-eighth
Congress, first session, " T o investigate t h e preparation, distribution, sale, p a y m e n t , retirement, surrender, cancellation, a n d destruction of G o v e r n m e n t bonds
a n d other securities," having considered t h e m a t t e r s placed before it for their
determination, respectfully report t h e following:
G o v e r n m e n t bonds a n d other securities, t h e subject m a t t e r of t h e inquiry,
are printed b y t h e Bureau of Engraving and Printing on distinctive silk-fiber
paper m a d e a t t h e paper mills, Dalton, Mass. T h e y are issued by t h e Treasury
D e p a r t m e n t proper, principally through t h e Federal reserve banks to t h e other
b a n k s and t h e public. Some of these reach t h e public directly from the Treasury.
After circulation t h e securities are retired or redeemed, from t h e public and t h e
b a n k s generally, t h r o u g h t h e Federal reserve banks a n d t h e Treasurer of t h e
United States, some coming directly to t h e Treasury. T h e y are surrendered to
t h e Register of t h e Treasury. Some reach t h e register through the Treasurer
of t h e United States and through t h e Loans and Currency Division of t h e
Treasury.
T h e a n n u a l report of t h e Secretary of t h e Treasury for 1924, filed with Congress, pages 76 to 81, refers to t h e subject of duplication of bonds, and in a " l e t t e r "
t o t h e President of t h e United States dated April 26, 1924, t h e Secretary of the
T r e a s u r y s u b m i t t e d a special report consisting of about 200 pages of printed
t e x t a n d t a b u l a t e d m a t t e r purporting to prove there had been no duplication
of t h e public debt and t h a t charges to this effect were wholly unfounded.
Your
committee has given most careful consideration to these reports, together with
other s t a t e m e n t s s u b m i t t e d t o t h e committee by t h e Secretary and t h e Undersecretary of t h e Treasury.
Mr. Charles B. Brewer h a d orders from t h e President to m a k e an investigation
of t h e m a t t e r . W h e n t h e c o m m i t t e e was commissioned b y Congress t o m a k e its
investigation Mr. Brewer had a like commission from an executive department.
T h e benefit of his service as counsel t o t h e committee was extended by Attorney
General Stone. T h e c o m m i t t e e had t h e a d v a n t a g e of t h e knowledge previously
paid for by t h e Government, w i t h o u t which substantial h e a d w a y during t h e time
allotted would h a v e been an impossibility. His services have been t h a t of an
exceptionally devoted a n d capable public servant.
F r o m its examination of Treasury reports and records and t h e testimony of
Treasury officials a n d employees, your committee finds t h a t —
DUPLICATE BONDS

1. Duplicate bonds a m o u n t i n g t o 2,314 pairs a n d duplicate coupons amounting
t o 4,698 pairs, ranging in denominations from $50 to $10,000, have been redeemed
t o J u l y 1, 1924—that is, two bonds a n d two coupons bearing identical numbers.
T h e s t a t e m e n t as t o coupons includes only one for each bond. If t h e various
duplicated coupons of t h e same bond are included, t h e n u m b e r would be greatly
increased. Duplications resulting from t h e slipping of t h e numbering machines
are negligible a n d inconsequential. Some of t h e duplications have resulted from
error a n d some from fraud. T h e proportion has n o t been determined. The
e x t e n t of t h e duplications is also uncertain from t h e record as far as it has gone,
a n d an i m p o r t a n t p a r t of t h e work b y which duplication is detected was stopped
by t h e Treasury in July, 1924, referred t o later in section 8 and elsewhere.
2. Duplicate p a y m e n t s of identical bonds, stolen from Treasury vaults by
employees a n d again circulated, h a v e been m a d e . T h e extent of such thefts is
rendered uncertain b y inexact m e t h o d s a n d faulty accounting.
3. T h e Secretary of t h e Treasury in his letter of April 26, 1924, a d m i t s t h a t
duplicate n u m b e r s are out, b u t denies duplication in fact a n d undertakes to show
how it occurs. On pages 96 t o 136 of his l e t t e r he sets out tables which a t t e m p t
t o explain his conclusion t h a t no duplication in fact occurred a n d has reiterated
t h e s a m e s t a t e m e n t s before t h i s committee. An example or t w o will illustrate
the matter:
On page 97 he sets o u t t h a t while two second 4J4 per cent bonds numbered
785052, $50, a r e now in h a n d , b o t h paid b y t h e Treasury, t h a t one of t h e m is a
" m a k e - u p " for bond 822052, $50, which was found defective, and t h e clerk



NOMINATION" OF EUGENE MEYER

29

making t h e s u b s t i t u t e m a d e a mistake a n d n u m b e r e d it 785052 when it should
have been 822052, t h u s duplicating t h e 785052 already out, a n d no bond 822052
was in fact ever issued. Unfortunately, bond 822052 has now come in a n d
been paid, and if make-up 785052 were issued t o t a k e its place a duplicate of t h a t
number was t h u s made, a n d if not, a duplicate of 785052 was issued a n d sold—•
in either event t h e Treasury is charged with three bonds where t w o were legally
issued.
On same page is set out 2333877 orginal second 4 per cent, $100; 2333877
make-up second 4 per cent, $100. T h e make-up is said t o be for bond 2343877
defective a n d not issued, and t h e clerk m a d e a mistake a n d m a d e t h e n u m b e r of
make-up 2333877; but, contrary to t h a t statement, bond 2343877, said never to
have been issued, had actually come in and been paid four years before, b u t h a d
not been so entered on t h e records. Finding it, of course, destroyed t h e s t a t e m e n t t h a t it was not issued and showed three bonds out where only two were
supposed to be from t h e records. This has occurred 58 times up t o F e b r u a r y
11, 1925, and we are informed is continuing to occur regularly. T h e Secretary
says in his letter, page 32, t h a t 2,017 cases of duplication had been discovered
up t o t h a t time and 1,608 of t h e m had been definitely set off against other n u m bers. In t h e other 349 cases "definite allocations of set-off numbers have not
been established," so the set-off n u m b e r s against 1,668 had, we assume, been
definitely established, and he sets t h e m out, and first we find these n u m b e r s
set off against a duplicate bond and t h e assertion m a d e t h a t no bonds of set-off
numbers were outstanding, in t h e face of t h e fact t h a t t h e set-off n u m b e r e d
bonds are coming in day after day, and nine of t h e m were in t h e Treasury paid
when his letter was issued.
An instance illustrating t h e danger of this theory is shown in a n o t h e r p a r t of
t h e Secretary's letter to t h e President. A first Liberty loan 3}i per cent $100
bond numbered 1123797. On page 116 this bond is stated not to be a duplicate,
and it is also stated t h a t t h e irregularity is due to t h e fact t h a t coupons on t h e
bond are numbered differently from t h e body of t h e bond, t h e coupons being
numbered 1122797. However, it will be noticed on page 125 of t h e Secretary's
letter t h a t this bond, numbered 1123797, appears again a n d is there acknowledged
to be a duplicate. Here t h e Secretary allocates to one of t h e duplicate bonds t h e
number 1123787, which bond would t h u s t a k e the place of t h e duplicate. Since
this allocation was m a d e , bond with t h e allocated n u m b e r 1123787 has been
received and paid. This means t h a t there are not only two bonds n u m b e r e d
1123797 and a tnird one numbered 1123787 when there should only be t w o ,
b u t t h a t t h e coupons on one of t h e duplicate bonds are misnumbered, which
embodies the kind of an error t h a t would s t a m p it a spoiled bond. All spoiled
bonds are supposed to be destroyed, as this bond should have been, instead of
its getting into circulation.
Again, when there is a defective bond discovered in t h e process of issue, a
record of it is m a d e and a make-up issued in its place, t h e record being m a d e
both in loans and currency and t h e Bureau of Engraving a n d Printing. These
records showed only a few, possibly a half dozen, of t h e 1,668 set-off n u m b e r e d
bonds t o h a v e been defectives and m a k e - u p s issued in place of t h e original.
This allocation of set-off numbers is merely a guess, and t h a t it is totally u n r e liable is rendered p a t e n t by t h e subsequent appearance of t h e b o n d s w i t h those
very n u m b e r s and their p a y m e n t by t h e Treasurer. We can not escape t h e conclusion t h a t there is a considerable duplication in bonds (not merely numbers)
and t h a t t h e whole public d e b t should be audited. A suggestive circumstance is
t h a t duplication of $50 and $100 denominations are m u c h t h e most n u m e r o u s ,
and, being more easily disposed of w i t h o u t arousing suspicion, t h e y arouse our
suspicion of their being more t h e lesult of design t h a n accident. T h e fact t h a t
m a n y of t h e bonds are destroyed, m a k i n g it impossible to tell which were honest
a n d which were spurious when duplicate n u m b e r s are presented, emphasizes t h e
importance of t h e issue as to destruction of t h e bonds.
T h e Secretary says in letter of F e b r u a r y 4, 1925, t h a t t h e allocations m a d e
in the letter of April 26, 1924, were " t e n t a t i v e selection of n u m b e r s p r e s u m e
to represent t h e bonds displaced as a result of erroneous numbering, erroneous
entering, erroneous posting, or willful alteration by t h i e v e s . " If t h e Secretary
relies on as m a n y erroneous processes in his d e p a r t m e n t as he cites above, t o be
sure we need an audit. H e says, further, " t h e allocations, therefore, are merely
t h e T r e a s u r y ' s prediction or opinion as to t h e particular 'serial n u m b e r s which
were i s s u e d . ' " W h a t t h e Congress w a n t s is facts. T h e d e p a r t m e n t is now
reduced to predictions and opinions a n d b o t h are being daily contradicted b y
38819—31

3




30

NOMINATION OF EL'GENE MEYER

stern facts, to wit, bonds which they said could not be presented, because not
issued, turning up and being paid.
While in the main the attention of the committee has been directed principally to the subject of coupon bonds, they have also looked into the subject of
duplication of registered bonds and find that during the period covered by the
inquiry 12,000,000 pieces of registered bonds were printed, and that while imperfectly printed registered bonds and Victory notes returned to the bureau for
replacement aggregated 35,772 pieces, which indicates that imperfects in printing,
spoilage, etc., were found perhaps as frequently in registered bonds as in coupon
bonds, only five duplicated numbered registered bonds have turned up for payment in comparison with the several thousand duplicated coupon bonds. Naturally the inference drawn by the committee is strengthened by this conparison,
due to the fact that collusion was practically impossible so far as registered bonds
are concerned as compared with the possibilities of fraudulent issue of coupon
bonds.
The committee regrets that the Treasury did not report the appearance of
these bonds with allocated numbers to it, but only admitted it when called on by
the committee for the facts. This was on a par with its attitude all the way
through. It is clear that the accounts of the Treasury pertaining to the public
debt do not and can not be properly balanced.
SAFEGUARDS ABANDONED, DUPLICATES NOT INVESTIGATED

4. Whether or not the major duplication resulted therefrom is yet to be determined, but it is clear there was opportunity for fraudulent wholesale duplication
of Government bonds at the Bureau of Engraving and Printing, the Division of
Loans and Currency, and the register's office and that the opportunity was so
created by the abandonment of regulations formerly designed as safeguards and
was encouraged by loose practices in bookkeeping and accounting methods and
failure to cancel bonds when paid and that some outstanding frauds have resulted
from these practices.
5. Falsification of records has occurred as to stamps, stamp paper, and distinctive silk-fiber paper and as to shortages of securities in the Bureau of Engraving
and Printing and as to the destruction of securities in the Division of Loans and
Currency.
6. Little or no attention was paid to duplicate bonds when they were received
in the Treasury and known to be duplicates. Employees generally seemed to have
prejudged the case and decided that duplication resulted from error. The attitude
as to duplicate numbered bonds is well illustrated by the questions of Congressman Strong, of the committee, answered b}r Mr. Speelman, Register of the Treasury, and they are herewith incorporated:
"Mr. STRONG. It just strikes me, Mr. Speelman, as a very peculiar situation,
where a great department is receiving bonds after payment, for cancellation,
and they discover that a duplicate number has been paid, that there is not
more investigation and more decision about it than simply to report it then
forget about it. It forces the conclusion that if Mr. Brewer had not dug this
matter up there never would have been any investigation. That seems to me
to be a situation that I should hate to see established.
"Mr. SPEELMAN. Well, that seems to have been the policy of the department.
" Mr. STRONG. Then the presumption is that when duplicate numbers come in
they do not care; they just presume that everything is all right, and the people
are not protected, especially the Treasury. * * *
"Mr. SPEELMAN. Well, I suppose that the Treasury Department would be
interested, of course.
"Mr. STRONG. Let me make my thought plain. I get my checks back from
the bank. I number every check as I issue it. If I discover two checks numbered alike, I would immediately make an investigation to see whether or not I
had issued both checks. If that came up month after month and day after day,
I would be put on inquiry as to why I or the person that numbered those checks
for me was making a mechanical error, and I would immediately start some
investigation about it. And it does seem to me strange that in a great department like the Treasury Department of the United States, where they are issuing
these bonds running up into the thousands, when they find duplicate numbers
when they come to pay them—the number being put upon the bond for its
identification—when they find two bonds numbered alike, and that goes on time
after time, it seems to me rather remarkable that you should say that you simply
write a letter notifying the Secretary's office that they are duplicates, and that



NOMINATION OF EUGENE MEYER

31

they never come to make any inquiry or pay any attention to it until an investigation is started by the Congress of the United States or some one from the
Department of Justice. It seems to me the department itself would have immediately started an investigation. I am rather surprised to have you make that
admission."
7. While the Government is not liable for the payment of fraudulent bonds or
coupons, such have been paid. For example, coupons that have been altered
to secure earlier payment of interest; bonds that have been stolen prior to issue,,
even though regularly printed under Government authority; and bonds which
have been paid and stolen after payment and again passed through regular channel for repayment, as has been the case as disclosed by Treasury records.
8. Protection against fraudulent duplication of bonds and coupons, counterfeits, and stolen bonds and coupons, etc., provided by the courts can not be
availed of unless examination at Washington is prompt. By a change in last
year's appropriation bill, about which the Treasury was consulted, examination,
comparing, and recording of coupons was dispensed with. The committee considers that this examination, comparing, and recording is the Government's
principal safeguard against duplication, counterfeiting, and other fraud in coupons whose cumulative value is the same or greater than the whole public debt.
This should be restored immediately.
TREASURY SINKING AND BOND PURCHASE OPERATIONS CARRIED ON THROUGH TUB
WAR FINANCE CORPORATION

9. In the repurchasing on the market for the bond purchase fund, the sinking
fund, etc., the Treasury employed the War Finance Corporation from May 20,
1918, to June 30, 1920, and a part of 1922, and frequently instead of promptly
turning into the Treasury the bonds so purchased the War Finance Corporation
accumulated large quantities of bonds after they had been purchased, and held
them and collected a sum totaling nearly $28,000,000 in interest from the United
States Treasury.
The War Finance Corporation carried on from time to time extensive trading
operations, and in doing so a partial examination of the transactions indicate that
the War Finance Corporation in their trading in these bonds through stockexchange houses on the stock exchange made wash sales. These operations also
disclose frequent selling of bonds on the market at less than cost, and transactions
indicate that on the same day bonds were sold at several dollars less per hundred
to others than they were sold the same day to the Treasury for the same class of
bonds purchased for sinking and bond-purchase funds. An examination of
the details of the transactions indicates also that often these bonds were sold to
the Treasury at a higher price than the bonds had cost when purchased by the
War Finance Corporation. These transactions took place with the approval or
the acquiescence of the Treasury, notwithstanding the fact that there is no law
which provides authority for the Treasury to sell bonds below par. It is noted
in this connection that just prior to the beginning of these Treasury operations on
the part of the War Finance Corporation the Ways and Means Committee, in
framing the third Liberty loan act, changed the bill which was drawn by the
Treasury officials and struck out of it the authority which would give the Treasury
the right to sell bonds below par. It is quite evident, therefore, that the carrying
on of these transactions by the War Finance Corporation, authority for which wasrefused to the Treasury Department by Congress, did indirectly what Congress
had prohibited directly.
These transactions of the Treasury prior to June 30, 1920 (including settlements for purchases and sales), executed by the War Finance Corporation, were
largely directed by the managing director of the War Finance Corporation, and
settlements with the Treasury were made principally by him with the Assistant
Secretaries of the Treasury, and the books show that the basis of the price paid
by the Government for over $1,894,000,000 worth of bonds, which the Treasury
purchased through the War Finance Corporation, was not the market price and
was not the cost of the bond plus interest, and the elements entering into the settlement are not disclosed by the correspondence. The managing director of the
War Finance Corporation stated that he and an Assistant Secretary of the
Treasury agreed to the price, and it was simply an arbitrary figure set by an
Assistant Secretary of the Treasury as to the bonds so purchased from the War
Finance Corporation.
During the period of these transactions and up until a quite recent date the
managing director of the War Finance Corporation, in his private capacity,
maintained an office at No. 14 Wall Street, New York City, and through the War



32

NOMINATION OF EUGENE MEYER

Finance Corporation sold about $70,000,000 in bonds to the Government, and
also bought through the War Finance Corporation about 810,000,000 in bonds,
and approved the bills for most, if not all, of these bonds in his official capacity
as managing director of the War Finance Corporation. When these transactions, just referred to, were disclosed to the committee in open hearing, the
managing director appeared before the committee and stated that while the
books of the War Finance Corporation disclosed the fact that commissions were
paid on these transactions, they were in turn paid over to the brokers, selected by
the managing director, who executed the orders issued by his brokerage house,
and immediately after this disclosure to the committee the managing director
employed Ernst & Ernst, certified public accountants, to audit the books of the
War Finance Corporation, who did, upon the completion of their examination of
these books, report to the committee that all moneys received by the brokerage
house of the managing director had been accounted for.
While simultaneously with the examination being made by the committee the
certified public accountants, heretofore referred to, were nightly carrying on their
•examination, it was discovered by your committee that alterations and changes
were being made in the books of record covering these transactions, and when the
same was called to the attention of the treasurer of the War Finance Corporation
he admitted to the committee that changes were being made. To what extent
these books have been altered during this process the committee have not been
able to determine.
Notwithstanding the fact that there was no authority for the purchase of bonds
above par, such purchases were made. The dates of purchases of bonds as given
hy the Secretary of the Treasury, which would have shown that about $24,000,000
Lad been paid by the Government for bonds in excess of the highest market rate
for the various days on which it was alleged that the purchases were made were
found to be incorrect. It was also found that the dates given by the War Finance
Corporation and the Federal Reserve Bank of New York City, N. Y., did not
agree and that the records of the former also var}' as to dates of purchase. For
example, the dates furnished by the Fdderal reserve bank statements were sometimes given as the date of delivery of the bonds, sometimes the date of the transaction, and sometimes the date on which the transaction was reported. The dates
given by the records of the War Finance Corporation were equally confusing.
One transaction in the books of the War Finance Corporation has journal entry as
of November 15, 1918, a subentry in the journal as,of November 12, the detail
sheet is dated November 11, and the dates of purchase given as November 8 and 9.
The market prices varied each day. Only a complete audit will disclose how nearly
correct is the loss of $24,000,000 which the dates given by the Secretary of the
Treasury show.
DESTROYING THE EVIDENCE

10. The bonds and securities of the United States have been destroyed without
authority of law. Authority was expressly given to so destroy in section 3695,
Revised Statutes, which provided that the bonds purchased for the sinking fund
shall "be canceled and destroyed." The act of March 3, 1919 (40 Stats. 1312),
dealing with bonds bought for the sinking fund, changed the language to say
""shall be canceled and retired and not reissued," and then by a subsequent subdivision on same page expressly repealed the other act, to wit, 3695, which provided that they should "be canceled and destroyed," plainly showing that they
intended to substitute inhibition against reissue for destruction. Section 251 of
the Revised Statutes passed in 1820, relied on by the secretary to sustain his destruction of bonds, allows him to make regulations for those "in any way engaged
or employed in the preparation and issue of the same" as he shall deem best
calculated to promote the public convenience and "security and to protect the
United States as well as indviduals from fraud and loss." It will be noted that this
'deals with "preparation and issue" of securities, not retirement or destruction
of them. Congress has so construed it, and whenever destruction was necessary
it gave express authority. (See National bank notes, sec. 5184, R. S. 1864;
United States notes, sec. 3581, R. S. 1862; section as to bonds (now repealed)
3695, R. S. 1870; Money orders, 35 Stats. 415; Federal reserve notes, 38 Stats.
265, Fractional currency, 19 Stats. 215.)
If section 251 authorized it, why did Congress in each case expressly direct it?
In addition to this Congress has provided for a congressional committee to destroy
useless papers, February 16, 1889, subsequently amended by the act of March 2,
1895. (See 25 Stats. 672, 28 Stats. 933, under which the Secretary of the Treasury has been accustomed periodically to ask for the destruction of papers of many



NOMINATION OF EUGENE MEYER

33

kinds which could be destroyed under section 251 if it p e r m i t t e d destruction a t
all.
(See House Report 966, 68th Cong.)
Section 161, Itovised Statutes, is also relied on and it is equally against t h e m .
I t was passed in 1789 and gives the heads of d e p a r t m e n t s the power to m a k e all
regulations necessary t o t h e " c u s t o d y , use, and preservation of t h e records,
papers, and property appertaining to i t . " Note t h a t this allows the Secretary
to make regulations for the " p r e s e r v a t i o n " of records b u t not for destruction of
the same. The two being absolutely antagonistic, one can not be p r e s u m e d
from the other, and Congress has, with t h a t before t h e m , passed every act e n u m e r ated above allowing destruction, plainly showing its dissent from t h a t view.
The criminal law also prohibits it, and it is settled b y numerous decisions t h a t
regulations m u s t be in confromity with, and not contrary to, law. The act of
1874 (18 Stat. 206), providing for maceration machines, provides t h a t only
national-bank notes, United States notes, and other obligations of t h e U n i t e d
States authorized to be destroyed m a y be destroyed, t h u s emphasizing t h e f a c t
t h a t there m u s t be authority for destruction.
Sections 5403 and 5408, Revised S t a t u t e s (Barnes Federal Code, 9825 a n d
9826), are as follows:
''Tampering
with public records.—Whoever
shall willfully and unlawfully conceal, remove, mutilate, obliterate, or destroy, or a t t e m p t to conceal, r e m o v e ,
mutilate, obliterate, or destroy, or, with intent to conceal, remove, m u t i l a t e ,
obliterate, destroy, or steal, shall take and carry away any record, proceeding,
map, book, paper, document, or other thing, filed or deposited with a n y clerk o r
officer of any court of t h e United States, or in any public office, or with any judicial
or public officer of the United States, shall be fined not more t h a n $2,000, or i m prisoned not more t h a n three years, or b o t h . " (Barnes Federal Code, sec. 9 8 2 5 ;
R. S. 5403.)
"Destroying records by officer in charge.—Whoever,
having the custody of a n y
record, proceeding, m a p , book, document, paper, or other thing specified in t h e
preceding section, shall willfully and unlawfully conceal, remove, m u t i l a t e , obliterate, falsify, or destroy any such record, proceeding, m a p , book, d o c u m e n t ,
paper, or thing, shall be fined not more t h a n $2,000, or imprisoned not more t h a n
three years, or b o t h ; and shall, *noreover, forfeit his office and be forever afterwards disqualified from holding any office under the G o v e r n m e n t of t h e United.
States." (Barnes Federal Code, sec. 9825; R. S. 5408.)
These very drastic prohibitions show why it has always been necessary to h a v e
an act of Congress expressly allowing destruction of securities. There is no»
controversy as to t h e facts here; it is purely a question of law.
Great haste has accompanied t h e destruction of t h e bonds. This is illustrated
by the conduct of Treasury officials in connection with t h e destruction of a certain
large lot of duplicates which was t h e subject of special investigation for o t h e r
reasons. The duplication a m o u n t e d in money value to $133,000, face a m o u n t
of the bonds, and about the same a m o u n t in the value of t h e coupons. T h e b o n d s
were for $1,000 each and all of the 133 had come from one package (each p a c k age contained a thousand bonds) and most of them had been purchased by t h e
Treasury from the W a r Finance Corporation. When information was s o u g h t
from Treasury officials as to the duplicates concerned, there resulted an explicit
refusal of these officials to obey t h e direct orders of the President of t h e United
States contained in a signed letter which his representative presented.
This
information did not come to t h e committee from t h e representative, b u t w a s
admitted in t h e testimony of one of t h e officials who so refused. T h e i n c i d e n t
happened in August, 1922, when the bonds concerned had been destroyed a n d
the information sought was from records only. Concerning most of t h e s e
duplicates which have not been destroyed, the committee has affidavits of e x p e r t s
a t the Bureau of Engraving and Printing, who state they believe t h e m spurious.
While this has been disputed, Treasury records show t h a t $99,000 face a m o u n t
of these same duplicates purchased from t h e W a r Finance Corporation were
destroyed, and destroyed out of t h e regular order, on December 19, 1921, t h e
same day thai President H a r d i n g wrote t h e following letter:
DECEMBER

19,

1921.

M Y D E A R M R . SECRETARY: I talked with you this morning over t h e t e l e p h o n e
about suspending the destruction of bonds which have been exchanged for
new ones, etc., and was greatly pleased to h a v e your assurance t h a t this d e s t r u c tion would be permanently suspended. I think this administration ought t o
take t h a t course, as the surest m a n n e r of self-defense.
These bonds will not require any very extended storage space, and we will
have a very valuable refutation of neglect on t h e p a r t of this a d m i n i s t r a t i o n



34

NOMINATION OF EUGENE MEYER

if these exchanged securities and other questionable cancellations are preserved
for future reference and inspection.
I trust you will make the order a very explicit one and allow no variation
therefrom.
Very sincerely,
WARREN G.
The

HARDING.

SECRETARY OF THE TREASURY,

Washington, D. C.
Notwithstanding this letter, destruction was continued until the President
again, in April, 1922, demanded that it be stopped, when destruction was finally
stopped. The letter of the Secretary of the Treasury of April 26, 1924, states:
" I t is true that during the latter part of June, 1921, Mr. Brewer personally
called on the Secretary of the Treasury and urgently suggested, among other
things, that destruction be suspended. There were not at that time, however,
any orders or instructions of any kind from the President on the subject of
destruction, and the Secretary of the Treasury did not agree with Mr. Brewer
that destruction should be stopped, nor did he issue any such instructions
himself."
After June, 1921, there were about $10,000,000,000 worth of securities destroyed.
The statement of the Treasury Department in its letter of April 26, 1924,
was that the 133 one-thousand-dollar duplicate bonds referred to above were
erroneously listed. The bonds, however, had been destroyed, as have also most
of those about which the Treasury makes a similar statement. This well illustrates how seriously the destruction of bonds may affect the question as to what
is really outstanding.
The methods followed when the bonds were being destroyed show that, rather
than a duplication of the public debt requiring a multitude of people, a premise
to the conclusion of the Secretary of the Treasury that duplication resulted from
innocent error, destruction, as practiced, offered opportunity for one or two
men, and sometimes one man only, to recirculate the Government securities
with little chance of detection by removing them from the packages destroyed.
One man only certified to the account of $1,468,449,000 in securities (in violation of the regulations) which the destruction committee accepted in package
form and said were destroyed. (See Treasury letter of April 26, 1924.) The
committee also has originals of evidence of about $600,000,000 worth of additional securities similarly destroyed which were also likewise certified by one
man only. The committee also hold in safe-deposit boxes about $500,000 worth
of securities which the same destruction committee certified were destroyed in
May of 1918.
The accounts covering the payment, retiring, recording, and destroying of
securities must be thoroughly audited and the whole system of recording all
securities be most carefully considered and revised.
11. Based upon the study during the consideration of this inquiry, the committee believes that the printing of securities should be completely divorced from
the Bureau of Loans and Currency of the Treasury Department, which bureau
issues and circulates Government securities, and likewise the bureau of audit of
final recordation of payments should be completely divorced from the printing,
engraving, and issuing departments. In order to effectively accomplish this and
thus provide an additional safeguard, the committee recommends that the
division of paper custody and the Bureau of Engraving and Printing be separate
from the Treasury and function in a manner similar to that provided for the
Government Printing Office, reporting direct to a joint committee of the House
and Senate, and under the supervision of the director; and that the office of the
Register of the Treasury, which audits and records the retirement of paid and
canceled securities, should be also separated from the Treasury and likewise
function directly under a joint committee of the House and Senate and under
supervision of the Register of the Treasury.
Under this plan of operation the business of each of these offices will be carried
on practically as at present, except that the Director of the Bureau of Engraving
and Printing and the Register of the Treasury shall be responsible to Congress,
in whom is vested the authority to make money and to whom accounting for
same should be made. The Secretary of the Treasury would place all orders for
printing and engraving of money and securities with the Bureau of Engraving
and Printing; the Bureau of Loans and Currency of the Treasury Department
would supervise the issue thereof under the direction of the Secretary of the
Treasury; and the Register of the Treasury would receive and record paid and



NOMINATION OF EUGENE MEYER

35

•canceled securities. This would prevent any possibility of collusion in the printing and engraving, issue, or recordation and payment of securities.
12. In its relations with the committee the attitude of the Treasury has been
constantly a defensive one rather than one of willingness.
SUMMARY

13. The evidence discloses:
1. That there has been duplication of bonds, some fraudulent, the proportion
not yet determined;
2. That the report of the Treasury relative thereto is incomplete, contradictory,
and evasive, and the testimony it offered to show innocent error was refuted;
3. That records have been falsified, the extent of which is unknown to the
committee;
4. That indifference to duplications has been prevalent;
5. That legal remedies have been neglected in the payment of duplicates;
6. That destruction of bonds was conducted in haste and that destruction
records are not dependable;
7. That the bonds were destroyed in violation of law, of regulations, and of
presidential order and evidence of duplication thus removed;
8. That under a theory of economy evidence not destroyed has been rendered
useless and the Government also thus deprived of its main safeguard against
future fraud;
9. That the will of Congress has been overriden in the repurchase and sale of
millions of dollars' worth of bonds;
10. That questionable methods were employed in handling these funds;
11. That substantial, actual losses to the Government have resulted; and
12. That the extent of these losses has been rendered uncertain by failure of
records to agree.
Because of the ending of the life of this committee with the termination of the
present Congress on March 4,1925, the committee are turning over to the Congress,
duly inventoried, all of the evidence in their possession, together with copies of
the hearings and a copy of this special report. The committee desire to state in
this connection that there is much evidence in the files of the Treasury Department, including the office of the Register of the Treasury, the Division of Loans
and Currency, the Bureau of Engraving and Printing, and the Commissioner of
the Public Debt, that should be maintained and made available at any time to the
Congress or any designates on the part of Congress. The committee also desire
to call special attention to the preservation of paid securities, both coupon and
registered bonds and war-savings stamps and the coupons thereto attached and
unattached, until Congress finally disposes of the subject of this inquiry.
The committee consider it absolutely essential that there be immediate restoration of the examination, comparing, and recording of coupons, a comprehensive
audit of the public debt and all other matters covered by House Resolution 231,
and that proper legislation be enacted extending the powers of the committee
beyond the 4th of March in order that there may be an ascertainment through
such audit of the amount of losses sustained by the Government, that necessary
steps be taken to recover these losses, and to prevent in future the abuses herein
outlined. This report is based upon the report of a subcommittee consisting of
Mr. McFadden, Mr. King, and Mr. Steagall) except as to where it was modified
by subsequent evidence), said report being submitted and approved January 7,
1925, and is hereto attached and marked "Exhibit A."
EDWARD J. KING.
HENRY B. STEAGALL.
W. F. STEVENSON.
MARCH 2,

1925.
EXHIBIT A

REPORT OF SUBCOMMITTEE OF SPECIAL BOND COMMITTEE

Your special committee appointed under House Resolution 231, Sixty-eighth
Congress, first session, "To investigate the preparation, distribution, sale, payment, ietirement, surrender, cancellation, and destruction of Government bonds
and other securities," has had these various questions under its consideration
since the adoption of the resolution, March 24, 1924, and is now in the midst of
its inquiry.



36

NOMINATION OF EUGENE MEYEK

I t has been necessary to go into practically all t h e phases of the public debt, a
s t u p e n d o u s question, and a great deal of time during vacation has been devoted
t o t h e work. Practical!} 7 t h e continuous presence of t h e committee has been
necessary since September 16 last. Hearings so far have been conducted in
Washington a n d New York. M a n y witnesses, including Treasury officials,
h a v e been heard. M a n y others, including other officials of the Treasury, are
to be heard.
G o v e r n m e n t bonds and other secvirities, t h e subject m a t t e r of t h e inquiry, are
printed by t h e Bureau of E n g r a v i n g and Printing on distinctive silk-fiber paper
m a d e a t t h e paper mills, Dalton, Mass. They are issued by t h e Treasury proper
principally t h r o u g h t h e Federal reserve banks to the other banks a n d t h e public.
Some reach t h e public directly from t h e Treasury. After circulation t h e securities
are retired or redeemed from t h e public and t h e banks generally through the
Federal reserve b a n k s a n d t h e Treasury, some coming directly to t h e Treasury.
T h e y are surrendered t o t h e Register of t h e T r e a s u r y . Some reach the register
t h r o u g h t h e Tresaurer of t h e United States and through Loans and Currency
Division of t h e Treasury.
T h e a n n u a l report of t h e Secretary of the Treasury for 1924, filed with Congress, pages 76 to 8 1 , refers to the subject of duplication of bonds, and in a
" l e t t e r " to t h e President of the United States dated April 26, 1924, the Secret a r y of t h e Treasury s u b m i t t e d a special report consisting of about 200 pages of
p r i n t e d t e x t and t a b u l a t e d m a t t e r purporting to prove there had been no duplication of t h e public d e b t a n d t h a t charges to tins effect were wholly unfounded.
T h e committee, of course, gave most careful consideration to these reports.
F r o m its examination of Treasury reports a n d records and the testimony of
T r e a s u r y officials and employees, your committee finds t h a t :
1. Duplicate bonds a m o u n t i n g to 2,314 pairs and duplicate coupons amounting
to 4,698 pairs, ranging in denomination from $50 to $10,000, have been redeemed
t o July 1, 1924—that is, two bonds a n d two coupons bearing the same identical
n u m b e r . T h e s t a t e m e n t as to coupons includes only one for eacli bond. If the
various duplicated coupons of t h e same bond are included, t h e number would
be greatly increased. Duplications resulting from t h e slipping of t h e numbering
machine are negligible and inconsequential. Some of t h e duplications have
resulted from error a n d some from fraud. T h e proportion has not been determined. T h e extent of t h e duplications is also uncertain from the record as far
as it has gone a n d an i m p o r t a n t p a r t of the work by which duplication is detected was stopped by t h e Treasury in July, 1924, referred to later.
2. Duplicate p a y m e n t s of t h e same identical bonds, stolen from Treasury
v a u l t s by employees a n d again circulated, have been m a d e in frequent cases. T h e
extent of t h e thefts is rendered uncertain by inexact m e t h o d s and faulty accounting.
3. T h e report of t h e Treasury embodied in t h e letter from the Secretary to
t h e President dated April 26, 1924, on the subject of duplication of bonds, is
incomplete, contradictory, a n d evasHe and t h e main p a r t of the proof offered
t o show t h e duplication resluted from error was demolished by the committee
disco\ ering within t h e Treasury D e p a r t m e n t m a n y of t h e very bonds which t h e
Secretary's report claimed h a d never been printed, and on t h e alleged nonexistence of which he justified t h e p a y m e n t of t h e duplicate bonds, his theory being
t h a t , because t h e numerical register for recording surrendered bonds showed
open spaces beside certain numbers, it could be presumed those numbers had
never been printed b u t t h a t two bonds bearing t h e same number had been erroneously printed in their stead and could t h u s be " a l l o c a t e d . " The committee
discovered t h a t some of these " a l l o c a t e d " bonds which had been paid had been
in t h e T r e s a u r y for four years a t t h e time t h e Secretary's report of April 26,
1924, told t h e President they did not exist. T h e committee also discovered t h a t
other such bonds are continuing to appear and are being paid.
4. T h e possibility of a proper balance of t h e books is precluded by m a t t e r s
shown b y t h e Treasury records.
5. Whether t h e major duplication so resulted therefrom or not is yet to be
determined, b u t it is clear there was opportunity for fraudulent wholesale duplication of G o v e r n m e n t bonds a t t h e Bureau of Engraving and Printing, t h e Division of Loans a n d Currency, and t h e register's office, and t h a t t h e opportunity
was so created by t h e a b a n d o n m e n t of regulations formerly designed as safeguard a n d was encouraged b y loose practices in bookkeeping and accounting
m e t h o d s and t h a t some i m p o r t a n t frauds have resulted from these practices.
6. Falsification of record has occurred as to distinctive silk-fiber paper in t h e
Division of Loans and Currency, in t h e handling of securities in t h e Bureau of
Engraving a n d Printing, and in t h e destruction records.



NOMINATION" OP EUGENE MEYER

37

7. Little or no attention was paid to duplicate bonds when they were received
in the Treasury and known to be duplicates. Employees generally seemed to
have prejudged the case and decided that duplication resulted from error. This
attitude is so well illustrated by the questions of Congressman Strong of the
committee, answered by Mr. Speelman, Register of the Treasury, that they are
herewith incorporated:
"Mr. STRONG. It just strikes me, Mr. Speelman, as a very peculiar situation,
where a great department is receiving bonds after payment, for cancellation,
and they discover that a duplicate number has been paid, that there is not more
investigation and more decision about it than simply to report it and then forget
about it. If forces the conclusion that if Mr. Brewer had not dug this matter
up there never would have been any investigation. That seems to me to be a
situation that I should hate to see established.
" Mr. SPEELMAN". Well, that seems to have been the policy of the department.
" Mr. STRONG. Then the presumption is that when duplicate numbers come in
they do not care; they just presume that everything is all right, and the people
are not protected, especially the Treasury. * * *
" Mr. SPEELMAN. Well, I suppose that the Treasury Department would be
interested of course.
" Mr. STRONG. Let me make my thought plain. I get my checks back from the
bank. I number every check as I issue it. If I discover two checks numbered
alike, I would immediately make an investigation to see whether or not I had
issued both checks. If that came up month after month and day after day, I
would be put on inquiry as to why I or the person that numbered those checks
for me was making a mechanical error, and I would immediately start some
investigation about it. And it does seem to me strange that in a great department like the Treasury Department of the United States, where they are issuing
these bonds running up into the thousands when they find duplicate numbers when
they come to pay them—the number being put upon the bond for its identification—when they find two bonds numbered alike, and that goes on time after time,
it seems to me rather remarkable that you should say that you simply write a
letter notifying the Secretary's office that they are duplicates, and that they never
come to make any inquiry or pay any attention to it until an investigation is
started by the Congress of the United States or some one from the Department of
Justice. It seems to me the department itself would have immediately started an
investigation. I am rather surprised to have you make that admission."
8. The Government is not liable for the payment of fraudulent bonds or
coupons, for example, coupons that have been altered to secure earlier payment
of interest, or for bonds that have been sotlen prior to issue, even though regularly
printed under Government authority or which have been paid and stolen after
payment and again passed through regular channels for repayment as has been
the case as disclosed by Treasury records.
9. Protection against fraudulent duplication of bonds and coupons, counterfeits, and stolen bonds and coupons, etc., provided by the courts can not be
availed of unless examination at Washington is prompt. By a change in last
year's appropriation bill, about which the Treasury was consulted, examination,
comparing, and recording of coupons was dispensed with. The committee
considers this examination, comparing, and recording is the Government's
principal safeguard against duplication, counterfeiting, and other fraud in
coupons whose cumulative value is the same or greater than the whole public
debt. This should be restored immediately.
10. In the repurchasing on the market through the bond-purchase fund, the
sinking fund, etc., various practices have been followed which must be corrected.
For example:
(a) A preference in purchasing hundreds of millions of dollars' worth of certain
issues as high as $98 when other issues were selling as low as $86 has made its
bonds cost the Government about $60,000,000 more than they otherwise would.
(6) Instead of buying the bonds directly the Treasury employed the War
Finance Corporation for such purpose. And instead of promptly turning into
the Treasury the bonds purchased the War Finance Corporation accumulated
great quantities of bonds, held them, and collected altogether nearly $28,000,000
in interest on them from the Treasury. And though the Ways and Means Committee in framing the third Liberty loan act changed the Treasury's bill in order
to prevent the Treasury from selling bonds below par the War Finance Corporation carried on an extensive trading in these bonds on the stock exchange in
" w a s h " sales, frequently selling bonds on the market at less than cost and selling the same issue of bonds on the same day at several dollars less per hundred



38

NOMINATION OF EUGENE MEYEB

t o others t h a n t h e y sold t h e m to t h e Treasury, and, furthermore, often sold to
t h e T r e a s u r y a t a higher price t h a n w h a t t h e bonds had cost. Mr. Eugene
Meyer, jr., managing director of t h e War Finance Corporation, and Messrs.
R. C. Leffingwell a n d S. P a r k e r Gilbert, Assistant Secretaries of t h e Treasury,
settled on t h e price which t h e G o v e r n m e n t paid for over $1,894,000,000 worth
of bonds bought from t h e W a r Finance Corporation, t h e basis of which price
was n o t t h e m a r k e t price, was not t h e cost of t h e bond, and was not disclosed
by t h e correspondence. Mr. Meyer stated t h a t he and Mr. Leffingwell agreed
t o t h e price a n d it was simply an a r b i t r a r y figure set by Mr. Leffingwell (as to
t h e bonds b o u g h t from t h e War Finance Corporation prior to J u n e 30, 1920,
99 per cent). T h e managing director of t h e War Finance Corporation in his
p r i v a t e capacity m a i n t a i n e d an office a t No. 14 WTall Street, New York City,
and, t h r o u g h t h e W a r Finance Corporation, sold a b o u t $70,000,000 in bonds
to t h e G o v e r n m e n t a n d also bought through t h e War Finance Corporation about
$10,000,000 in bonds a n d approved t h e bills for same in his official capacity.
All transactions of the W a r Finance Corporation must be thoroughly audited
to ascertain the m a n n e r by which and the parties through whom and to whom
t h e G o v e r n m e n t lost the money which the record proves was lost. It was to
prevent just such questions being raised t h a t Congress in its widsom long ago
prohibited Government officers from having any interest, direct or indirect, in
transactions which they were called upon to approve and for the same purpose
was written into the W a r Finance Corporation act the following. Section 3
states:
" * * * j ^ o director, officer, a t t o r n e y , agent, or employ ee of the corporation
shall in any manner, directly or indirectly, participate in the determination of
a n y question affecting his personal interest, or t h e interests of any corporation^
p a r t n e r s h i p , or association, in which he is directly or indirectly interested."
And section 300 s t a t e s :
" * * * T h a t whoever willfully violates any of the provisions of this act,
except where a different penalty is provided in this act, shall, under conviction
in any court of t h e United States of competent jursidiction, be fined not more
t h a n .$10,000 or imprisoned for not more t h a n one j ear, or b o t h . "
11. Since discontinuance of the W a r Finance Corporation in buying and selling
bonds, the practice of selling bonds on t h e m a r k e t has continued, although Congress in t h e third Liberty loan act, as passed, refused permission to the Treasury
for t h e same. This and also purchasing-bonds above par with the command of
funds a m o u n t i n g to hundreds of millions of dollars annually should be condemned and the whole general scheme thoroughly revised. The dates of purchase
as given by the Secretary of the Treasury which would have shown thai about
$24,000,000 had been paid by the Government for bonds in excess of the highest
m a r k e t rate for the various days on which it was alleged t h a t the purchases were
m a d e were found to be incorrect. I t was also found t h a t the dates given by t h e
W a r Finance Corporation and t h e Federal reserve bank did not agree and t h a t
t h e records for the same p a r t y also vary as to dates of purchase. For example,
t h e dates furnished by the Federal reseiwe bank s t a t e m e n t s were sometimes
given as t h e d a t e of delivery of t h e bonds, sometimes the date of the transaction^
and sometimes the date on which the transaction was reported. The dates given
by t h e records of the W a r Finance Corporation were equally confusing. One
transaction in the books of t h e War Finance Corporation has journal entry as of
N o v e m b e r 15, 1918, a subentry in the journal as of November 12, the detail
sheet is dated N o v e m b e r 11, and the dates of purchase given as November 8 and 9.
T h e m a r k e t prices varied each day. Only a complete audit will disclose how
nearly correct is t h e loss of $24,000,000, which t h e dates given by the Secretary of
t h e Treasury show.
12. Destruction of bonds was in violation of law, in \ iolation of presidential
order, and in violation of t h e Treasury Regulations (made when authority t o
destroy existed). A u t h o r i t y to destroy bonds was repealed in 1919. Since then
any such destruction was in violation of t h e United States Criminal Code. The
committee has evidence t h a t the destruction was pushed with determination and
haste.
T h e m e t h o d s followed in destruction show t h a t rather than duplication of the
public d e b t requiring a m u l t i t u d e of people—a premise to t h e conclusion of the
Secretary of the Treasury t h a t duplication resulted from innocent error—destruction, as practiced, offered opportunity' for one or two men and sometimes
one m a n only to recirculate the Government securities with little chance of
detection. One m a n only was permitted to certify to the count of $1,468,449,000
in securities (in violation of t h e regulations) which the destruction committee
accepted in package form and said was destroyed. (See Treasury " l e t t e r " of



NOMINATION OF EUGEXE MEYER

39

April 26, 1924.) The committee also lias originals of evidence of a b o u t S600,000,000 worth of additional securities similarly destroyed which were also counted
by one man only. T h e committee also holds in safe deposit boxes a b o u t $500,000
worth of securities which t h e same destruction committee certified were destroved
in May of 1918.
The accounts covering the p a y m e n t , retiring, recording, and destroying of
securities must be thoroughly audited and the whole system of destroying all
securities be most carefully considered and re\ised. Destination of any securities
and any recoids pertaining thereto should, of course, be prohibited until the audit
is completed and the committee completes its in\ cstigution and m a k i s its
recommendations relative to this subject.
13. From its consideration of the subject, the committee is thoroughly convinced t h a t the printing of securities should be t h o r o u g h h divorced from t h e issue
of same and the issue and circulation hkewise thoroughly d h o r c e d from final
retirement. In order to effectively accomplish fnis, and place the handling of
securities on an efficient basis and one that is above reproach, the division of p a p e r
custody and Bureau of Engraving and Printing, the l a t t e r <f which prints t h e
securities, and the office of the Register of the Treasury, which retires them, should
be taken over and placed under a joint committee of the Senate and House after
the order of the present provisions for the Public Printer.
15. In its relations with the committee the Treasury D e p a i t m e n t has been
constantly on the defensive and, while its letters h a v e professed a readiniss t o
assist the committee in the inquiry, its unwillingiif ss to really cooperate has been
manifest.
16. The committee has stated herein that the e\idence discloses:
" 1 . T h a t there has been duplication of bonds, some fraudulent, the proportion not yet determined;
" 2 . T h a t the report of the Treasury relative thereto is incomplete, contradictory, and evasive; and proof it offered to show innocent error was demolished;
" 3 . T h a t records have been falsified; c \ t i nt of same u n k n o w n ;
'"t. That indifference to duplications has been prevalent;
' ' 5 . That legal remedies have been neglected in the paym< nt of duplicates;
" 6 . T h a t destruction of bonds was prosecuted in haste and t h a t destruction
records are not dependable;
" 7 . T h a t the bonds were destroyed in violation of law, of regulations, a n d of
presidential order and t h e best evidence of duplication t h u s r e m o v e d ;
" 8 . T h a t , under a theory of economy, evidence, not destroyed, has been
rendered useless and t h e Government also t h u s deprived of its m a i n safeguard
against future fraud;
" 9 . T h a t t h e will of Congress has been overridden by connivance in t h e repurchase and sale of millions of dollars of b o n d s ;
" 10. T h a t questionable m e t h o d s were employed in handling these funds;
" 1 1 . T h a t substantial actual losses to t h e G o v e r n m e n t have resulted; a n d
" 1 2 . T h a t t h e extent of these losses has been rendered uncertain by failure of
records to agree."
Because of these facts, t h e immediate restoration of t h e examination, comparing, and recording of coupons, a comprehensive a u d i t of t h e public d e b t a n d
all other m a t t e r s covered by t h e resolution (231), a n d an extension of t h e powers
of t h e committee by legislation beyond t h e 4 t h of M a r c h are considered absolutely
essential in order t h a t t h e committee complete its investigation and m a k e recommendations for correcting t h e abuses, to t h e Sixty-ninth Congress or as soon
thereafter as possible, ascertaining t h r o u g h t h e a u d i t t h e extent of t h e losses
suffered by t h e Government and t a k e steps to recover same.
17. T h e committee will submit bills to cover t h e necessary legislation t o carry
out t h e various purposes referred to herein and recommends favorable consideration of same by Congress.
STATEMENT BY MR. M'FADDEN

I have withheld my signature from t h e report of t h e special committee which
was prepared, signed, and presented by three of its members, for t h e reason
t h a t the report, under t h e exigencies of t h e situation, was, in m y j u d g m e n t ,
presented prematurely, and for t h e reason t h a t h a d its presentation not been
forced by the approaching end of this Congress, it might have had a different
tenor and different recommendations.
While t h e committee has proceeded as expeditiously as circumstances p e r m i t t e d ,
and has progressed satisfactorily in its inquiry and investigation to t h e time of
the conclusion of such inquiry and investigation, its hearings were necessarily



40

NOMINATION OF EUGENE MEYER

much curtailed and finally suspended to permit a report to be made to the present
Congress. There has not been opportunity to hear many of the witnesses
available to it, and the committee did not have time or opportunity to call or
hear all of the witnesses offered by the Treasury Department, or permit crossexamination by that department of witnesses previously heard, a courtesy
-which, in my judgment, should be fully accorded to it. In consequence of this,
the investigation was suspended before the committee had exhausted the evidence
and data available to it, and, of course, its conclusions and recommendations are
not as authoritative as if they had followed an examination of a wider scope.
It was my desire that the authority of the committee be continued for a
sufficient length of time to accord opportunity for a full and complete hearing
on this most important subject, but, such authority having been refused, I can not
subscribe to a report which, under the necessities of the case, is incomplete and
which, if hearings had been continued, might have stated different conclusions,
and, necessarily, different recommendations.
Louis T. MCFADDEN.
STATEMENT OF MR. STRONG, OF KANSAS

Three members of committee of five signed the majority report and the chairman has filed a separate report. I do not agree with the conclusions as set forth
in the majority report, nor do I concur in the statements on which such conclusions are based. I find that the evidence presented to the committee does not
substantiate the statements and conclusions set forth in the majority report.
There have been duplicate-numbered bonds issued by the Treasury, but I do
mot find that these bonds were spurious or fraudulent nor that the Government
did not receive full payment therefor.
I find that there were errors made and that some petty thieving occurred. I
•find, however, that such errors and such pettj r thieving were not more than could
be expected under the volume of work and the general war-time conditions that
prevailed. In fact, it is remarkable that, in handling over $140,000,000,000 in
bonds and other securities from the beginning of the war up to the present time,
the Treasury has sustained so few losses. This achievement deserves commendation rather than criticism.
The Secretary of the Treasury has repeatedly stated that these charges made
In the majority report are unfounded and has ever so insisted when before our
committee. It should be noted in this connection that the majority report
deals with matters which occurred prior to the time that the present Secretary
of the Treasury took office and that he would have no personal or political reason
for defending any such charges as made if they were founded on fact.
Mr. Brewer, who produced much of the testimony upon which the majority
report is based, has been engaged on this general matter for almost four years
without any appreciable result. His investigation has cost the Government
hundreds of thousands of dollars in time, labor, and other expenses, and your
select committee has already spent $10,000 in this investigation. On the basis
of the evidence presented, to continue the committee and to have an audit as
requested by the majority report would be nothing less than a great waste of
public moneys. If there were fraud, as charged, the public interest would demand
an audit. There has been no fraud and there is, therefore, no occasion for an
audit. A complete audit would take possibly 10 years with an inestimable amount
of expense.
The recommendations for the separation of the register's office, the Bureau
of Engraving and Printing, and the Division of Paper Custody from the Treasury
Department, making them an independent establishment by act of Congress, are
ridiculous. Such recommendations are not justified by any evidence that has
been presented before your committee.
I could at great length point out how unfounded are the conclusions as expressed in the majority report. I feel that this is unnecessary, but it is perhaps
well to call your attention to the following as an example: Under the heading
"Destruction of evidence" in the majority report an opinion is rendered on the
law in relation to destruction, holding that the Secretary of the Treasury has no
authority to destroy securities. The Secretary of the Treasury has always had
such authority and the Attorney General of the United States has in a recent
written opinion conclusively confirmed the Secretary's authority.
Respectfully submitted.




JAMES G.

STRONG.

NOMINATION OF EUGENE MEYER

41

Representative M C F A D D E N . I would like also to place in the record
a letter of Harold F. Haynes, a member of the Bar of the District of
Columbia, who is engaged in this particular phase of the study of this
committee, and who, under date of January 7, reviewed this unprinted letter and has presented this matter.
Senator CAREY. IS that letter just his conclusion about the matter?
Representative M C F A D D E N . Yes.
Senator CAREY. That is a conclusion t h a t he has drawn. I do n o t
think it is fair to insert that in the record.
Representative STRONG. I suggest that this be a complete report
of that committee, including the minority report.
Senator CAREY. Yes; you will furnish us with the letter, Mr.
McFadden?
Representative M C F A D D E N . Yes; I will furnish that.
Senator CAREY. Have you a memorandum of the questions t h a t
you wish asked of these witnesses?
Senator WAGNER. Since a good deal of the testimony that M r .
McFadden has given has been a matter of opinion, I should like to ask
Mr. Strong what his opinion is of Mr. Meyer as a result of his contacts
and investigations as a member of the Banking and Currency Committee of the House.
Representative STRONG. I have served for 12 years on the Banking;
and Currency Committee of the House, and I thought that the
appointment of Mr. Meyer was a very fine one. M y thought was
that he was unusually well equipped for the position. He had been
in the banking and bonding business prior to the war. He had given
it up when the Government went into the bonding business and was
selected by the Treasury to try to stabilize the bonding issues to sell
their bonds, and thereby gathered a great deal of experience with
regard to such matters.
He was the chairman of the War Finance Corporation, in which
legislation I was very much interested when it went through our
committee in the House, and loaned a matter of two hundred or
more million dollars that was of great help in the marketing of agricultural products throughout the country and lost no money thereby,
and then became commissioner of the Farm Loan Board, with its 12
farm-loan banks. This board had supervision also of the joint-stock
land banks. I have been very much interested in the Federal land
banks and the legislation that passed through our committee for
them. I took immediate interest after Mr. Meyer became commissioner, and I felt that he did a wonderfully good job, if I may use
such term, in straightening out that system and helping it and
making it serve the purpose for which it was created. With all this
wealth of experience behind him, I felt that he was well qualified t o
be advanced to the position of governor of the Federal reserve system.
Senator FLETCHER. Do you not know that the loaning power of
those banks had decreased vastly from the time Mr. Meyer became
commissioner until he resigned?
Representative STRONG. The loaning power?
Senator FLETCHER. Yes.
Representative STRONG. Certainly. That is what we want.
Senator FLETCHER. The loaning power decreased so t h a t they
could not make loans as applied for, desired, and needed?



42

NOMINATION OF I.I'GEXE JTKYET!

Representative STRONG. I do not think that is true. I understood
you to say increased, not decreased. There has never been a time
when the farm loan banks in our country since 1922 have not had
abundant funds. They have always been able to sell their bonds at
fair prices.
Senator FLETCHER. Do you mean to say now that the joint-stock
loan banks in your part of the country are making loans as they did
years ago?
Representative STRONG. I am not speaking of the joint-stock loan
banks, but the Federal farm banks, which 1 think I can say are in
sound condition and have been in a position to meet all loan requirements. I was a member of the committee with my chairman here
who visited Federal farm banks over the United States, and I know
that our own bank at Wichita has ample funds.
Representative M C F A D D E N . May I correct you there? You and I
never visited the Federal Farm Loan banks. We visited the Federal
Reserve Banks.
Representative STRONG. But at almost each city where there was
a Federal Reserve bank there was a farm-loan bank, and we visited
them and had their experts and officers show their condition to our
committee.
Senator FLETCHER. There is no such thing as a farm-loan bank.
Of the Federal Land Banks there are twelve in as many districts in
the country, but you do not have a Federal Land Bank wherever you
nave a Federal reserve bank.
Representative M C F A D D E N . In view of the statement that has been
made by Mr. Strong as a member of the committee, this committee
will be interested in certain developments which were disclosed in
those hearings in reference to the books of the War Finance Corporation while they were before the committee, and I direct your particular attention to that fact, that while these books of the War
Finance Corporation were daily being brought before our committee
by the people who were custodians of them and taken back to the
Treasury at night, the committee discovered that alterations were
being made in the permanent records. That was verified by the
treasurer, Mr. Berklin, who was called before the House committee.
Rumor has it now that much of these books has been rewritten. As
to that, the committee should have full information.
But this question has been raised here now; and, inasmuch as it
has been raised, you should have the books before you, and a complete audit of the War Finance operations. You should have the
facts and know the profits or losses made in the transactions in
Government securities. I t has a bearing on the final results of the
operations of the War Finance Corporation.
Representative STRONG. I think I should say to this committee
that so long as my chairman and I are so directly opposite, that the
same situation existed in our special committee. (The three other
members of the committee were also opposed to my position.) I
think I should also say that I never had any business connection
with Mr. Meyer or any one with whom he is associated.
Senator BROOKHART. On that proposition the newspapers say you
were a candidate for membership on the Federal Reserve Board yourself. Is that correct?



NOMINATION" OF EUGENE MEYER

43

Representative STRONG. I was suggested for the Federal Reserve
Board by the Senator from my State.
Senator BROOKHART. Naturally that makes you friendly to the big
boss.
Representative STRONG. I t does not make me friendly to the big
boss because I do not think the big boss favored my nomination. I n
fact, I am quite sure that he did not.
Senator BROOKHART. But that is what you would like to have.
Senator GOLDSBOROUGH. This is getting down to personalities. I
move that that be stricken out of the record.
Senator BROOKHART. Mr. Chairman, that is material to the record,
and it was not personal either. I think that the Senator has gone just
a little too far in that regard. I want to know simply the facts.
Representative STRONG. I am perfectly willing that the Senator
should ask anything that he wants to. In fact, I believe that if Mr.
Meyer had favored my nomination I would have been nominated.
Senator BROOKHART. I believe that, too.
Senator GOLDSBOROUGH. Then you are together.
Representative STRONG. SO I am not over persuaded in my judgment of his ability because of personal obligations.
Senator BROOKHART. YOU say that he loaned $200,000,000 in the
War Finance Corporation. That is the maximum that was loaned at
one time?
Representative STRONG. Certainly.
Senator BROOKHART. Was it not about $180,000,000?
Representative STRONG. I think it was about $200,000,000.
Senator BROOKHART. And the capital stock of the corporation was
$500,000,000?
Representative STRONG. Yes, sir.

Senator BROOKHART. SO in aiding the farmers they were not able
to use oven half of the capital stock value?
Representative STRONG. I went over my district and urged every
organization to apply for funds that needed them, and I never found
one single person or bank that applied that did not get the money.
Senator BROOKHART. That might be true in your district.
Representative STRONG. I t was true in m y district.
Senator BROOKHART. What was done with the rest of this capital
that was not loaned to the farmers?
Representative STRONG. I do not know.
Senator BROOKHART. That is what they used to speculate in these
Government bonds, is it not?
Representative STRONG. I do not think so.
Senator BROOKHART. You do not know about that?
Representative STRONG. I do not know.
Mr. M E Y E R . For the information of the committee, I will say that
while agricultural credits were being administered by the corporation
there were no dealings in bonds in the same way.
Senator BROOKHART. I have several questions to ask Mr. Meyer
later on that proposition when he comes on the stand.




44

NOMINATION OF EUGENE MEYER

(Thereafter, Representative Strong requested that his remarks
in the House on the Report of the Special Bond Committee be made
a part of this hearing, which remarks were as follows:
[Extension of remarks of If on. James O. Strong, of Kansas, in the House of Representatives Tuesday
March 3, 1U25]
O N T H E R E P O R T OF T H E S P E C I A L C O M M I T T E E A P P O I N T E D U N D E R H O U S E R E S O L U T I O N 231 " T o I N V E S T I G A T E T H E I S S U A N C E , S A L E , P A Y M E N T , AND C A N C E L L A T I O N OF G O V E R N M E N T S E C U R I T I E S "

Mr. STRONG of Kansas. Mr. Speaker, because of t h e objection by Mr. King,
of Illinois, who signed t h e majority report of this committee, to t h e request by
Mr. Longworth, our p a r t y leader, t h a t I should address t h e House on this subject, I a m under t h e necessity of taking a d v a n t a g e of t h e privilege granted mo by
t h e House to extend my remarks.
This m a t t e r has been t h e subject of newspaper publicity and assumes vital
i m p o r t a n c e unless t h e t r u t h is known to my fellow Members and t h e country.
A Washington newspaper on F e b r u a r y 21 carried headlines t h a t Liberty bond
duplication had been confirmed, a n d dealt a t length with a report t h a t was to be
filed by t h e select committee, of which I a m a member, appointed under House
Resolution 231, to investigate t h e preparation, distribution, sale, p a y m e n t , retirement, surrender, cancellation, and destruction of Government bonds and
other securities. I was astounded t h a t any member of a committee of this
House, in violation of its tradition a n d precedent, should broadcast its report
before it was formally filed with this House. I t was done without my knowledge, as have been m a n y other things by t h e same committee. Three members of
t h e committee have now filed a report, t h e chairman a separate report, and I
h a v e filed a minority report disagreeing entirely with the majority's views.
F o u r years ago this March Mr. Brewer, t h e investigator of t h e raincoat and
harness cases which blew up in court and were t h e subject of severe condemnation by t h e Federal courts, started on an investigation of what was charged as a
wholesale duplication of t h e public d e b t and a conspiracy to defraud t h e Gove r n m e n t . T h e m a t t e r was to a large extent interwoven with t h e dismissal
from t h e Bureau of Engraving a n d Printing of a n u m b e r of Government employees, all of whom, except those who died or those who refused to accept their
old positions, have been reinstated. President Coolidge in October, 1923,
t h r o u g h Mr. C. G. Washburn, of Worcester, Mass., who m a d e a thorough investigation of t h e m a t t e r as t h e direct representative of t h e President, advised Mr.
Brewer, in order t o bring t h e m a t t e r to a conclusion, t h a t he would be permitted
t o continue his investigation until J a n u a r y 1, 1924, a n d t h a t his report must be
filed by J a n u a r y 15, 1924. Mr. Brewer filed his report in accordance with the
President's direction. I t was referred to t h e Treasury, investigated, and replied
t o in a letter to t h e President dated April 26, 1924, from t h e Secretary of t h e
Treasury, a most convincing answer. T h e m a t t e r , however, did not rest there,
a n d Mr. Brewer, through some friends in this body, gained the a t t e n t i o n of this
House, which, knowing little of t h e real facts, saw fit to authorize a select comm i t t e e to investigate his charges.
I have great admiration for my colleagues on the committee. They are able
legislators, and 1 do not w a n t to criticize t h e m ; b u t it has always seemed to me
t h a t t h e proper way to investigate any subject, and especially one t h a t is highly
technical, is to examine a t first hand the operations involved. This was urged
by t h e Treasury D e p a r t m e n t in two letters to t h e committee, and I myself
suggested t o t h e committee t h a t it visit t h e Bureau of Engraving and Printing
and t h e various divisions or offices handling t h e operations under investigation This t h e committee did not do. M y fellow members of the committee probably
are better able t h a n I to grasp these technical m a t t e r s from t h e air or from Mr.
Brewer. B u t so far as I a m concerned, I prefer first-hand information. Accordingly, I visited t h e Bureau of Engraving and Printing and other offices in t h e
Treasury D e p a r t m e n t , carefully studying t h e various processes in t h e printing,
examination, counting, and so forth, of Government bonds and securities, a n d
took a stenographer with me to m a k e notes as I went along. I found t h a t each
sheet of silk-fibered paper is repeatedly checked and counted during the process
through which it passes until it comes out as either currency or bonds. In t h e
case of currency, 16 h a n d a n d 6 mechanical counts are m a d e ; in t h e case of bonds,
21 counts are m a d e . So duplications of currency, notes, or bonds is reduced
almost to a n impossibility. I learned t h a t duplicate-numbered bonds were



NOMINATION OF EUGENE MEYEE

45

possible through sticking, slipping, or breaking of numbering machines, and errors
through hand make-up numbering machines; and especially so during t h e war
period, when great quantities of bonds were being printed and issued, a n d when
the personnel in the Bureau of Engraving and Printing was increased from 4,000
to 8,000, forcing t h e employment of new a n d untrained people. On t h e basis of
my examination, I a m firmly convinced t h a t duplicated-numbered bonds were
the result of errors, pure and simple, a n d t h a t while large quantities were caught
before they reached t h e public, some duplicate-numbered bonds did get into
circulation, b u t t h a t t h e Government received full p a y m e n t for each n o t e or
bond issued. Secretary Mellon stated before the committee t h a t there were no
spurious or fraudulent bonds issued, t h a t he had caused a thorough examination
to be made, and was prepared to stand by his position; a n d when you consider
t h a t such bonds were not issued during his administration of t h e Treasury, nor
by an administration of his party, it m u s t be acknowledged t h a t his conclusions
are without prejudice and t h a t of an honest as well as an able m a n .
T h e committee iias shown t h e Treasury very little of t h e evidence produced
before it, and did not give t h e Treasury an opportunity t o cross-examine witnesses,
notwithstanding t h e promise of the committee t h a t this would be done. I
protested t h a t this was not the p r o p e r t y way to conduct a fair investigation,
but regardless of t h e failure of t h e committee to observe t h e n a t u r a l proprieties
of a fair investigation I do not find any basis for t h e charge of wholesale duplication of the public debt and fraudulent issue of securities.
True, there some errors! T r u e there was p e t t y thieving! W h a t of it! W h a t
did it amount to? Nothing more t h a n could be expected in t h e rush and enormous
volume of war-time work. T h e majority report states t h a t bonds which h a d been
stolen were presented and paid a second time. How much? T h i r t e e n t h o u s a n d
one hundred dollars. A loss of b u t $13,100 out of over $172,000,000,000 of
securities handled. A record not t o be critized but t o be commended. Would not
any bank in this country be p r o u n d of such a record? If theft losses by b a n k s in
the handling of securities were as small proportionately as those sustained by t h e
Government, t h e banks would cease to carry insurance and t h e insurance business
would be ruined. Some dates on coupons altered to secure earlier p a y m e n t ! Yes!
A few; they were good coupons, a n d their p a y m e n t did n o t duplicate t h e debt.
Why, gentlemen, if there were a duplication of t h e public debt, would it n o t
reflect in the interest t h e Government has had to pay since these loans were
issued? As a m a t t e r of fact, t h e G o v e r n m e n t has never paid t h e interest it was
supposed to pay. On J u n e 30, 1924, more t h a n $56,000,000 of interest due h a d
not been called for; t h e coupons have not been presented. T h e charge is ridiculous. Flasification of records. No. I found no evidence to s u p p o r t such finding.
Shortage in silk fiber paper? Yes; 113)4 sheets of Liberty bond paper were found
short by a D e p a r t m e n t of Justice Committee, which m a d e an a u d i t of t h e Bureau
of Engraving and Printing. All t h e sheets lost were uncompleted work a n d m e a n t
a loss of but a few cents a sheet to t h e Government. Some loss out of 97,000,000
sheets of bond paper handled!
Let us sec w h a t this D e p a r t m e n t of Justice committee did. I t found t h a t
there were some sheets of distinctive paper short a n d some sheets of distinctive
paper over. There were two classes of p a p e r — m o n e y paper and bond p a p e r .
If t h e sheets had been completed, they would have had a money value. So
the committee in its report assigned to the various sheets in process of printing t h e
money value they would represent if completed. T h e committee offset some of
the sheets t h a t were over against t h e sheets t h a t were short. I n t h e money p a p e r
there was a shortage of 686 sheets, b u t t h e money value assigned represented a
theoretical overage of $11,500. On t h e otlier hand, in t h e bond paper t h e shortage
was 113}-4 sheets, and t h e money value assigned represented a theoretical shortage
of $690,000. However, there was an excess of 204 balnk sheets of overs t o which
the audit committee did not assign any money value. T h e y did n o t know w h a t
denomination of bonds they would have been used for. If $10,000-bonds, six t o
a sheet, making $60,000 a sheet, we would h a v e a theoretical value of $12,240,000
in overages, or t h e same condition which applies in t h e money sheets. T h e whole
thing is entirely fictitious, purely theoretical, so far as money value is concerned,
as t h e losses did not occur on completed securities a n d t h e incomplete sheets were
worth only a few cents a sheet.
M y colleagues on t h e committee conferred upon me t h e great honor of m e n tioning me a t length in its report, for which I t h a n k t h e m . Such mention was in
connection with t h e t e s t i m o n y of t h e Register of t h e T r e a s u r y . I t d e a l t w i t h t h e
degree of a t t e n t i o n t h e T r e a s u r y gave t o duplicate-numbered bonds when dis38810—31—4



46

NOMINATION OF EUGENE MEYEii

covered. I must say that I was surprised at the lack of knowledge of the Register
of the Treasury as to what was done with respect to duplicate-numbered bonds
coming into the department. True, the Treasury did not get excited about
duplicate-numbered bonds when it knew they had been paid for, but its lack of
excitement certainly does not prove the existence of fraud or duplication of the
debt.
The committee gave considerable space in its majority report to what is known
as allocations of numbers. Possibly this is due to the fact that the term "allocation of numbers," as used in this connection, is not clear to the uninitiated.
There is nothing mysterious about it. The statement that some of these allocations were not correct is true. It is not expected that they would be. The
matter has so little bearing on the alleged duplication of the public debt and would
require such a lengthy explanation to make it clear 1o the Members of the House
that I will not bore you with the details. It is sufficient to sa\ thai it can be
entirely disregarded in connection with any discussion of the question of
duplication.
There are two points that require some mention. One is the discontinuance
of the assortment and recordation of interest coupons. This discontinuance was
the result of the action of Congress, and the gentleman who is chairman of the
Committee on Appropriations stated on the floor of the House that he was
responsible for cutting out the appropriation for this work. He was undoubtedly
right in his action as the Bureau of Efficiency and several other committees which
have examined into the matter have reported thai it was a cosllj and useless
procedure and did not add to the protection of the Government.
The second point is the authority of the Secretary of the Treasury to destroy
securities. The majority report renders an opinion on the law in relation to
destruction, holding the Secretary of the Treasury has no authority to destroy
securities. They are good lawyers, but it so happens that the Attorney General
of the United States has held otherwise. After considering the various statutes
cited by the majority report, Attorney General Stone says in conclusion:
" I t is my opinion, therefore, that the Secretary of the Treasury is authorized,
under the provisions of sections 161 and 251, Revised Statutes, to make regulations and issue instructions to his subordinates relative to the disposal to be made
of paid conceled notes, securities, and other obligations, including Government
bonds, paid, redeemed, exchanged, or received, retired, and canceled, and if, in
his sound discretion, he deems the destruction of such bonds and other securities
to be for the protection of the United States from fraud and loss he may legally
order that the same be destroyed after proper record thereof has been made."
So far as the Libert}' bond transactions are concerned, the majority report
appears to a casual reader to make the charge that the Government has in some
mysterious way lost $24,000,000 owing to certain purchases and sales made by
the War Finance Corporation. If you analyze it carefully, of course, the report
makes no such charge. It merely appears to do so. Upon a careful reading of
the report the whole matter dissolves into nothing.
The War Finance Corporation, as is well known, is a corporation which was
organized under a special act of Congress to finance certain industries "necessary
or contributory to the prosecution of the war," and to buy, sell, and deal in obligations of the United States. All of its capital stock is owned by the United States
Treasury. In legal form it is a corporation, but in substance it is no more than a
branch or agency of the Treasury. The Secretary of the Treasury is the chairman
of its board of directors, and its funds are kept on deposit without interest in the
United States Treasury.
During the last few months of the war and for about a year and a half thereafter it was one of the duties of the War Finance Corporation to conduct extensive
operations in the purchase and sale of Liberty bonds with a view to stabilizing
the market to the extent that circumstances permitted. The majority report
seems to carry the suggestion that the select committee discovered this fact, but
so far as I can see there has never been any secret about it. When the bill creating
the corporation was under consideration Secretary McAdoo described in detail
before the Finance Committee of the Senate and substantially to the same effect
before the Ways and Means Committee of the House what the corporation would
be expected to do. I quote from his testimony of February 8, 1918.
"Any attempt to peg the price of Liberty bonds at par would be unwise and
subject to legitimate criticism as turning the Government's long-term 20 or 25
or 30 year bonds into demand obligations. * * *
" I t is highly desirable that violent and unnecessary fluctuations in price should
be avoided and that all possible measures should be taken to stabilize the price
of Liberty bonds. The War Finance Corporation would be able, I believe, to




NOMINATION OF EUGENE MEYEK

47

stabilize to a large extent the price of Liberty bonds. It is well known that a
comparatively small buying power will not only discourage those speculatively
or viciously disposed persons who might desire deliberate^.' to depress the price
<f Government bonds but would furnish added impetus to any upward movement
>
in the price. * * *
''The purpose I have in \iew, under this subdivision (giving the corporation
authority to buy, sell, and deal in bonds and obligations of the United States)
of the proposed act, is simply to permit this corporation to act in any circumstances that ma\ develop, to such an extent as may seem wise in steadying the
market for Government bonds. * * *
" The corporation will have the power * * * to buy and to sell Government
bonds-, so that if at any time it io deemed desirable to go on the market and buy
some Government bonds it could do ,->o, and sol) them again. It is intended to
be merely a stabilizing power and is not for any other purpose."
What docs stabilization of the Liberty bond market mean? As Secretary
McAdoo pointed out, it does not mean that the price of Liberty bonds could or
should be pegged at par or at any other fixed price. All it means is that violent
and urmeeessarv fluctuations, which frighten and discourage sir all holders, should
be avoided either in the Liberty bond market as a whole or in the different
issues. It involves buying in the open market whenever there is a sudden
flood of selling orders, rnd selling when the market recovers and there is an
excess of Inning orders. It means keeping in constant touch with the market
and acting 'is a balance wheel and a stabilizer.
In the course of its operations the War Finance Corp iration bought vastly
more bonds than it sold in the open market. The reason for this is that the
United States Government has been most of the time a heavy purchaser of its
own obligations. Under authorization of Congress, it has bought for various
sinking funds and bond purchase funds, for the Postal Saving system, for the
Alien Property Custodian, and for investment of proceeds of repayments on
foreign government obligations or of the Federal reserve franchise tax.
Since the War FinanceCorporation, by act of Congress, was especially intrusted with the authority to deal in Government obligations in the open market,
and was equipped to do this very thing, while the Treasury was not, it was the
natural thing for the Treasury to use the corporation in making these purchases,
and from time to time the Treasury took over the bonds bought, calling upon
the War Finance Corporation to deliver them out of the bonds which the corporation had in its treasury as a result of its stabilizing operations. At what
price should these bonds be delivered to the Treasury? They might have been
delivered at the market price on the date of delivery. It was thought best, however, to have the War Finance Corporation handle the whole matter at cost
without taking either a profit or a loss. The purchases and sales, of course,
covered a long period, but the idea was that after the last bond had been delivered to the Treasury, the Treasury would have paid to the corporation exactly
the net cost to the corporation of the whole operation, without a cent of profit
or loss.
It was necessary to devise some simple mechanism by which this result could
be achieved. The object, I have said, was to have the transactions as a whole
carried on at cost, but whenever a bond or a block of bonds was transferred to
the Treasury, it was necessary for accounting purposes to set a price on them.
For convenience, the price selected was the approximate average book cost of
all the bonds of that issue in the corporation's treasury on the date in question.
As a matter of dollars and cents to the Treasury, the exact price set on a particular bond was of no importance, as the price was at once reflected in the book cost
of what was left. If the tentative price on a particular bond was above the average cost, the book cost of the balance was automatically reduced by the amount
of the excess; if it was below the average cost, the book cost was correspondingly
increased.
The result would be that when the whole business was wound up the Treasury
would have paid the corporation exactly what the operations cost the corporation.
In other words, the financial result of the operations would have been exactly the
same as if the powers in question had been exercised directly by the Treasury
without the intervention of a corporate agency. This was in fact the result of the
Liberty-bond transactions, with a single exception. It seems that on one occasion,
near the end of the corporation's activities in purchasing bonds, what was left
of one issue of bonds was transferred to the Treasury at the current market price
rather than at cost, resulting in a paper profit of about $53,000 to the Treasury and
a corresponding paper loss to the War Finance Corporation. With this exception



48

NOMINATION OF EUGENE MEYER

t h e whole transaction, involving purchases a n d sales of nearly $2,000,000,000 of
bonds, was carried on a t exact cost for t h e Treasury. T h e implication in the
majority report t h a t in some way t h e Treasury suffered a loss of $24,000,000 in
connection with t h e purchase of bonds from t h e War Finance Corporation has,
in m y opinion, no foundation whatever, and I a m a t a loss t o know on w h a t
evidence it is based.
T h e report refers to t h e dates of bond purchases given by t h e Secretary of the
Treasury, presumably in t h e reports submitted each year to Congress showing
purchases under t h e bond purchase fund. These dates represent merely the dates
on which bonds were t a k e n over by t h e Treasury from the W a r Finance Corporation. T h e y have no relation whatever to the dates on which t h e bonds were
b o u g h t by t h e corporation in t h e open market. Bonds m a y have been bought by
t h e W a r Finance Corporation several months before t h e Treasury desired or was
in position to t a k e t h e m over. Evidently t h e report seeks to convey the impression t h a t t h e G o v e r n m e n t suffered a large loss because, on t h e dates on which
bonds were transferred to t h e Treasury by t h e corporation, t h e prices in the
m a r k e t were lower t h a n those a t which t h e transfers were m a d e . This contention
is too absurd t o w a r r a n t more t h a n a passing comment.
T h e report suggests t h a t there was some violation of t h e spirit of the law in the
fact t h a t G o v e r n m e n t bonds were sold by t h e W a r Finance Corporation below
par. T h e r e is nothing to this point. T h e Congress expressly authorized the
corporation to buy, sell, a n d deal in bonds and obligations of the United States.
T h e Secretary of t h e Treasury m a d e it clear in his s t a t e m e n t to the committees
of Congress t h a t t h e contemplated operations would involve sales as well as
purchases, a n d t h a t t h e y would be carried on in the open market. At the very
t i m e Secretary McAdoo was testifying all issues of Liberty bonds wore below par.
If t h e corporation could only buy a n d never sell, its operations and its usefulness
would soon have come to a n end. If t h e Congress had intended, as t h e majority
r e p o r t implies, merely t o authorize t h e purchase of bonds for retirement, there
would have been no possible useful purpose in giving t h e War Finance Corporation
power to b u y a n d sell G o v e r n m e n t obligations.
As a m a t t e r of fact, t h e actual n u m b e r of bonds sold by the War Finance
Corporation in the open m a r k e t seems to have been relatively small. A large
p a r t of t h e sales appear to have constituted in effect no more t h a n exchanges of
one issue of bonds for another. On April 18, 1920, the stabilization operations
of t h e corporation were t e r m i n a t e d in accordance with an official announcement
of t h e T r e a s u r y . Subsequently, t h e corporation was requested t o t u r n over to
t h e Treasury, for t h e bond purchase fund, and other Government funds, such
bonds as it still h a d in its possession. I t developed t h a t the corporation had on
h a n d more bonds of certain issues t h a n t h e bond purchase fund was in a position
to absorb, while it h a d an insufficient a m o u n t of certain other issues for the
purpose. T h e corporation, therefore, by direction of t h e Treasury, sold bonds of
t h e issues in which it held an excess a n d bought the same number of bonds of the
issues of which there was an insufficient a m o u n t . T h e transactions resulted in a
net difference of from $150,000 to $200,000 in favor of t h e Government, as bonds
were purchased on t h e average a t materially lower prices t h a n were obtained for
t h e bonds sold. These transactions, which were in substance nothing b u t
exchanges, accounted for a substantial p a r t of t h e sales by t h e War Finance
Corporation, to which exception is t a k e n in t h e majority report.
If t h e m a t t e r were n o t dealt with so seriously in t h e majority report, and if it
h a d not been announced with such an air of having uncovered a scandal, I should
feel like apologizing to t h e House for this detailed explanation. These t r a n s actions h a p p e n e d more t h a n five years ago. T h e y involved solely transactions
between t h e United States Treasury a n d a corporation of which every dollar of
stock was and is owned by t h e United States Treasury. I can not see t h e use of
spending a lot of money to hire high-priced a c c o u n t a n t s to find out whether or
not one pocket of t h e Treasury profited a t the expense of a n o t h e r pocket. It is a
waste of time even to talk a b o u t t h e m a t t e r . T h e Treasury and the War Finance
Corporation both belong to Uncle Sam.
I come now to a m a t t e r which is dealt with a t length in t h e report. I refer to
t h e implication in t h e majority report t h a t there was something questionable in
t h e use by t h e War Finance Corporation of the private offices of one of its directors
as a facility in m a k i n g purchases a n d sales of Liberty bonds. T h e m a t t e r was so
fully a n d satisfactorily explained a t t h e public hearings of t h e committee t h a t it
is difficult to see why t h e m a t t e r is even commented upon in t h e majority report.
T h e sworn testimony shows t h a t Mr. Eugene Meyer, jr., was formerly the
principal m e m b e r of t h e firm of Eugene Meyer, jr. & Co. At t h e end of 1917 t h e



NOMINATION OF EUGENE MEYER

49

firm was dissolved and began to liquidate its affairs. Beginning in June, 1918,
as a convenience to the War Finance Corporation and the Treasury, with the
approval of the Secretary of the Treasury McAdoo, Mr. Meyer donated the facilities and service of his office in connection with the purchase and sale of Liberty
bonds. In doing so he expressly stipulated that no charge would be made by
himself or his former firm, whether for rent, operating expenses, or services.
All those expenses were personally borne by Mr. Meyer, and the service performed
free of all cost to the Government. This is established by the sworn testimony,
and there is not a shred of evidence to contradict it.
Where, then, is the ground for criticism? Apparently the whole difficulty
arose out of the fact that the statement containing the record of each transaction,
as submitted from day to day to the War Finance Corporation contained an item
entitled "commissions." The statement contained three separate items, the
principal amount of the purchase, the accrued interest, and an item entitled "com*
missions." The expert investigator of the committee came aross some of these
statements, and jumped to the conclusion that they referred to commissions
paid by the War Finance Corporation to Mr. Meyer. Here was an excellent
scandal, and a public hearing was held on October 25, 1924, so that the matter
could be aired. At the hearing it promptly developed that Mr. Meyer did not
get a single cent of commissions. He had placed orders with a number of established brokerage houses, and they had purchased bonds in the open market,
billing Mr. Meyer's office for principal, interest, and the customary minimum
commission charged by brokers. Mr. Meyer's office billed the War Finance
Corporation for the exact amount disbursed by him for these purposes. The
commissions referred to in the statements were not commissions paid to Mr.
Meyer, but commissions disbursed by him in purchasing bonds, and reimbursed,
dollar for dollar, by the War Finance Corporation. When this obvious mistake
of the expert investigator had been discovered, one might suppose that the
matter would have been allowed to rest, with an apology for the misunderstanding. Yet in the majority report the story is again brought out, sufficiently
beclouded by insinuations and ambiguous words to lead a casual reader to think
that there was still some unexplained wrongdoing; and this in spite of the fact
that expert accountants of unquestioned standing have audited the books and
certified that every cent had been accounted for and no commissions or even
expenses charged by Mr. Meyer.
The majority report attempts to create an air of suspicion by referring to
alleged "alterations and changes" in the "books of record" of the War Finance
Corporation covering the Liberty bond transactions. An exchange of letters
between the committee and the treasurer of the WTar Finance Corporation completely disproved these insinuations. There is no evidence of any change or
alteration in any of the books of record of the corporation. The corporation
kept, as a matter of convenience, a memorandum account which was called the
Liberty bond register, in which certain figures and compilations relating to
Liberty bond transactions were kept.
This was not an original book of entry, but merely a supplementary memorandum record. While the committee was investigating the Liberty bond transactions a bookkeeper of the War Finance Corporation happened to be engaged in
compiling some tables from the Liberty bond register. He noticed that through
an oversight certain notations had been omitted from one part of the register,
though the same information was contained in other parts of the same book.
The bookkeeper supplied the omission by entering the missing notations. The
treasurer stated under oath that he knew nothing of the notations, and there is
nothing in the testimony to suggest anything to the contrary. That is all there
is to the alleged "alterations and changes." So that the record may be complete
I will at the close of my remarks insert in the Record the correspondence relating
to this matter.
What I have said should demonstrate beyond the shadow of a doubt that there
is no need for an audit of the public debt which the majority report recommended.
Such an audit would be a tremendous task and would involve untold expense to
the Government. It would entail the audit of all public-debt receipts and expenditures by the 12 Federal reserve banks and their 23 branches, as well as by the
Treasurer of the United States. From April 1, 1917, to July 30, 1924, receipts
aggregated in excess of 388,000,000,000 and expenditures in excess of $68,000,000,000. All of these receipts and expenditures are covered by requisitions and
shown in accounts to the Comptroller General of the United States. It would
require the complete audit of the manufacturer under contract of Government
distinctive paper, involving from the beginning of the fiscal year 1917 to the close



50

NOMINATION OF EUGENE MEYEIt

of the fiscal yeaT 1924, over 119,000,000 sheets. It would require an audit of the
printing and issue of over $172,000,000,000 of securities, not including work done
for the insular governments, and of the retirement or exchange of over $100,000,000,000 of securities, not to speak of an audit of the War Finance Corporation
transactions in bonds which totaled nearly $2,000,000,000. These are some of
the things involved, not all. Now, gentlemen, it would be a tremendous task
which would take 10 years or more, and cost the taxpayers of the country millions
of dollars. Not only that but it would be an entirely useless and ridiculous
procedure, for, as amatter of fact, every transaction in connection witli the
public debt was currently audited.
The recommendation for the separation of the Bureau of Engraving and
Printing, the Division of Paper Custody, and the Register's Office is equally
ridiculous. There is no reason why these brandies of the Treasury should be
answerable directly to Congress. Congress has enough to do without attempting
to perform executive functions, for which, as a matter of fact, there is no authority under the Constitution. The Secretary of the Treasury is by law charged
with the administration of the financial operations of the Nation, and he is and
should be held responsible. The report suggested that the Bureau of Engraving
and Printing is an organization similar to the Government Printing Office. The
Government Printing Office is properly under the supervision of Congress. It
was established originally for the purpose of handling congressional printing.
The Bureau of Engraving and Printing is an integral part of the Treasury organization. It is merely a piece of machinery required by the Secretary of the
Treasury to discharge the duties imposed upon him specifically by law. Congress has, for instance, charged the Secretary of the Treasury with the full
responsibility in connection with the preparation and issue of securities. To
separate production from issue would divide the responsibility and leave the
Secretary without any control over the integrity of production. Involved in
the situation would be the production, custody, and the use of engraved stock,
now controlled by appropriate safeguards administered by the Secretary of the
Treasury and the Comptroller of the Currency. Likewise, the Division of Paper
Custody and the Office of the Register of the Treasury are essential parts of the
Treasury machinery. The former acts as the custodian of blank paper. All its
transactions are reported to the Division of Public Debt Accounts and Audit, a
unit functioning entirely independent of the Division of Paper Custody and the
Bureau of Engraving and Printing. The most important item handled by the
Division of Paper Custody is, of course, the distinctive silk-fiber paper which is
contracted for by the Secretary of the Treasury, with respect to the manufacture
of which special safeguards are provided. This paper is one of the principal
safeguards against counterfeiting. The authority and responsibility of the
Secretary for this paper would be broken if at any time it was delivered to an
organization outside of his control, as would be the case if this division or the
Bureau and Engraving and Printing were removed from the Secretary's jurisdiction.
The Dockery Act, approved July 18, 1894, charged the Secretary of the Treasury with responsibility for supervising the duties of the register's office. All
securities delivered to that office are reported by the delivery office direct to the
division of public debt accounts and audit. The register likewise reports to the
division all securities received. Complete control accounts are therefore maintained by this independent division over all public-debt securities. After paid
securities are received by the register and audited by him his certificate is forwarded to the Comptroller General of the United States in support of disbursements made by the Treasurer on account of payment of such securities.
I am convinced after careful examination into the organization, that it would
be one of the greatest mistakes this Congress could make to put into effect the
separations recommended by the majority report.
In conclusion, let me point out that practically all charges in the majority
report are based upon operations which took place during a Democratic administration. In my remarks, I have commended these operations, because I believe
they were conducted in a most praiseworthy manner and that there is no justificacation for the criticism that has been leveled against them. I am a Republican,
and I believe in being fair even to the other side. And I am indeed proud that
the present Secretary of the Treasury, of my own party, and one of the greatest
this Nation has ever had, has taken the same fair and, I believe, just position.

Senator CASEY. Mr. Cook, will you be sworn now?



NOMINATION OF EUGENE MEYER

51

TESTIMONY OF ALFRED A. COOK, NEW YOEK CITY
(The witness was duly sworn by the chairman.)
Senator CAREY. Will you please state your full name.
Mr. COOK. Alfred A. Cook.
Senator CAREY. And what is your address in New York?
Mr. COOK. My home is 630 Park Avenue and mv office is 20 Pine
Street.
Senator CAREY. Your occupation is that of an attorney?
Mr. COOK. Yes, sir; since 1895.

Senator CAREY. You have heard the testimony of Congressman
McFadden?
Mr. COOK. Yes, sir.
Senator CAREY. I believe

he stated that you were special counsel
for the War Finance Corporation for railroad matters in 1919.
Mr. COOK. That is the proudest thing that I have ever done, sir,
in my life; and, in view of the fact that work has been singled out
in the remarks of Mr. McFadden, I would like the personal privilege
of reading to the committee the following letter from the Secretary
of the Treasury, Carter Glass. The letter is as follows:
TREASURY

DEPARTMENT,

Washington,
A L F R E D A. C O O K ,

July 22, 1919.

Esq.,

Ill Broadway, New York.
D E A R M R . C O O K : T h e p a y m e n t of t h e loans m a d e by t h e W a r Finance Corporation t o bridge t h e gap created by t h e lack of a p p r o p r i a t i o n t o t h e Railroad
Administration p u t s me in mind t o s a y how deeply I a p p r e c i a t e t h e splendid
public service which you have rendered in t h a t connection. Your b r o a d view
of t h e situation a n d your carefvil a n d skillful handling of t h e problem as a lawyer
were well nigh invaluable in a n emergency which seemed very grave. You sacrificed your t i m e a n d convenience a n d personal interests t o do this work. I
now learn from t h e Director of t h e W a r Finance Corporation t h a t you prefer
to submit no bill for your services b u t wish t h e m t o s t a n d as a war contribution.
I sympathize with t h a t feeling, a n d I do not hesitate t o s a y t h a t no bill which
you could render would in m y mind measure t h e service which you h a v e rendered
to t h e United States on this occasion.
With warmest appreciation a n d cordial best wishes, I am,
Sincerely yours,
CARTER

GLASS.

I speak of this, Mr. Chairman, not because I desire any encomium
for what I did, but because being one proud of his work and of his
country I rather resent the suggestion contained in Mr. McFadden's
statement as to my special counselship for the War Finance Corporation. 1 wish Mr. McFadden would know what he talks of. I
am ready for the next question, sir.
Senator CARY. Are you attorney for the Midland group of banks?
Mr. COOK. I am not and never was.

Senator CAREY. You are not employed by them. Were you formerly attorney for the Fidelity Trust Co. which was merged with
the Midland?
Mr. COOK. Yes, sir. I organized the Fidelity Trust and its predecessors in 1904. I have been counsel for the Fidelity Trust Co. and
its predecessors since 1904. In the early part of 1930 the MarineMidland groups purchased the controlling interest in the Fidelity
Trust Co. I had an annual retainer from the Fidelity Trust Co.,
which terminated on December 31, 1930. At the request of M r .



52

NOMINATION OF EUGENE MEYER

James G. Blaine, a grandson of the former Secretary of State, I remained with the Fidelity Trust Co. until the end of the year, and I
tendered my resignation to Mr. Blaine at the conclusion of my
service at the end of 1930, and he asked me, in view of the fact that
I had several matters in hand that -were urgent, to stay on until the
1st of July without retainer so as to conclude my work. Being glad
to meet any convenience of Mr. Blaine, I agreed to remain until the
1st of July of this year, when I shall give way to the counsel of the
Marine-Midland group of banks.
Senator W A G N E R . T h a t was your sole connection with the Marine
group?
Mr. COOK. Entirely so. I never had any connection before, nor
have I had any connection with the Marine-Midland group since.
They acquired the stock of the Fidelity Trust Co. I was a director
of the Fidelity Trust Co. and I resigned from the board.
Senator FLETCHER. When did that take place?
Mr. COOK. In March, 1930.

Senator FLETCHER. And the Fidelity Trust Co. was taken over by
the Midland group?
Mr. COOK. The, Marine Midland group of banks, Senator, purchased the control of the Fidelity Trust Co. They were in possession
of possibly 97 or 98 per cent of the stock, but the Marine-Midland
group of banks have, I assume, 15 or 16 or 17 banks. The Fidelity
Trust Co. is only one of many. The Fidelity Trust Co. was organized
more than 25 years ago. I have always been its counsel, and at the
end of December I resigned, and I am now merely counsel for that
particular bank. I have nothing to do with the Marine Midland
group of banks.
Senator FLETCHER. When was the Marine group organized?
Mr. COOK. I do not know.

Senator FLETCHER. Did they have any stock in the Fidelity Trust
Co. before March, 1930?
Mr. COOK. The agreement was made, I think, in February, 1930,
for the acquisition of the stock of the bank. If an exact date becomes
important I c*m give it to you, because I have that with me.
Senator, I desire to emphasize the fact that I am not and never have
been counsel for the Marine-Midland group of banks. I have been
counsel for the Fidelity Trust Co. for 25 or more years. I organized it.
I t was originally known as the Coal & Iron National Bank. Then
there was a consolidation with the Fidelity International Trust Co.
and the merged institution took the name of the Fidelity Trust Co.
and became a New York State institution.
Senator BROOKHART. Which was the big institution in that
merger?
Mr. COOK. D O you mean as between the Coal and Iron and the
Fidelity International Trust? I think it was pretty nearly fifty-fifty.
Senator CAREY. Did you have anything to do with the negotiations between the Fidelity and the Marine-Midland group when they
were merged?
Mr. COOK. Do you mean for the acquisition of the shares?
Senator CAREY. Yes.

Mr. COOK. M y firm drew the papers whereby the stockholders of
the Fidelity Trust Co. were offered the terms, either 1% shares of stock
of the Marine-Midland Corporation for every share of Fidelity Trust
Co., or $40 in cash and one share of Marine-Midland Corporation.



NOMINATION OF EUGENE MEYER

53

Senator CAREY. And you represented the Fidelity in that transaction?
Mr. COOK. Yes, sir. I did not personally take charge of the
matter. One of my partners did.
Senator CAREY. Were you attorney for the New York bank?
Mr. COOK. Yes, sir. I have been its general counsel for over 25
years.
Senator CAREY. There is no question about your being a brotherin-law of Mr. Meyer?
Mr. COOK. I am rather proud of that, sir.
Senator CAREY. YOU heard Mr. McFadden's testimony, and he
has alleged that you took some part in the employment of Mr. Piatt
by the Marine-Midland group. Did you have anything to do with
the negotiations that led up to his employment?
Mr. COOK. I do not know, Mr. Piatt. I never met Mr. Piatt, and
I had nothing to do, directly or indirectly with Mr. Piatt's resignation
from the Federal reserve board or any employment of any kind that
he has had. 1 do not know where Mr. McFadden got that information, nor do 1 understand how it is that Mr. McFadden makes that
statement to your committee, because there is no proof of it in any
way, shape, manner of form.
Senator CAREY. In other words, you had nothing to do with any
such negotiations?
Mr. COOK. Nothing whatever. I might as well make the same
statment as to Governor Young. I do not know Governor Young,
never met him, and never talked to him, except that I was introduced
to him this morning prior to the meeting of this committee.
Senator CAREY. Did you or Mr. Meyer discuss Mr. Piatt's going
to the Midland group?
Mr. COOK. I recall that I am under oath, Mr. Chairman, and I
never knew of Mr. Meyer's selection for governor of the Federal
Reserve Board until I read of it in the newspapers like everybody else.
Mr. Meyer never talked to me on that subject. Mr. Meyer has a
habit of being a very good listener. In view of the fact, Mr. Chairman, that I am active in New York, and was special counsel for the W a r
Finance Corporation, Mr. Meyer deemed it wise to keep me unacquainted with whatever his activities were in Washington, and I
think rather wisely.
Senator CAREY. YOU do not know what arrangement was made
with Mr. Piatt by the Midland people as to salary?
Mr. COOK. 1 know nothing about that, directly or indirectly, in
any way, shape, manner or form. I read it in the newspapers.
Senator FLETCHER. What is the name of your firm ?
Mr. COOK. Cook, Nathan & Lehman.
Senator FLETCHER. With offices where?
Mr. COOK. At 20 Pine Street, New York.
Senator WAGNER. One of the best known firms in New York.
Mr. COOK. A former senior of my firm was an associate of Judge
Wagner when he was on the bench.
Senator FLETCHER. That accounts for Senator Wagner's statement
perhaps?
Senator BROOKHART. Did any members of your firm have anything to do with the negotiations for these resignations?



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NOMINATION OF EUGENE MEYEE

Mr. COOK. N O , sir. Mr. Rand's name was mentioned here. I
never had any discussion with Mr. Rand, directly or indirectly. As
I recall, I have seen Mr. Rand twice in 1930. The first time was when
negotiations were \mder way for the acquisition by his own institution
of the stock of the Fidelity Trust Co., and the second time that I
saw Mr. Rand during the year 1930 was as he was going into his bank
a few weeks ago and I had the temerity to say, "Good morning."
I might also say that I have not had anything to do with nor heard
of it in connection with any one of the Marine-Midland group. I do
not know who their directors are. I know who their counsel is, a wellknown firm in Buffalo.
In other words, Mr. Chairman, all the statements made in this
letter by Mr. McFadden are founded on whole cloth and are untrue,
so far as any reference to me is concerned, directly or indirectly, in
any way, shape, manner or form. I am surprised that a Congressman
sees fit to give dignity to things like that.
Senator BROOKHART. The statement in the letter that you were
talking about refers to a connection with the Morgan firm. How
about that?
Mr. COOK. Senator, if I may be forgiven for saying something
that strikes me as amusing, I was rung up on the telephone while you
were making your remarks in the Senate by a firm that I do work for
and they said they now understood why my bill was so high. They
said, " I t was stated on the floor of the Senate that you are counsel for
J. P. Morgan." M y reply was as follows:
Senator BROOKHART. T h a t was not the statement. Some one was
giving you the wrong dope.
Mr. COOK. That may be, and that is the only wrong thing in
connection with this particular matter that has been brought to my
attention. I have no connection with J. P. Morgan & Co., and never
have had.
Senator BROOKHART. Or any member of their firm?
Mr. COOK. Nor have I acted at any time for any member of that
firm. I met a member of the firm, Mr. Leffingwell, at the time I
came to Washington. But Mr. Leffingwell, did not need me, sir.
Senator BROOKHART. I want to ask what was the nature of your
duties as attorney for railroad matters in the War Finance Corporation. What matters did you handle?
Mr. COOK. The President went abroad on the second trip and left
an appropriation bill for $750,000,000 for the Railroad Administration of which Mr. Walker D. Hines was then director general, unsigned.
Mr. M E Y E R . I t was not passed by the Congress.
Mr. COOK. I beg your pardon. I t had not gone through Congress.
The Director General of Railroads owed under the railroad act hundreds of millions of dollars to the various railroad companies pursuant
to the provisions of the act and the taking over of control by the
Government.
Senator BROOKHART. What was the nature of those claims?
Mr. COOK. I am going back a great many years now.
Senator BROOKHART. I do not care about the details.
Mr. COOK. When the Government took control agreements were
made between the railroad companies and the Government whereby
certain payments were to be made by the Government to the railroad
companies so as to enable the railroad companies to meet their obligations in the wav of bond interest and various other matters.




NOMINATION OF EUGENE MEYER

55

Senator BROOKHART. These were just advances?
Mr. COOK. No; that was an agreement and the railroads were
•entitled to get from the Government every month certain stipulated
sums by agreement.
Senator BROOKHART. Those wTere not in final settlement with the
railroads; they were just partial payments on their guarantee during
Government operation?
Mr.

COOK.

Yes.

Air. M E Y E R . I t was during the period of Government operation
and these were payments which the Government had contracted for
under the Government control act.
Senator BROOKHART. What I am getting at now is whether they
constituted a final settlement of claims.
Mr. COOK. N O ; I think the final settlements were only made within
possibly the last year or two, and I understand there are some that
are still open.
Senator BROOKHART. I wanted to find out because Senator Glass's
opinion of those final settlements is vastly different from the letter
that he wrote to you.
Mr. COOK. I had nothing to do with the agreements that the Government made with the railroads.
Senator BROOKHART. I am not arguing that at all.
Mr. COOK. Senator, pardon me. You are taking issue with something that 1 said, and you are incorrect, if I may be so bold as to say
that. T had nothing to do with the final settlements. I had nothing
to do with the agreements. I bad nothing to do with anything of
that sort. What I did have to do with was that $750,000,000 appropriation bill so that Director Geneial Hines would have funds wherewith to meet Government contracts actually executed and signed in
behalf of the Government and the railroads; that he would have
sufficient funds wherewith to pay: and I might also stats, Senator
Brookhart, that there was a $50,000,000 pay roll due to the Navy, and
he did not have that, and I arranged with Mr. Meyer, who was then
chairman of the Wrar Finance Corporation, a method of financing
whereby that $50,000,000 pay roll was advanced by the Director
General of fiailroads.
Senator BROOKHART. Those were preliminary advances and the
final settlements you had nothing to do with?
Mr. COOK. Those were guaranteed amounts. The Director
General did not have any money wheiewith to meet even the Government obligation. So I was called down to Washington—I was fairly
familiar with some of those things—to sit with the War Finance
Corporation and try to devise some plan whereby the War Finance
Corporation could lend aid.
Senator BROOKHART. You had nothing to do with the final settlements that were made when James C. Davis was Director General of
Railroads?
Mr. COOK. N O , sir; but I met him and came down to Washington
again as special counsel when Mr. Davis had on hand $400,000,000
of equipment trust notes and the Government needed $400,000,000.
Mr. Meyer, as chairman of the War Finance Corporation, undertook
with Mr. Davis as Director General of Railroads, the placing of the
entire $400,000,000 of equipment notes. He was in Washington.
He asked me in New York whether 1 could help, and for an entire



56

NOMINATION OF EUGENE MEYER

month, Senator—and I am rather proud of that, too—I disposed of
over $200,000,000 of equipment notes at par and interest; and, while
I have no letter from Director General Davis, I am quite sure he
would be happy to write me one if I should ask him.
Senator FLETCHER. You spoke about the disposition of $200,000,000 of notes. How did you dispose of them?
Mr. COOK. $15,000,000 of those were taken at par and interest
by Kuhn, Loeb & Co. The minute it became known that Kuhn,
Loeb & Co. had taken $15,000,000 of the notes at par and interest,
which was what the Government wanted
Senator FLETCHER. Without recourse?
Mr. COOK. These were equipment trust obligations of the railroads,
sir.
Senator FLETCHER. The Government was not back of that?
Mr. COOK. N O . I t is not very difficult, Senator, to dispose of
Government obligations.
Senator BROOKHART. Under Director General Davis's administration there were some $1,200,000,000 damage claims against the railroads. This $400,000,000 that you handled had nothing to do with
the settlement of those trumped-up claims?
Mr. COOK. N O , sir. The railroads needed equipment.
Senator BROOKHART. It was simply a Government loan from the
War Finance Corporation?
Mr. COOK. The railroads of the country gave their equipment
trust obligations.
Mr. M E Y E R . May I interrupt just a minute, Mr. Chairman?
In September, 1921, Director General Davis asked mo to assist
the Railroad Administration in disposing of some of their equipment
trust notes. They were not the property of the War Finance
Corporation; they were the property of the Railroad Administration.
Senator BROOKHART. That was a private affair?
Mr. M E Y E R . It was not a private affair. I t was a matter of the
Railroad Administration of the United States Government. The
securities were still in the possession of the United States Government and in the treasury of the Railroad Administration. The
Railroad Administration wanted to liquidate some of its indebtedness.
I t had these securities which it had taken from the railroads when it
bought a lot of equipment during Government operation. The
Government ordered, I think, 100,000 freight cars and some locomotives and turned them over to the railroads and took equipment
trust notes. These notes were to be disposed of, if possible, and they
were disposed of at exactly cost to the United States Government
without loss.
Senator BROOKHART. YOU marketed those trusts for them?
Mr. M E Y E R . I was appointed by Mr. Davis to sell those securities
in order to avoid increased appropriations.
Senator BROOKHART. Did you do that through the War Finance
Corporation?
Mr. M E Y E R . N O ; it had nothing to do with the War Finance
Corporation.
Senator BROOKHART. YOU did that through Eugene Meyer?
Mr. M E Y E R . N O ; I did not; I did it as an appointee of the Railroad
Administration. I t was publicly known that all of these securities
were for sale at cost, with interest, to the Government, and the



NOMINATION" OF EUGENE MEYER

57

first that came got them, whoever they happened to be. They were
sold without loss to the United States Government and without cost.
Mr. COOK. And at no expense to the United States Government.
Mr. M E Y E R . I do not see what it has to do with this matter, but I
am perfectly willing to explain.
Senator CAREY. Have you been attorney for Lazard Freres & Co.?
Mr.

COOK. Yes, sir.
CAREY. Are you still attorney for them?
Mr. COOK. Yes, sir.
Senator CAREY. Mr. Blumenthal is your brother-in-law?
Mr. COOK. He is, and he retired from the firm of Lazard

Senator

Freres &
Co. over five years ago and is not engaged in active business.
Senator CAREY. Are you still a stockholder in the Fidelity?
Mr. COOK. Yes; I have, perhaps, 83 shares of stock in the Fidelity,
and I oitght to say this so that the record may be clear; I was a shareholder in the Fidelity Trust Co.; I think I had 750 shares when the
offer was made by the Marine-Midland Corporation. I took $40 cash
and I got one share of stock of the Marine-Midland Corporation for
each share of Fidelity Trust.
Senator WAGNER. I think we are getting pretty far into a man's
personal affairs here. I know that Mr. Cook does not object, b u t we
shall be here forever ifwe continue along this line.
Senator CAREY. I was asking these questions to clear up some
statements made by Mr. McFadden. Has any one any more questions
to ask Mr. Cook? If not, that will be all, Mr. Cook.
TESTIMONY OF GEORGE F. RAND, PRESIDENT, THE MARINE
TRUST CO., OF BUFFALO, BUFFALO, N. Y.
(The witness was duly sworn by the chairman.)
Senator CAREY. Mr. Rand, will you give your name, please?
Mr. RAND. George F. Rand.
Senator CAREY. You live in Buffalo, N. Y.?
Mr. RAND. Buffalo, N. Y.

Senator CAREY. And you are president of the Marine Midland
group of banks?
Mr. RAND. I am president of the Marine Midland Corporation.
There is no corporation named Marine Midland group of banks.
I am president of the Marine Trust Co. of Buffalo.
Senator CAREY. The proper name is Marine Midland Corporation?
Mr. RAND. Marine Midland Corporation.
Senator FLETCHER. And the trust company is what?
Mr. RAND. The Marine Trust Co. of Buffalo.
The Marine Midland Corporation owns about 98 per cent of the
stock of the Marine Trust Co.
Senator CAREY. Did you have anything to do with the negotiations
leading up to the appointment of Mr. Piatt?
Mr. R A N D . Yes; I had all to do with them.
Senator CAREY. Will you explain that to the committee?
Mr. R A N D . In June of 1930 Mr. Piatt made an address at Poland
Spring, Me., before a group of bankers.* I thought I had a copy of
that address with me, but, unfortunately, I left it home. I can,
however, send a copy for your records.



58

NOMINATION OF EUGENE MEYER

Mr. Piatt made an address in which he advocated branch and groupbanking. He sent me a copy of that. I had not known Mr. Piatt
except by reputation before that time. He sent me a copy of thisaddress and I was very favorably impressed with it. We had it
printed in booklet form on July 3, 1930, and I sent it out to some of
our directors in the various banks that comprise the Marine Midland
group.
(Mr. Piatt's address was thereafter presented to the committee and
was made a part of the record, as follows:)
A D D R E S S OF H O N . E D M U N D P L A T T , V I C E G O V E R N O R OF T H E F E D E R A L R E S E R V E
B O A R D , AT T H E J U N E Q U A R T E R L Y M E E T I N G OF T H E N E W E N G L A N D C O U N C I L

We Americans, I think, are generally r a t h e r prone to w h a t might be called
doctrinaire positions—that is, we frequently t a k e t h e position t h a t one method of
doing something is t h e logical and only m e t h o d and t h a t all other methods are
wrong even t h o u g h we find t h a t other methods are in use in other countries with
evident success. Ours is a big country and we are rather bumptious about its
great progress a n d general success. We do not easily see, or if we do see, we a r e
often r a t h e r unwilling t o adfnit its shortcomings or t o provide remedies. Then
when something gets so bad as to force itself on our attention and becomes a
subject of r a t h e r general agitation we too frequently think t h a t t h e only remed\
consists in passing more laws. Our banking system, which grew up originally
u n d e r S t a t e charters, has been generally described as an independent unit banking
system, with every c o m m u n i t y large enough to require banking accommodation
served by its own local banking corporation. So strongly wedded have most of
our bankers been to this system t h a t not a few of t h e m have denounced branch
banking as monopolistic and un-American, and some of t h e m appear to believe
t h a t t h e only reason why C a n a d a is not larger t h a n t h e United States to-daj i«
because C a n a d a has branch banking.
Now, persons who have given a good deal of time to the s t u d \ of banking in
other countries as well as our own are of t h e opinion t h a t branch banking has
served C a n a d a very well, and has p r o m o t e d t h e development of its great West
instead of retarding it. We find, in fact, t h a t interest rates in the prairie provinces of C a n a d a are generally somewhat lower t h a n interest rates in our adjoining
States, a n d we find, furthermore, t h a t a t r e m e n d o u s a m o u n t of money has been
lost through bank failures in such States as N o r t h and South D a k o t a , M o n t a n a ,
and I d a h o , while just across the border in C a n a d a there have been no failures
during recent years.
If t h e agricultural and economic depression of 1920-21 was the cause of a great
n u m b e r of bank failures in the great agricultural sections of the United S t a t e s
w h y did it not cause an equal n u m b e r of failures across the line where condition*
were practically t h e same? I t seems obvious t h a t our banking system itself
m u s t h a v e been a t least somewhat a t f a u l t — t h a t it was not strong enough to
s t a n d up u n d e r adverse conditions. Looking back into our banking history we
find t h a t after every period of business depression m a n y small banks have failed,
while as a rule t h e larger b a n k s in t h e larger cities have stood t h e test. You are
doubtless familiar with t h e figures presented by t h e Comptroller of t h e Current"}.
Mr. Pole, in his a n n u a l report and in his recent addresses showing t h a t some twot h i r d s of t h e bank failuies in this country are of banks of small capitalization.
$25,000 or less, a n d t h a t about an equal percentage of the bank failures occur in
small towns, towns of 2,500 and less. These figures and their classification b \
capitalization a n d by size of communities have been furnished from time to time
by t h e division of b a n k operations of t h e Federal Reserve Board and have been
published from time to time in t h e Federal Reserve Bulletin.
No less t h a n 5,642 b a n k s were closed in the years 1921 to 1929, inclusive, mo->t
of t h e m in agricultural communities where t h e people could least afford to lose.
" D u r i n g t h e last 10 years,'' said t h e Comptroller, " a n d continuing a t the present,
b a n k failures have been a blight on the Mississippi Valley, t h e South, the Southwest, a n d t h e Northwest. T h e r e are agricultural counties in which eveiy bank
has failed." There were 349 failures during the first (our m o n t h s of this year
ending April 30, of which 92 occurred in t h e m o n t h of April. T h e latest figures
show a b o u t t h e same proportion of failures of banks with small capitalization
a n d in small towns. This whole exhibit of failures is a disgrace to the country
a n d certainly should not be p e r m i t t e d to continue if a remedy can be found,
whether t h e remedy is popular or unpopular in the banking fraternity. It U



NOMINATION OF EUGENE MEYEE

59

something that business men should take more interest in than they have generally shown in the past.
The problem is not acute in the Northeastern States. New England, New
York, and Pennsylvania have had very few bank failures, but they are not so
entirely exempt as to make the subject wholly without interest. Two failures
have occurred in the Boston Federal reserve district since the 1st of January,
1 in the New York district, 2 in the Philadelphia district, 7 in the Cleveland
district. It is interesting to note that all the other districts run into two figures,
excepting one, San Francisco, the largest of those with two figures being the
Chicago district with 93 failures and the smallest the Dallas district with 14.
Coming down to the San Francisco district we find only three. The Pacific coast,
therefore, appears to rank with relation to bank failures at least somewhat with
the Eastern States, but there we find throughout the great State of California
branch banking ver3' highly developed, which at least raises the presumption,
the district being largely agricultural, that branch banking may have something
to do with the contrast between that district and the agricultural districts of
the South and Middle West.
I have been credited with having been something of a pioneer in advocating
branch banking as a remedy for bank failures, but branch banking has been
recognized as a remedy and has been recommended many times in the past.
After the great panic of 1893 we find that two Comptrollers of the Currency in
succession, Mr. Eckles and Mr. Charles G. Dawes, recommended branch banking,
particularly in the smaller communities. Mr. Dawes recommended that branches
be allowed in towns of 2,000 or less, but he coupled this recommendation with a
rather violent argument against a general or nation-wide branch banking development and did not follow it up.
In May, 1902, Mr. James B. Forgan, chairman of the First National Bank of
Chicago, one of the leading bankers for many years in the United States, delivered an address on branch banking before the Bankers Club at Milwaukee,
which attracted considerable attention. Mr. Forgan declared that the development of banking in the United States had been diverted from its natural course
by erroneous politics and policy and added:
"Had banking, as in the case of other lines of business, been allowed to work
out its own destiny untrammeled by politics and free from subordination to
government necessities a system would ere this have been established which
would have made itself felt as a potent factor in the financial affairs of nations.
We would also now have a system that would stand together for the public
benefit in times of financial distress. As it is to-day we have no banks that will
compare in financial strength and power with those of other countries. While
actively competing with other nations in the fields of commerce and industry, it
must be admitted that in the world's finance we are away behind in the race;
nor does our system even satisfactorily provide for our own domestic requirements. The need of coalition among our unit banks is urgent."
The passage of the Federal reserve act and the development of the Federal
reserve system have changed some of the worst conditions that Mr. Forgan complained of, and we have had coalitions in the large cities which have given us
banks which do compare in financial strength and power with those of other
countries. It is claimed that we have one or two banks in New York since the
latest mergers larger than any bank in any other country—but there is still
urgent need of coalition among our small unit banks in the agricultural sections
of the country. Mergers have gone a long way, possibly too far, in the big
cities but they have been practically forbidden to country banks. If you attempt
to merge two banks in towns located 10 or 20 miles apart in the same county but
not within the same municipal limits you can not under Federal law keep both
offices open. The McFadden Act of February, 1927, permits mergers and
branches in cities where State banks can have branches but prohibits mergers
and branches in country districts if the banks belong to the Federal reserve
system even though State laws permit and encourage branches.
This prohibition has had a rather serious effect in one of our southern Federal
reserve districts, the Richmond district, where considerable numbers of country
banks, some of them rather sizable, have withdrawn from the Federal reserve
system in order to enter branch banking organizations under State laws. This
development has been mostly in North and South Carolina, and Governor Seay,
of the Federal Reserve Bank of Richmond has stated in a recent letter that,
"The aggregate deposits of banks which have relinquished membership because
of the present status of the law relating to branch banking was about $75,000,000"—during 1929 and to date of letter in 1930. Further commenting upon these



60

.NOMINATION OF EUGENE MEYER

conditions in a letter dated May 20, Governor Seay says, "The extent to which
branch banking shall be permitted, that is, whether it shall be country-wide or
shall have commercial or Federal reserve zones, may be debatable; but I do not
think it is any longer debatable as to whether member banks in the Federal reserve
system shall be able to establish branches throughout States which permit their
own State banking institutions to establish branches."
This statement it seems to me should have general indorsement. There is no
reason that I can see why national banks and member State banks should not be
allowed the same privileges with relation to branch banking that are allowed to
State banks in the States where branch banking is permitted. A few banks have
been lost to the Federal reserve system in other reserve districts through the
branch banking restrictions of the McFadden Act, one of them here in the State
of Maine. It is obvious, of course, that the recent rapid development of branch
banking in the Carolinas has been chiefly duo to economic reasons. Many small
banks have failed within the last five years and the people have turned to branch
banking as a remedy. Why try to restrain such a natural and necessary movement by law?
The general conception of branch banking on the part of many of the bankers
who have participated in the debate on the subject is that of a "reaching out"
of banks in the large cities into the country. That conception was recently
expressed by Mr. C. T. Zimmerman, president of the First National Bank of
Huntingdon, Pa., in an article, published in the Bankers Magazine, in which he
said: "Merging of city banks in order to handle larger financing is doubtless
justifiable in this trend, but to enable them to reach out for control of country
banks is not justifiable." It didn't seem to occur to Mr. Zimmerman that
country banks could merge if allowed to have branches, without reference to, or
connection with any large city. The comptroller's proposed amendment to the
banking laws might well prohibit banks in central reserve cities, that is New
York and Chicago, from establishing branches outside city limits, unless in
immediately adjoining suburban territory—for two reasons. In the first place,
they never would put branches in small towns where bank failures mostly occur.
Their idea of branch banking is to have branches only in the larger cities, which
would not accomplish anything so far as the prevention of failures is concerned.
Furthermore, they have no need of branches as they already do a very large part
of the best business all over the country without the expense of maintaining
branches. In almost every small city and in many of the rather large cities there
are large industries and people of wealth who find the local banking facilities too
small for their purpose and, therefore, carry accounts in New York or Chicago.
This brings up the comptroller's point that to permit branch banking in "trade
areas" would decentralize credit, that is, would create banking institutions in
what New York sometimes calls the Hinterland large enough to handle much of
the business now forced into New York because our unit banks in a very great
number of places are too small to handle it.
It does not seem to be clearly understood that the unit banking system, carried
to such an extreme as we have carried it in this country, forces banking business
into the big cities and particularly into New York that could and should be done
elsewhere, and also fosters speculation by forcing money into Wall Street to be
loaned to brokers that might frequently be loaned, if not at home, at least to
industries in the same state or in the same general neighborhood. Some economists have recognized this fact, but I think it was never forcefully presented until
Comptroller Pole's recent address. Its truth can be amply proven. Early in
1926 there was formed in South Carolina a combination of three banks under the
auspices of the Bank of Charleston, which after the necessary consolidations
became the South Carolina National Bank. Interests connected with the Bank
of Charleston, of which Mr. R. S. Small was the president, acquired control of the
Norwood National Bank of Greenville in the Piedmont section and the Carolina
National Bank in Columbia, in the center of the State. These three banks became State banks for a brief period and were consolidated under State laws, the
Greenville bank and the Columbia bank becoming branches of the bank in
Charleston. They were then converted into a national bank with branches under
the provisions of the act of 1865 (a wise provision of law unhappily repealed by
the McFadden Act of 1927). In a circular letter issued to the shareholders of
the Bank of Charleston, National Bankers' Association, in January, 1926, Mr.
Small stated that it was planned to consolidate these three banks into one corporation, in order, first, to be able to compete with the larger institutions in the
North and East for the best class of business in the State, and, secondly, he said,




NOMINATION OF EUGENE MEYER

61

" I t is a fundamental principle of banking t h a t loans should be diversified,
but there has not been in t h e smaller communities t h r o u g h o u t t h e c o u n t r y a
proper recognition of w h a t diversification is. I n a c o m m u n i t y like this p r a c tically all of our enterprises are dependent upon t h e results of agriculture, so
that t h e failure of our crops is reflected in losses a m o n g our business institutions, and no m a t t e r how we m a y divide our loans a m o n g t h e various kinds
of business, t h e fact t h a t all t h e businesses are more or less d e p e n d e n t upon
agriculture, in the last analysis, m e a n s t h a t all our loans are d e p e n d e n t upon
agriculture, so t h a t no real diversification is obtained. T h e d e m a n d for money
in one locality, such as this, is seasonal, which m e a n s t h a t we h a v e a big demand a t one season and a small d e m a n d a t another, resulting in our h a v i n g
to borrow a t one season and to lend on call in New York a t another, both of
which processes are expensive. T h r o u g h operating in Greenville we diversify
our loans by having a n u m b e r of t h e m dependent upon an entirely different
set of conditions, which insures a diversity, n o t otherwise obtainable, a n d in
addition, the seasonal d e m a n d in Greenville for funds is exactly t h e opposite
from Charleston, with a result t h a t it will avoid, to a large extent, t h e necessity of borrowing a t one season and lending on call in New York a t another,
thus giving us greater diversity and a more uniform d e m a n d . "
Here is a distinct recognition of the fact t h a t money was loaned on call in
New York cither from Greenville or from Charleston which could h a v e been
loaned in the State if t h e institutions in both sections of t h e S t a t e could work
together. Greenville, as you know, is a manufacturing t o w n a n d t h e peak of
demands in that section would naturally come at a different time from t h e p e a k
of demands a t Charleston on t h e seacoast. I u n d e r s t a n d t h a t t h e expectations
outlined in this circular letter in 1926 have since been realized a n d t h a t t h e
institution is successful. T h a t similar conditions obtain in m a n y other States
and sections is proven by t h e testimony of t h e group bankers recently s u m m o n e d
to the hearing before the Banking and Currency C o m m i t t e e of t h e House of
Representatives. Every one of t h e m stated t h a t t h e y were able t h r o u g h their
larger organizations to keep business a t home t h a t had before been forced to
New York or Chicago. As Mr. Decker phrased it, " W e are tired of h a v i n g t h e
cow fed in Minnesota and milked in New Y o r k . "
Much interesting information was brought out in these hearings before t h e
Banking and Currency C o m m i t t e e of t h e House of Representatives on t h e
general subject ol branch, group, a n d chain banking. T h e hearings were t h e
result of the recommendations m a d e by t h e Comptroller of t h e Currency in his
annual report, and his interesting a n d very able s t a t e m e n t was h e a r d first.
When ho had presented all his facts a n d recommendations it seemed to m e
that there was evidence of considerable change of opinion on t h e p a r t of several
of the members of the committee, a n d as t h e hearings progressed it became
evident t h a t there was a r a t h e r general feeling t h a t some extension of b r a n c h
banking would be advisable. Almost all t h e witnesses, including some of those
who came to oppose branch banking, a d m i t t e d under questioning t h a t there
were some places where branches would serve better t h a n small separate corporations. Mr. A. J. Vicgel, banking superintendent of t h e State of Minnesota,
in a recent statement, mentioned 154 places in t h a t S t a t e which previously h a d
supported banks where there are now no banking accommodations whatever,
principally because of failures. About one-half of t h e m he said should h a v e some
kind of banking service, b u t he said he could see no way of safely serving t h e m
except through branches.
There was much interesting testimony from t h e representatives of t h e new
group banking organizations in Minneapolis a n d St. Paul, in Detroit a n d in
Buffalo. Mr. Decker and Mr. Wakefield who head t h e two leading group b a n k ing organizations in Minneapolis a n d St. Paul, controlling b a n k s in a territory
where failures have been numerous a n d disastrous, presented r a t h e r convincing
arguments t h a t their group systems have served a very useful purpose. B o t h
of t h e m denied t h a t t h e y would convert their group b a n k s into b r a n c h b a n k s if
authority were given t h e m to do so, b u t t h e y b o t h a d m i t t e d t h a t their groups
included only r a t h e r sizeable b a n k s located in r a t h e r sizeable towns, a n d t h a t it
would be an a d v a n t a g e if their b a n k s could h a v e branches in t h e smaller places
not now touched by t h e m . Mr. Lord of t h e G u a r d i a n - D e t r o i t group m a d e
similar s t a t e m e n t s , b u t was r a t h e r more willing to a d m i t t h a t b r a n c h b a n k i n g
would be more economical a n d m i g h t give b e t t e r service. W i t h few exceptions
the banks in his group are located in cities n o t smaller t h a n 10,000. Several of
the group bankers a d m i t t e d t h a t if b r a n c h banking superseded group banking it
38819—31

5




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NOMINATION OF EUGENE MEYER

would probably result in lower interest rates in the smaller group towns. All of
them, however, declared that the banks in their combinations were independent
units, each managed by its own local board of directors and each retaining its
local pride, even though the stock of the local banks is all owned by holding
companies. All thought the group system had some marked advantages, by comparsion with branch banking. In the case of all of these new group banking
systems the stock of the local banks has been exchanged for stock in the holding
companies, so that the old stockholders may be said to retain an interest in their
own banks and to have acquired an interest in all the other banks of the group.
Mr. Wakefield of the First Bank Stock Corporation said that his group had
started to buy control of banks for cash, but had found that did not work well.
People were unwilling to sell for cash but were willing to exchange their stock for
stock in the larger corporation. In the Guardian-Detroit group, the holding
company stock carries double liability, just as bank stock does.
This system of group banking is new and is certainly different from what has
been known for many years as "chain banking" where one man or a group of
men have purchased for cash the control of a number of banks. As conducted
in the Minneapolis-St. Paul district, in the Detroit district, and by the MarineMidland group of Buffalo, the groups bear a very strong resemblance to branch
banking. The men representing them all declared that no single bank in the
system could or would be allowed to fail. They declared also that if any individual or industry in any community had need for loans larger than the loaning
limit of the local group bank of the community such loans would be taken care
of within the group. I agree with Comptroller Pole that this development of
group banking should not be checked by law unless something better can be
substituted for it. We pass too many restrictive laws. What we want now is
something constructive.
This kind of group banking not only resembles branch banking, but probably
would have been called branch banking in the days of the old State banks before
the Civil War. One of the model branch banking organizations of that period
was the Bank of Indiana, of which High McCulloch, who became the first Comptroller of the Currency, was the president. If you look into the history and structure of the old Bank of Indiana you will find that its branches were pretty nearly
independent. As originally organized, the Bank of Indiana was not much more
than a board of directors, appointed by the legislature, with certain supervisory
and directory powers, while the branches were independently organized banks with
separate stock. The Bank of Ohio was also a group of pretty nearly independent
banks bound together under a modification of the New York safety fund principle.
In those days, of course, the emphasis was on giving security to note issues, but
the principles are the same when applied to security for deposits. Deposit banking
was something which grew up in the cities and was not much understood for a
long time outside of the cities. The notion that depositors did not need any
special protection persisted for many years after the national banking act was
passed, and Mr. Thomas P. Kane, in his book, "The Romance and Tragedy of
Banking," published in 1922, declared that with all the numerous amendments of
the national banking act passed since 1864 not one "can be said to have had for
its object the increase of the security of.depositors in national banks" until the
Federal reserve act was passed.
The resemblance of the group banks of to-day to the branch banks of the days
before the Civil War suggests that with proper legal recognition and direction
they might be developed into branch banking institutions somewhat of the old
type—the branches retaining a considerable amount of independence, but being
jointly responsible for the debts of every branch in the group as was the case in
the old Bank of Indiana, and each group supervised and in a measure controlled
by a central board of directors, under governmental supervision. Possibly such
a system of branch banking—a sort of compromise between group and branch
banking—would meet the chief objection of many of the ardent opponents of
branch banking. I mention this merely as a possibility, and without much
confidence that such systems would take care of the very small towns where
most of the banking failures occur. It should serve to bring to mind that branch
banking need not necessarily be of one pattern. Branch banking can be organized so as to give the branches a certain amount of independence, and can be
organized without any "parent bank"—simply a group of banks in different
places operating under one corporation. The head office, where the directors
meet and where the corporation books are kept, need not be a bank. I am not
quite sure that there must be a "head office"—at any rate one of the institutions



NOMINATION OF EUGENE MEYER

63

in t h e South operating two banking offices—banks recently consolidated—•
maintained in recent letters to t h e Federal Reserve Board t h a t there was no
" p a r e n t b a n k " involved, and no " h e a d office." Therefore, t h e y t h o u g h t t h e y
should be allowed to remain in t h e Federal reserve system. I t h o u g h t so myself
but our counsel could not be convinced.
" W h e t h e r you like it or n o t , " said Mr. Decker of Minneapolis in his recent
statement to t h e Banking and Currency Committee, "size is fundamental in
many lines of business. I t certainly is in t h e banking business." Now, keeping
always in mind t h e main purpose of making our country b a n k s large enough t o
take care of a larger share of t h e local business, some of which now goes t o N e w
York, and large enough a n d with diversification enough to be able to s t a n d up
in adverse times, what limits should be set, with relation to capital a n d to extent
or number of branches? Mr. H e n r y Dawes, former comptroller represents t h e
extreme position of opposition to branches, b u t a d m i t s t h e necessity of larger
banks. He cites t h e fact t h a t 88 per cent of t h e failures of t h e last nine years
have been banks with a capital less t h a n $100,000, a n d recommends t h a t no
banks be chartered in the future with a capital less t h a n $100,000. If I understood his recent statement to t h e Banking a n d Currency C o m m i t t e e he would
not permit smaller country b a n k s to consolidate so as to obtain t h e requisite
capital, if consolidation involved t h e maintenance of more t h a n one office, in
different places. His idea seemed t o be t h a t unless a t o w n or c o m m u n i t y was
large enough to maintain an independent bank with a capital of $100,000 it should
depend on t h e nearest large town—i. e., it should be deprived of convenient
banking service. Mr. Dawes took t h e ground apparently t h a t we m u s t either
have nation-wide branch banking, or none at all outside of cities. " I t seems t o
m e , " he said, " t h e r e is no room for compromise on this subject and t h a t a determination should be reached as to whether t h e United States wishes to embrace
a national system of branch banking or to preserve its coordinated independent
units. It can not do b o t h . "
I disagree wholly with this dogmatic position. There was more b r a n c h banking in the United States 100 years ago, in proportion to population a n d banking
resources, t h a n there is to-day, and there always has been some branch banking
in t h e United States. In fact there always has been some b r a n c h b a n k i n g in t h e
national banking system, and I think it can be shown t r o t not quite all of it came
in through conversion of State banks. There is no clear evidence t h a t t h e
Congresses of Civil W a r days in enacting t h e national b a n k i n g act h a d any
intention of prohibiting branch banking, and I a m informed t h a t t h e comptroller's office did not finally pass upon the question until 1902. In 1911 Attorney
General Wickersham delivered an opinion adverse to branches in t h e case of t h e
Lowry National Bank of Atlanta, a n opinion later m u c h modified b y Attorney
General D a u g h e r t y who, October 3, 1923, found in favor of additional offices
within city limits. T h e m a t t e r was never definitely decided by t h e Supreme
Court, t h e St. Louis case in 1924 having t u r n e d on enforcement of a State law.
Now and then national banks opened outside offices and sometimes t h e y withstood the comptroller's criticisms for a considerable period. T h e Citizens
National Bank of Newport, N . H., was given a certificate by t h e comptroller on
March 27 last for t h e operation of a b r a n c h a t Warner, in an adjoining county,
on the ground t h a t t h e branch had been operated for t h e p a s t 25 years. There
are to-day (April 8 figures) 273 banks in t h e United States m a i n t a i n i n g 570
branches outside so-called city limits without counting California. Twelve of
them are national banks maintaining 28 branches. N o r t h Carolina heads t h e list
with 34 banks maintaining 66 outside branches. California has two less banks
(32) with outside branches, b u t t h e n u m b e r of branches is m u c h greater, 547, of
which 313 are branches of national banks. Of t h e b a n k s m a i n t a i n i n g outside
branches 52 are in New England, 22 of t h e m in Maine, t h e Maine b a n k s maintaining 57 branches. T h e Maine law, p e r m i t t i n g branches in t h e c o u n t y of t h e
parent bank and any adjoining county seems to me excellent, a n d t h e limit it
provides would be sufficient, I think, in any E a s t e r n S t a t e . In Western States
where there is much less diversification of industries t h e limit should doubtless
be much wider, perhaps in some districts comprising more t h a n one S t a t e .
Branch banking can be limited in any way desired—by territory t o be covered, by n u m b e r of branches to be allowed each bank, or by t h e size of t h e places
in which branches m a y be organized. As four-fifths of all bank failures h a v e
occurred in places of less t h a n 2,500 i n h a b i t a n t s , t h e law m i g h t provide that
no more unit banks should be incorporated in places of less size, branches t o be
authorized instead. There is no reason why we should decide now with relation
to w h a t kind of banking m a y seem desirable to t h e people 50 or 100 years from



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NOMINATION OF EUGENE MEYEK

now, a n d no reason why we should not apply a desirable a n d well-proven remedy
within limits now because of fear t h a t some future generation m a y decide to
enlarge t h e limits.
Banks h a v e a common law right t o establish branches. This was generally
recognized in t h e early days of our Nation's history. I n m a n y States they have
lost this right through restrictive legislation, some of it not originally intended
to prohibit branches. T h e obvious thing to do is t o repeal some of the restrictions a n d allow some freedom of n a t u r a l development. I do not believe t h a t
there would be a n y rapid or dangerous development if t h e establishment of
branches were p e r m i t t e d within t r a d e areas as t h e comptroller suggests. I do
not believe t h a t a n y comptroller would permit a dangerous or a very rapid
development, a n d t h e history of branch banking where long authorized by State
laws seems to indicate (with t h e single exception of California) t h a t development
would proceed slowly, a n y w a y . Branch banking is really a country b a n k proposition. New York a n d Chicago bankers are generally opposed to it (witness
t h e t e s t i m o n y of Mr. George W. Davison, of t h e Central-Hanover), having
learned m a n y years ago t h a t correspondent banking serves t h e m best. As long
as t h e banking units out in the States can be k e p t comparatively small, t h e biggest a n d best business m u s t come to t h e big cities, a n d t h e country banks themselves, t h r o u g h their correspondent accounts, m u s t furnish a large p a r t of t h e
funds with which this business is t a k e n care of. T h e present system suits Wall
Street bankers exactly, a n d w h y should they worry over the continued failures
of a lot of little banks off somewhere in the d i s t a n t prairies?
I suggest as t h e first a m e n d m e n t s necessary to remedy t h e present disgraceful
situation with relation to b a n k failures t h a t national b a n k s be given the same
privileges with relation to branches t h a t State banks have, and, second, t h a t in all
S t a t e s national b a n k s should be permitted to establish branches through consolidations in t r a d e areas, which m i g h t well s t a r t with t h e limits of the present
Maine law, with discretion to t h e comptroller for extension where necessary in
order to secure t h e diversification essential to safety.

[New York Times, Thursday, June 19]
TOPICS IN WALL STBBBT
S E N T I M E N T VERSUS LOGIC

T h e r e is evident in m o s t discussions of t h e subject of branch banking among
bankers a n interesting divergence between belief a n d desire. Since most bankers
a r e u n i t bankers, t h e y t e n d to grow a little sentimental a t t h e prospect of t h e
u l t i m a t e extinction of t h e unit b a n k . They speak scathingly of banking on a
" c h a i n - s t o r e b a s i s " a n d refer to t h e callousness of a branch b a n k manager, cont r a s t e d with t h e s y m p a t h e t i c understanding of t h e old-fashioned unit banker
whose dealings are largely with his personal friends a n d acquaintances. Yet,
having expressed their unalterable opposition to branch banking, most of t h e m
sigh heavily a n d a d m i t t h a t t h e extension of t h a t system is inevitable. T h e
notion t h a t t h e logic of events is forcing an extension of branch banking received
t h e indorsement of Governor Young of t h e Federal Reserve Board in St. Paul
yesterday, when he told Minnesota's bankers t h a t , like Comptroller of t h e
C u r r e n c y Pole, he favored a n extension of t h e b r a n c h system of banking.
[New Yoik Times, Thursday, June 19]
R O Y YOUNG BACKS BHANCH BANKING
H E T E L L S MINNESOTA B A N K E B S T H E U N I T SYSTEM HAS FAILED IN FARMING AREAS,
POINTS TO MANY F A I L U R E S . FORTY P E R CENT OF T H E BANKS I N 7 AGRICULTURAL STATES HAVE CLOSED I N 10 YEAHS, H E SAYS

S T . P A U L , J u n e 18.—In some sections of t h e United States t h e unit system of
banking h a s broken down, necessitating a reorganization to fit t h e new order of
things, R o y A. Young, governor of t h e Federal Reserve Board declared before
t h e Minnesota Bankers Association to-day when he indorsed t h e stand of the
Comptroller of t h e Currency for extension of b r a n c h b a n k i n g within t r a d e areas.
After calling a t t e n t i o n to large losses to depositors through b a n k failures chiefly
in t h e agricultural districts, Governor Young asserted t h a t " h a d we been willing
before t h e war to have countenanced branch banking in a limited trade area, I



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NOMINATION OF EUGENE MEYER

believe t h a t m a n y of t h e unfortunate failures of t h e last decade m i g h t h a v e been
avoided."
Mr. Young saw limitations in group b a n k i n g which h a d developed because of
restrictions on the branch system, b u t expressed t h e belief t h a t " s o m e t y p e of
compromise between unit banking and branch b a n k i n g " will be worked out.
" T w o forces are bringing about the shifting forms of banking o r g a n i z a t i o n " , he
said. On one hand, the large volume of bank failures in recent years, a n d on t h e
other, changes in economic and social conditions which have m a d e a r e a d j u s t m e n t
of banking organization and practice inevitable.
" U n i t banking has been the natural complement of t h e individual initiative a n d
enterprise which has so rapidly brought t h e United States to t h e first r a n k of
economic powers," Governor Young said.
" N o t w i t h s t a n d i n g all t h e rapid alteration in t h e environment a b o u t us in general
and the evolution of business forms in particular, the unit banker still h a s his
place and service to perform. He will have it for a long time to come, and I can
see no reason why he should not always be an i m p o r t a n t p a r t of our b a n k i n g
system.
"However, some unpleasant facts m u s t be faced with respect to t h e appalling
number of bank failures recorded in various p a r t s of t h e country during recent
years. During the nine-year period prior to J u n e 30, 1929, a b o u t 5,000 b a n k s
closed their doors in the United States, t y i n g up deposits in t h e neighborhood of
$1,500,000,000.
" I n the history of suspensions, it is a remarkable t h i n g t h a t no i m p o r t a n t
failures a m o n g banks in t h e larger cities have occurred, while in seven agricultural
States 40 per cent of all t h e b a n k s in existence in 1920 have failed."
" I n m a n y small communities t h e banking business is drying up so t h a t it is
increasingly difficult for the small b a n k to m a k e a profit," Governor Y o u n g said.
He added t h a t the m a n a g e m e n t of such a b a n k in order to show b e t t e r earnings
is constantly under the t e m p t a t i o n to t a k e greater risks, with t h e result t h a t
disaster follows.
The automobile, he said, takes t h e b a n k depositor to t h e larger town, and once
a patron of the bigger movie shows and t h e shops with wider variety of goods
" n o t h i n g is more n a t u r a l t h a n t h a t he should find it convenient t o do his b a n k i n g
business there also. So his account is moved from the small b a n k to t h e larger
one and the smaller banker loses deposits."
" S o we have an entirely different economic and social p a t t e r n from t h a t under
which our unit system d e v e l o p e d , " he concluded, " m a k i n g it necessary for t h e
banking business to be r e v a m p e d to fit the new order of t h i n g s . "

This received very favorable comment on the part of our directors,
and several of them spoke to me about the possibility of employing
Mr. Piatt in the Marine-Midland Corporation. Those directors
were local directors of the Midland Trust Co.
Meanwhile, we had felt the need in the Marine-Midland Corporation of an economist and an adviser. As a matter of fact, I had felt,
after reading this speech of Mr. Piatt, that he would be a desirable
man if it were possible for us to secure him.
Then one or two of our directors spoke to me about it, and I felt
that I would like to talk to Mr. Piatt about it. So on August 20 I
wrote to Mr. Piatt at Washington the following letter:
D E A R M R . P L A T T : There is a m a t t e r t h a t I should like to discuss with you
some time at your convenience. I could arrange to meet you in New York a n y
day next week, except M o n d a y or Friday.

About a week later, 1 met him in New York by appointment and
made him an offer to come with us which he took under advisement.
Then I received this letter in reply from Mr. Platt:
FEDERAL

RESERVE

Washington,
Mr.

GEORGE

F.

BOARD,

September 3, 1980.

RAND,

President Marine Trust Co., Buffalo, N. Y.
D E A R M R . H A N D : I came back to Washington yesterday for a meeting to
approve t h e salary voted for Governor Young by t h e directors of t h e Boston
Federal Reserve Bank and my present expectation is to return to Madison late



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NOMINATION OF EUGENE MEYER

this afternoon. I have consulted a few people in whom I have confidence with
relation to your offer, including Mr. Case, of the Federal Reserve Bank of New
York, and the Comptroller of the Currency, both of whom speak in the highest
terms of the Marine Midland organization. Mr. Case has set forth the pros and
cons of the proposition pretty completely, but his general conclusion is that the
position offers very interesting possibilities. Of course, I shall hate to sever the
pleasant relationships of 10 years on the Federal Reserve Board, but I think that
my resignation would not embarrass the President and it is even possible that he
may want to reverse the tradition of the board to look got a governor in the New
York district. All the New York representatives on the Federal Reserve Board,
beginning with Paul Warburg and ending with myself, have been vice governors
and it has been the generally accepted supposition that it would not do politically
to appoint a New York man as governor. Most of the men mentioned in the
various rumors in the newspapers are, as I happen to know, not available, and
one of them could be appointed as a resident of another district.
Anyway, it seems to me there is no reason why I should delay further an answer. The proposition looks attractive to me, I have long been interested in
group and branch banking and shall welcome an opportunity to have some active
part in the development of such an organization as yours.
The matter of salary was not exactly settled at our conference in New York
on Thursday, and while congenial interesting work that I feel sure I can do is
of more importance, it would seem to me a salary of $24,000 or $25,000 might be
warranted. Twenty-four thousand dollars would be exactly double my present
salary and would be sufficient.
I have spoken somewhat tentatively to the Secretary of the Treasury and
while I am not sure yet that I can make a definite statement as to the time I
can leave the board it would seem that everything could be settled by October 1,
or if not then, by the 15th. My talk with you and with Mr. Stauffen left the
impression that the matter of a week or two one way or the other was not important.
Apart from the board's affairs, I own a house here in Washington and shall
have to rent a house or an apartment elsewhere—probably at Garden City,
Long Island, where one of my sisters lives. In fact, the possibility of living at
Garden City and the fact that my daughter rather likes the idea were not without
their influence in my decision. In short, subject to a little more definite information with relation to salary and to possible, though not probable contingencies
with relation to the appointment of my successor, you may regard this as an
acceptance of the proposition. I have spoken in strict confidence, however, to
those with whom I have consulted and should not want any announcement made
until I can be sure that the president can obtain a man from the New York district who would be entirely satisfactory.
There are doubtless a good many things I neglected to ask you at our meeting
in New York, among them the question whether you are now publishing or would
want to publish a bulletin. As you spoke of the position as being similar to that
of Leonard Ayres, I suppose I might be called an economic adviser. It seems
to me that such an organization as the Marine Midland Co. would have exceptional opportunities for publication of a bulletin, perhaps with special emphasis
on industries in New York State and perhaps with brief reports on economic
conditions from each of the neighborhoods represented in the system. Such
work, of course, would be very much in my line.
I may add that I have a personal secretary who is an excellent stenographer
and not only looks after all my personal affairs but writes practically all my
letters, takes dictation for my addresses, understands something of the subjects
on which I write and saves me a lot of time. He might want to come with me.
He is a married man with a family and at present receives $3,000, paid by the
Federal Reserve Board.
Yours very truly,
EDMUND PLATT.

That is the extent of my negotiation with Mr. Platt. He accepted
our offer. We pay him a salary of $22,000 a year. We took his
secretary over. I never had any conversation with anyone connected
with the Federal Reserve Board or with Mr. A. A. Cook or with any
person outside of our organization. The idea originated in Buffalo
with me. We had no connections with the implications that Mr.
McFadden has made.



NOMINATION" OF EUGENE MEYER

67

Senator CAREY. You suggested Mr. Piatt to your directors
Mr. R A N D . I suggested to our directors—in fact, it came about
when three or four of us were talking. They said that was a good
speech; Piatt would be a good man for us. I do not know whether
I suggested it first or whether they suggested it first.
Senator CAREY. D O you remember who those directors were?
Mr. R A N D . One of them was our general counsel in Buffalo,
Edward H . Letchworth. Another was Walter P . Cooke, who is a
partner of Mr. Letchworth.
Senator W A G N E R . And not related to the Mr. Cook here?
Mr. RAND. N O relation. Another was Mr. Seymour H . Knox.
Senator GOLDSBOROUGH. Then, your whole attention was directed
to Mr. Piatt by reason of this speech at Poland Spring?
Mr. RAND. It was, and by no outside source whatsoever.
Senator FLETCHER. Is that group banking advocated by Mr.
Piatt similar to the plan advocated by the Comptroller of the
Currency?
Mr. RAND. There have been so many plans suggested that I
really do not know whether it is or not. I t has certain features of
similarity with the plan suggested by the Comptroller of the Currency,
but Mr. Piatt did not really offer any specific plan; he more or less
discussed various plans ^ n d the need for some kind of revision in our
banking laws along the lines suggested by the Comptroller of the
Currency. We had formed our Marine Midland Corporation which
evidently was a source of great interest to Mr. Piatt, and he was
quite complimentary to the Marine Midland Corporation and the
way we had set up the organization. In fact, the more he looked
into it the more he thought we had a scheme that was very advantageous for our part of New York State.
Senator FLETCHER. H O W many banks have you?
Mr. RAND. We have 16.
Senator FLETCHER. YOU distinguish between that plan of group
banking and chain banking? Would you call yours a chain bank?
Mr. RAND. N O ; we do not like the word "chain." We are a group
bank.
Senator BROOKHART. YOU have a holding corporation that holds
the majority of the stock in all 16 of these banks?
Mr. R A N D . Yes, sir.
Senator CAREY. I think

that you stated something in your letter
about Mr. Case in New York.
Mr. R A N D . Mr. Piatt, when I first talked with him, said he was in
the relationship of a public servant, and that, of course, he could not
take any action without talking with the Comptroller of the Currency
and with the President, and he would like to discuss this matter
with Mr. Case, who was chairman of the board of the New York
bank and who was a personal friend of long standing.
Senator CAREY. YOU never talked with Mr. Case about it?
Mr. R A N D . I never talked with Mr. Case.
Senator FLETCHER. D O you know Mr. Meyer, Mr. Rand?
Mr. RAND. I never met Mr. Meyer until this morning, sir. I have
a very high regard for Mr. Meyer, and as a banker we think he is an
ideal man to head the Federal reserve system.
Senator BROOKHART. The group bankers and the chain bankers all
think that Mr. Meyer is an ideal man.



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NOMINATION OF EUGENE MEYEE

TESTIMONY OF ROY A. YOUNG, GOVERNOR OF THE FEDERAL
RESERVE BANK OF BOSTON
(The witness was duly sworn by the chairman.)
Senator CAREY. Give your full name, please.
Mr. YOUNG. Roy A. Young. I am a resident of Brookline, Mass.,
and am governor of the Federal Reserve Bank of Boston.
Senator CAREY. YOU heard the testimony of Mr. McFadden?
Mr. YOUNG. I did.
Senator CAREY. The

questions that I will ask you are in line with
the statements that he made. The first question is, did you discuss
your resignation with Mr. Meyer previous to your resigning from the
board?
Mr. YOUNG. Never.

Senator CAREY. HOW did you happen to resign?
Mr. YOUNG. Well, I addressed a letter to the President of the
United States at the time I resigned, which was a rather embarrassing
letter to write because we do not like to air our own personal finances.
I would like to read that letter to this committee, and would be glad
to amplify it in any way that the committee cares to have it amplified.
Senator W A G N E R . What is the date of that letter?
Mr. YOUNG. This was written on August 27, 1930. I t reads as
follows:
M y D E A R M R . P R E S I D E N T : F o r some time it has been necessary for me to consider accepting a more r e m u n e r a t i v e position. As you know, t h e law does n o t
p e r m i t m e to accept e m p l o y m e n t with a m e m b e r bank, where my experience would
naturally lead m e . I n addition t h e time for leaving has been a factor because I
h a v e felt t h a t I was n o t in a position t o accept employment elsewhere, regardless
of how a t t r a c t i v e an offer might be, when t h e credit conditions of t h e country
were strained or disturbed. Obviously, these factors have limited t h e opportunities.
Now, however, it is clearly evident t h a t t h e credit structure of t h e country is in
an easy a n d exceptionally strong position, and an opportunity has come t o me
from t h e directors of t h e Federal Reserve Bank of Boston; t h a t is, they have
honored m e by offering to m e t h e governorship of t h a t bank, a responsibility t h a t
I a m very anxious t o u n d e r t a k e a n d feel t h a t I should. I, therefore, a m tendering
m y resignation as governor a n d a member of t h e Federal Reserve Board t o become
effective as soon as accepted by you.
I a m t a k i n g this action with m a n y regrets because I have thoroughly enjoyed
t h e three years t h a t I have been a m e m b e r of t h e board, and t h a t I have profited
greatly in experience, associations, and friendships there can be no doubt. I a m
m o s t grateful t o everyone who has m a d e it possible for me t o accumulate such
valued assets, a n d I particularly take this opportunity to thank you for t h e many
things you have done, both officially a n d privately. You have been most considerate on all occasions and I a m deeply indebted to you.
I a m , Mr. President,
Yours respectfully,
R. A. Y O U N G , Governor.

T h a t was my statement at that time, and I have no occasion to
change it at all. Congressman McFadden has made an inquiry. I
resent it somewhat, but I am going to answer it. I accepted no bribe
to accept the governorship of the Federal Reserve Board in Washington. I accepted no bribe when I left.
Representative M C F A D D E N . M a y I say, Mr. Chairman, that I
did not mean to infer anything of that kind. That was a misunderstanding.
Senator BROOKHART. I think you did not, either.
Mr. YOUNG. Well, what is a bonus?



NOMINATION OF EUGENE MEYER

69

Senator CAREY. I think that question was asked in regard to Mr.
Piatt. I think that Mr. McFadden suggested that I ask if Mr. Piatt
received any bonus.
Mr. YOUNG. I will answer the other question. I had no understanding as to future employment when I went on the Federal Reserve
Board from anybody.
Senator BROOKHART. What salary were you getting before you
went on the board?
Mr. YOUNG. I was getting $25,000 a year in Minneapolis.
Senator BROOKHART. And you quit that for $12,000 on the Federal
Reserve Board?
Mr. YOUNG. Yes, sir.
Senator BROOKHART.

What salary do you get now?

Mr. YOUNG. $30,000.

Senator WAGNER. Men frequently do that for the sake of an
opportunity to serve in public office. I did that. I resigned a place
on the bench that paid me a good deal more than I received as a
United States Senator.
Senator BROOKHART. You are sticking to your senatorship, I
know.
Senator FLETCHER. H O W long does your engagement last?
Mr. YOUNG. At the pleasure of the directors of that bank.
Senator CAREY. Did you discuss the matter of your- resignation
with Mr. Meyer?
Mr. YOUNG. Never.

Senator CAREY. And your resignation was really brought about by
an offer that you had from the Boston Federal Reserve Bank?
Mr. YOUNG. That is correct, although it was generally known by
some of my friends, Senator, that it was only a question of time when
I would leave the board on account of my own financial affairs, and
that I was looking for employment elsewhere. I frankly state that
in this letter.
Senator CAREY. And there was no effort to get you to resign in
order that Mr. Meyer be appointed?
Mr. YOUNG. None whatever.
Senator FLETCHER. Whom did you succeed at the Boston bank?
Mr. YOUNG. Governor Harding died, I think, in March of 1930,
and that bank operated without a governor from March until I went
there in September.
Senator FLETCHER. Governor Harding was formerly a member of
the board.
Mr. YOUNG. Governor Harding was formerly a member of the
Federal Reserve Board, yes, sir.
Senator CAREY. And he went to Boston.
Mr. YOUNG. Yes, sir.
Senator C A R E I . Do you

know Mr. Cook, who testified here this
morning?
Mr. YOUNG. 1 met him this morning. 1 never knew him until
this morning.
Senator WAGNER. I think the thing that we wanted cleared up was
the insinuation made that you by some arrangement that was very
vague—I could not understand it—were to leave the board, so that
Mr. Meyer could become chairman.



70

NOMINATION OF EUGENE MEYER

Mr. YOUNG. There was no arrangement with me of that kind,
Senator.
Senator W A G N E R . When did you first hear of any such thing?
Mr. YOUNG. M y leaving the board?
Senator W A G N E R . N O ; that such a charge was made by Congressman McFadden.
Mr. YOUNG. I am not sure. I t is in Congreesman McFadden's
letter, I think, that he sent to Senator Norbeck.
Senator W A G N E R . That was the first intimation you had of it?
Mr. Y O U N G . T h a t was the first intimation I had of it, Senator.
Senator CAREY. Was your resignation in any way connected with
Mr. Piatt's resignation?
Mr. YOUNG. I t had no connection whatever.
Senator CAREY. YOU had no discussion with Mr. Piatt about it?
Mr. YOUNG. I never talked with Mr. Piatt about it. He was away
on a vacation at the time. I did talk with my colleagues on the
board. I talked with Mr. James and I talked with the Comptroller
of the Currency and the Secretary of the Treasury. I thought they
were my old friends and were entitled to the information that I was
contemplating making a change, but I did not talk to Mr. Piatt. He
was away on vacation and I have not seen Mr. Piatt since the first of
July.
Senator BROOKHART. H O W did the negotiations start with regard
to your position at Boston?
Mr. YOUNG. Mr. Curtis, the chairman of the board in Boston,
asked me if I would consider the governorship.
Senator BROOKHART. When was that?
Mr. Y O U N G . Well, I could give you the exact date, Senator, but I
think it was about August 10, may be the 15th.
Senator BROOKHART. Did that occur by letter?
Mr. YOUNG. N O ; he asked me to meet him in New York.
Senator BROOKHART. He wrote you a letter, did he not?
Mr. YOUNG. He called me by telephone, I think, and asked me
if I would meet him in New York. I met him at the Harvard Club
in New York, and he said that he had not discussed this with his
directors, but asked me if I would consider the governorship of the
Federal Reserve Bank of Boston. I told him that I would have to
talk it over with my wife. She happened to be in northern Michigan
at the time, and I wanted to talk it over a little bit with the Secretary
of the Treasury, and I wanted to feel sure that it was all right with
the President of the United States.
Senator BROOKHART. Did you talk with the President before you
wrote this letter to him?
Mr. YOUNG. Yes. I talked to the President the day before, on
August 26. That is the only talk I ever had with the President about
leaving. I went over and talked it over with him. I felt confident,
however, that the Secretary of the Treasury had kept the President
informed from time to time that I was trying to locate elsewhere.
Senator BROOKHART. Was anybody present but you two at this
conference in New York?
Mr. Y O U N G . T h a t is all.
Senator CAREY. The Secretary of the Treasury knew, something
before you resigned that you were looking for another position?



NOMINATION OF EUGENE MEYEE

71

Mr. YOUNG. The Secretary of the Treasury has known it since,
I would say, in January or February of 1930.
Senator FLETCHER. Did you know that Mr. Piatt was contemplating leaving the board?
Mr. YOUNG. No; I did

not.

Senator FLETCHER. Do you suppose the Secretary of the Treasury
knew that?
Mr. YOUNG. I have no idea.
Senator FLETCHER. Did any of the other members of the board
know it?
Mr. YOUNG. I do not think there was another member that knew
anything about it.
Senator FLETCHER. I t is singular that two members of the board
should arrange at about the same time regarding leaving, without
the board knowing something about it.
Mr. YOUNG. My action was entirely independent, and it is certainly conclusive from the letter that Mr. Piatt wrote, that Mr. Rand
just read, that he was acting independently.
Senator GOLDSBOROUGH. Mr. Young, you may have answered this
question to Senator Wagner, apropos of the statement made by Mr.
McFadden that upon retirement of yourself and Mr. Piatt, Mr. Meyer
had an ambition to become the president of the Federal Reserve
Board. That carries with it the intimation that Mr. Meyer may
have influenced in some way, directly or indirectly, your retirement.
Is that correct, or not?
Mr. YOUNG. That is incorrect. Mr. Meyer had no influence
whatever on my leaving the board. And I want to say something
further for the record, if I may. I have known Eugene Meyer for
10 years. I have come in pretty close contact with him, and when it
was announced that he was to become governor of the Federal Reserve Board, I was one of the happiest men in America, because I
know the duties of the governor of the Federal Reserve Board and I
know the qualifications necessary, and I do not know of a better man
in America.
Senator BROOKHART. In reference to these qualifications, I read in
Senator Glass's statement when he presented the Federal reserve law
that one great object of it was to stop the accumulation of the surplus credit of the country for New York speculation. I t did not do
it, did it?
Mr. YOUNG. No. A great deal of credit did center in New York
for speculation.
Senator BROOKHART. A good deal before we had the Federal reserve at all?
Mr. YOUNG. I suspect much more; yes.
Senator BROOKHART. Mr. Meyer would be in sympathy with that
proposition?
Mr. YOUNG. I doubt it very much. I was not in sympathy with
it. But it went there anyway. I could not stop it, Senator, and
nobody else could stop it.
Senator BROOKHART. Under the law you could not stop it?
Mr. YOUNG. Under the law I could not.
Senator BROOKHART. I agree with you in part of that, but it is
plain that the administration of the Federal Reserve Board could have
stopped a good deal of it by denying rediscount rates to those banks
that made speculative loans.




72

NOMINATION OF EUGENE MEYER

Mr. Y O U N G . I doubt it.
Senator FLETCHER. Did you try it?
Mr. YOUNG. Yes,

sir.

Mr. M E Y E R . Mr. Chairman, there is just one point I would like to
ask Mr. Young about. I have given a good many years of my life
to public service, and I do not consider it a sacrifice; I consider it a
privilege. In the last 10 years the principal part of my activity has
been to do something, to the best of my ability, in behalf of the agricultural interests which I thought in 1921 were suffering too greatly
and in ways that could be helped. Governor Young, you were
governor of the Federal Reserve Bank of Minneapolis during the
period of the agricultural credit activity of the War Finance Corporation?
Mr. YOUNG. I was.
Mr. M E Y E R . And your

bank acted as a sort of fiscal agent of the
War Finance Corporation in handling the business locally until the
agency was later established independently, because you said the
work was too much. They loaned, as I remember it, in the Federal
reserve district of which you were the head, about $60,000,000 to
about 1,600 country banks and livestock loan companies. I would
like to ask you whether you think the work of the War Finance
Corporation was helpful to the agricultural interests, or not.
Mr. YOUNG. I will answer that by saying that it was helpful, well
managed, and prevented conditions in that territory from developing
into a real catastrophe.
Mr. M E Y E R . D O you know anything more that could have been
done than we did in the War Finance Corporation for the help of the
people in that territory?
Mr. YOUNG. Nothing.

Senator BROOKHART. What States are included in that territory?
Mr. YOUNG. Montana, North Dakota, South Dakota, Minnesota,
the Upper Peninsula of Michigan, and I think 24 counties in the
northern part of Wisconsin.
Senator BROOKHART. About what was the value of the agricultural
production in that territory?
Mr. YOUNG. I would have to refer to records.
Senator BROOKHART. Well, it was more than a billion dollars, was
it not, even at the low prices that the farmers had to take?
Mr. YOUNG. I would be just guessing at it.
Senator BROOKHART. And they got the magnificient sum of
$60,000,000 credit through the Federal reserve system?
Mr. YOUNG. That is correct.
Senator BROOKHART. That must be the reason that the catastrophe
has hit the farmers of that whole country.
Mr. YOUNG. If I recall correctly, the banks of that territory had
$1,500,000,000 in deposits, and the larger part of it was already loaned
to agriculture. In addition, the Federal reserve bank at Minneapolis at one time loaned as high as $118,000,000, and the War Finance
Corporation came in on top of that and took what the Federal reserve
could not take, to the extent of $60,000,000.
Senator BROOKHART. H O W much was • there in New York on
speculation?
Mr. YOUNG. At that time?
Senator BROOKHART. Yes.



NOMINATION OF EUGENE MEYER

73

Mr. YOUNG. Practically none.
Senator BROOKHART. How much was invested in long-time bonds
in New York at that time?
Mr. YOUNG. I would have to check the records, but guessing i
would say one-fifth, maybe, of the total deposits.
Senator BROOKHART. One-fifth of their total deposits were in these
long-time bonds and were not serving the farmers at home?
Mr. YOUNG. They may have been municipal bonds in their own
territory. They may have been bonds of their own industries in
their own territory.
Senator BROOKHART. Those are not farmers' bonds?
Mr. YOUNG. No. Obviously there were some farm-loan bonds.
Senator BROOKHART. I just wanted to call attention to the fact
that this protection to the farmer that you talk about has brought
him to the lowest stage right now that he has been in for 24 years and
has ruined agriculture.
Mr. YOUNG. No one regrets that any more than I do, and no one
has worked harder to prevent it than I have, even when I was
governor of the Federal Reserve Board.
Senator FLETCHER. Were these loans by the War Finance Corporation made to farmers or to banks?
Mr. YOUNG. They were made to banks. If I remember correctly,
Mr. Meyer, in addition you loaned $16,000,000 to cooperatives?
Mr. M E Y E R . We loaned some to cooperatives and some to banks,
but only on farmers' notes.
Senator BROOKHART. And some 6,000 banks failed mostly out in
that territory.
Mr. YOUNG. Well, I would not advertise that territory too badly.
I think in the ninth Federal reserve district there have been 1,600 bank
failures. Those figures are all in the possession of the Federal
Reserve Board.
Senator BROOKHART. Up to 1920, the bank failures in that territory
were about the same as they were in the eastern districts?
Mr. YOUNG. Just about.
Senator BROOKHART. But since 1920, we got this War Finance
Corporation and the intermediate credit and Federal reserve bank
to help us. Since that, they have increased from about 300 to 2,500
per cent over the failures in the eastern territories, have they not?
Mr. YOUNG. That is correct.
Mr. M E Y E R . Just for the record, Senator, the War Finance Corporation's loans were made largely in 1921 and 1922. After that,
the corporation loaned comparatively small amounts.
Senator BROOKHART. That is, when this trouble began with the
western banks, too.
Senator FLETCHER. YOU said you were well acquainted, and, of
course, you are, with the duties and functions of the Federal Reserve
Board. You know what is required of the governor of the Federal
Reserve Board. Will you specify to some extent the principal duties
and functions of the Federal Reseive Board?
Mr. YOUNG. Well, as I see the Federal Reserve Board, with the
12 Federal reserve banks that we have and the strong indication
under the law that those banks should operate as autonomous institutions, I see the Federal Reserve Board as a coordinating body and
a supervising body to a certain extent. I believe that it should



74

NOMINATION OF EUGENE MEYER

refrain from being an operating body as much as possible. With 12
different sections of the country, it is very easy to have 12 different
ideas. I t is very easy for 12 different institutions to proceed in 12
different directions, the actions of one nullifying the actions of the
other. I see the board as a coordinating body bringing those ideas
together.
Now, the board, perhaps, has more power, more discretionary power,
than any Government agency that I know of. I should regret very
much to see the board use that power except for a good cause.
As a member of the Federal Reserve Board, you can not confine
your considerations to the agricultural questions alone. As a member of the board you have got to give consideration to the other
parts of the country. You have got to know more or less about
national finance and international finance. I t can not be avoided. I
have tried to make my statement as concise as I possibly could,
Senator.
Senator FLETCHER. T O what extent do they have this supervisory
power? Do you mean over the Federal reserve banks?
Mr. Y O U N G . They have veto power over discount rates. They
have veto power over bill rates. By agreement they have veto power
on open market operations, and, specifically under the law, they
have veto power and an initiative power on all foreign transactions.
Senator FLETCHER. They fix the salaries of the governors of the
different banks?
Mr. YOUNG. They fix no salaries. They approve all salaries.
The salaries are fixed by the directors of the Federal Reserve Bank,
and they are approved or disapproved by the board.
Senator FLETCHER. Suppose they are disapproved?
Mr. YOUNG. They do that quite frequently.
Senator FLETCHER. In effect, that is fixing salajies, is it not?
Mr. YOUNG. Yes; in effect that is fixing salaries.
Senator FLETCHER. They exercise considerable control over and
influence the rediscount rates?
Mr. YOUNG. The Federal Reserve Board?
Senator FLETCHER. Yes.
Mr. Y O U N G . With the veto power; yes. Discount rates are usually
initiated by the bank. However, if I as governor of the Federal
Reserve Board felt that a lower rate was needed in any particular
district, I would have no hesitancy in discussing that situation with
the directors of that bank and presenting my argument as to why I
thought it should be done. They might not agree with me and the
rate would not be initiated then.
Senator FLETCHER. I S the chairman of the board given power to
do many things without consulting the members of the board?
Mr. Y O U N G . Nothing. Everything is by board action.
Senator FLETCHER. He simply carries out the orders and directions
of the board, does he?
Mr.

Y O U N G . Yes,

sir.

Senator F L E T C H E R . He can make suggestions and proposals to
them, but they have to pass on them?
Mr. Y O U N G . T h a t is correct.
Senator F L E T C H E R . H O W often does the board meet?
Mr. Y O U N G . I t meets every day at 11 o'clock and adjourns at 1
o'clock, with the exception of Saturday, and except during the vaca


NOMINATION OF EUGENE MEYER

75

tion period when there may not be a full board. That program is
frequently interrupted by conferences elsewhere, and I suspect
there is not any meeting of the board to-day. That was the regular
procedure, to meet every day at 11 o'clock, while I was on the board,
and I think it has always been that way.
Senator BROOKHART. What effect does raising and lowering of the
discount rates have on commodity prices?
Mr. YOUNG. Very little, in my opinion, Senator. I think that the
cost of money is a contributing factor toward the price of commodities,
but I do not believe it is a determining factor.
Senator BROOKHART. Does not the discount have something to do
with the cost of money?
Mr. YOUNG. I t does; yes.
Senator BROOKHART. Therefore, when the discount rate is raised
or lowered, it is going to have a general effect on commodity prices,
is it not?
Mr. YOUNG. I t may, and it may not. As I say, so many factors
must be taken into consideration in commodity prices that the cost
of money, in my opinion, is only one factor. Sometimes it may be
an important factor, and many times it may not be any factor at all.
For instance, for the last year we have been coming down in discount
rates, and commodity prices have also been going down.
Senator BROOKHART. That is because of the stock panic and its
effect on every legitimate business, is it not?
Mr. YOUNG. I would not say that. I t has had some effect.
Senator BROOKHART. I t has had a far-reaching effect?
Mr. YOUNG. Yes; it has a far-reaching effect.
Senator BROOKHART. I t is the main cause of the present depressed
situation, is it not?
Mr. YOUNG. Well, world-wide conditions have contributed to this.
Senator BROOKHART. Were not world wide conditions caused by
our big stock collapse in the United States more than any other
cause?
Mr. YOUNG. N O ; I would not want to put it that way.
Senator BROOKHART. I notice that Lloyd George is quoted as
making that claim.
Mr. YOUNG. Well, that is a debatable question.
Senator BROOKHART. Well, it had an effect all over the world, did
it not?
Mr. YOUNG. There is no question about it.
Senator BROOKHART. All stock charts went down when ours went
down. Is not that true?
Mr. YOUNG. I t is true so a degree; yes.
Senator BROOKHART. Not as much in Great Britain because
business is more stable there than it is in the United States, anyway.
Is not that true?
Mr. YOUNG. Will you please repeat that?
Senator BROOKHART. I say, stock value did not go down as much
in Great Britain because all business is more stable under English
methods than under our methods.
Mr. YOUNG. I am not familiar with that.
Senator BROOKHART. I have some charts from the Federal Reserve
Board that show that. Now, you say that you can not consider agricultural interests alone in the policies of the Federal Reserve Board.



76

NOMINATION" OF EUGENE MEYER

Mr. YOUNG. B u t just a moment. I did not say that.
Senator BROOKHART. I so understood you. What did you mean
by that statement?
Mr. YOUNG. I said I could not consider agricultural interests alone;
that I would naturally have to give consideration to industry and
commerce throughout the United States.
Senator BROOKHART. T h a t is what I understood your statement
to be.
Mr. Y O U N G . Well, I wish you would correct it.
Senator BROOKHART. Now, at the meeting of M a y 18, 1920, the
one known as the "deflation meeting," the Federal Reserve Board
did consider the railroad proposition alone and passed a resolution
to send a committee of five to the Interstate Commerce Commission
and ask an increase in railroad rates?
Mr. YOUNG. I was not on the board at that time.
Senator BROOKHART. T h a t was before your time, but would it
not have just as good a right to advise lending money on farm products at a higher price, as it would to raise railroad rates?
Mr. YOUNG. Well, 1 am not familiar with that subject at all,
Senator.
Senator BROOKHART. YOU would condemn that sort of action in
the Federal Reserve Board, then, in picking out a subject like railroads when they are deflating all the rest?
Mr. YOUNG. I was governor of the Federal Reserve Board in
Minneapolis in 1920, and I was not deflating anything. I was pouring money over that counter just as fast as it could go.
Senator BROOKHART. WTIO was getting it?

Mr. YOUNG. The farmer was getting it. The country bank was
getting it.
Senator BROOKHART. As I remember, Armour & Co. got $60,000,000
on 10-year notes. Was any of that sold in your territory?
Mr. YOUNG. I do not remember whether it was or not.
Senator BROOKHART. And Swift & Co. got $50,000,000 a little
later on, I think, 5-year notes.
Senator WAGNER. This is very interesting, but it has nothing to do
with the subject that we have under consideration.
Senator FLETCHER. What contact with the securitv market could
the Federal Reserve Board maintain?
Mr. YOUNG. With the security market?
Senator FLETCHER. Yes.
Mr. YOUNG. NO contact with it at all, other than the volume of
credit that is being used as brokers' loans and security loans, and that
is purely statistical. I t is not necessary for the Federal Reserve
Board to have a telephone or stock ticker or anything of that kind.
Senator FLETCHER. W h a t control could the Federal Reserve Board
have over the gold supply or influencing of stable values?
Mr. YOUNG. Well, the board has veto powers over the banks and
the banks have power to deal in Government securities or change the
discount rate, or power to change their bill rate, or deal in foreign
exchange. They have all of those powers subject to the approval of
the Federal Reserve Board. The board, however, is not an operating
body.
Senator FLETCHER. Can they influence the supply of gold in this
country?



DOMINATION OF EUGENE MEYER

77

Mr. YOUNG. Well, it used to be in days gone by if you wanted to
increase your gold stock you raised your rate and attracted the gold
to the country, but within the last year gold seems to be coming to
this country with reduction in the rate; apparently a reversal of the
old law.
Senator FLETCHER. To what do you attribute the slump of September, 1929, and 1930?
Mr. YOUNG. The slump in the stock market?
Senator FLETCHER. Yes; the general slump, where there was a
diminution of values of some $17,000,000,000.
Mr. YOUNG. I think it went so high that it fell of its own weight.
Senator WAGNER. Just a boom?
Mr. YOUNG. I think so.
Senator BROOKHART. What did the Federal Reserve have to do
with sending it so high?
Mr. YOUNG. I hope, nothing.
Senator BROOKHART. Why did it not stop?
Mr. YOUNG. It could not.
Senator BROOKHART. Well, what will stop it?
Mr. YOUNG. I do not know.
Senator BROOKHART. If Senator Glass offered an amendment to the
tariff bill in which he levied a tax of 5 per cent on all of those speculative sales where there was a resale within 60 days, would that stop it?
Mr.

YOUNG. N O , sir.
BROOKHART. Would it stop most of it?
Mr. YOUNG. N O , sir.
Senator BROOKHART. Would it stop any of it?
Mr. YOUNG. Oh, it might, yes, not much.
Senator BROOKHART. Some experts said it would

Senator

close the stock
exchange.
Mr. YOUNG. If you got the tax high enough, I suspect they might
move to London or to Canada and do their speculating there.
Senator BROOKHART. Well, it would be a good thing if we could
give them to London or Canada, and get rid of them, would it not?
Mr. YOUNG. No,

sir.

Senator BROOKHART. SO you believe in the policy of promoting the
stock exchange?
Mr. YOUNG. YOU mean the boom that we had in 1928?
Senator BROOKHART. Yes.

Mr. YOUNG. N O ; I do not. I believe in the stock exchange as a
place to trade.
Senator BROOKHART. D O you think that margin trades and short
deals ought to be permitted?
Senator WAGNER. I am going to enter a very mild protest. I
think we should reasonably confine ourselves to the subject we have
under consideration.
Senator BROOKHART. I think it is material on the testimony of an
expert witness as to qualifications.
Senator CAREY. We are not discussing qualifications.
Senator BROOKHART. YOU asked him to pass on Mr. Meyer's
qualifications, so I have a right to go into any phase of it.
Senator CAREY. I do not think I asked him about Mr. Meyer's
qualifications. He volunteered without my asking him. We will
38819—31
6



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NOMINATION OF EUGENE MEYEE

go on endlessly if we get into discussions of these problems. I think
the business before this committee is whether or not Eugene Meyer
is qualified for this position.
Senator BROOKHART. All right. Then we want to know about these
problems, and if he knows of these problems he would be a better
witness to testify as to his qualifications.
Senator FLETCHER. I t is relevant, it seems to me, as showing what
power the Federal Reserve Board has, and whether Mr. Meyer would
be a safe man to be at the head of it.
Senator BROOKHART. There is one other thing. The Federal reserve law prohibits the rediscount of speculative loans at any Federal
Teserve bank, does it not?
Mr. YOUNG. That is correct.
Senator BROOKHART. Have the Federal reserve banks lived up to
t h a t law?
Mr. YOUNG. SO far as I know, Senator. I have never seen a case
where they have discounted a speculative note.
Senator BROOKHART. If it is right that the law should prohibit the
rediscounting at the reserve bank, should not the law prohibit the
making of a speculative loan by the member bank also?
Mr. YOUNG. I do not think so.
Senator BROOHKART. What reason is there that exists to have that
power in the one case, and not in the other?
Mr. YOUNG. Your central bank is a bank that holds all the reserves
of the country, and must have the most liquid paper it can possibly
get hold of. Experience has taught that paper based upon production
and distribution is the most liquid paper you can accumulate.
Senator BROOKHART. I t is not more liquid than speculative paper,
is it?
Mr. YOUNG. I think your loan based on production and distribution in the last analysis in the real emergency is the paper that you
can go to the Federal reserve bank and get dollar for dollar for.
Senator BROOKHART. Well, many of the New • York banks are
demanding that they go to the Federal reserve and get a dollar on
speculative paper, as well as the other.
Mr. YOUNG. Well, they are not going to get it. So why argue
about it? I do not think the Congress of the United States will ever
change the law permitting speculative paper to come into the Federal
reserve bank.
Senator BROOKHART. I think not, and I think they should get it
out of the whole banking system.
Senator GOLDSBOROUGH. I t seems to me that we are discussing
Federal reserve systems. We are not discussing the qualifications
of Mr. Meyer.
Senator BROOKHART. B u t Mr. Meyer is going to administer the
Federal reserve system.
Senator CAREY. I think it would be all right to ask Mr. Meyer
how he would administer the position.
Senator BROOKHART. I will do that when I get to it. That is all
at present.
Senator CAREY. We will adjourn now until 2 o'clock tomorrow
afternoon.
(Thereupon, at 1,20 o'clock, p. m., the subcommittee adjourned
until 2 o'c.ock p. m. Wednesday, January 28, 1931.)



NOMINATION OF EUGENE MEYER, TO BE A MEMBER OF
THE FEDERAL RESERVE BOARD
WEDNESDAY, JANUARY 28, 1931
U N I T E D STATES SENATE,
SUBCOMMITTEE OF THE COMMITTEE
ON BANKING AND CURRENCY,

Washington, D. C.
The subcommittee met, pursuant to adjournment of yesterday, at
2 o'clock, p. m., in room 212, Senate Office Building, Senator Eobert
D. Carey presiding.
Present: Senators Carey (chairman), Goldsborough, Brookhart,
Wagner, and Fletcher.
Senator CAREY. The committee will please come to order.
Mr. Meyer, will you take the stand?
TESTIMONY OF EUGENE MEYER, GOVERNOR OF THE FEDERAL
RESERVE BOARD
(The witness was duly sworn by the chairman.)
.Senator CAREY. Will you state your name, please?
Mr. M E Y E R . Eugene Meyer.

[Senator CAREY. Mr. Meyer, I will ask you to sketch briefly for the
committee your business connections up to the time you came to
Washington and your activities since you have been here.
Mr. M E Y E R . Shortly after graduating from college I went abroad
and studied banking and languages in foreign countries. I came back
: and worked as a clerk in m y father's firm, Lazard Freres, until
1901, when I decided to go into business for myself in a small way, to
begin with. M y reason at that time really was that it seemed to me
that the import and export business of America in the future was going
to be carried on largely by American capital. So I did not see any
particular reason for growing u p in a business that had depended to a
certain extent in the past on foreign capital.
An important part of the business of the firm was foreign exchange,
and they were at that time one of the largest buyers of export bills of
American cotton and wheat, and known as such. I acquired a certain familiarity with that. I was very young at the time I left,
25 years of age. Then I gradually developed in a small way into the
investment banking field.
I became interested in studying the agricultural situation, beginning in 1904, in relation to the business of the country, and the more I
studied it the more I became convinced that our whole prosperity
was tied in with the products of the soil. I have been studying these
agricultural problems with a great deal of interest for the past 25
years.



79

80

NOMINATION OF EUGENE MEYER

1 became interested in some of the copper mining developments and
various other American industries which were growing up, including
the automobile industry at one time, and helped to finance them in
ways that T thought were constructive, and placed th«ir securities
with clients when I thought tney were advantageous for them. I
met with a fair degree of success until I came to Washington in 1917.
I came to Washington originally with the advisory committee
of the Council of National Defense, which later became the War
Industries Board. At that period, a formative period, I tried to help
in developing policies that we thought were sound and practical and
which would help to win the war. I came to Washington because,
although I was only 41 years of age at the time, I am color blind and
did not see how I could get into the Army field forces, and it did not
interest me to wear a uniform at a desk. I was offered a unifoim and
a majority in the Ordnance Department after T had been here a few
weeks, but T thought I would stay in the civil organization so long as I
could not be in the fighting forces.
I became special assistant to the Secretary of War for a short time
in the beginning of 1918, and then President Wilson sent my name to
the Senate as a member of the board of directors of the War Finance
Corporation. I was also on the National War Savings Committee.
I n the autumn of 1917, after I saw how little opportunity there was
for interesting activity, I asked to be relieved from active duty there
and went back to the War Industries Board.
In the case of the War Finance Corporation, contrary to Mr. McFadden's idea of my being a seeker after office all the time, my name was
sent to the Senate without my knowledge at the time. Mr. McAdoo
had asked me three months before if I would be available. He told
me, in a general way, what the plan of the corporation was to be, but
without any detail. As a matter of fact, he could not have done so,
because the bill had not been passed.
I t was in May, 1918, that the War Finance Corporation was authorized to begin to function. I was one of four directors, Governor
Harding of the Federal Reserve Board was managing director.
Shortly after the organization of the corporation Air. McAdoo appeared at a meeting and asked me to undertake the work of handling
transactions in Government securities which were authorized in the
act, under the direction and by the authority of the Secretary of the
Treasury. I said at the time that I would rather not do it. I told him
that anybody who did the work, no matter how conscientiously and
ably it was done, would meet a lot of criticism later on. He said,
"Boys are being killed in the trenches and you can not refuse to do
what you are asked to do," to which there was no answer that I
could give.
The work in the beginning was not very great in volume. The
Treasury had been conducting some operations in the bond market
previously under the law authorizing the bond purchase fund, amounting to 5 per cent of the par value of the outstanding issues. That was
at that time applicable only to the second liberty loan and did not
apply to the fully tax-exempt first Liberty loan.
Senator CAREY. Your idea being to keep up the price of Government securities?
Mr. M E Y E R . To steady the market. The bond purchase fund
which Congress authorized could not have had any other purpose,



NOMINATION OF EUGENE MEYER

81

because the Treasury during the war was obliged to issue increasingly
large amounts every time a loan period came around. The first
Liberty loan was $2,000,000,000, which was considered an enormous
amount at the time. The second was larger, the third was still
larger, and the fourth was almost 7,000 million.
I looked around at that time and felt that the Federal Reserve
Bank in New York ought to take care of the New York end of the
work. They had no building as they have now; they were scattered
in many rented buildings. They had an enormous amount of work
in connection with the Liberty loans and the Treasury certificates.
They told me they had no room and no men and no telephones
which could be used. The Treasury previously had been operating
the bond purchase fund through the firm of J. P. Morgan & Co.,
whose bond man, Mr. Anderson, was chairman of the Liberty loan
committee, and the firm was handling the transactions without compensation except for the brokerages, which they paid out.
At the time the work was taken over by the War Finance Corporation, I asked them if they would continue until I could look around
and see how it could be handled. They asked to be relieved of the
responsibility, which involved both work and risk without any compensation. They said they were short-handed, as many of the people from
their offices were off in the war. They consented to continue for a
few weeks and then again asked to be relieved.
At that time, having dissolved my firm at the end of 1917, as has
been stated at various hearings heretofore, which you, Senator
Wagner, did not attend but which you know about from the record,
I suggested to Mr. McAdoo that having space and men that could be
used I would be willing to let them be used for this purpose, with the
understanding that in no event would I accept any compensation for
the use of the men,' the space, or for any other purpose. T h a t was
carried out to the letter, as was evidenced by the audit submitted
to the committee which looked into this six years ago, and that audit
has never been questioned.
The work of the corporation grew as more bond issues were put
out by the Treasury, and my office could not handle it because they
did not have men enough to do the work. Finally I prevailed on the
Federal Reserve Bank to allow the banks and brokers who handled
the business to report directly to it. Only about 5 per cent of the
total deliveries were handled through my office, and they were simply
transactions for which my office, for no compensation, paid the money,
received the bonds, registered the numbers and turned them over to
the Federal Reserve Bank. With the increasing number of issues, the
third Liberty loan and the fourth Liberty loan, and later on the Victory loan, it would have been out of the question for my small staff
to handle the work.
That was only a part of the work of the War Finance Corporation,
but every day the issues to be traded in and the prices were directed
from the office of the Secretary of the Treasury through ore of the
assistant secretaries, and every day a report was made to the Treasury
of the transactions and the prices.
Of course, all these transactions were made on the understanding
that the bonds would be taken from the War Finance Corporation
finally at cost, without any charge to the Treasury for the work of
the corporation, because it was a corporation owned 100 per cent by



82

NOMINATION" OF EUGENE MEYER

the United States Government. These operations carried on by order
and under the direction of the Secretary of the Treasury could not be
the responsiblity of the directors of the corporation.
The board of directors of the corporation received reports from
time to time; and, outside of the bonds sold to the Treasury, there
were some sales of $25,000,000, I think, on one occasion to the Post
Office for Postal Savings Bank and some to other departments of the
Government which needed bonds and some, but not very many, in
the market principally when the Government wanted to sell one issue
because it was buying another issue. At the end of the activity, which
was suspended in April, 1920, there were too many of one issue and
not enough of another to fill the quota for the bond purchase fund r
and they gave some orders for exchanges which naturally resulted in
sales of some bonds in quantity, but they were replaced by other bonds
at the same time, although not the same issue of bonds.
The brokerage paid to the brokers was $2 for $10,000, which was
less than the cost of the service. I insisted on holding it down to
that rate, because it was war, and we kept it after the war at the same
commission. Although that excuse had passed, I asked them to do
it, and they did. These orders were placed through various brokers
and they were not given any large orders at any one time; they were
kept coming in all day in small amounts so that there would be a
market all day, and further stabilization.
T h a t went on more or less automatically whether I was here or
away, and the Treasury regulated the entire business and had a daily
report. The activity was carried on under Secretary McAdoo,
Secretary Glass, and Secretary Houston. The larger part of it was
conducted under the administration of Secretary Glass, who was
Secretary for about a year and the others only a part of a year while
this business was going on.
Senator BROOKHART. What was the date with respect to Secretary
McAdoo?
Mr.

MEYER.

1918.

Senator BROOKHART. And with respect to Senator Glass?
Mr. M E Y E R . I think most of the year 1919 and Secretary Houston
from the beginning of 1920 until April 20, 1920, if my memory serves
me right.
When the War Finance Corporation's activity in that field was
terminated at my request, the Treasury undertook to do the work.
The time had come when I was going to resign.
I had a great responsibility and a good deal of burden and worry
in connection with the work. I think the Treasury was very well
pleased with the conduct of the operations, because when 1 resigned
on June 20, I got a letter from President Wilson, based on reports
from three Secretaries of the Treasury, as he stated, which was a
most flattering commendation of my work.
I n other directions the War Finance Corporation had to do—and I
took my share of the work there along with the other directors—
with the financing of industries necessary and contributory to the
prosecution of the war. In that were included railroad loans and
loans to other industries necessary and contributory to the prosecution of the war. Even savings banks could be financed where withdrawals were threatening them.



NOMINATION OF EUGENE MEYER

83

But those war powers expired, and the question came up after theArmistice as to whether or not anything could be done, in view of the
fact that so large a part of the production of the United States had
been turned into the direction of war needs, both for civil and military
requirements, to help tide over the crisis created at the termination of
that consuming power.
The Treasury went at that time to the Congress and asked authority
to make foreign loans after the war in order to take care of the situation. I went, with the approval of Secretary Glass, with a plan for
making a transition from the Government loans to private financing.
I thought we could make a bridge over that difficult period of what
they call post-war readjustment by supporting export finance, not
directly to the foreigners or to any foreign government or to any
foreign business, but by loans, under the act as written under my direction and with the approval of Secretary Glass and passed by the
Congress, to American exporters who granted credits to foreign
buyers of American products and to American bankers who financed
such American exports.
The break-down in the foreign exchanges did not occur immediately
after the Armistice; it was along in the autumn before the break-down
in the pound and the franc and the mark really began to be very
considerable.
The legislation that I recommended, with the approval of Secretary
Glass, was adopted by Congress after hearings before the Finance
Committee of the Senate and the Banking and Currency Committee
of the House, and there was a billion dollar revolving credit authorized
under which loans could be made for five years; which is, of course,
beyond the normal time of banking credit. "
In the fall the difficulties in the export of American products, manufactured and agricultural and mineral, began to develop, and people
began to be interested in this opportunity to grant credit in an unusual
way, and we made some loans at that time.
Senator BROOKHART. What time was that?
Mr. M E Y E R . That was in the fall of 1919 and the spring of 1920.
The difficulty in connection with agricultural products was to get
organizations to grant credits to foreign buyers of such products, but
we succeeded in a moderate way when certain commodities went up
rather sharply. I think that cotton went up from about 20 cents in
the spring of 1919 to 40 cents in the summer.
In the spring of 1920 there was a great deal of talk about the high
cost of living and inflation, and the Senate of the United States at
that time passed a resolution calling upon the Federal Reserve Board
for information as to what it was doing about inflated prices and the
high cost of living, indicating an attitude on the part of the Congress
of a desire to have some restraint.
In May, 1920, the operation of the War Finance Corporation was
suspended at the request of Secretary Houston.
It did not appear to me at that time that it wTas wise, and I argued
against it, but in the light of the agitation to discontinue all war
agencies, the Secretary of the Treasury closed down the work of the
Corporation in aid of exports from America to Europe or any other
place, on the ground that the need was over.
Senator BROOKHART. What date was that closed down?
Mr. M E Y E R . That might have been the 10th or the 20th of May.



84

NOMINATION OF EUGENE MEYER

Senator BROOKHART. 1920?
Mr. M E Y E R . 1920. I disagreed heartily because I had a very profound conviction that we were facing a collapse in prices; that what
we had to fear was the collapse, and that the period of inflation necessarily would prove to be short-lived.
I could see, however, that people might disagree with me. I
should say that probably many of the people on the hill were quite
convinced that the dangerous thing was the inflation. I felt that the
dangerous thing was a deflation that might be impending on account
of the deranging of world commerce and I resigned because of my
disagreement with the policy adopted by the Treasury.
The Secretary, while he disagreed with me, was entirely friendly
in his attitude, and invited me to remain in the Treasury in some
other capacity but I declined because I disagreed with the policy so
profoundly that I felt I could not be a part of that policy.
There was a good deal of pressure on the Secretary at the time
from the hill and elsewhere, and while his view was entirely contrary
to my conception, I can understand it.
Senator BROOKHART. That was Secretary Houston?
Mr.

MEYER.

Yes.

In the fall the fears that I had been entertaining of a collapse developed into a reality and it progressed rather rapidly. The foreign
exchanges were demoralized and that interfered with business very
much because fluctuating exchanges become more of a risk to the
foreign buyer who is making a contract for wool or cotton or wheat
than the fluctuations in the price of the article.
In the summer Senator Calder asked me to assist him in the work
of a committee on housmg and construction of which he had been
appointed chairman. I accepted; and, after some hearings in New
York and Boston, he planned a tour of the country and I went with
him, at my own expense. The first stop that we made was Cleveland
and there was the usual banquet of the local people and speeches. I
had not been accustomed to making speeches, but I had this situation
so much on my mind that I must have said some things that interested
the people, because the next day, when we got to Chicago and met
750 members of the chamber of commerce in Chicago, Senator Calder
and Senator Kenyon, who was also a member of the committee, said
that they thought I had a message of interest and they cut their time
down so that 1 might have more. 1 remember distinctly that Senator
Kenyon expressed a hopeful, optimistic note and said that while the
situation was very bad we were a great country and were coming out
all right. I said I had a high regard for the Senator's opinion but
felt that an outcome of a favorable character was dependent on
whether he and other Senators would do something, and that mere
expressions of optimism would produce no results. I could not feel
that his optimism was justified unless Congress would come to the
aid of the situation in a helpful and effective way.
The next day we were in Des Moines and we had very interesting
hearings there. Mr. Wallace, who became Secretary of Agriculture
later, was one of the leading witnesses. There was a luncheon and
Senator Kenyon on that occasion said they had often heard from him
but he thought 1 had a message for the people of his State and he
would give mc all of his time. I t&ld them what 1 thought about it
and apparently the message was well received.



NOMINATION OF EUGENE MEYER

85

We went from there to Omaha and then to Denver and back to
Kansas City and St. Louis, Senator Calder and I. Senator Kenyon
had remained in Des Moines.
Considerable sentiment was aroused for the revival of the War
Finance Corporation under its broad powers to assist in the export of
American products.
Senator BBOOKHART. Was that the message that you were carrying?
Mr. M E Y E R . The revival of the War Finance Corporation to do
what could be done under those powers was the principal thing that
I was talking about, but I was not saying that was the only thing to do.
That was in November. In October I had come down here. A committee of gentlemen from Memphis who were interested in the cotton
situation telegraphed me asking if they could come to see me at Mount
Kisco and discuss the situation. They stopped at Washington.
There was an annual convention here of the American Bankers'
Association. They wired me to come down here and asked to
have me put on the program. The bankers would not do it because
the Secretary of the Treasury disagreed with me and they thought it
might be offensive to him, but they hired the top floor of the Raleigh
Hotel and there was a meeting of 200 bankers interested in the southern situation and agricultural situation generally. I spoke at that
meeting, respectfully differing with the Secretary of the Treasury on
the question of policy.
I subsequently came down and made another speech before a farm
organization. Then in December I came to Washington when Congress convened with no particular thought of testifying, but there was
a joint committee of both houses on the agricultural situation, and
I walked into the room to listen. Senator Kenyon saw me there and
he said, " M r . Meyer is here and has some ideas," and I began to testify.
Of course, I began very soon to define my views on the policies of
the administration, and he said, " H a d we not better call the Secretary
of the Treasury and the Governor of the Federal Reserve B o a r d ? "
I said that I thought so. They called them and I returned on the
following Monday and answered their arguments. I then testified
two or three days later before the Committee on Banking and Currency of the House. Both Houses passed a resolution to revive the
War Finance Corporation.
Mr. McFadden had voted against it in Committee. The majority
report from the Banking and Currency Committee of the House was
made by Mr. Strong, I think. Anyway, it was carried by only one
in the Committee. The Senate of the United States passed it, as
did also the House.
It was vetoed by the President because it did not conform to the
views of the Secretary of the Treasury, and both Houses passed the
resolution over the veto in January, 1921. In the Senate I think the
vote was 50 to 6. In the House it was 250 to 56 or something like
that.
Senator Smith of Georgia came to me and said, "If you will accept
the position of managing director of the corporation to restore this
thing and get it working, I will bring a petition signed by every Senator
both Democratic and Republican, to the President." I said I could
not do that, because 1 could not undertake to do the work under the
direction of the Secretary who disagreed with me.



86

NOMINATION" OF EUGENE MEYER

At that time the Wilson administration was drawing to a close
and in March, 1921, President Harding appointed me managing director. I did not send word to him that I wanted it; .1 did not ask
him for it, and I did not send anybody to him; but, as one of the newspaper men said at the time here, Congress had revived the War
Finance Corporation, nobody saw that much could be done with
it, Meyer had taken the responsibility for recommending to Congress
the revival, and the President passed the buck to him to make it work.
The situation had changed a good deal, but we managed, after
some meetings, to do some things. I t took a little time to rebuild the
organization, which had been demobilized, and along in the first
week of July we made some good sized loans to the cotton cooperatives, beginning with a large loan to the staple cotton association in
Mississippi, followed by loans to the associations in Oklahoma,
Texas, and other States.
Senator FLETCHER. You did not have any more to do with buying
and selling bonds as securities?
Mr. M E Y E R . I had nothing to do with it at all; that activity had
terminated in April, 1920.
Senator FLETCHER. The purpose of creating a War Finance Corporation, then, was because under the law the Treasury could buy
bonds but could not sell them?
Mr. M E Y E R . No; I do not think that had much to do with it.
Senator F L E T C H E R . I S not that the fact?
Mr. M E Y E R . I can not tell you what the purpose was.
Senator F L E T C H E R . I S it not a fact that the law did then authorize
the Secretary of the Treasury to buy bonds but did not authorize
him to sell bonds, and the War Finance Corporation was created and
it did buy and sell bonds through the War Finance Corporation?
Mr. M E Y E R . I t did not sell many bonds, except to the Government,
Senator—only a very small amount compared to the whole. I tell you
frankly I am not very familiar with the events leading up to the
creation of the corporation because I did not follow them at the time.
I did not know that I was to be appointed. I took no interest in it.
I did not know about it, as a matter of fact, and I never took the
trouble to look it up.
Senator FLETCHER. I t is a question of what the law was. The law
did not authorize the Treasury to sell bonds, but it did authorize the
Treasury to buy bonds, and the Treasury, through the War Finance
Corporation might buy and sell.
Mr. M E Y E R . But the selling, except to the Government, was very
insignificant as compared with the whole.
Senator FLETCHER. After it was reorganized you did not do anything respecting bonds?
Mr. M E Y E R . N O ; nothing in the same way. There was not any
occasion for it.
The situation had changed a good deal from the point of view of
financing exports, on account of the fact that the English pound had
dropped, say, from $4.70 in July, 1919, to $3.18, and it went up again
and down again. The foreigners did not want to borrow American
money because they did not know what the dollar was going to cost
them in pounds or francs or marks.
Senator BROOKHART. When did that big drop occur?



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87

Mr. M E Y E R . In the fall of 1919 and the spring of 1920. T h a t was
when all the foreign countries got on a paper basis and later the
Geiman mark went down to nothing. But it interfered a great deal
with American exports and the question of the time of the export,
particularly, became a vital factor. For instance, ordinarily before
the war about 75 per cent of all the cotton exports of the whole year
would take place shortly after the crop was harvested, but the
foreigners began to buy one-twelfth monthly, or something like that,
because they could not stock up on account of the fluctuating currency. That has always been a factor in countries with fluctuating
currency.
We made some expoit loans, and some large loans to cooperatives
which they agreed to repay out of the proceeds of export sales—we
construed the law liberally in a desire to be helpful and feeling that
it was in the public interest—and the cotton market and confidence
in the commodity was restored to a remarkable extent all over the
world.
Cotton, which was about 10 cents on July 1 1921, rose, in spite of
the fact that the new crop was just coming on the market, several
cents a pound and held that rise, which meant, if you figure at least
6 or 7 cents a pound difference, two hundred and fifty to three hundred million dollars on the new crop, besides the difference on the large
amount of the carry over. I think Congress was impressed by the
ability of the corporation to get that result.
Senator BROOKHAKT. I did not get those figures that you mentioned. Will you state them again?
Mr. M E Y E R . From about 10 cents to about 17 cents during the
early autumn, and that rise was held very well.
Senator BROOKHART. What other items did you mention?
Mr. M E Y E R . I did not mention any others.
Senator BROOKHART. Did you mention corn?
Mr. M E Y E R . N O ; corn is not an export commodity anyway. The
decline in prices continued throughout the country—cattle and wheat,
not so much wheat, but corn, sheep, and wool. The banks were in
difficulties, and, obviously, some wider activity had to be developed.
In analyzing the situation and the effects of the fluctuating currencies, it became evident that the time element in the marketing of
our crops had become a vital factor, the time of financing and the
time of marketing, because foreign buyers were not in a position to
take our commodities in the manner they had been accustomed to do
under ordinary conditions. Of course, during war times they took
them because exports then were being financed largely with Government money; but when peace came the whole time element in the
situation was changed. Seeing that, we went to Congress with a
proposed amendment to the War Finance Corporation act, assuming
that the financing would have to be done at home and not abroad;
that we could not stimulate sales by giving credit to foreign buyers
because they were afraid of borrowing dollars on account of the
fluctuating currencies abroad, which made it uncertain what the
dollar would cost them when they came to repay.
The amendment, known as the agricultural credits act of 1921, was
adopted by the Congress and signed on August 24. We had, of course,
no nation-wide banking organization and we had to get an organization together hurriedly.



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Committees were appointed at all of the places where it seemed
likely, according to reports, that some help in addition to the regular
resources of the territory might be needed. We appointed committees in 33 places, some covering more than one State, and some
just one State.
We tried to get the best people for the purpose locally, and I think
on the whole the committees turned out very well in many cases.
I started out West to get acquainted with the situation at first hand.
My first stop was Chicago. They did not think then that Illinois
would need a great deal, but we loaned considerable amounts there
later. I then went to the Twin Cities. Our committee in Minneapolis covered the States of North and South Dakota and Minnesota.
There was a good deal of skepticism about the feasibility of this
operation and whether or not the Government would sit down here
and make a motion but not perform. However, after our talk they
took a different interest in it and got to work.
From Minneapolis I went to Helena, where we had an agency for
Montana; then to Spokane, Portland, San Francisco, Los Angeles,
and Salt Lake, and then came back through Cheyenne, Denver, and
Des Moines to Chicago.
The thing that hit us hardest on that trip—we believed that the
country banks would come to us and get money to lend to their
farmer customers, or to carry longer those whose notes they already
held, and we could see it working—was the very major problem in
connection with the animal industry. I do not know whether you
were at that meeting in Cheyenne when I was there or not, Mr. Chairman.
Senator CAREY. I know all about it.
Mr. M E Y E R . We ran into the tremendous problem of the cattle
industry and the sheep industry where the banks were not big enough
to carry the loans. It was not a problem that tbey wanted to solve
by harrowing money from the War Finance Corporation; they wanted
to be relieved of the loans.
As a matter of fact, many country banks in those days had made
loans that were above the legal limit on indorsements of directors.
How to take care of that livestock situation became the major
problem.
I t worried me a lot all through the trip from Montana on down
to the coast and until 1 got to Salt Lake. There, of course, the
problem was acute, because the cattle and sheep situation in Utah
wTas very bad.
We tried to cheer everybody up as much as we could and to convince them that we meant business and had money. At a dinner
in the evening with some of the leading bankers and others, when
we were sitting around the table talking about the livestock situation, I said, "If anybody here will organize a loan company with
$250,000 capital, we will lend you two and a half million dollar's on
livestock, if the management of the company is good." Much t,>
my surprise, because the community was certainly suffering as much
as any, they said, ''We will do it." J left Salt Lake City that night,
reached Cheyenne the next day, and spent two and a half hour?
there. I need not tell you, because 1 am sure you gentlemen know,
that livestock is the principal thing there is in Wyoming outside of
the oil fields. There were 75 bankers in Cheyenne from all over



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89

Wyoming, and they were in real distress. For a couple of hour?
there was a lot of discussion. Our late friend, Senator Warren, was
there, very understanding and very helpful. I suggested that they
organize a loan company, and they did not leave that night until
they had arranged to form one with $200,000 capital. The capital
was raised gradually to a million, and I think we loaned that corporation thirteen or fourteen million dollars in the aggregate. The
loans made through it were carried along for 1, 2, 3, or 4 years, and
when the War Finance Corporation stopped lending, they went to
the intermediate credit bank.
Senator CAREY. They paid back in full?
Mr. M E Y E R . They did; yes.
In Texas we had a terrific problem because the State is so enormous and the cattle industry is so huge. I could not get down there—
I could not get everywhere—but I had a general acquaintance with
the problem. 1 remember that I came back here and we had these
loan companies just starting, and I telegraphed to our Texas agency
about organizing a million-dollar loan company so that the corporation could make its facilities available on a large scale. They practically said I was crazy; that they might get $25,000 together. They
got the Federal Reserve Bank of Dallas to tell me that it could not
be done. They finally said, "If you can do it, come down here and
do it; wo can n o t . " But I sent them a telegram and said, "Use
this telegram as a call for a meeting." I said that the War Finance
Corporation was ready to to go to the rescue of the cattle industry in
Texas if they would provide a loan company large enough to meet
the situation effectively.
They held a meeting and raised something like $950,000 in about
25 minutes. We loaned that company, as I remember it, about
$14,000,000 in the aggregate. When these things began to get out a
certain amount of confidence was restored.
In Iowa we met the situation to the best of our ability. Secretary
Wallace recommended to me the chairman of the committee we
appointed there. We felt that Iowa was a very important area in
the Corn Belt. We felt great confidence in the natural resources of
the State, and wo were ready to put large sums of money into it, but
the committee was a little doubtful in the beginning as to whether
there would be much demand. They had been awfully hard hit in
Iowa, not only by declining prices, but a lot of stock had been sold
by blue sky promoters in that State, as well as in other States.
Senator BROOKHART. Were there not some investment companies?
Mr. M E Y E R . Well, I do not know. I just heard it when I was out
there with Senator Calder. There was a packing house, Senator,
that lost a lot of money.
Anyway, we had the committee arrange meetings in nearly every
county in Iowa to teach the country bankers how to make applications to the War Finance Corporation. We wanted them to use some
of our money to pay off their more pressing creditors and to take
some new money and lend it to farmers to buy livestock, because
they could not sell their corn. I t had to be fed, and the people to
feed it were the people who were accustomed to feeding it.
We put about $24,500,000 into Iowa. On my return trip from the
West in September, 1921, I met with a committee of the American



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NOMINATION OF EUGENE MEYER

Farm Bureau Federation in Chicago, and some of them said they did
not believe the farmers should be encouraged to buy and feed cattle;
that they had recommended it the previous year and the year before
that and thought it was dangerous. I said " W e will take the responsibility," and we did, and those who bought cattle in the autumn of
1921 to feed made good money. Prices were low and things came
back later.
We went on, and, finally, we had approved, I think, loans aggregating about $187,000,000 through country banks and pretty close
to a h i n d r e d million through livestock loan companies, and considerable amounts through the cooperatives, including large amounts on
Burley and other tobaccos, cotton, and various other agricultural
products.
By that time Congress had created the Joint Commission of
Agricultural Inquiry which considered what steps should be taken
in a permanent way to do what the War Finance Corporation had
done in a temporary way.
The commission recommended the passage of the Lenroot-Anderson
bill, which provided for the establishment of the intermediate credit
banks and that bill became law on March 4, 1923, along with some
modifications in the Federal reserve act suggested by the War Finance
Corporation. These modifications were in the direction of liberalizing
the law so as to permit the Federal reserve banks to discount, under
certain conditions, agricultural paper having a maturity of nine
months and remove doubt as to the eligibility of cooperative marketing paper.
I took the responsibility—and it did not meet with the approval of
some of the conservative bankers—of saying that nine months agricultural paper ought to be eligible.
While not so much long-time paper is ever presented, we found that
the eligibility of paper was a very important factor. I t seemed to
us that since the Federal reserve system had been organized there
had been too much difference between eligible paper and ineligible
paper merely on the basis of eligibility, and that good paper that
was not eligible was not as much appreciated as it ought to be.
There never was much trouble, except in a period of tight money,
in financing feeders in the Corn Belt, because that is a quick liquidating, eligible loan; but the breeding end of the business was the
thing which hit me hardest and which interested me most, and in
connection with which it was said the intermediate credit banks would
do the most to help.
I am afraid that when they were organized they did not look with
favor on the breeding end of the livestock industry. Of course, I
have come to believe that, in spite of the talk about the wheat crop,
the animal industry is the big agricultural industry of the United
States. The beef-cattle crop far exceeds in value any other crop in
the country, I think, except when cotton is selling at very high prices.
I made some inquiries a few years ago in Chicago and was told
that there wTere about sixteen million cattle of a thousand pounds
weight going to market every year, besides some eight or nine million
calves. The beef cattle industry stands preeminent as the largest
agricultural industry of the United States, if you include the breeding
and the fattening and feeding processes.



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91

Then take hogs, of which about 40,000,000 a year are slaughtered,
and add them to the sheep and the dairy products and you have an
animal industry crop that far outweighs all other considerations.
Of the individual crops, of course, cotton is the most important.
I have always been very greatly interested in that crop because it is
one crop in which America dominates the world, or has in the past.
Sixty per cent of the world's cotton even to-day is grown in the
United States.
One of the first things that we did in the Federal reserve this
autumn was to have a meeting of the governors of the banks of the
sourthern States in connection with the cotton situation, as well as a
meeting of all the governors with respect to all agricultural products.
An announcement was put out at that time in relation to orderly
marketing and financing with the view of establishing confidence and
a more useful functioning.
Cotton is extremely important to 13 States and 30,000,000 people.
I t affects their buying power vitally, and is an important element in
the prosperity of the entire country. For that reason and not on the
ground of sentiment I think it deserves the greatest consideration from
all of us. Sometimes they say T have a cotton complex, but I have
not; I just think that I appreciate the importance of cotton to the
territory in which it is grown and to the entire country and to the
position of the United States in relation to its wTorld trade.
I figured out back in 1920, Senator, when I was in this debate with
the Secretary of the Treasury, that the entire export balance of trade
in the United States for 50 years previous to 1920 was less by
$3,000,000,000 than the value of the export of cotton. So you can
see the importance of cotton to the people of this country.
Now, we did the best we could for the agricultural interests in that
War Finance Corporation activity. We think we handled the business in a very careful and business like way. We did not throw money
around. We went into many very daring and difficult situations and
took many chances. WTe had small losses compared to the whole.
The country paid out extremely well. I t made me feel a great confidence in the industry and integrity and perseverance of the agricultural producers of the country the way they dug in and stuck to it.
The thing that was particularly bad, of course, was that in that
very acute deflation land values had gone down. Of course, they
had been inflated during the war. The banks had increased in number and were considerably inflated. I think the banks increased
from 1910 to 1920 from 23,000 to 30,000 and now they are back
again to about the same number as in 1910.
As I look back, I want to say, not for myself but on behalf of the
organization we had here, that I have never seen a group of men work
more industriously and self-sacrificingly than did the organization
that we got together. Whether it was Thanksgiving or Christmas
or Washington's Birthday made no difference. We pushed through
those loans that had to go out to the country people who could not
wait for holidays or Sundays; and I never made a call on the organization that they did not respond to, whether it meant working nights
or Sundays or holidays.
So when you criticise the War Finance Corporation, maybe we did
not do everything; maybe we did not do as well as we should, but we
did the best we could. Senator Carey, you know something of the



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NOMINATION OF EUGENE MEYER

results in Wyoming. We certainly showed courage and confidence
in the livestock industry and the people of your State, and that
confidence and courage were rewarded by a splendid performance of
the local responsibility.
With the coming of the Intermediate Credit Act, the desire—
Senator CAREY. Just a minute, Mr. Meyer. I was wondering
whether we had better interrupt you here to question you regarding
the War Finance.
Senator BROOKHART. I think it would be better to have the whole
story now.
Mr. M E Y E R . Of course, what we in the War Finance Corporation
were aiming at was to save the men that had been engulfed in a
calamity to the extent that we could. Throwing money away to pay
up other people's losses did not seem to be a p a r t of the intent of
Congress, because the law stated the loans should be made on adequate security. Therefore, it was not our business to fake over
losses, and, as a matter of fact, I did not see how we would be promoting the public interest by doing so.
Prices in general responded fairly quickly. Wool came back, as
you know, Senator, because the statistical position lent itself to
recovery. The beef-cattle industry had been expanded by 5,000,000
head, because the supply of Argentine beef had been cut off during
the war and soldiers were given meat every day in the week. When
the war was over they stopped eating meat every day and went back
to once or twice a week.
The Argentine beef came in competition with our expanded production and we were left with 5,000,000 head of cows producing steers that
the world could not consume any more, and they had to come down in
price. I t would have been a good thing if we could have slaughtered
about 10 per cent of the cows, but nobody had the power to do it, and
the surplus was reduced through a painful process lasting over a period
of years.
Senator CAREY. I t would probably have been a good thing had some
of those cows been slaughtered.
Mr. M E Y E R . Yes; I think so. Bankers later on were telling the
people out in your country to buy sheep and get out of the cow
business just at the time that cows were selling at very low prices,
and they ought to have been telling them the opposite, becaiise now
there are too many sheep. But you can not tell people always what
to do. They do not believe you, and they are probably right. They
have to follow their own judgment.
Gradually the banks got liquidation and better prices instead of
demoralized prices. Corn went up, cattle went up a little, and sheep
considerably. I t all depended on the condition of the particular
industry. The War Finance stopped making new loans at the time
set by Congress and did not force collections. As the money came in,
it was deposited in the Treasury and the activity was put into liquidation, as ordered by Congress.
The intermediate credit banks took over some of the work, a good
deal of it, but not as much of the livestock business as I should have
liked to have seen them do. I did not think they had men who really
believed in breeding loans at that time as much as they should have,'
But they came into action gradually and performed some useful
functions.



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93

The land situation became a troublesome one, because many banks
had unusual amounts of mortgages on land at that time. The land
bank system took over from the banks and refinanced vast quantities
of real estate mortgages, far in excess of the normal amount which
would ordinarily be required. By doing so they performed a useful
function, although perhaps the business was done too rapidly and not
systematically enough.
Senator FLETCHER. You afterwards had supervision of the intermediate credit banks. Did you get them to function?
Mr. M E Y E R . I did not have supervision over the intermediate
credit banks; I had nothing to do with them until four years after
they began to function.
Senator FLETCHER. I said, you afterwards had supervision over the
intermediate credit banks?
Mr.

M E Y E R . Yes.
FLETCHER.
Mr. M E Y E R . Yes.
Senator FLETCHER.

Senator

That is true, is it not?

I was asking you whether you got them to
function to your satisfaction at that time?
Mr. M E Y E R . Well, there were so many other things, Senator, t h a t
we had to do. We had to rebuild the man power of some of the land
banks where the officers were administering the intermediate credit
banks. One of the troubles was that the people in some of the
land banks running the intermediate credit banks had to be replaced.
On the whole the intermediate credit banks, I think, have gone on
and expanded their business quite a little.
But theie was not the same need from the cattle-loan industry
in 1927 and 1928, when I was there. Prices were very good and
banks were glad to take livestock loans. The need was greatest in
1923, 1924, and 1925, and not in 1927 or 1928, when I was in the
farm-loan system. The time is important to remember. However,
if I had been there no cattle loan with good security would have gone
begging if I could have helped it. T h a t was the important element
in the intermediate credit situation, except the loans to cooperatives,
and those, I think, went on very well from the beginning, and at all
times. I had not heaid of many complaints—a few, but not many—
from the cooperatives about the intermediate credit banks.
The commodity loan business is fairly simple. We gave them all
our forms from the War Finance Corporation, and sent our attorneys
and men over there to help them organize the loans to the cooperatives. So they should not have had any difficulty with them. Loans
on wool and cotton and similar commodities are not complicated.
I have not been thinking about these things for a long time, but it
was very interesting and thrilling at the time, and we saw results.
The War Finance Corporation needed a good deal of care and attention to do justice to the borrowers and protect the loans. Advances
were made to people in some cases for expense requirements, even
after the time had expired for new loans. I think that the feeling
of the country, so far as we could get it from the reflections back from
our agencies and the letters we got from grateful borrowers in great
quantity, made us feel that we had accomplished something worth
while.
I do not like to talk about myself so much, Senator. I do not
know whether all of this is interesting.
38819—31
7



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NOMINATION OF EUGENE MEYER

Senator CAREY. If you want to rest a few minutes you may
do so.
Mr. M E Y E R . The next interesting situation that came up was an
extraordinary crop of cotton in 1926. About 8,000,000 bales of cotton
had been produced in 1921. Prices rose in 1921 and 1922 and
1923, and cotton got up at one time to over 35 cents in two or three
years from 1921. This stimulated production; stimulated the use of
fertilizer, stimulated acreage, and stimulated the yields per acre.
All of a sudden, in a most unprecedented way in the history of
cotton, in the fall of 1926, after it had been estimated in the summer
that there would be a 14,000,000-bale crop, the Department of Agriculture found it necessary to increase its estimates, owing to a most
perfect growing season, until they got up to 19,000,000 bales, which
was 3,000,000 larger than any crop in the history of the country.
The cotton market started down under the pressure of these
repeated increases, and by the middle of October, 1926, cotton was
12 cents.
I was called to Washington. I was away at the time for a few days
in the country, at my farm. I was asked by the President to head a
cotton committee. I t looked to me that I was being called in to go
over the top in the zero hour in a hopeless cause.
Senator CAREY. This was before the intermediate credit banks
were organized?
Mr. M E Y E R . Before I went in the farm loan system. The intermediate credit banks existed. The cooperatives atthat time had
control of about a million and a half bales of cotton. They never
got any more than they had in the first few years. Those cotton
cooperatives did not really function until the War Finance Corporation offered them the money. They had some papers drawn, but they
had not become important.
I had great hopes of the rapid growth of the cooperative movement,
because we had been able to build so much in the two years, 1921 and
1922. The Burley tobacco association had, oh, 90 per cent of the
production, [n most cotton States they had cooperatives. Tobacco
and cotton were the principal ones; also some other products, but
not so important, were organized in these years.
I found in 1926 that the amount of cotton under cooperative
control was no bigger than it had been when we were doing business
with them in 1921 and 1922. In percentage it was even less.
I spent a couple of weeks studying the situation. I was the traveling man for this committee which consisted of Secretary Jardine,
Secretary Mellon, Secretary Hoover and myself. We listened to all
the plans and suggestions, and finally 1 made up my mind that 1
would have to go around through the South and get the people to
organize some financing corporations through which the intermediate
credit banks could lend money on cotton for orderly marketing.
I had in mind that these corporations would be organized locally and
that the cooperatives would handle the cotton, storms', classing, and
selling it. B u t the financing would come through a corporation,
because the loans to the cooperatives under the law could not exceed
75 per cent of the market v^lue, while through the fins)nee corporations
the intermediate credit banks could lend a safe value, and would not
need to call for more margin if the price went down.



NOMINATION OP EUGENE MEYEE

95

At Raleigh, N. C , they agreed to put up a million dollars. The
State bankers' executive committee came in, and the Governor
participated, as did some of the leading citizens.
We went to Columbia, to Atlanta—each place a day, traveling at
night, meeting in the day—at Birmingham on Monday; at New
Orleans on Tuesday, and met with good results everywhere.
In Dallas we had some difficulty, because the plan called for
$5,000,000 for Texas, and there were some arguments by the cooperatives. They did not seem to understand the program, and they also
did not want any aid offered to anybody unless they joined the
cooperatives.
The emergency was so great that, while I had backed the cooperatives to the limit with money and always advocated cooperative
marketing, we could not, under the conditions, depend on a membership in the cooperatives that it would take months to recruit if the
situation was to be met. We had to have something that, actually
or potentially, would produce quick results, and potentially was just
as good as actually in some ways.
We also stopped at Oklahoma City and Memphis, and we had, I
think, by that time, agreements from responsible people that they
would, if necessary, organize corporations with aggregate capital of
$16,000,000 and borrowing capacity of $160,000,000. The thing
was widely exploited in the South and all over the world. The papers
in Europe called it a solution of the problem, if not actually, potentially. And the ability to borrow $160,000,000 on the large amount
of surplus cotton, at the time is stated to have saved the South
several cents a pound. I t had to be done quickly or it would have
been too late. The price of cotton stayed around 12 cents for a few
weeks, and then went on up. By one year from the time I made my
trip cotton sold again at 25 cents.
Senator FLETCHER. Where did that $160,000,000 come from?
Mr. M E Y E R . Oh, they did not have to put it up, but it was offered
by the businessmen and the bankers of the various States. I do not
know who they were. In each State it was different. In North
Carolina I know some of the prominent citizens offered most of t h e
capital and bankers took a little. I never saw the subscriptions and
did not have anything to do with that. They were local activities.
Senator FLETCHER. The Government did not furnish any of that?
Mr. M E Y E R . Not the capital, no. The intermediate credit banks
agreed to lend to corporations with local capital and local responsibility. That is what I be.ieve in whenever you can get it working.
I t is the most effective way of helping people.
Senator CAREY. What percentage did you loan?
Mr. M E Y E R . Oh, they did not lend very much because the market
took it away. When they saw that they were not going to be forced
to sell the cotton the trouble was over. There was a little cotton
money loaned here and there by these corporations, but very little.
In fact, the plan has been attacked as a failure by some of the people
down South because the corporations did not lend much. B u t what
they did was to put a stop to the decline in cotton. About t h a t
time business became better all over the world. We should bear
in mind particularly, because it is the great difference between the
present situation and that situation, that cotton in 1926 was the
only important distressed commodity. The world commodity price



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NOMINATION OF EUGENE MEYER

level was high—I mean relatively. Cotton had a sudden break, and
the problem was how to restore, through good credit agencies, the
price of cotton to its place in the general level. Of course, now we
have a generally low level, unfortunately, not only in this country
but in every country. The problems now are different and mora
difficult.
Senator F L E T C H E R . What is the price of cotton now, do you know?
Mr. M E Y E R . Well, the contract price is about 10K cents.
Senator F L E T C H E R . I t went down after this 25-cent point was
reached, didn't it?
Mr. M E Y E R . I said in 1927, in October, it was 25 cents. Then it
got down around 18 cents for some time in 1928.
Senator F L E T C H E R . D O those organizations still function?
Mr. M E Y E R . N o ; they do not exist.
Senator BROOKHART. The result of all this magnificent picture you
have given was that about a million and a half farmers have lost their
homes or property or life savings if tenants and about 6,000 banks
have failed?
Mr. M E Y E R . Well, I do not think anybody lost their homes or
6,000 banks were in difficulties on account of this particular thing,
Senator.
Senator BROOKHART. There were other causes, but this entered
into it?
Mr. M E Y E R . There were not 6,000 banks in the South that failed,
anyway.
Senator BROOKHART. We will see about this inadequate and
scrappy system of financing agriculture.
Mr. M E Y E R . You are a little hard to please, Senator.
Senator BROOKHART. Well, when I see that the land in my State,
the best land, you have said, in the world
Mr. M E Y E R . I think so.
Senator BROOKHART. I S not able to pay expenses and taxes and
see that it has gone from about 15 per cent of tenantry to about 55
or 60, why, I know that there is something wrong, and I think I know
what it is.
Mr. M E Y E R . I know there is something wrong. There is a whole
lot wrong. And I am not able to say that I know exactly what it is,
but I am glad you do.
The farm loan situation, Senator, was the next activity I entered on,
and that was brought about by a very complicated situation. The
reasons for the reorganization which we were asked to undertake have
been set forth in the reports of the Farm Loan Board and the Secretary of the Treasury. I t was a new system which grew up very rapidly under very abnormal conditions. I felt, as I said before at hearings three years ago, that the fundamentals of the sytem have been
proven extraordinarily good—the idea of lending on land, conservatively appraised, 50 per cent of the land value and not over 20 per
cent of the permanent improvements.
A mistake, I think, was made
(At 3.17 p. m. a recess was taken until 3.45 p. m. for the purpose of
Members voting on the floor of the Senate.)
Senator CAREY. We will adjourn, gentlemen, until 10 o'clock
Friday morning.
(Whereupon, at 3.47 o'clock p . m., the hearing was adjourned until
10 o'clock a. m., Friday, January 30, 1931.)




NOMINATION OF EUGENE MEYER TO BE A MEMBER OF
THE FEDERAL RESERVE BOARD
SATURDAY, JANUARY 3 1 , 1931
U N I T E D STATES SENATE,
SUBCOMMITTEE OF THE COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.
The subcommittee met, pursuant to adjournment of Wednesday,
January 28, 1931, at 10 o'clock a. m., in room 212, Senate Office
Building, Senator Robert D. Carey presiding.
Present: Senators Carey (Chairman of the Subcommittee), Goldsboro.ugh, Brookhart, Wagner, Fletcher.
Senator CAREY. Mr. Meyer, you may proceed.
TESTIMONY OF EUGENE MEYER, GOVERNOR OF THE FEDERAL
RESERVE BOARD—Resumed
Mr. M E Y E R . Mr. Chairman, the operations of the War Finance
Corporation I described to you in a general way. We discussed the
work that was done in the cotton situation in 1926 which was considered successful. We did all we could and more than anybody
thought could be done in that particular situation, 1 think.
The broader aspects of the War Finance Corporation's operations
are contained in its reports, but not all of them, by any means. M a n y
very interesting things happened but I can not go into every detail.
I remember, for instance, that out in Idaho in 1921 they suffered
particularly on account of freight rates. You are familiar with that.
Alfalfa in Idaho usually had been sold in Kansas City and Omaha,
but high freight rates prevented that. A very good man came down
here from Idaho and explained that alfalfa could not move, and he
wanted to bring in cows and ship out cream, butter, and cheese. His
name was Sheppard. He put up a little money for a loan company,
I think, $35,000, and we loaned it enough money to bring about
5,000 or 6,000 cows into the area and alfalfa was shipped out in the
form of the finished products.
We had a very interesting situation in Sioux Falls, S. Dak., later
in 1924. That was in January, I think. A relatively large bank in
that country closed with five million or six million dollars deposit.
I t had been acting as a sort of reserve bank of deposit for a large number of small banks. Senator Norbeck and Senator Sterling and
Royal Johnson came down to see us about the matter after a few days.
We went to Sioux Falls. We got there about 10 or 11 o'clock in the
morning, the mayor and some of the leading citizens having met us
down the road.
Conditions seemed to be very bad. I think four banks had failed.
I had no particular plan when I went there. I did not know the
situation, but I had some help with me, an assistant and our counsel.



97

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NOMINATION OF EUGENE MEYER

We got there in the morning, and I had the feeling that the people of
Sioux Falls felt very far away. They had a regular bank panic
there. People got a little money out and stuck it away in a vault or
elsewhere. I t was the kind of thing that happened in this country in
the nineties a good deal, but I had never seen it after that.
I had the feeling that the thing to do was to show confidence and
by so doing we would restore their confidence.
I sent for some of the leading citizens, the names of a few of whom
I had before I went there from people who knew the town. I had
full power from the board here to act—the only time they ever gave
me authority to act for the board with the agreement and understanding that whatever I did would be O. K.'d. We opened an
agency at 8 o'clock the following morning; not after a long time,
but the next morning. We had offices and a competent staff and all
the papers necessary for the small banks that had their money locked
up in the Sioux Falls Savings & Trust.
I got some help from Minneapolis, from our agency there, and we
started in doing business the next morning, and they paid out something like one and a half million dollars to restore reserves of these
banks that had been locked up.
I merely mention that because the history of the corporation was
filled with little incidents of that kind in which we thought we were
very helpful, and at the time the people thought we were.
I went up to Minneapolis. Again we did an exceptional thing.
I told the agency in Minneapolis, of which the office at Sioux Falls
was a subagency, that they could approve loans and pay out the
money without reference to Washington. In many cases the money
was applied for on one day and paid out to these banks the next day
with the approval of the local committee in Minneapolis. The
Federal reserve bank handled the money and I gave them instructions
to pay the money on order of the local committee instead of on orders
from Washington.
We had to do some exceptional things under exceptional circumstances, and I think we realized that and tried to do it.
The farm loan system part of my work lasted two years, beginning
in May, 1927, I think the 10th of May. I took office with two of
my colleagues. At the very urgent request of the President and
Secretary of the Treasury, who felt that a reorganization of the
board and the work of the bureau was vital if the sj^stem was to be
preserved, we undertook the work. I t was a very difficult piece of
work. One large joint-stock land bank had already gone into the
hands of a receiver on the 4th of May.
Senator CAREY. Was that the Kansas City bank?
Mr. M E Y E R . Yes. I t went into the hands of a receiver with over
$40,000,000 in bonds outstanding.
An impression has been given out that I was responsible for the
receivership. The Kansas City Joint Stock Land Bank was in the
hands of a receiver before I entered on my duties. As a matter of
fact, I went abroad a month before 1 went into the land bank system
and did not know that the Kansas City bank was on the verge of a
receivership. I had a sister abroad who was ill and I wanted to have
a visit with her. I had not seen her for a year or two, and I went
over for two weeks and got back about the 5th of May.



NOMINATION OF EUGENE MEYER

99

The bank was in the hands of a receiver; and while I had undertaken
to do this work, it did not make it easier to have a receivership like
that just when I started.
Reference has been made to other receiverships. There were two
more which followed. One of them was the Ohio Joint Stock Land
Bank, which was practically in liquidation. I t was a relatively small
bank. I t had never issued over a million and a half bonds. I t had
no office of its own. I t s business had been put in the hands of the president of another joint stock land bank. The reason it went into the
hands of a receiver was because it was unable to pay interest on its
bonds.
There was a statement issued by the board on September 1,
1927, which read as follows:
Upon receipt of notice of the failure of the Ohio Joint Stock Land Bank, with
headquarters at Charleston, W. Va., to pay interest due September 1, on part
of its outstanding bond issues, the Farm Loan Board, pursuant to authority
contained in section 29 of the Federal farm loan act, to-day appointed Mr. J. S.
Horton as receiver of the bank, and instructed him to take immediate charge of
its affairs for the purpose of conserving its assets and protecting the interests of
all parties concerned.
The Ohio Joint Stock Land Bank is one of the smaller institutions. The capital
stock is $250,000 and the outstanding bonds aggregate $1,369,300. Mortgage
loans total $1,399,000. The bank has issued no bonds since January, 1924—
Three and a half years earlier, it was a moribund bank—
and has been practically in liquidation during the past two or three years. Other
institutions having considered the possibility of taking over the bank without
result, receivership was the only course open.
The board had tried to get some other bank to take it over in order
to avoid a receivership. Two or three of the strong banks of the
system considered the matter. I think two at least, but after examining its condition, they found it a hopeless situation and refused.
Previously to that there was another bank that had failed—I have
not got them in the order of time. I t went into the hands of a receiver on July 1, 1927, a few weeks after my colleagues and I took
office.
Senator BROOKHART. What was the date of this Ohio bank receivership?
Mr. M E Y E R . September 1, 1927.
This is the press announcement with regard to the other bank I
mentioned:
Upon receipt of notice of the failure of the Bankers Joint Stock Land Bank of
Milwaukee, Wis., to pay interest due July 1 on part of its outstanding bond issues,
the Federal Farm Loan Board, pursuant to authority contained in section 29 of
the Federal farm loan act, to-day appointed Howard Greene, of Milwaukee,
receiver of the bank and has instructed him to take immediate charge of its affairs
for the purpose of conserving its assets and protecting the interests of all parties
concerned.
The appointment of a receiver is the culmination of a situation that has been
developing in the bank's affairs over a considerable period of time. During the
early part of the present year, the directors of the bank appointed an advisory
committee, consisting of leading business men and bankers, to advise with the
bank's management in connection with its operations. The committee has been
studying the affairs of the bank for several months in an effort to work out a plan
of reorganization. Its efforts in this connection were not successful, and the
action of the directors of the bank in ordering the nonpayment of the interest due
to-day was in accord with the recommendation of this committee.



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NOMINATION OF EUGENE MEYEE

Under date of June 29, 1927, the general manager of the bank addressed the
following circular letter to its stockholders:

And it recites in there his letter and the reasons which made necessary the appointment of a receiver.
Those things were regrettable. They naturally did not help in
the work we had to do, which was to try to save and reconstruct the
system; but they were inevitable, and they have not been followed
by any receiverships since that time. Both of those banks that went
into the hands of receivers after I took office were practically bankrupt before that.
Senator CAREY. There have only been three of these joint-stock
land banks that have failed, have there not?
Mr. M E Y E R . That is all.
I do not feel, Mr. Chairman, that I want to go, unless you want me
to, into all of the difficulties and weaknesses that we opened up in
the situation. I was examined here before a committee when I
was confirmed for the position of Farm Loan Commissioner. We
undertook that responsibility M a y 10, 1927, and the nominations
were sent to the Senate in December and extensive hearings were
held before the committee at that time.
At that time also there was an attempt to make a hearing on my
confirmation and that of my colleagues a matter of considerable unpleasantness and discredit to the land bank system that I was trying
to protect. I had to answer the questions and charges brought
before the committee at that time in such a way as to try to defend
myself from attack and, at the same time, not parade in public all
the weaknesses in the administration of the bureau and of the system
t h a t had prevailed previously. If I had chosen to defend myself by
making a full explanation at that time, I felt it would have been very
disadvantageous to the credit of the system.
As a matter of fact, I had no feeling that I had the right to represent anything unduly and untruthfully optimistically, but I felt that
a public discussion at that time of all the conditions that had grown
up—and I did not care to criticize my predecessors in the bureau—
would do nothing b u t a great deal of harm to the land bank system
that I was trying to help.
Senator CAREY. Was it not a fact that some of the Federal land
banks were in very bad shape and that the other banks had helped
them?
Mr. M E Y E R . Several of the Federal land banks were faced with real
problems. The Spokane Land Bank received some help from the
11 others some time before I took office. I have forgotten the date,
but since then none of the land banks has been helped by the others
in the sense of receiving loans to help work out their problems.
The Spokane Land Bank was fully discussed in the hearings at that
time. A good deal of the hearings were off the record because I
asked that material that would reflect injuriously on the credit of the
Federal land banks and joint-stock land banks be eliminated from the
record, although I disclosed a good deal to the committee that was
examining me at the time.
The conditions in the bureau were such that it seemed to us that a
great deal of the work that ought to have been done, in fact, that
should have been done to meet its responsibilities under the law,
had not been done. In fact, we found that there was a lack of proper



NOMINATION OF EUGENE MEYER

101

business methods in the bureau and some of the banks. The files in
the bureau were more or less useless because they were not systematically arranged. We had the bureau of efficiency go in there and make
us a report, and it took a large number of people and a considerable
period of time to reorganize and index the files; also, of course, additional expense to do the work that should have been done right along.
The minutes of the board meetings were not indexed; they were
not permanently bound, and of course it was extremely difficult to
get the record of what the board had decided on various points in
question, because of that fact.
One of the things that struck me as most important was the question of farm loan association examinations in the Federal land bank
system. As you know, Mr. Chairman, the Farm Loan Association is
the mutual cooperative credit foundation on which the whole Federal
land bank system rests.
Apparently the board had not taken that part of the organization
very seriously. There were 900 reports of examinations stuck away
in a room there that had never been reviewed or considered in the
bureau. These reports getting little or no consideration in the
bureau, naturally the examiners were very careless in making examinations and in making reports.
At the end of a year, the bureau threw away the quarterly reports
submitted by National Farm Loan Associations; in other words, they
were not retained as permanent records as they should have been.
There was no systematic supervision of the examinations of the
Farm Loan Associations.
On the question of appointment of directors and some of the
employees of the bureau, I think it is fair to say that they were in
many cases apparently made on a political basis rather than with
respect to the work and the qualifications of the men for the work.
I will say that we found that the examinations of the land banks and
the joint-stock land banks had been inadequate and did not fully
meet the requirements of the law.
The statements of some of the banks to the Farm Loan Board, which
were published by the Farm Loan Board, were in many respects at
that time false and misleading.
There was no uniformity in accounting among the banks. Therefore a balance sheet or an operating statement of the banks could not
be interpreted intelligently by the most careful student of the figures.
That, of course, and the other things that I have mentioned, we undertook to correct and improve.
In some instances, issues of capital stock and bonds by joint-stock
land banks had been approved which perhaps should have been disapproved. Occasionally investment houses selling securities of the
banks used reports submitted directly by the banks to them instead
of the official reports, although the official reports were none too
accurate.
The advertising literature that had been put out by some investment houses was misleading and was phrased very much in the direction of trying to give the investor an impression that the joint stock
land bank and Federal land bank bonds were substantially Government bond issues, although not technically so. They would say
something like this: "While these bonds are not guaranteed, they
are instrumentalities of the United States Government."



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NOMINATION OF EUGENE MEYEK

The ordinary investor reading that phrase, "instrumentalities of
the United States Government," would think, "Well, they are not
United States bonds technically, but practically." That is the technical legal phrase used in the law and by the Supreme Court in its
decision upholding the right to issue tax exempt bonds. While as
used in the law and by the Supreme Court it referred only to tax
exemption, it was used widely in circulars in a way that was likely to
give investors the feeling not merely that the bonds were tax exempt,
but that they were almost Government bonds.
We went to work and, I think, eliminated that to the extent that we
could, although we did not have control over investment bankers or
their circulars, nor did we have censorship, but by patient work I
think we obtained their cooperation on that point, because we went
to them with the simple proposition that the truth in advertising is
better than the other thing; and it was eliminated.
Another thing that was wrong in the organization of the board, it
struck myself and my colleagues, was that the board functioned in
departments. There was a board of six, divided into departments.
M y experience is that a board in Washington, in order to function
successfully, must function all together and that the departmentalizing must be in the organization under the board.
We changed all that, and all of the members of the board knew all
about all of the business as long as I was there, and I am sure they
still do. The result was very good, because previously the board had
been split up into factions voting against each other and, in many cases,
not arriving at decisions, in part at least because all of the members of
the board did not know all about the business. One man would have
one view and somebody else another. As a matter of fact, the reorganized board operated harmoniously, and that was due in no
small measure I think, to the fact that all of the members were in on
all of the business.
I found, Mr. Chairman, that the attitude of previous commissioners
had been to magnify the importance of the farm loan commissioner.
A good deal of the work and business was conducted by the farm loan
commissioner as such, without always consulting the board.
I did not think that was good business or sound administration,
and I always had the board act instead of the commissioner whenever
it was possible and whenever the law did not proAnde that the commissioner had to act as such.
The board thereafter functioned, as Congress intended, I think,
collectively and not individually.
When we came in we found that the president and officers of the
Federal land banks and of the joint-stock land banks complained a
great deal about inability to get decisions, and I thought that their
complaints appeared justified. I attributed some of the delay and
difficulty to the fact that the board had not had the conception of a
collective unit functioning together.
The checks drawn in connection with bond and debenture transactions wrere signed by the farm loan commissioner alone. That involved very large amounts, and I did not feel that that was sound.
I therefore had all such checks signed by two instead of one—the
secretary and general counsel and either the commissioner or the
acting commissioner in his absence.
Senator BROOKHART. What instruments were those?



NOMINATION

OF EUGENE MEYEK

103

Mr. M E Y E R . Checks drawn in connection with bond and debenture transactions.
The rules and regulations were poorly compiled. We went to
work on the task of revising them, and I think the work that was done
on them was done thoroughly.
There was not an adequate supervision of the lending rates, which
under the law can not exceed by more than 1 per cent the borrowing
rates. Particularly we had a bad situation in the fact that there was
little uniformity in the relations between the various Federal land
banks and their farm loan associations.
In the Texas district, for instance, the theory of the bank was
that the farm loan association was a very important factor under the
law, and they were cultivated to a considerable extent. Some of the
other banks just said, in effect, "Well, the farm loan associations
don't amount to anything and we will n»t bother about t h e m . "
There were all kinds of different ways of conducting the relations
between the banks and the farm loan associations. We tried to improve the situation and I think we succeeded.
Appraisers had been appraising land without having had much
contact with or instructions from the bureau. Meetings of appraisers
were held in different parts of the country. They were brought into
these conferences and general instructions were given them. There
was little coordination between the work of the examining division
and the appraisal division. They were working more or less independently, and of course that was unsound, and we worked with a
view to closer coordination of those two very important divisions.
The board had agents in each Federal land bank district who were
called registrars. They were the men who held the collateral for
the bond issues, amounting to $1,800,000,000. They were all acting without any formulated general instructions to guide them
in their work and steps were taken toward correcting that situation.
We inquired of the registrars whether thev were accepting delinquent mortgages as security, and found thac thej T had not been examining the collateral with a view to finding out whether or not the
mortgage was delinquent when it was put up as security in the first
instance.
There was a vast number of things, Senator. For instance, the
chief of the bond division in Washington, the registrars and the
employees under the registrars, were not adequately bonded. We
corrected all that.
Many of the statistics were inaccurate as published, and there was
no uniformity in their compilation. There was considerable duplication. When we went into the files we could not find the by-laws
of some of the banks and of many of the farm loan associations.
There was not a property record kept in proper shape; no adequate
books of record of issues of farm loan bonds or intermediate credit
bank debentures had been kept. There was no check up on transportation requests. There was a multitude of small and large things;
but in the two years the bureau was reorganized and all of the major
problems attacked and substantial progress, if not complete improvement, was made.
Naturally we found some resistance against our ideas in some of the
banks, but we tried either to visit the banks that did not understand



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NOMINATION OP EUGENE MEYER

our point of view and get their point of view and find out what the
difficulties were, or we had them come down here.
I should say that what we were trying to do in a broad way was to
make the banks feel in the first place that they had a bureau that was
trying to render them a service instead of trying to annoy them; that
was trying to help them and work with them and bring the banks into
better condition and a more useful capacity for service. I think the
large majority of the banks soon got to feel that that was our fundamental attitude.
Senator CAREY. Did you make many changes in the directors of
the various banks?
Mr. M E Y E R . We made some changes in the Federal land banks
where our appointees were concerned. I think the most important
change was a fundamental change in the system of appointments of
officers of banks.
When we went in there we found that the vice president, if there
was one, as well as the president and the secretary and the treasurer
and in some cases the general counsel were all offices which were given
to directors, so that in some cases a majority of the board of directors
consisted of officers of the bank.
T h a t seemed to us very unsound, because what the banks need are
boards of directors that will act as a check on the officers; and I think
almost all, and by this time perhaps all, of the banks have amended
their by-laws so that the officers of the bank, except the president,
who ought to be on the board, are not directors.
We found that the officers in some banks were perpetuating themselves in office and were not properly administering the affairs of the
bank. In one case particularly I remember that we had a meeting
of all of the directors of a bank, and the outside directors, as we call
t h e m — t h a t is, those who were not officers—found that officers of the
b a n k had not been frank in telling about the condition of the bank as
we discussed it with them, but had withheld knowledge and information concerning important facts in the administration of the bank
from the directors who were not officers. The questions we raised
were questions of administration which reflected on officers who were
also directors.
I t was our object, Mr. Chairman, not to eliminate any good man
that could possibly be kept, because to get people to do this work is
extremely difficult. There was so much to be done that we were not
looking for any unnecessary removals.
Our power to remove, of course, was restricted to the appointees of
the board. But as these conditions developed and the boards of directors in some of these banks got better acquainted with the situation,
closer in contact, they themselves, in many cases, took action to remove officers or directors, and there were a good many changes.
On the question of secretary-treasurers of farm loan associations,
the act provides that a secretary-treasurer of a farm loan association
who turns over to other agencies eligible business which comes to him
shall forfeit his office. One of the land bank presidents complained
that he had not been able to get the cooperation of the board in Washington in bringing about the removal of such disloyal secretarytreasurers, and we undertook to support the bank in question, and a
number of secretary-treasurers in that district who had been disloyal
to the land bank system were eliminated. We had no desire to see



NOMINATION OF EUGENE MEYER

105

anybody removed who could be kept and who would be useful and
competent.
The examination work of the farm loan associations perhaps had
been the most neglected phase of the work, taking it as a whole; but
when the examiners were increased in number and efficiency a great
many defalcations were developed. Of course I would not say a great
many compared with the total number; 1 will say very few, but a good
many, anyway, in number, and it was our unpleasant duty to refer
such cases to the Department of Justice.
There were other prosecutions by that department, and a number
of them were instituted before I became commissioner.
The law provides for the method of dealing with criminal violations
of the act. The bureau is not a prosecuting agency. I t refers anything of that kind to the Attorney General for such action as he may,
after investigation, deem necessary. It was a rather sad and unpleasant part of our duties to have to deal with those cases.
I feel, Mr. Chairman, that a good many of the men went wrong
because of the neglect of the bureau to examine those associations
promptly from the beginning and continuously. Such a neglect led
to temptation of men who were weak and could not resist it, because
they were receiving and disbursing money with no adequate check-up
on their operations.
Senator CAREY. Were those defalcations in the banks or the associations?
Mr. M E Y E R . I was just talking about the associations. In the
banks there were some minor cases of defalcations, but I would not
s&j that there was anything on a large scale that I can remember.
There was a good deal of loose practice generally. As a matter of
fact, we found at the time we went in there that in some banks the
titles to the land securing many mortgages were in the names of
dummies—nominees of the banks—and yet the mortgages were
carried in the assets of the banks as loans. We thought they were
real estate in the sense of the act and should be shown as such. Objection was made, and the excuse given for the dummy holders of such
real estate was that if the property were held in the name of the bank—
the real owner—it would not be as marketable or have as good a
reputation, or that there would be a merger of the mortgage and the
title. I felt that that was an alibi rather than an explanation.
I think it is safe to say that the statements of the banks—the jointstock and Federal land banks—are now as nearly accurate and as
nearly a true reflection of the condition of the banks as it is possible
to get. They are also uniform in their methods, and I believe that the
reports published by the land-bank system—published by the bureau
on the basis of the banks' reports to it—are at the present time
pretty close at least to an honest and truthful reflection of the condition of the banks and of the system.
The question of appraisals was important. We tried to get the
appraisers to act in what I would call an intelligent and liberal way
without going to the point of unsoundness. What I told the reviewing appraisers when I had occasion to meet them, and the appraisal
department said, was that when land was depressed it was good
business not to be panicky about it, and that the knockdown, quicksale value of farm lands should not control their appraisal attitude
too much; that rather the going value of the farm as a going concern



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NOMINATION OF EUGENE MEYER

should control their attitude to a reasonable extent. Of course, they
can not set up artificial values and valorize farm lands, as that would
be an injustice to the system and the investors, but I had the fear
that maybe they might go too far, in view of the mistakes of overappraisal in the past, and undervalue farm lands.
As I have occasionally said, I believe in good farm lands as having
a permanent value in the long run, and nothing that happens shakes
my confidence. But the trouble in the system did not come so much
from the good farm lands; it came from a lot of loans that were made
by banks on farms that were not good farms; and particularly I will
say that the Bankers Joint-Stock Land Bank of Milwaukee, apparently in a desire to do a large volume of business made some loans
on cutover timberlands in its territory that should not have been
made at all. Some of them wrere not really farm properties; and the
largest losses in that bank resulted from loans that should never
have been made at all on any appraisal.
Senator CAREY. The banks to-day own a good deal of land, do
they not?
Mr. M E Y E R . Yes; they own a good deal of land, but not in proportion to the total assets of the system.
Senator CAREY*. Do many of these loans on the land that they
have go back to 1921, lands that they acquired at that time and that
they still own?
Mr. M E Y E R . I can not say as to the dates. The system did not
have in 1921 such an enormous amount of business. I t began to
function when the act was passed, and then there was a period when
the constitutionality of it was in the courts. I have forgotten just
what year that was; but during a certain period they could not sell
any bonds and therefore did not make any loans.
Senator CAREY. The reason I asked that question is this: Have
not the banks land they loaned money on and which they have not
been able to sell?
Mr. MEY*ER. Yes. I n the Spokane district, loans were made in
one section, on lands which were supposed to be wheat lands. You
probably know the territory I have in mind, where a crop of wheat
was made one or two years and very little thereafter. There were
loans made, and 1 am told that some men who took up a piece of
land under the homestead act never plowed a furrow. Of course the
bank bought the land; it did not make a loan on it.
So, in various parts of the country, various mistakes were made;
but on that, gentlemen, I do not want to be too critical. I t was a
new system and it grew rapidly, and I do not want to criticize my
predecessors unduly. I do not mind enumerating the points that
we thought were weak and that needed remedying; but you can not
get everybody you would like to get to come down to Washington
to do these jobs, and some of the people that want to do them are
not always the best men to do them.
I had the feeling, as I said at the last meeting, I think, and frequently before, that the fundamental idea of the Federal farm loan
system, with the associations and the land banks and the appraisal
and examining system, properly carried out, is sound and will stand
if properly administered; but it takes a good deal of real supervision
and industry and hard work.
Senator CAREY. There has really been no movement in land since
about 1921, has there? That is, no demand for land?



NOMINATION OF EUGENE MEYER

107

Mr. M E Y E R . There has not been any rising market. There has
been a declining market for land, rather, but a lot of land is being
bought and sold all the time, and good farmers are adding to their
land and a good many farms are being bought and sold.
Senator CAREY. Mostly at low prices?
Mr. M E Y E R . By neighboring farmers. There has been little immigration of new farmers to take up new land or old land as there used
to be.
Senator CAREY. Most of these sales are at low prices?
Mr. M E Y E R . Most of them are at low prices comparatively. However, 1 am not, as I say, familiar with all of the latest details, because
I have been out of the situation for two years.
Senator FLETCHER. The bank loans increased very rapidly in 1922,
1923, and 1924. They got so they were loaning a million dollars a
day about that period.
Mr. M E Y E R . Yes; that was one of the disasters of the system,
Senator, that they loaned too fast.
Senator FLETCHER. They had to do it to do business and accommodate agriculture.
Mr. M E Y E R . The question is whether that was what they were
doing. Loans on cut-over timberlands in northern Wisconsin did
not really accommodate anybody but the fellow that got the money,
and were not much help to agriculture.
Senator FLETCHER. Arc there any other instances of that kind?
Mr. M E Y E R . Yes; all over the country.
Senator FLETCHER. YOU claim, then, that the Farm Loan Board
at that time was making reckless loans all over the country?
Mr. M E Y E R . N O ; I did not say that. I said there were examples
of it, of poor lending judgment, a poor loan judgment. I cited to
you some loans in one or two sections, but I do not want to give you
the impression that that dominated the major loans of the system.
Otherwise I would not be expressing the confidence in the fundamentals of the system that I do express, Senator.
There was no adequate legal department in the bureau. Necessarily the Federal Farm Loan Bureau has to do a lot of legal work.
There is there now and has been ever since I went there, as quickly
as we could build it up, a very good legal division, and some of the
important and difficult legal questions that had never been settled
over a period of years but that the banks had been thinking about,
talking about and discussing, were taken up in conferences between
the legal department of the bureau and the counsel of the Federal
land banks, and settled.
Senator FLETCHER. YOU spoke about the examiners. Do you
recall, Mr. Meyer, that immediately after you went in you increased
the number of examiners?
Mr. M E Y E R . Yes. They had to be increased very greatly.
Senator FLETCHER. I think the appropriation the year before you
went in was something like $15,000 for examiners, and you got it
up to $85,000, to begin with.
Mr. M E Y E R . Yes; the appropriation was materially increased, but
I do not recall the figures.
Senator FLETCHER. And do you not know that the old board had
been trying their best to increase the number?



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NOMINATION OF EUGENE MEYEB

Mr. M E Y E R . Then, I say that the Congress of the United States
completely failed to realize the importance of that examination work.
I said before you came in, Senator, that I did not want to go into
so much of this, because I did not want to criticize my predecessors
on that board; and as you remember
Senator FLETCHER. I t was not so much the Congress, as I recall,
b u t the Director of the Budget would not approve their estimate
and their request.
Mr. M E Y E R . Well, Senator, when I got in there the Director of
the Budget cut us down, and I went over to the President of the
United States, over the head of the Director of the Budget, and said,
in effect, "Either give us the money that will enable us to conduct
this bureau properly, or you can not expect us to bring results."
And we got exactly what we wanted every time.
Of course I think it is important to have people in the bureau who
get results. If it is a question of getting money from the Budget
Bureau, that is one result.
I do not think that I have been unduly severe on my predecessors;
and before you came in I said I did not want to be. You remember
when I was up for confirmation before, Senator, that I had a lot to
say to the committee off the record, because I did not want to be in
the position of criticising unduly my predecessors.
Senator FLETCHER. Yes.
Mr. M E Y E R . And also because I wanted to protect the credit of
the land-bank system.
Senator FLETCHER. I remember that; and I remember that you
said at that time that you had not bothered about what had preceded; that you were looking ahead and that you had not gone into
the question of the shortcomings of your predecessors.
Mr. M E Y E R . T O make progress we had to find out where the
deficiencies really existed, didn't we?
Senator F L E T C H E R . Oh, yes.
Mr. M E Y E R . We could not find out what had to be done except
by examining what was being done.
When I resigned I had a letter from the president of the Federal
Land Bank of Omaha, dated M a y 3, 1929, and his expression, if I
may read it, gives you a picture
Senator BROOKHART. Who is that from?
Mr. M E Y E R . The president of the Federal Land Bank of Omaha,
who had been in the system since it started. He said, under date of
M a y 3, 1929:
It was with genuine regret that I read the announcement of your resignation
as member of the Farm Loan Board this morning.
You have done a monumental work in reforming and reorganizing the Federal
farm loan system in the short time, less than two years, that you have been
commissioner.
I had become greatly discouraged regarding the future of the Federal land
bank system before you became commissioner. The management of a number
of the banks was very bad and they were being allowed to drift along from bad
to worse without any effort being made for improvement. Within the short
period of your administration, you secured the removal of the unfit and incompetent officers of the weak banks and replaced them with strong and capable
men who have the experience and ability to administer the affairs of the banks,
in a first-class manner.




NOMINATION OF EUGENE MEYEK

109

Furthermore, you a n d your able assistants

And I want to tell you that if I had not had those able assistants,
I could not have done much.
have reorganized t h e bureau, so t h a t it is giving first-class supervision to t h e
banks in t h e system. While it will t a k e time for t h e system to recover from t h e
mistakes of t h e past, it is encouraging to know t h a t we are going in t h e right
direction—the m a n a g e m e n t of t h e b a n k s are good a n d t h a t t h e organization t h a t
you have built up in t h e bureau will continue to function.
I t has also been a very great pleasure for m e t o work w i t h a m a n who h a s such
a large grasp of financial affairs. While I realize t h a t t h e routine work of t h e
bureau, after you had accomplished t h e big task of reforming a n d reorganizing
the system, would not be a t t r a c t i v e to you, it is a pity t h a t we can not continue
to have t h e benefit of your counsel a n d advice in t h e financial affairs of t h e b a n k s .
As I grow older, I realize more and more, t h a t a m a n ' s reward comes only in
the consciousness of i m p o r t a n t work well done. Your reward will come as t h e
days go by in t h e knowledge t h a t you have rescued these b a n k s from serious
difficulties and reformed and rebuilt t h e system a n d placed these cooperative
institutions on a sound footing so t h a t t h e y m a y render to t h e farmers who are
the bulwark of our country, t h e great service for which t h e y were intended.
I especially enjoyed my association with you as a m e m b e r of t h e bond committee.
I hope t h a t you will continue your interest in t h e b a n k s a n d m e e t with us
occasionally a n d give us t h e benefit of your counsel a n d advice.
With kindest personal regards, I remain,
Very truly yours,
D . P. H O G A N ,

President.

Senator BROOKHART. With respect to that letter, I would like to
ask a few questions. Mr. Hogan is president of the Omaha bank, in
which Iowa is included, is he not?
Mr. M E Y E R . Yes.
Senator BROOKHART. What is his salary there?
Mr. M E Y E R . I do not know, to tell you the truth.
Senator BROOKHART. H O W much has it been increased

since you
came in?
Mr. M E Y E R . I do not remember if it was increased. I t may have
been, because we did approve increases in the salaries of some of the
presidents of the banks who seemed to deserve them.
Senator BROOKHART. Let us see how it was deserved in this case.
In 1929 the loan association at Cedar Rapids, and another at Ottumwa,
both of which have been on the honor roll for 11 years, never having
a default of interest on a loan, or a full foreclosure, sent in—speaking
from recollection—26 applications for new loans, on which they were
jointly liable in the two associations, as I remember it, and only one
was approved. Word came back to them that the appraisements
were too low, but one day somebody from the office, to let them know
what was going on, sent out a list of the appraisements, and every
one of them was all right, and should have been allowed. Do you
consider that functioning for the service of the farmers of the country?
Mr. M E Y E R . I would have to know more about it to have an
opinion. I hear what you say, but I would like to hear the other side
before I have an opinion. We did not hesitate to criticize the conduct of Mr. Hogan, or anybody in his bank, if it was necessary.
If you remember, you got a letter from Mr. Beck, who had been secretary of the association
Senator BROOKHART. Approving your confirmation.
Mr. M E Y E R . Yes; and also speaking of complaints that he had
had against the bank, which he had discussed with me, and stating
^8819—31
8



no

DOMINATION OF EUGENE MEYER

that I had taken up the matter with the bank and the matter had
been remedied. I do not say that Mr. Hogan is perfect. I do not
know that any one of us is.
Senator BROOKHART. Since your administration is when Mr.
Beck came to me with this complaint I have just recited, and all
during your administration of the bank
Mr. M E Y E R . Mr. Beck wrote you a letter indorsing me, and, at
the last hearing when I was up for confirmation, you said that you
would like to introduce a letter into the record.
Senator BROOKHART. Yes.

Mr. M E Y E R . In which he withdrew that recommendation.
Senator BROOKHART. I have another letter.
Mr. M E Y E R . You did not introduce that letter into the record,
and Mr. Beck told me that he had not written you such a letter.
Senator BROOKHART. I have it, and he has been to see me since.
Mr. M E Y E R . Mr. Beck told me he had not written you such a
letter. I did not ask him. I happened to meet him in Omaha.
Senator BROOKHART. When?
Mr. M E Y E R . While I was in the system.
Senator BROOKHART. YOU did not meet him since these complaints
he made in 1929?
Mr. M E Y E R . I have been out of the system since May, 1929. I
do not know anything about what has happened since.
Senator BROOKHART. I t was about April or May.
Mr. M E Y E R . If it was April or May, I do not know anything about
it, because I got out in May, b u t I am pretty sure that if you would
work with the bureau, the bureau would take up any complaint that
you or anybody else had any justification for making, and try to do
something about it.
Senator BROOKHART. A S I recollect it, I sent these complaints to
the bureau.
Mr. M E Y E R . YOU did not send them to me, Senator. I never had
any communications from you that I recall. I would have been very
glad to cooperate with you in doing anything that could have improved
the administration.
Senator BROOKHART. There is such a vast difference between your
kind of cooperation and mine, that I do not know whether we can
cooperate, or not.
Mr. M E Y E R . Why don't you try and find out ? You have not made
an effort.
Senator BROOKHART. I tried to find out, but I have failed to find
anything but Wall Street cooperation when I get up close to you.
Mr. M E Y E R . Senator Kenyon, who is a pretty good man in your
State, wrote me a letter, which is in the record of the last hearings,
which showed that he and I cooperated with great advantage to the
people of Iowa. T h a t is what he thought.
Senator BROOKHART. YOU went out and took the opposite side
from the Wall Street crowd.
Mr. M E Y E R . I am not talking about that.
Senator BROOKHART. They always send somebody out to do that.
Mr. M E Y E R . I am talking about the work of the War Finance
Corporation in 1921.
Senator BROOKHART. Yes; I know all about it.
Mr. M E Y E R . His letter is in the last hearing.



111

NOMINATION OF EUGENE MEYER

Senator BROOKHART. I know all about his letter, and I know what
he thinks now.
Mr. MEYER. He has not written anything to the contrary.
Here is a letter from the Federal Land Bank of St. Louis. I would
like to say that I did not solicit any of these letters. This was a
resolution passed by the board of directors [reading]:
THE

FEDERAL LAND

BANK

St. Louis,
Mr.

EUGENE

OP S T .

LOUIS,

Mo., May 14, 1929.

MEYER,

Federal Farm Loan Board, Washington, D. C.
My D E A R M R . M E Y E R : I t a k e pleasure in quoting a resolution passed unani
raously by t h e board of directors of this bank a t a board meeting held M a y 10,
1929:
" W h e r e a s Mr. Eugene Meyer, as a member of t h e Federal F a r m Loan Board
and a s farm loan commissioner, has rendered a most distinguished a n d valuable
service to the Federal farm loan system; a n d
" W h e r e a s Mr. Meyer has now seen fit to sever his official connection with t h e
board:
"Resolved, T h a t we, t h e board of directors of t h e Federal Land Bank of St.
Louis, express to Mr. Meyer our deep appreciation for his splendid constructive
leadership as farm loan commissioner, and our sincere regret a t t h e severance of
his official relations with t h e Federal farm loan s y s t e m . "
Yours very truly,
O. J. LLOYD,

Secretary.

Senator WAGNER. What is the date of that?
Mr. M E Y E R . May 14, 1929, at the time I resigned. The other
was May 3, 1929.
Here is a letter from Mr. Vaiden
Senator BROOKHART. He is another man drawing a big salary.
Mr. M E Y E R . Mr. Lloyd is secretary of the Federal Land Bank of
St. Louis. I do not remember that I ever saw him. What I read
is from the board of directors of that bank. Why don't you try to
be fair, Senator.
Senator BROOKHART. I just had a telegram from another man
connected with that bank, that may be in here before this hearing is
over.
Mr. M E Y E R . Here is a letter from the president of the Federal
Land Bank of Louisville, whom I did not appoint [reading]:
THE

FEDERAL LAND B A N K OF

Louisville,
Hon.

EUGENE

LOUISVILLE,

Ky., May 3, 1929.

MEYER.

Farm Loan
Commissioner,
Federal Farm Loan Board, Washington, D. C.
D E A R M R . M E Y E R : I have j u s t noticed b3'press reports t h a t you h a v e resigned
as farm loan commissioner a n d as a member of t h e Federal F a r m Loan B o a r d .
I hasten t o express t o you m y regrets over your resignation a n d wish t o say
t h a t in my contacts with you I have been impressed with t h e very wise a n d
efficient manner in which you hnve presided over t h e b o a r d a n d t h e fine spirit
of cooperation I have experienced with you in t h a t capacity. I feel t h a t t h e
Federal farm loan system is losing not only a highly efficient m a n as farm-loan
commissioner, but one who has a t all times been most s y m p a t h e t i c w i t h its operation in its service t o American agriculture.
Wishing you continued success in whatever field of operation you m a y choose
to enter, I am
Very oincerely,




J - \ M E S B.

DAVIS,

President.

112

NOMINATION OF EUGENE MEYER

Senator FLETCHER. What was the other bank?
Mr. M E Y E R . The St. Louis Federal Land Bank.
Here is one from the Baltimore Federal Land Bank [reading]:
THE

F E D E R A L L A N D B A N K OF

Baltimore,
Hon.

EUGENE

BALTIMORE,

Md., May 6, 1929.

MEYER,

Farm Loan Board, Washington, D. C.
D E A E S I R : I t is with sincere regret on t h e p a r t of all of us t h a t we note your
resignation as farm-loan commissioner and m e m b e r of t h e F a r m Loan Board.
I t is a distinct loss t o this system t o have you leave it. We need a m a n of your
knowledge a n d experience a t t h e head of this business, a n d we are sorry t h a t our
official association will be severed.
W i t h every good wish for your future happiness and prosperity, I am,
Very t r u l y yours,
V.

VAIDEN.

I did not appoint Mr. Vaiden.
Here is a letter from the president of the Federal Land Bank of
Berkeley, Calif., whom I did not appoint [reading]:
THE

FEDERAL LAND BANK

Berkeley,
Hon.

EUGENE

OF

BEBKELEY,

Calif., May 16, 1929.

MEYEE,

Farm Loan Board, Washington, D. C.
M Y D E A E M R . M E Y E R : All of us who are familiar with your work as farm
loan commissioner regretted to note in t h e press, on M a y 2, t h a t you had resigned
as farm loan commissioner and m e m b e r of t h e F a r m Loan Board.
You took t h e office of farm loan commissioner during a critical time in t h e
history of t h e farm loan system. I n a very short time t h e results of your efforts
were a p p a r e n t . T h e system is in m u c h better condition because of your service.
I, personally, have appreciated w h a t little contact I have had with you as
commissioner. I h a v e appreciated your advice a n d assistance, and I hope t h a t
I m a y h a v e t h e privilege of seeing you from time to time in t h e future.
W i t h best regards, I am,
Very sincerely,
W.

D.

ELLIS.

Here is a letter from the president of the Federal Land Bank and
Intermediate Credit Bank of Columbia, S. C , Mr. Frank H. Daniel.
I will just read an extract from this [reading]:
I t has been a pleasure for m e as an officer of one of t h e banks of t h e system
t o work w i t h you and receive your helpful suggestions and full cooperation in
a t t e m p t i n g to improve and strengthen t h e position of this b a n k thereby benefiting t h e system as a whole. I h a v e watched with interest and pride "the imp r o v e m e n t in t h e administration under your guidance as farm loan commissioner.
I t is a distinct d i s a p p o i n t m e n t to m e for you to tender your resignation and for
it to be accepted by t h e President. T h e system as a whole will greatly miss
y o u r counsel and advice in t h e handling of t h e i m p o r t a n t problems confronting
it a t this t i m e .

I have here, also, a resolution from the board of the New Orleans
bank. I t is a long resolution. If you want to have a copy of it,
you might put it in the record.
Senator FLETCHER. I think it should be in the record.
(The resolution referred to is as follows:)
T H E F E D E E A L L A N D B A N K OF N E W O B L E A N S — C E B T I F I C A T E OF S E C B E T A B Y O F
T H E F E D E E A L L A N D B A N K OF N E W O R L E A N S OF A D O P T I O N OF R E S O L U T I O N

I, J. M. Koonce, secretary of t h e Federal L a n d Bank of New Orleans, do
hereby certify t h a t a t a meeting of t h e board of directors of t h e Federal Land
Bank of New Orleans, held a t its banking house on May 9, 1929, a t which meeting t h e following directors were present, to wit: T. F . Davis, J. V. De G r a y ,




NOMINATION" OF EUGENE MEYER

113

J. M . Koonce, II. T. Goodwyn, J. S. Allen, and A. H . Stone, t h e following resolution was a d o p t e d :
" W h e r e a s t h e directors of t h e Federal Land Bank of New Orleans h a v e been
advised of the resignation of Mr. Eugene Meyer as commissioner of t h e Federal
F a r m Loan Board and as a m e m b e r of t h e board; a n d
" W h e r e a s it is proper t h a t said directors should t a k e official notice of such
resignation, as a m a t t e r of concern both to this b a n k and to t h e entire l a n d - b a n k
system: Therefore be it
"Resolved by the board of directors of the Federal Land Bank of New Orleans,
T h a t we genuinely regret Mr. Meyer's resignation, and we regard his severance
of relations with t h e Federal F a r m Loan Board as a definite loss to t h e b o a r d a n d
to this bank.
" I n accepting t h e place of commissioner of t h e Federal F a r m Loan Board
Mr. Meyer assumed t h e discharge of duties of administration which would h a v e
challenged the executive capacity of any m a n in American public life. H e has
fully measured up to every requirement of t h e position and has unquestionably
added very material elements of strength and stability to t h e Federal l a n d - b a n k
system. H e has been exacting in his insistence upon t h e observance of t h e
strictest business methods in t h e transaction of t h e b a n k ' s affairs, b u t he h a s
always been scrupulously fair.
" T h e directors of this b a n k wish to bear witness to Mr. Meyer's sincerity of
purpose and to his high sense of devotion to t h e welfare of t h e interests i n t r u s t e d
to him. And it is a source of satisfaction to us a t t h e present m o m e n t t h a t we
have to t h e fullest possible extent consistently cooperated with him a n d with his
associates in every effort toward better administration, sounder policies, stricter
methods, and a more permanently useful service.
" W e wish to m a k e it clear t h a t these resolutions are neither perfunctory nor pro
forma, b u t t h a t they express the deliberate sense of our directors, individually a n d
as a board. And we wish to convey to Mr. Meyer's successor and associates our
assurances of continued cooperation and s u p p o r t . "
Said resolution is duly recorded in t h e minutes of t h e board of directors of said
bank on page 1605.
[SEAL.]

J. M. K O O N C E ,

Secretary.

Mr. M E Y E R . Then, there was a resolution from all the presidents
of tne Federal land banks. They say [reading]:
Be it resolved, T h a t a t this the first meeting of t h e presidents of t h e Federal land
banks since t h e resignation of t h e Honorable Eugene Meyer as a m e m b e r of t h e
F a r m Loan Board, we t a k e this m e a n s of formally expressing our sincere a p p r e ciation of t h e able a n d valuable service rendered t h e farm loan system during his
service as farm loan commissioner, a n d assuring him of our high regard a n d
esteem, a n d he has our continued best wishes; be it further
Resolved, T h a t this resolution be spread upon t h e m i n u t e s of this meeting a n d
a copy be sent Mr. Meyer in order t h a t he m a y know t h a t b o t h he a n d his able
service are sincerely appieciated by all of us, who benefited b y his wise counsels
and who by his zeal and purpose, helped t o s t r e n g t h e n and improve t h e a d m i n istration of t h e Federal l a n d - b a n k system.
E. H. T H O M S O N ,

Secretary.

Adopted a t conference Federal L a n d Bank Presidents October 1, 1929, Washington, D . C.

I merely introduce those, gentlemen, for the purpose of showing
that some of the gentlemen in the system had a fairly friendly attitude,
based on their contact with the work. None of them were particular
personal friends of mine. I do not think I ever saw any of them,
except in the most casual way, before I went into the work of the
bureau.
Senator FLETCHER. D O you know the extent of the loans being made
when you went out, Mr. Meyer?
Mr. M E Y E R . I can not give you the figures. I have a pretty good
memory, but I can not remember everything. Of course, the big
demand for land loans came in 1922, 1923, 1924, and 1925. After the
deflation in commodity prices, a great deal of debt was created, and
that was secured by land. The land banks got an entirely abnormal




114

NOMINATION OF EUGENE MEYEE

amount of business, and other lenders had, similarly, an abnormal
amount of business.
Senator BROOKHART. What is the total amount of mortgage
loans that the farmers of the United States get?
Mr. M E Y E R . I have not the figure in mv head, Senator.
Senator BROOKHART. I t is around $9,000,000,000, is it not?
Mr. M E Y E R . I thought that the Federal land bank system had
about one-eighth of the total. I remember that figure. If that were
so, then the total would be somewhat larger.
Here is a letter from Mr. Hendrick, president of the California
Joint Stock Land Bank of San Francisco. I mention this because
he was president of the Joint Stock Land Bankers Association, and
naturally was a prominent joint-stock land-bank man. He wrote on
M a y 2, 1929 [reading]:
I regret to learn through t h e public press t h a t you have resigned from t h e F a r m
Loan Board.
Your services have been so strikingly beneficial to all banks in t h e farm-loan
system t h a t it is a m a t t e r of very grave concern to h a v e to lose you.
I t r u s t t h a t you will find some place, however, in t h e Government service
where you can continue your interest in t h e farmers of this country who should
be and are I know grateful for w h a t you have done.

I could give you some others, but it is not, perhaps, worth your
time.
Senator CAREY. D O you want to put those in the record?
Mr. M E Y E R . Yes; I will send them, or extracts from them, to you
later.
(The matter referred to is as follows:)
E . M. E h r h a r d t , president t h e Federal Land Bank of Spokane, Spokane, Wash.,
May 2, 1929:
" I was m u c h depressed this morning on reading a Washington dispatch in our
local paper which carried t h e news of your resignation as farm-loan commissioner,
a n d I a m p r o m p t e d to express the hope t h a t this development does not mean your
complete severance of contact with t h e farm-loan system.
" Y o u r leadership has always inspired our best effort in t h e work, and to m e
personally t h e contacts of t h e past 18 m o n t h s have been nothing short of a liberal
education in highminded business m e t h o d s and unselfish public service."
Board of Directors of t h e Federal L a n d Bank of St. Paul, M a y 18, 1929:
• T h e following resolution offered b y Mr. Erickson, seconded by Mr. Torgerson,
a n d duly carried, was adopted a t a meeting of t h e board of directors of t h e
F e d e r a l Land Bank of St. Paul, M a y 18, 1929:
' ' W h e r e a s t h e Hon. Eugene Meyer has, for a period of about two years, served
a s a m e m b e r of t h e Federal F a r m Loan Board and farm-loan commissioner, which
said board has supervision over t h e Federal Land Bank and the Federal Intermediate Credit Bank of St. Paul, with other banks of like character; a n d
" W h e r e a s t h e said Eugene Meyer has given unstintingly of his time, and in
all things asserted every effort and lent every assistance to t h e improvement and
stabilization of t h e rural-credit system, which is under t h e supervision of said
board; and
" W h e r e a s t h e Federal L a n d Bank a n d t h e Federal I n t e r m e d i a t e Credit Bank
of St. Paul h a v e been greatly benefited, a n d have profited immeasurably by virtue
of his valuable service, to t h e end t h a t public confidence has been strengthened
in a way t h a t is merited:
Now, therefore be it
"Resolved by the members of the board of directors of the Federal Land Bank and
the Federal Intermediate
Credit Bank of St. Paul, in regular session assembled,
T h a t we express a n d extend to t h e said Eugene Meyer our sincere appreciation
for his assistance and service as aforesaid, coupled with our regrets a t losing the
same, a n d t h a t we wish him every success and happiness in whatever he may
choose t o do in t h e future; be it further
" Resol'-ed, T h a t this resolution be spread upon t h e minutes of this board, and
t h a t a copy thereof be forwarded to Mr. Mever, and to the Federal F a r m Loan
Board."



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115

This is to certify that the above is an excerpt from the minutes of the meeting
of the board of directors of the Federal Land Bank of St. Paul held on Saturday,
May 18, 1929.
F. G. WANEK, Secretary.

A. Kopperud, treasurer the Federal Intermediate Credit Bank of Omaha,
Omaha, Nebr., May 28, 1929:
" I t was a fortunate thing for the farm-loan system that you could be commissioner for two years and start the system back out of the bog and mire into
which it has been sagging."
C. S. E. Holland, president First Texas Joint Stock Land Bank, Houston,
Tex., May 9, 1929:
"This was a great surprise to me, though 1 might have known that you did
not want to continue always. I am well aware of the fact that you have performed a wonderful service with the farm-loan system in devoting two years
time to this work.
"As the President of one of the banks in this system (First Texas Joint Stock
Land Bank), I want to thank you for the splendid work you have done for the
Federal and joint-stock land banks. I want to especially thank you for the personal courtesies that you have always shown to me and the splendid cooperation
we have had from the board since you have been in charge."
Wm. B. Lupe, president San Antonio Joint Stock Land Bank, San Antonio, Tex.,
May 7, 1929:
" I feel that the system has made greater progress during the two years you
have been at the helm in stabilizing the system than it has made since the law
was passed, and I only hope your successor will carry on your policies along the
same lines you have adopted.
"This is the sentiment of all our directors, as we have talked the matter over,
and it is with the deepest regret that we see you resign as farm loan commissioner."
John H. Griffin, President Southern Minnesota Joint Stock Land Bank, Minneapolis, Minn., May 8, 1929:
"While our problems are not entirely solved here, yet, with the help that we
have received from you and your associates, we have been at least able to put
our house in order and we hope, ultimately, to make a showing that will be satisfactory to all concerned and sincerely trust that the policy, which you have
established, will continue under the new administration."
In other words, gentlemen, in the course of a very unpleasant duty
of trying to reform a banking system of large proportions and make
changes in the hope of improvement and betterment, changing some
of the methods, and installing better systems to bring about closer
supervision, which people sometimes feel is irksome, we nevertheless
did it in such a way as, 1 think, gained the approval of at least the
better members of the system and the presidents of both Federal
land banks and joint-stock land banks. I can imagine t h a t at times
it was irksome, because it was a task of getting a lot of people who had
been running along and doing what they wanted, to get in line and in
step with a policy that would be harmonious and systematic throughout the system.
Senator FLETCHER. Did that add much to the cost of administration?
Mr. M E Y E R . Senator, our work added a great deal to the cost of
administration. In the first place, the cost always should have
been higher. As you state it, our predecessors tried to get more
appropriations. If they did, they were right. But the money t h a t
has to be spent now, and is being spent, and was spent when I was
there, in increasing amounts, is and was largely money t h a t should
have been spent from the beginning. The money t h a t should h a v e
been spent from the beginning has to be spent now to overcome the
troubles that arose out of not spending it. I think t h a t bureau is



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being run just as economically and efficiently as any business in the
United States Government or anywhere else in the United States.
Senator FLETCHER. Have you kept in touch with it since you went
out?
Mr. M E Y E R . No. I just know from all I hear, and from the way
it was left. I occasionally hear something about it, but I am not in
close touch with the operation. How could I be?
Senator FLETCHER. I did not know whether you had any relation,
business or otherwise, with the system since you went out.
M r . M E Y E R . N O ; except when they come over to me and ask me to
help them on something, I am glad to put myself out to do it. They
asked the Federal Keserve Board to allow the Federal reserve branch
bank in New Orleans to act as custodian for some of the collateral that
the cooperatives put up to borrow on, and I took it up with the
governor of the Federal reserve bank in Atlanta. In fact, he came up
to Washington to discuss it.
Senator FLETCHER. In the intervening time, between your resignation as a member of the board, and your appointment on the Federal
Reserve Board
Mr. M E Y E R . N O ; I am talking about four weeks ago.
Senator FLETCHER. But, I say, during that intervening time between your resignation as a member of the board and your appointment on the Federal Reserve Board, were you in any business relations or connection with the Farm Loan Board, or in touch with it?
Mr. M E Y E R . N o ; absolutely not.
Senator FLETCHER. But you think that at present the administration is as economical as it could be?
Mr. M E Y E R . I have not any particular way of judging, but 1 have
the feeling that the spirit of the organization is hard work, conscientious application, and sincere effort to do its job to the very best
of its ability. But, as to what the business is in detail, I can not tell
you, except that I can look it up in their quarterly reports and their
annual reports.
Senator FLETCHER. I did not mean to interrupt.
Mr. M E Y E R . Some of the banks that were poorly managed are
now among the best managed, both in the Federal land bank system
and in the joint-stock land bank system.
After I went in there, there were three bond issues in all. The
money was borrowed from the investors on the first two issues at the
lowest price that the system had ever obtained. I do not give myself
any particular credit for that, but at any rate, that is what happened,
and I know it would be a charge against me now if it had been borrowed on less favorable terms.
Senator BROOKHART. H O W much were those issues?
Mr. M E Y E R . I do not remember exactly, but I think one was
$29,000,000; one was, roughly, $25,000,000, and the third was about
$15,000,000.
Senator BROOKHART. Those were all the bond issues in the two
years of your association with the board?
Mr. M E Y E R . When I came in, they had just sold $100,000,000—
on the 1st of May.
Senator FLETCHER. D O you remember the rates at which the bonds
that you have mentioned were sold?



NOMINATION OP EUGENE MEYEE.

117

Mr. M E Y E R . The bond issue just before I came in was at 4% per
cent. Two of the issues I mentioned were at 4 per cent; and the
third was at 4%. The first bond issue we made after I went in was
in November, 1927, and that was $28,300,000. T h a t was at 4 per
cent.
Senator FLETCHER. That was in 1927?
Mr. M E Y E R . Yes. In June, 1928, there was $25,900,000 at 4 per
cent; in November, 1928, there was $15,000,000 at 4% per cent.
Senator BROOKHART. D O you think the farmers can afford to pay
even those rates of interest on the basis of the return they have been
getting on their investments?
Mr. M E Y E R . I am not in the land-bank system now, Senator.
Senator BROOKHART. D O you think they could afford to pay it
when you were in the land-bank system?
Mr. M E Y E R . Some of them certainly could.
Senator BROOKHART. Some of them could; but could they generally?
Mr. M E Y E R . I do not know that I care to generalize on that.
Senator BROOKHART. The only farmers you cared about were the
big wealthy farmers.
Mr. M E Y E R . Of course, the rate charged by the banks on the basis
of these bond issues was lower than that paid by the farmers in any
other country in the world. How much do you think the farmers in
Europe are paying for farm mortgage money? I am told that in some
of the countries of Continental Europe they are paying from 8 to
10 per cent.
Senator BROOKHART. I did not find anything like that when I was
looking through there.
Mr. M E Y E R . Didn't you? I am told that is about what it costs
them in Germany. As a matter of fact, it must cost them that,
Senator, because three years ago there was an issue over here, in
dollars, for the land bank system of Germany, and the bonds were
sold at better than a 6 per cent basis over here, to the investor. By
the time it got back to the German farmer it must have cost him 9
per cent, because there were two or three agencies through which it
passed.
Senator BROOKHART. Of course, Germany is terribly upset at the
present time, but that was not true even when I was there, in 1923,
and it was not true in any of the other countries. The big deflation
came in Germany after I was there.
Mr. M E Y E R . I don't think any farmers are getting better loans on
land
•
Senator BROOKHART. YOU know, as a whole, that they have had no
net income on their capital investment since 1920, do you not?
Mr.

M E Y E R . No, I do

not.

Senator BROOKHART. And in addition to that
Mr. M E Y E R . I do not know anything of the kind.
Senator BROOKHART. In addition to that, the capital itself has
been depleted, if the advance information from the census which I
have is correct, to the extent of about $30,000,000,000. You do not
know that? You have not heard of those facts?
Mr. M E Y E R . If they are facts
Senator BROOKHART. YOU seem to know a good deal about making
loans to a few big wealthy farmers, but I have not discovered in your



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NOMINATION OF EUGENE MEYER

statement yet much interest in the loans to the farmers at large, and
in their condition.
Mr. M E Y E R . I do not think you will find that the bulk of the
borrowers in the farm loan system, in the Federal land banks, are
particularly large, rich, farmers.
Senator BROOKHART. N O ; but most of them went in before you did.
Mr. M E Y E R . I see.
Senator BROOKHART.

In your two years you made only a very few
loans compared to the whole system. There were only three little
bond issues.
Mr. M E Y E R . Of course, two years is only a small part of the whole
business.
Senator BROOKHART. B u t the people ahead of you were selling
$100,000,000 of bonds.
Mr. M E Y E R . Yes. T h a t was largely a refunding issue. They
paid off $90,000,000 of other bonds.
Senator BROOKHART. H O W much did the total volume of these
loans to farmers increase while you were in there?
Mr. M E Y E R . I could not tell you, because I have not the figures
in mind. The income of the land banks from amortization payments
is very large and that is available for lending in addition to the amounts
they borrow. I think the amortization and other principal payments
in the Federal land banks are about $50,000,000 a year.
Senator BROOKHART. Are they lending it out or are they buying
their own bonds?
Mr. M E Y E R . I could not tell you.
Senator BROOKHART. What did they do while you were in there?
Mr. M E Y E R . They loaned it out, so far as I can remember.
Senator BROOKHART. In the joint stock land banks, they did not
lend it out. They bought their own bonds.
Mr. M E Y E R . Some of them did. Some of them loaned it out.
Senator BROOKHART. Most of them bought their own bonds.
Mr. M E Y E R . They had to do whatever they thought was right.
The farm loan bureau can not run the joint stock land banks' policies
on all questions. I think the Federal farm loan system has been a
great boon to the farmers, don't you, Senator Fletcher?
Senator FLETCHER. Undoubtedly.
Mr. M E Y E R . And the fact that you can get that money for 33
years, with amortization payments, has been a tremendous factor
in reducing the rates from the other lenders. I think that is one of
the most important things it did.
Senator FLETCHER. I think the farm loan system has saved the
farmers from $400,000,000 to $500,000,000 a year in interest. I t is a
splendid system, and I have always been anxious to maintain it and
see it prosper.
Mr. M E Y E R . I t has to be run soundly, if you want to maintain it.
You will agree with that.
Senator FLETCHER. What is that?
Mr. M E Y E R . I say, it has got to be run soundly.

Senator FLETCHER. I think 90 per cent of the effectiveness of the
system lies in the administration. I think the law is sound, and I
think the law is ample, generally speaking.
Mr. M E Y E R . You and I agree 100 per cent.
Senator FLETCHER. I t is a question of administration.



NOMINATION OF EUGENE MEYER

119

Mr. M E Y E R . YOU and I agree 100 per cent on that.
Senator FLETCHER. What grieves me is to see it apparently
breaking down, almost in a state of liquidation to-day.
Mr. M E Y E R . The joint stock land banks apparently are lending
some money, and cleaning up troubles that have accumulated over
a period of years. I want to say that I think they are making
progress in the direction of getting back to useful activity. The
Federal land banks have been lending a considerable amount, in
addition to cleaning up the troubles that have arisen. As a matter of
fact, there is not the demand for money on farm loans that there was.
I do not see the point in insisting that you must lend a great volume
of money whether or not it is wanted or needed. I do not think the
quantity of loans is always a measure of the service. I t depends on
the conditions. I think the quality of the loans is important for
preserving the permanency of the system.
Senator BROOKHART. YOU have loaned only one-eighth of the demand, according to your own statement.
Mr. M E Y E R . One-eighth of the total.
Senator BROOKHART. Yes.

Mr. M E I E R . That does not mean one-eighth of the demand. A
lot of farmers do not like to join a farm-loan association. You know
that, Senator. They do not want to be liable for their neighbor's
debts, which is what that means. A lot of them do. I do not see
that you can go out and club farmers into borrowing your money on
your terms, and under your conditions, if they want to borrow somebody else's money.
Senator BROOKHART. In the case of these 26 applications of the two
associations at Cedar Kapids and Ottumwa
Mr. M E Y E R . I do not know anything about them.
Senator BROOKHART. I t would not have taken any clubbing to get
them to take these loans.
Mr. M E Y E R . You are discussing a matter that I can not discuss
with you because I do not know anything about it.
Senator FLETCHER. Since we are on that particular point, with
respect to preserving and maintaining the system, according to communications coming to us, I think very nearly every Member of the
Senate and the House has complaints that they are foreclosing mortgages and taking over farms where people are unable to meet their
installments or interest and amortization. They are somewhat
behind, and we get a good many letters saying, " W e can not pay our
installment, and they will not extend the time," and all that sort of
thing.
Mr. M E Y E R . Senator, I do not believe any bank forecloses a mortgage if it can avoid it, because the last thing in the world it wants is
the land. A bank would rather keep that farmer on the land than to
get a new farmer, which is what it means. I t is hard work to get good
new farmers, and nobody in the system, either while I was there,
or before, I believe, foreclosed anything where foreclosure could be
avoided.
Do you not think that thorough examinations, with truthful
statements upon which the people who buy the bonds will rely, are a
vital and important factor in the system?
Senator FLETCHER. Undoubtedly. That is what I have asked for
now from the Farm Loan Board. I want a statement showing that
situation.



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NOMINATION OF EUGENE MEYER

Mr. M E Y E R . T h a t was one of the things that struck me as most
important, that we felt had not been done.
Senator BROOKHART. When you took charge of the system, the joint
stock land bank bonds were about 100, were they not?
Mr. M E Y E R . They were selling at all prices. I do not know what
the bonds of particular banks were selling for.
Senator BROOKHART. Nearly all of them were near par. There
might have been one or two exceptions. When you want out, they
fell way down, did they not?
Mr. M E Y E R . Perhaps. I do not know.
Senator BROOKHART. Now, I believe Mr. Bestor said to us that
they are down to about 70, on the average.
Mr. M E Y E R . Some have gone up, and some have gone down. That
will happen.
Senator BROOKHART. I t is impossible to sell bonds at 100, when
you can buy them on the market at 70, is it not?
Mr. M E Y E R . Ordinarily that would be the case, Senator.
Senator BROOKHART. So, this efficient management you talked
about, instead of improving the bonds and finding more money for the
farmers, has practically sent them into liquidation; is not that the
fact?
Mr. M E Y E R . That is your point of view. I t is not mine. The
fact is that the bond market from 1927 has gone down for most
bonds. I do not consider it altogether a reflection on the banks, and
I do not consider it a measure of the worth of the bonds if they are
selling so low. A lot of other things are selling low. I consider that
farm lands are selling too low. Good farm lands, I think, are absolutely too low. But, Senator, I might just as well say to you, "Senator,
here you are, a Senator of the United States. You have been here
for a great many years. How is it that you have not done anything to prevent farm land from selling too low?"
Senator BROOKHART. Because I have had too many fellows like
you to fight, if you want to know it.
Mr. M E Y E R . YOU have not had me to fight at all. You ought to
be able to lick me if you are right. I will take the right side, and
take on a fight with anybody.
Senator FLETCHER. The depreciation in stocks, bonds, and paper
securities from September, 1929, on to January 1, 1931, has been far
greater than the depreciation in land values, has it not?
Mr. M E Y E R . I do not know, Senator. I never heard a comparison
made.
Senator FLETCHER. I have seen it estimated that the diminishing
values, or the shrinkage
Mr. M E Y E R . I am very glad to hear the comparison.
Senator FLETCHER. I have seen it estimated that the shrinkage in
securities, stocks, bonds, and the like, has amounted to something
like $21,000,000,000 since September, 1929. I do not imagine that
the shrinkage in farm values has approached that.
Mr. M E Y E R . I have confidence in the value of good farms, and I
am very hopeful that they will come back and be worth more in the
market. I think they will. I have heard that a good many city
people, who left the country when the jazz period was on, and went
to the city, have gone back and are picking up farms and living on
them and going to work on them. I consider that a very favorable
tendency. I am very glad to hear, though




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121

Senator FLETCHER. I have seen a statement somewhere to the
effect that something like 4,000,000 workers had left the farms in the
last 10 years and gone to the cities and towns. I t would take a long
time to get them back, I am afraid. That is largely because of the
price of farm commodities.
Mr. M E Y E R . Undoubtedly.
Senator CAREY. Mr. Meyer, is it true that the farm loan banks have
been unable to issue bonds on account of the bond market, and for
that reason have not had funds to make loans?
Mr. M E Y E R . Senator, I have been out of the farm loan system since
M a y 10, 1929.
Senator CAREY. I know you have been out, but I thought you
might know something about it.
Mr. M E Y E R . I can not discuss anything that happened in the
meantime.
Senator CAREY. I do not believe the banks are making loans.
Mr. M E Y E R . They sold an issue of $20,000,000 of short maturities
not long ago. They can get money in the Federal land banks.
Senator FLETCHER. That issue was oversubscribed, I am told. A
few banks got it.
Mr. M E Y E R . That shows well for the credit of the system, does it
not?
Senator FLETCHER. The bonds were purchased by a syndicate of
banks.
Mr. M E Y E R . They were sold by the same group, Senator, I understand, that always handled them.
Senator BROOKHART. While Senator Fletcher's statement, I think,
is true, that as compared with the general situation, they have saved
several hundred million dollars of interest, yet the real fact is t h a t
the interest rate has been manipulated too high all the time, since
1920, has it not, on everything? I am not blaming that part of it at
all on the farm loan system, by any means, but the Federal reserve
system has something to do with it.
Senator CAREY. Are there any further questions you want to ask,
Mr. Meyer?
Senator BROOKHART. I would like to see if he has any answer to t h a t
proposition.
Mr. M E Y E R . What is your proposition, Senator?
Senator BROOKHART. T h a t interest rates are still too high, not only
on farmers, but every other legitimate business.
Mr. M E Y E R . Some interest rates may be high in some industries
in some particular territories. That is a very big question, and I do
not think my views on interest rates are a subject of importance to
this committee, are they?
Senator BROOKHART. This question of interest rates is one of the
most important things in the Federal reserve system. You fix the
discount rates.
Mr. M E Y E R . Then you would be interested in the discount rates
since I have been in there.
Senator BROOKHART. I am interested in everything in this Federal
reserve system. You have not said anything about that yet.
Mr. M E Y E R . YOU have not asked me anything.
Senator BROOKHART. YOU just got to it.



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NOMINATION OF EUGENE MEYER.

Mr. M E Y E R . In connection with the Federal reserve system, so far
as the discount rates are concerned, the only thing that happened since
September 16, when I went in, is that seven banks have reduced their
discount rates. Five have not. In any event, I hope it is understood
t h a t the Federal Reserve Board in Washington does not fix the discount rates of the banks. The board of directors of the banks fixes its
discount rate and submits it for approval to the board. Seven banks
submitted reductions, and the reductions were approved by the board
in Washington. But interest rates will fluctuate with business. That
does not mean that they will always reduce, because they will go up
and down both, depending upon conditions. So, on that part of the
question, I am able to give you a definite answer.
Senator BROOKHART. I would like to have you make a general
statement with respect to the Federal reserve system. That is more
important than this other matter.
Mr. M E Y E R . I do not think I want to discuss the Federal reserve
system on such a broad basis. I might talk here for a month. What
do you want to know?
Senator BROOKHART. YOU do not need to talk that long to satisfy me.
Senator FLETCHER. What are the chief functions of the Federal
reserve system?
Senator WAGNER. What is your point about wanting to talk a
month?
Senator BROOKHART. I do not want to listen that long.
Senator FLETCHER. What are the chief functions of the Federal
reserve system?
Mr. M E Y E R . To supply an elastic currency for the country and to
furnish funds for seasonal requirements, as they expand and contract,
of the legitimate business of the country. Those are the primary
functions. They are charged with some responsibility in examining
banks. The board here in Washington has the responsibility of examining the Federal reserve banks.
Senator CAREY. Senator Brookhart made some inquiries regarding
the salary of the president of the Omaha Land Bank. I had it
looked up. In 1917 Mr. Hogan's salary was $6,000; on M a y 1, 1919,
it was $7,500; from April 1, 1922, to date, it has been $10,000;
$9,000 is paid to him as president of the land bank, and $1,000 as
president of the intermediate credit bank.
Senator WAGNER. When was the last increase granted, Senator?
Senator CAREY. April, 1922.
Mr. M E Y E R . I will say this, gentlemen, about the salaries of competent officers of banks. I rather feel that those men who are good
have been underpaid. Those men who are not good have been overpaid, but I think you have to pay people what they are worth to get
them and keep them. I think a lot of these men have been underpaid.
I would say that Mr. Hogan is underpaid now. I have not anything
to do with his salary, but that is my opinion.
Senator CAREY. T h a t bank is one of the best banks, from a financial standpoint.
Mr. M E Y E R . I think it has been run soundly, and is helpful to the
community. I t is a bank with loans of more than $150,000,000. I
think it has the largest amount loaned of any bank in the country.
If it is not the largest, it is one of the largest.



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123

I think the principal thing that the Federal land bank system has
done is to bring down the interest rates, not only on the money they
lend, but on what other people lend. You know insurance companies
used to charge much more before the land bank system was in operation. That was one of your ideas, Senator Fletcher, when you organized the system, that it would influence the rates of other lenders, as
well as what the system would actually put out.
Senator FLETCHER. Certainly.
Mr. M E Y E R . I think it has been wonderfully effective in t h a t way.
Senator FLETCHER. Yes. I t has had the effect also, perhaps, of
lowering commercial rates to some extent.
Mr. M E Y E R . I t eliminated many of those big commissions that
used to be charged on farm mortgages. That was one of the things
you had in mind when you organized the system. I think it has
been very effective in that way.
Senator FLETCHER. Here is a statement in the paper headed,
Federal Reserve Partly Blamed for Severity of Slump—Adolph C.
Miller Tells Senate Group Some Responsibility for Speculative
Excesses Rests on System. Do you agree to that?
Mr. M E Y E R . N O ; I do not agree to that, and I do not disagiee. I
do not intend to criticize the operations of my predecessors.
Senator FLETCHER. N O ; but with respect to the system
Mr. M E Y E R . HOW can I pass opinions on the conduct of the system before I went into it?
Senator FLETCHER. I am talking about the system now.
Mr. M E Y E R . Is it now?
Senator FLETCHER. Is it within its power to affect this speculative
practice, for instance, on the stock exchange and elsewhere? Is it
within its power to affect brokers' loans, and that sort of thing?
Mr. M E Y E R . There is not any situation at the moment of importance which the board is considering in relation to such matters, and
there does not seem to be any immediate likelihood of any, so I have
been thinking about other things a little more. I suppose bad
management in the system can do a lot of harm in a variety of directions. Wise management can be very helpful in many directions.
I do not care to go into the history of the Federal reserve system. I
have testified occasionally before congressional committees in the
past. I suggested at one time that the Federal reserve act be
amended, way back in 1923, to make certain kinds of agricultural
paper eligible for nine months, and that amendment was adopted.
I thought it was sound and a liberalization of the law in the interest
of agriculture.
Senator FLETCHER. I agree with that, but what I am trying to get
at is whether or not, in your view, the Federal reserve system can
have any influence or any power to prevent this wild orgy of speculation and collapse?
Mr. M E Y E R . You know, Senator, that the Federal Reserve Board
issued a warning, and they did a lot of things they thought would be
effective in stopping the wild orgy, but it went on for quite a while,
and the country certainly was very speculative. I t was not only in
stocks, as you know. It was in real estate also right here in Washington, in New York, and elsewhere; and in Florida, your own State,
they certainly speculated in real estate. Do you think the Federal



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NOMINATION OF EUGENE MEYER

reserve system could have controlled that at that time, right in your
own State? A sort of mania seized people about buying land in
Florida. They paid crazy prices, and many of them lost their money.
They had a tulip craze in Holland 200 or 300 years ago. I do not
know whether the Federal reserve system, if they had a tulip craze,
could always stop it. We had a very speculative state of mind here
in this country. I think they endeavored, to the best of their ability,
to warn people, but sometimes people do not want to be warned.
You remember that there was considerable propaganda in behalf of
a great new era in economics. No old rules were any good any more.
I could not tell you what they could have done that they did not do;
and, anyway, if I could I would not.
Senator FLETCHER. I am not so much concerned about what they
have done, b u t I do feel that it is of considerable interest to know
what they may be able to do in the future to prevent such a collapse
as we have had.
Mr. M E Y E R . They only happen once in so often, Senator.
Senator FLETCHER. They can not interfere with people who want
to speculate in lands and buy lands as they would buy hats and shoes,
and that sort of thing. You can not control that. I am speaking
more particularly about this tremendous speculation or gambling,
you might call it—it is not exactly gambling, because the speculator
did not have a gambler's chance. He stood to lose.
Mr. M E Y E R . Do you think anybody could have done anything
else b u t lose in Florida lands at the top of the boom there?
Senator FLETCHER. Eventually, the last holders had to lose. I t
boomed a mild speculation. I think in some instances they could
not escape a loss, but a good many of them made a lot of money, so
far as that is concerned.
Mr. M E Y E R . Yes; some of them did.
Senator FLETCHER. I am not speaking with reference to Florida
lands. T h a t is a piker proposition compared to what took place
in New York.
Mr. M E Y E R . I t ran into hundreds of millions of dollars. I t may
look small to you, but it looks like a lot to me.
Senator FLETCHER. There was a loss of $21,000,000,000 on Wall
Street.
Senator BROOKHART. I n August, 1929, it ran $300,000,000 a day.
Mr. M E Y E R . Of course, a lot of it was just paper. I t did not
exist, and never did. I t was just figures.
Senator BROOKHART. So far as I am concerned, I do not blame
the Federal Reserve Board so much for that condition, but how about
the Federal reserve law? Does it not encourage that situation?
Mr. M E Y E R . The law, Senator, is being considered very thoroughly
b y Senator Glass's committee with a view to improving it in some
ways, after careful hearings and a great deal of study. They hope
to be able to find methods to improve the law.
Senator BROOKHART. Senator Glass offered an amendment to the
tariff bill to levy a tax of 5 per cent on all those sales on the stock
exchange where they resold in 60 days.
Mr.

M E Y E R . Yes.
BROOKHART.

Senator




What do you think about that?

NOMINATION OF EUGENE MEYER

125

Mr. M E Y E R . Well, if Senator Glass asks my opinion when I go
before his committee, I will have to study it and find out whether or
not it would be effective. I do not know whether it would or not.
I have not studied it. He has not asked me.
Senator BROOKHART. You have not any opinion unless Senator
Glass asks you?
Mr. M E Y E R . I have not studied the question, Senator. You can
pass a law, and sometimes it works in the way it was intended, and
sometimes it does not.
Senator BROOKHART. IS not that true of the Federal reserve law?
Mr. M E Y E R . It might be true of any law.
Senator BROOKHART. I am not asking about any law. I am just
asking about one. Isn't that true of the Federal reserve act itself?
Did it not work differently from the way its authors expected?
Mr. M E Y E R . I suppose there is not any law that will work out
exactly as its proponents plan and expect, over a long period of time,
because the law is fixed, while conditions change, and the effects of
the conditions necessarily change.
vSenator BROOKHART. The expectations of the authors of this law,
and of President Wilson and all, were that it would stop speculation.
Mr. M E Y E R . Yes; not stop it, but
Senator BROOKHART. Reduce it.
Mr. M E Y E R . Well, they hoped that the Federal reserve funds
would not be used for speculative purposes. That is in the law.
Senator BROOKHART. President Wilson, in his message, said:
We must have a currency, not rigid as now, b u t readily, elastically responsive
to sound credit, the expanding and contracting credits of every-day transactions,
the normal ebb and flow of personal and corporate dealings. Our banking laws
must mobilize reserves; m u s t not permit t h e concentration a n y w h e r e in a few
hands of t h e m o n e t a r y resources of t h e country or their use for speculative purposes in such volume as to hinder or impede or stand in t h e way of other more
legitimate, more fruitful uses.

Mr.

MEYER. DO

you agree with that, Senator?

Senator BROOKHART. I do.
Mr. M E Y E R . SO do I.
Senator BROOKHART. But did the
Mr. M E Y E R . Of course, we have

law bring that about?
had a lot of conditions since the
words of President Wilson were written. We have had a war, and
upheavals, and all kinds of things that neither he nor anyone else at
that time could have anticipated. The war has had a great deal to
do with the abnormal conditions that have prevailed in the last
10 years. We are not through with the effects of that war.
Senator BROOKHART. SO far as this speculation is concerned, the
control of credit had a great deal more to do with it than all the wars
and the other conditions, did it not?
Mr. M E Y E R . I do not know whether that is so, or not. Do you
feel that the Federal Reserve Board did the best it could to control
the speculation?
Senator BROOKHART. I have taken the position that they had no
power to do much, but the law promotes speculations, and since we
are on that, we might as well discuss it. I expected to ask those
questions in a systematic examination, but these were Senator Glass's
words when he presented the bill to the House:
The whole fight of t h e great bankers is to drive us from our firm resolve to
break down t h e artificial connection between t h e banking business of this country

38819—31
9


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NOMINATION OF EUGENE MEYER

a n d t h e stock speculative operations a t the money centers. T h e Monetary Commission, with more discretion t h a n courage, absolutely evaded t h e problem;
b u t t h e B a n k i n g and C u r r e n c y C o m m i t t e e of t h e House has gone to the very
root of this gigantic evil and in this bill proposes to cut t h e cancer out. Under
existing law we have p e r m i t t e d b a n k s to p y r a m i d credit upon credit and to call
these credits reserves. I t is a misnomer; t h e y are not reserves. And when
financial troubles come a n d t h e country banks call for their money with which to
p a y their creditors they find it all invested in stock-gambling operations. There
is suspension of p a y m e n t and t h e whole system breaks down under t h e strain,
causing widespread confusion and almost inconceivable damage.
(Congressional
Record, vol. 50, 63d Cong., 1st sess., p. 4648.)

Again, he says:
T h e avowed purpose of this bill is to cure this evil; to withdraw the reserve
funds of the country from t h e congested money centers and to make t h e m readily
available for business uses in the various sections of the country to which they
belong. This we propose to do cautiously, without any shock to the existing
a r r a n g e m e n t , g r a d u a t i n g the operation to prevalent conditions and extending it
over a period of 36 m o n t h s . This affords ample time to the reserve and central
reserve citv banks to adjust themselves to the reserve qequirements of the new
system. Out of a b u n d a n t precaution we have actually given t h e m a longer
time t h a n the best practical bankers of the country have said was needed. But,
Mr. Chairman, t h e plaint of these gentlemen is not as to time, b u t as to fact.
T h e y do not v\ant existing arrangements disturbed; they desire to perpetuate
a fictitious, unscientific system, sanctioned by law, but condemned by experience
and bitterly offensive- to Hie American people—a system which everbyody knows
encourages and promotes the worst description of stock gambling. The real
opposition to this bill is not as to Government control, upon which we shall
never yield; it is not as to the capital subscription required, which is precisely
t h a t of the Aldrich scheme unanimously indorsed by the American Bankers'
Association; it is not as to the 5 per cent dividend allowed member banks, the
exact limit prescribed in t h e Aldrich bill; it is not as to compulsory membership,
which was provided in another n a y in the Aldrich scheme; it is not as to t h e
bond-refunding proposition, infinitely simpler and less expensive than the Aldrich
device. It is none of these things, Mr. Chairman, t h a t vexes the big bankers
It is a loss of profits derived from a •system which makes t h e m the legal custodians
of all the reserve funds of t h e country. $240,000,000 of which funds on the 24th
day of N o \ ember. 1912, they had put into the maelstrom of Wall Street stock
operations. (Cong. R ^ c , vol. 50, 63d Cong., 1st sess., p 4648.)

Two hundred and forty million dollars was enough at that time to
cause Senator Glass to denounce the banking system as a gigantic
gambling scheme, and call it a cancer that must be cut out. Then
the law was passed, and last year those brokers' loans went to more
than seven thousand millions under this system. So it did not work
out the way the Senator expected it, did it?
Mr. M E Y E R . The business of the country, of course, is generally
larger than it was in 1912, but I think his figure of $240,000,000
refers to the balances of interior banks carried in New York.
Senator BROOKHART. Perhaps it does, because I found that there
were $766,000,000 of brokers' loans about that time.
Mr. M E Y E R . Yes. You see, that would not agree with the $240,000,000 figure, so that 1 think, when you talk about seven thousand
millions, it is not comparable with the $240,000,000, but with some
other figure. That $7,000,000,000 was, in fact, an inflated amount.
Senator BROOKHART. The $240,000,000 even impressed Senator
Glass as an enormous gambling fund. In fact, I think it was about
$766,000,000 at that time.
Mr. M E Y E R . I think you are probably right, Senator. 1 do not
know what the figure was.
Senator BROOKHART. But $766,000,000 is only about one-ninth of
what it was last year.



NOMINATION OF EUGENE MEYER

127

Mr. M E Y E R . In 1929 it reached an abnormal amount—did it not?
Senator BROOKHART. Yes; but here was a law passed to stop t h a t
sort of thing, to cut the cancer out, and it grew to be nine times as
big as when it was cut out. What operation do you suggest in the
future?
Mr. M E Y E R . I do not know that I care to answer that question,
Mr. Chairman.
Senator BROOKHART. Between now and the time of our next meeting, I would like to have you think about that, because you are
going in at the head of a system which is designed to stop this identical
thing, which I think is the great cause of our farm troubles.
Mr. M E Y E R . YOU have some ideas on the subject, have you not,
Senator?
Senator BROOKHART. I have.
Mr. M E Y E R . Suppose I agreed with all your ideas, and you had
great confidence in my ability to carry them out.
Senator BROOKHART. I would vote for your confirmation.
Mr. M E Y E R . Would you want me to express those views publicly,
and have all these enemies of yours use their influence to prevent m y
being confirmed?
Senator BROOKHART. I certainly would. If I could see you really
fighting this group of gamblers, then I would be for you and the
country would be for you, but you might not be confirmed.
Mr. M E Y E R . There you are.
Senator CAREY. Can this committee get together again this afternoon?
Senator BROOKHART. I could not. I am interested in a matter
over in the Senate this afternoon.
Senator CAREY. Do you suppose you will be there all the time?
Senator BROOKHART. Nobody could tell exactly.
Senator WAGNER. May I suggest this: Can we not resume the
hearing at some room in the Capitol? That would make it convenient,
if we are called to the floor, to go right down. I think that would be
better.
Senator CAREY. I think I can arrange with Senator Reed to get the
use of the room of the Committee on Military Affairs.
Senator BROOKHART. I would prefer to have it go over until
Monday, because it is pretty hard to have your attention on two things
at once.
Senator GOLDSBOROXJGH. We are not going to get very far if we
are going to sit only two hours a day.
Senator CAREY. I would like to get through with this.
Senator BROOKHART. I t will be some time before we get through.
Senator GOLDSBOROUGH. The longer hours we sit, the sooner we
will get through.
Senator BROOKHART. That is one trouble. All these investigations have been jammed through
Mr. M E Y E R . I want to raise the question of the propriety of an
examination into my views as to the administration of the Federal
reserve system.
Senator BROOKHART. That is the most material thing in connection
with this question.



128

NOMINATION or

EUGENE MEYER

Mr. M E Y E R . It is like asking a man who is up for confirmation for
the position of judge to give his opinion on all the cases that are going
to come before him, it seems to me.
Senator BROOKHART. We even have a right to ask a judge about
his opinions, so far as that is concerned.
Mr. M E Y E R . I am not afraid to express my opinions, but I just
raise the question of the propriety of that line of inquiry.
Senator WAGNER. Senator Brookhart, do you not think we would
be exceeding the authority i,iven to us by the committee in this inquiry
if we went into the whole question of the Federal reserve system, an
investigation of which is being conducted by Senator Glass's committee? I think we would be going way beyond the function of this
committee.
Senator BROOKHART. Here is the governor of the Federal Reserve
system. His ideas and his action in that system are the thing we
are inquiring about. That is the gist of this whole inquiry.
Senator WAGNER. YOU mean that you want to know, how Mr.
Meyer would decide every supposititious question you may raise?
Senator BROOKHART. Nothing of the kind; but I want to know
about these policies. Of course, I also have a lot of questions to ask
about what he has already presented.
Senator WAGNER. I think we ought to go ahead. I do not think
it is fair that this investigation be delayed any longer, because it has
already been delayed so long.
Senator BROOKHART. I have not delayed it up to date. He has
taken practically all the two days we have had.
Senator WAGNER. Speaking for myself, so far as I am concerned,
you shall have every opportunity to investigate, except that we ought
not to go too far into extraneous matters, and, in justice to everybody,
we ought to proceed with the investigation.
Senator BROOKHART. That is all agreeable to me.
Senator WAGNER. Why can we not meet over in the Capitol?
Senator BROOKHART. I am interested in some matters on the floor
of the Senate this afternoon with Senator Howell, and I promised to
be with him. I want to do it.
Senator CAREY. Are you interested except getting his bill up.
Senator BROOKHART. Oh, yes. I am interested in the discussion
of the whole proposition.
Senator FLETCHER. Monday morning I have three committee
meetings at 10 o'clock.
Senator WAGNER. I think the country is to be considered in a
matter of this kind. This is a very important nomination. If we
are going to take just an hour or two every day, and continue for a
month, we know very well that this nomination can not come up
for consideration in the Senate. I think that would be unfair.
Senator BROOKHART. I think we can close the hearing in plenty of
time for that. I do not apprehend any trouble on that score at all.
Senator WAGNER. Can you not give us some idea how long you
propose to take?
Senator BROOKHART. It is a little like a lawsuit. You do not
know exactly. Several people have asked me to be heard. Some
came here and were ready and had to go away again, and will come
back. I can not give any accurate idea at this time. I think perhaps we can get through with it next week, but it might take longer.



NOMINATION OP EUGENE MEYER

129

Senator CAREY. Would you rather meet in the morning or afternoon?
Senator WAGNER. We can not meet Monday morning-.
Senator BROOKHART. I can meet Monda} 7 morning, so far as I am
concerned, and probably in the afternoon.
Senator WAGNER. I do hope, Mr. Chairman, however, that we are
going to confine ourselves to the matter that is before us for consideration. Sooner or later 1 shall ask the committee's expression on that
point.
Senator BROOKHART. What have we done that is not material, so
far?
Senator WAGNER. You expressed your purpose to go into the whole
Federal reserve system, and its operations, and to inquire what Mr.
Meyer would do under certain hypothetical circumstances and
conditions.
Senator BROOKHART. Does the Senator claim that that is not
material to this matter, where he is the governing power in that
system?
Senator WAGNER. On the basis of hypothetical questions?
Senator BROOKHART. N O ; not on hypothetical questions. I do
not think I will ask any. I have not asked any yet. T have asked
actual facts.
Senator WAGNER. You are the last man I want to quarrel with: I
may stand alone, but I want to confine it to the subject matter that is
before us, with considerable liberality, nevertheless.
Senator BROOKHART. That is what I want to do exactly, but I
want to go into the subject matter.
Senator WAGNER. That is not your expressed purpose.
Senator BROOKHART. I think the Senator is misconstruing what I
said.
Senator CAREY. I t is rather difficult to draw the line. We are
determining Mr. Meyer's fitness for this position, and I confess it is
rather difficult to say where the line should be drawn.
Senator WAGNER. I appreciate that.
Senator CAREY. I think the committee had better go into executive
session and determine it.
Senator WAGNER. I think that is true.
Mr. M E Y E R . I just want to say that while I want to be available
at all times to the committee, and answer any questions that are
pertinent and proper, I do not consider that the proposition to p u t
me on record, in the consideration of my confirmation, as to what
my views would be under certain hypothetical circumstances is proper,
any more than it would be proper to examine a judge as to his opinions
on the cases in which he is going to act. I want to say—and I hope
you will understand it—that, with all the respect I have for this committee and the members of it, and their desire to perform a useful
public service, and in consideration of my desire to perform a useful
public service, if it comes to the question of prostituting what I
consider the dignity of the position I am temporarily holding, by
committing myself on policies with respect to situations that may
arise and in advance of consideration of them by the board, I would a
great deal rather forfeit the position than respond to an inquiry
which I feel is fundamentally wrong in principle. On that point I



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NOMINATION OF EUGENE MEYER

want to be very definite, because there is a price that I can not pay,
and the price is the lowering of the dignity of the office that I hold.
Senator BROOKHART. Mr. Chairman, there is not any question of
dignity in this matter. The United States Senate has the right to
decide what questions it will ask, so far as that is concerned. I do
not intend to ask anything outside the facts. The questions I have
asked so far on this Federal reserve system have been with reference
to historical facts in every particular. I do not care anything about
theories and hypotheses, or anything of that kind, but I do want to
go into these facts.
Senator CAREY. Mr. Meyer, I do not know if you heard the statement I made a few minutes ago. I stated that it is rather difficult
to know just how far we should go in this inquiry. There seems
to be a difference of opinion as to the line of questioning. On any
question that may be asked where there is a question as to it
bearing on this hearing, I think the committee should pass upon it
and we will go into executive session to decide the matter if necessary.
I want to make this hearing as brief as possible, and not get in discussions of subjects that have no bearing on the case.
Mr. M E Y E R . I want to cooperate with the committee in every way
I can, properly, according to my convictions, but I do not feel that
I should respond to an inquiry which, in my opinion, would lower the
dignity of the office if I were to answer it, whether the answer was of
a kind that met the hearty approval of the Senator from Iowa, or not.
T h a t is not the question. There are certain lines of questioning that
I will not reply to, and they have to do with how I will conduct myself in office if I am confirmed.
I have been here in public office for the best part of the last 13
years. The Senate of the United States, for the most part, knows
my record and knows me. I t is a question of confidence in a man
for a place. You can not do much more than express either confidence or lack of confidence. I will not declare myself on questions of
policy to be decided in the future by the board, of which I am a member temporarily, and will be a member if confirmed. I want that to
be very definite and clear.
Senator CAREY. I will say, for one, that 1 do not feel that any man
should be committed to state what he might do in every conceivable
case that might come up in the future.
Mr. M E Y E R . I hope, Mr. Chairman, you will feel that I want to
comply, in every reasonable way, with proper requests for answers
on a proper matter, and I will stay with you as long as you want
along that line, but on the other line, I can not m i k e any concession
from principle.
Senator W A G N E R . Mr. Chairman, I may draw a perfect analogy
to this situation. What would the country think of the Judiciary
Committee, where a nomination to the United States Supreme Court
was pending, if, in addition to inquiring into the candidate's legal
acumen and character, it began to question him on a hypothetical
case involving, for instance, the public utilities or some other subject
that might come before t h a t judge, and asked him Avhat his decision
would be? I t would be resented by the country as a reprehensible
thing to do.
Senator CAREY. I think it would be unfair.



NOMINATION OF EUGENE MEYER

131

Senator WAGNER. This is an even more delicate situation. I do
not think there is any instrument in our whole economic structure so
delicate and so sensitive as the banking system. To ask, as the
Senator suggests, that Mr. Meyer be ready to give his opinion upon a
suppositious case, may seriously affect the whole banking structure of
the country. I think it would be dangerous ground for us to trespass
upon.
Senator BROOKHART. With respect to the matter of a judge, we
have just inquired into Judge Parker and rejected him because of
certain things that we though he would do.
Senator CAREY. On account of decisions he had made in the past.
Senator WAGNER. If you remember, I made a speech upon that
question, which at least I thought was a very good speech.
Senator BROOKHART. The Senator always makes a good speech.
Senator WAGNER. Thank you. I made a speech on that subject
in which I reviewed his purpose and his attitude upon legal questions.
These had a bearing on his fitness for the high office. Of course, you
are at liberty to do that with Mr. Meyer.
Senator BROOKHART. I am sure I have not asked a single question
of the character the Senator has just suggested of Mr. Meyer. I
have asked about facts and policies, and I am entitled to know about
them.
Senator WAGNER. Perhaps you did not intend to convey the impression that you proposed to ask him how he would operate as a
member of the Federal reserve system under certain circumstances.
Senator BROOKHART. I am going to ask him what things ought to
be done under the facts as I know them to exist, and as he will admit
them to exist.
Senator WAGNER. We must, in this case, have some consideration
for the country. To-day we are in a situation where we ought not to
treat lightly the effect such questions might have on our economic
structure.
Senator BROOKHART. If this economic structure of ours is so unsound
Senator WAGNER. 1 think it is sound.
Senator BROOKHART. If it is so unsound and so delicate that it will
not bear the light of day, it is time something is brought to light.
Senator WAGNER. I think our economic order is essentially right,
and sound, and fundamentally unimpaired.
Senator BROOKHART. Then there is no fear of any investigation
of it.
Mr. M E I K R . YOU indicated to my mind, Senator, that you were
going to ask questions as to what I would do under certain conditions,
and what my ideas about policies would be. That is the reason that
led me to make the statement I mads. If you will keep away from
questions of that kind, we will not have any trouble.
Senator WAGNER. T think we shall get along very well, Senator.
Senator CAREY. We will stand adjourned until Monday afternoon
at 2 o'clock.
(Whereupon, at 12.10 o'clock, p. m., adjournment was taken until
Monday, February 2, 1931, at 2 o'clock p. m.)







NOMINATION OF EUGENE MEYEE TO BE A MEMBER OF
THE FEDERAL RESERVE BOARD
MONDAY, FEBRUARY 2, 1931
UNITED STATES SENATE,
SUBCOMMITTEE OF THE COMMITTEE ON
BANKING AND CURRENCY,

Washington, D. C.
The subcommittee met, pursuant to adjournment of Saturday,
January 31, 1931, at 2 o'clock p. m., in the committee room of the
Senate Committee on Military Affairs, Capitol Building, Senator
Robert D. Carey presiding.
Present: Senators Carey (chairman of the subcommittee), Goldsborough, Brookhart, Wagner, and Fletcher.
Senator CAREY. The committee will please come to order. Do
you want to question Mr. Meyer further, Senator Brookhart?
Senator BROOKHART. Yes.

TESTIMONY OF EUGENE MEYER, GOVERNOR OF THE FEDERAL
RESERVE BOARD—Resumed
Senator BROOKHART. Mr. Meyer, you state that when you went
into the investment banking business—or was it the regular banking
business in 1901?
Mr. M E Y E R . I started business in a small way with a view to
developing into the investment banking business, naturally very
small in the beginning, but always having that in mind and working
in that direction.
Senator BROOKHART. Where did you start in 1901?
Mr. M E Y E R . At 25 Broad Street.
Senator BROOKHART. Then you were in foreign exchange?
Mr. M E Y E R . N O .
Senator BROOKHART.
Mr. M E Y E R . No.
Senator BROOKHART.

You bought and sold foreign exchange?

You mentioned something about foreign
exchange. What was that?
Mr. M E Y E R . I mentioned being in my father's firm, which was a
firm dealing in exchange involving import and export business and
letters of credit for financing imports and exports. T h a t was during
my first years in a clerical capacity.
Senator BROOKHART. T h a t was not an independent business?
Mr. M E Y E R . I was just a clerk.
Senator BROOKHART. When did you start in this independent
investment business?
Mr. M E Y E R . In



1901.

133

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NOMINATION OF EUGENE MEYEE

Senator BROOKHART. T h a t is when you consider that you began
the investment banking?
Mr. M E Y E R . I tried to.
Senator BROOKHART. What is the nature of this investment banking business?
Mr. M E Y E R . What do you mean? Investment banking is the
placing of securities with clients, dealing in them, buying and selling
them for clients, or to and from them, depending on what kind of
business you are doing.
Senator BROOKHART. On a commission?
Mr. M E Y E R . Sometimes, and sometimes as a dealer. When you
buy and sell to and from clients you do not get a commission.
Senator BROOKHART. D O you buy for the investors outright and
then sell?
Mr. M E Y E R : Sometimes.
Senator BROOKHART. What was the nature of the investments
that you handled?
Mr. M E Y E R . I can not remember 30 years back.
Senator BROOKHART. I t was 30 years ago that you began?
Mr. M E Y E R . Twenty-nine years ago.
Senator BROOKHART. When did you cease this business?
Mr. M E Y E R . In 1917. The firm was dissolved.
Senator BROOKHART. Has it been revived in any way since?
Mr.

MEYER.

No.

Senator BROOKHART. Has it done any of that class of business
since 1917?
Mr.

MEYER. NO.
BROOKHART.

Senator
service?
Mr.

MEYER.

T h a t is when you went into the public

Yes.

Senator BROOKHART. During the last few years, say five years,
what was the nature of the securities that your firm handled?
Mr. M E Y E R . I did not have any firm, Senator.
Senator BROOKHART. I mean during the last five years of its
existence.
Mr. M E Y E R . I had no firm; my firm was dissolved in 1917.
Senator BROOKHART. All right. I am inquiring about the period
from 1912 to 1917.
Mr. M E Y E R . Mostly industrial securities and mining securities.
I was interested in copper mining—in industrial and mining securities.
Senator BROOKHART. Any railroads?
Mr. M E Y E R . I can not remember any from 1912 to 1917.
Senator BROOKHART. .Any foreign securities?
Air. M E Y E R . Foreign bonds and stocks?
Senator BROOKHART. Yes.

Mr. M E Y E R . N O ; nothing that I can remember. It was not customary in the period from 1912 to 1917 for many people over here to be
dealing in foreign securities. The Europeans were large buyers of
American securities, but, generally speaking, the Americans especially
from 1914 to 1917 were not buying European securities, except
occasionally.
Senator BROOKHART. Did you sell American securities in foreign
markets then?



NOMINATION OF EUGENE MEYER

135

Mr. M E Y E R . Sometimes to firms or trust companies that wanted
them, and sometimes in foreign markets where American securities
were listed and quoted.
Senator BROOKHART. Where was your office during the last five
years of its operation?
Mr. M E Y E R . In the Bankers' Trust Co. Building at 14 Wall
Street, New York City.
Senator BROOKHART. D O you still maintain that office at the same
place?
Mr. M E Y E R . N O . I have a few rooms there. Since the last expiration of the lease I have retained a few rooms where my books
are kept and where other books are kept of accounts for which I am
responsible, like estates and things of that kind.
Senator BROOKHART. J. P. Morgan & Co. are the biggest firm dealing in securities, are they not?
Mr. M E Y E R . The biggest what?
Senator BROOKHART. Firm?
Mr. M E Y E R . I do not know, Senator. They are one of the leading
firms. Whether their totals are larger than others I could not say.
Senator BROOKHART. They are one of the very largest?
Mr.

MEYER.

Yes.

Senator BROOKHART. Did you do business with them?
Mr. M E Y E R . From 1912 to 1917?
Senator BROOKHART. Whenever you were doing it, say, the last
five years?
Mr.

MEYER.

No.

Senator BROOKHART. YOU never handled any of their securities?
Mr. M E Y E R . None.
Senator BROOKHART. Kuhn, Loeb & Co.?
Mr. M E Y E R . What about them, Senator?
Senator BROOKHART. Did you handle any of their securities?
Mr.

MEYER.

No.

Senator BROOKHART. You are on friendly terms with both of those
companies, are you not?
Mr. M E Y E R . I am not unfriendly. 1 am not on unfriendly terms
with anybody, Senator?
Senator BROOKHART. Dillon, Reed & Co.; that is another of the
large firms, is it not?
Mr. M E Y E R . Yes.
Senator BROOKHART.

Did you handle securities for them?

M r . ME-iER. N o .

Senator BROOKHART. And you are on friendly terms with them?
Mr. M E Y E R . Well, I would say that I am not unfriendly. I do
not see &nj of the people in that firm very often. I do not believe
I know anybody but Mr. Dillon. I have probably seen him five
times in the last ten years. Occasionally I have met him accidentally.
I have not any business relations with any of those firms.
Senator BROOKHART. Did you never handle any securities for
them in any way?
Mr. M E Y E R . I would not say never.
Senator BROOKHART. Did you ever handle any for any of the three
firms that I have inquired about, J. P. Morgan & Co., Kuhn, Loeb &
Co., and Dillon, Reed & Co.?
Mr. M E Y E R .

Yes.




136

NOMINATION OF EUGENE MEYER

Senator

BROOKHART. YOU have for all of them?
Mr. M E Y E R . N O .
Senator BROOKHART. The only one was Dillon, Reed & Co.?
Mr. M E Y E R . I never did any business with Dillon, Reed & Co.,

as
far as I can remember, in the way of handling securities for them. I
assume that you are talking about bonds.
Senator BROOKHART. I am talking about any character of business
that your firm might have had with them.
Mr. M E Y E R . When you go back over a long period of years I can
not remember. I can not remember ever having done any business
with Dillon, Reed & Co.
Senator BROOKHART. Or for them in any way?
Mr. M E Y E R .

Not so far as I can remember.

Senator BROOKHART. The Bankers' Trust Co? How about that
company?
Mr. M E Y E R . Did I ever do business with them?
Senator BROOKHART.

Yes.

Mr. M E Y E R . Not that I can remember.
Senator BROOKHART. Would you remember it if you did?
Mr. M E Y E R . Yes; I think so.
Senator BROOKHART. The Central Hanover Bank & Trust Co?
Mr. M E Y E R . I do not remember ever having done any business
for that institution.
Senator BROOKHART. And the Chase National Bank?
Mr. M E Y E R . I do not remember doing any business with them.
Senator BROOKHART. The First National Bank?
Mr. M E Y E R . I did not have any business with any of those institutions that I can remember. Do you moan from 1912 to 1917, or in
the last five years?
Senator BROOKHART. I inquired particularly about the last five
years.
Mr. M E Y E R . I was not doing security business for people in the
last five years.
Senator BROOKHART. But it was the last five years when you were
in the security business.
Mr. M E Y E R . Oh, from 1912 to 1917.
Senator BROOKHART.

Yes.

Mr. M E Y E R . I do not remember any particular business. If
when I was in business any of those institutions would ring me up
and ask me to do something, I probably would do it, but T had no
particular relation with them and did not act as their agent or anything of that kind.
Senator BROOKHART. I do not mean acting exclusively as their
agent or anything of that kind. I mean did you handle business
that they were promoting or managing?
Mr. M E Y E R . Between 1912 and 1917?

Senator B R O O K H \ R T . Or at any time.
Mr. M E Y E R . I am trying to remember it and get it the way that
you want it during the period referred to. Now that I think of it,
I believe I handled ^ome business in 1916 or 1917 for Kuhn, Loeb
& Co., in connection with an issue which they made or were acting
in connection with or which they asked me to undertake. I think
it was to place some shares of the Royal Dutch Petroleum Co.



NOMINATION OF EUGENE MEYER

137

As I remember it, that was in the fall of 1916. Outside of that I
can not think of anything. I do not think that in that period I
handled any business for J. P. Morgan & Co. in any way, shape,
or manner. I might have bought something from them or sold
something to them. I was not acting for them. I am sure that
I had no business relations with Dillon, Reed & Co.
Senator BROOKHART. The name of your firm was Lazard Freres &
Co., was it not?
Mr. M E Y E R . YOU mean my father's firm. There is no " a n d
company." My father retired from business in 1901 and was out
of business thereafter. He died some years ago.
Senator BROOKHART. That firm continues up to date?
Mr. M E Y E R . It does. That is the time—1901—that I got out of
that business myself.
Senator BROOKHART. D O you know Henry Evans?
Mr. M E Y E R . Henry Evans has been dead for quite a few years.
Senator BROOKHART. When did he die?
Mr. M E Y E R . 1 could not tell you the year offhand. I t has been
several years. I t must have been at least five or six years.
Senator BROOKHART. Were you over on any board of directors
with him?
Mr. M E Y E R . I was on the board of the Fidelity-Phoenix Fire
Insurance Co.
Senator BROOKHART. H O W long were you on that board?
Mr. M E Y E R . I was on that board from the time the company was
organized until I came down here. I resigned shortly after I came
to Washington.
Senator BROOKHART. You are not on the board now?
Mr. M E Y E R . N O . AS I remember it, that company was organized
in 1905 or 1906, and 1 was a director until 1917 or the spring of 1918;
I have forgotten just when I resigned.
Senator BROOKHART. D O you know George Trowbridge Hollister?
Mr. M E Y E R . He was a friend of Henry Evans. I do not remember
whether he was on that board or not. I have not seen him in ten
or fifteen years.
Senator BROOKHART. Were you on a board with him?
Mr. M E Y E R . I think I was at that time, if he was on the board of
the Fidelity-Phoenix. 1 do not remember.
Senator BROOKHART. D O you know George D. Mackay?
Mr. M E Y E R . I used to know him. 1 do not know whether he was
on that board or not, but I knew him as a neighbor, anyway. He
lived near me up in Westchester County.
Senator BROOKHART. Were you on any other board with Mr.
Mackay?
Mr. M E Y E R . I do not think so. Was he a director of the FidelityPhoenix?
Senator BROOKHART. I think not.
Mr. M E Y E R . Then I was not on any board with him, as far as I can
remember.
Senator BROOKHART. You think you would remember if you were
on that board with him?
Mr. M E Y E R . I think so. I do not remember ever being on a
board with him, although 1 might have been.



138

NOMINATION OF EUGENE MEYER

Senator BROOKHART. Were you ever on a board with Henry K .
Pomroy?
Mr. M E Y E R . Yes; he was a director of the Fidelity-Phoenix, I
think.
Senator BROOKHART. Were you on any other board with him?
Mr. M E Y E R . Not that I know of.
Senator BROOKHART. George E. Kline?
Mr. M E Y E R . If I was on any board with him it was on the FidelityPhoenix board, because I do not think he could have been on any
other board in which I was interested. H e was a director of the
Fidelity-Phoenix, was he not?
Senator BROOKHART. He seems to have been vice president and
director.
Mr. M E Y E R . Yes; I knew he was an officer. 1 did not know
whether he was a director.
Senator BROOKHART. And Charles Altschul?
Mr. M E Y E R . Was he a director? He has been dead for several
years.
Senator BROOKHART. Edmund C. Converse; do you know him?
Mr. M E Y E R . Yes; I did know him. He has been dead for 15 years.
Senator BROOKHART. Were you on any board with him?
Mr. M E Y E R . He was a director of the Fidelity-Phoenix Fire Insurance Co., was he not? I do not know.
Senator BROOKHART. He was also a director of a good many other
companies?
Mr. M E Y E R . Yes? That is all over 13 or 14 years ago.
Senator BROOKHART. Benedict J. Greenhut? Do you remember
him?
Mr. M E Y E R . If he was a director of the Fidelity-Phoenix. I am
sure that I do not know whether he was or not. I think he was for a
little while.
Senator BROOKHART. And Francis L. Hine?
Mr. M E Y E R . Yes; he was a director of that company. He died
some years ago.
Senator BROOKHART. Were you a director with him or interested
with him in any other company?
Mr. M E Y E R . Not that I know of.
Senator BROOKHART. The American Can Co.?
Mr. M E Y E R . N O ; I was not a director of the American Can Co.
Senator BROOKHART. William H. Moore? Do you know him?
Mr. M E Y E R . Mr. Moore has been dead for many, many years.
Senator BROOKHART. Was he a director with you in any of these
companies?
Mr. M E Y E R . He might have been in the Fidelity-Phoenix. I am
sure I do not remember. The directors used to meet once a month,
and I have forgotten who they were.
Senator BROOKHART. Dudley Olcott?
Mr. M E Y E R . If he was a director of the Fidelity-Phoenix. I think
he was for a while—for a short time.
Senator BROOKHART. Edgar Palmer?
Mr. M E Y E R . Yes; he was a director of the company. I remember
him.
Senator BROOKHART. Were you a director with him in any other
company?



NOMINATION OF EUGENE MEYER

139

Mr. M E Y E R . Not that I know of.
Senator BROOKHABT. John J. Riker?
Mr. M E Y E R . Yes; he was a director of the Fidelity-Phoenix.
Senator BROOKHART. Edward R. Stettinius?
Mr. M E Y E R . I do not think that Mr. Stettinius was a director of
the company at the time I was, if he was at all. But I do not remember.
Senator BROOKHART. He must have been.
Mr. M E Y E R . At the time I was?
Senator BROOKHART. Well, I have not the date. I am asking you
about that.
Mr. M E Y E R . No; I do not think he was.
Senator BROOKHART. Henry R. Taylor?
Mr. M E Y E R . Yes; there was a gentleman by the name of Taylor
there.
Senator BROOKHART. Samuel A. Walsh?
Mr. M E Y E R . I do not remember. I do not know now who he is.
He might have been a director of the Fidelity-Phoenix, but I do not
remember him. Maybe he was a director afterwards and not while
I was on the board.
Senator BROOKHART. Albert H. Wiggin?
Mr. MEYER. Yes, sir; he was a director of the company.
Senator BROOKHART. William D. Thornton?
Mr. M E Y E R . I do not know whether he was ever a director of the
Fidelity-Phoenix when I was. He may have been, but I can not
remember him as such. I am inclined to think that he was not.
Senator BROOKHART. Were you a director with him in some copper
company?
Mr. M E Y E R . Yes; he was a director of the Inspiration Copper Co.
down in Arizona. 1 remember him as such but not in the other
company.
Senator BROOKHART. He was also a director in the Montana
Power Co.?
Mr. M E Y E R . I never was a director of the Montana Power Co.
Senator BROOKHART. Mr. Thornton was?
Mr. M E Y E R . Mr. Thornton might have been; I do not know.
Senator BROOKHART. Joseph W. Allen?
Mr. M E Y E R . What about him?
Senator BROOKHART. Were you a director with him?
Mr. M E Y E R . He was a director of the Inspiration Copper Co.
I think he was the secretary of the company—an officer of the
company.
Senator BROOKHART. Thomas F. Cole?
Mr. M E Y E R . Well, he must have been a director. I do not
remember. I do not think he attended meetings if he was.
Senator BROOKHART. That is the copper company?
Mr. MEYER. The copper company.
Senator BROOKHART. William E. Corey?
Mr. MEYER. He was a director of the copper company.
Senator BROOKHART. He was president of the United States Steel
at one time, was he not?
Mr. M E I E E . 1 think in the beginning for a year or two; not the
first president, but the second or third, maybe.



140

NOMINATION OF EUGENE MEYER

Senator BROOKHART. Were you on any other directorates with him?
Mr. M E Y E R . Not that I can remember.
Senator BROOKHART. Charles A. Corliss?
Mr. M E Y E R . I do not remember him. He may have been a director of the copper company. I would not know him if I should
see him, but he may have been a director.
Senator BROOKHART. And Philip L. Foster?
Mr. M E Y E R . Yes; he was a director of the company.
Senator BROOKHART. I S that company still in existence?
Mr. M E Y E R . I think so. I t is operating in a small way, I think.
Senator BROOKHART. Louis D. Ricketts?
Mr. M E Y E R . Yes; he was a director. He was their chief mining
engineer.
Senator BROOKHART. William G. Rockefeller?
Mr. M E Y E R . He may have been a director of the company. I do
not remember. He died some time ago.
Senator BROOKHART. Were you a director with him in any other
companies?
Mr.

MEYER.

NO.

Senator BROOKHART. John D. Ryan?
Mr. M E Y E R . He was a director of the Inspiration Copper Co.
Senator BROOKHART. And Charles H. Sabin?
Mr. M E Y E R . I think he was a director of the Inspiration Copper
Co. I have not been connected with the Inspiration Copper Co. as a
director since 1917 or 1918.
Senator BROOKHART. YOU do not remember the exact date when
you quit it?
Mr. M E Y E R . I think it was in 1917.
Senator BROOKHART. D O you still have holdings in it?
Mr. M E Y E R . In that company? A small investment.
Senator BROOKHART. James C. Brady?
Mr. M E Y E R . He has been dead a few years.
Senator BROOKHART. Were you a director with him in any companies?
Mr. M E Y E R . At one time I was a director with him in an automobile company, the Maxwell Motor Co.
Senator BROOKHART. When was that?
Mr. M E Y E R . From 1911 to 1916, I think.
Senator BROOKHART. He wras a director in the Consolidated Light
& Power Co. of Wichita Falls?
Mr. M E Y E R . I do not know anything about his other directorships.
Senator BROOKHART. And the Consumer Light & Power Co., of
Topeka, Kans.?
Mr. M E Y E R . I do not knowT.

Senator BROOKHART. And the Edison Electric Light & Heating
Co., of Brooklyn?
Mr. M E Y E R . I can not tell you anything about his other affiliations,
Senator.
Senator BROOKHART. Harry Bronner?
Mr. M E Y E R . He was a director of the Maxwell Motor Co.
Senator BROOKHART. And you were at the same time?
Mr.

MEYER.

Yes.

Senator BROOKHART. Were there any other companies in which
vou were a director with him?



NOMINATION OF EUGENE MEYER

141

Mr. M E Y E R . I do not think so.
Senator BROOKHART. I S that company still in existence?
Mr. M E Y E R . It is called the Chrysler Motor Co. now. I t has
been reorganized.
Senator BROOKHART. Walter F. Flanders?
Mr. M E Y E R . He has been dead for from 8 to 10 years.
Senator BROOKHART. He was president of that company?
Mr. M E Y E R .

Yes.

Senator BROOKHART. Donald C. Muhleman?
Mr. M E Y E R . What about him? I do not remember his name.
Senator BROOKHART. He seems to have been a director in the
Maxwell Motor Co.
Mr. M E Y E R . Muhleman?
Senator BROOKHART. Yes.

Mr. M E Y E R . Not when I was connected with it, so far as I can
remember.
Senator BROOKHART. William C. Potter?
Mr. M E Y E R . He was a director of it.

Senator BROOKHART. C. M. McNeill?
Mr. M E Y E R . Yes. He has been dead for 8 or 10 years.
Senator BROOKHART. Charles Hayden?
Mr. M E Y E R . What about him?
Senator BROOKHART. Were you a director with him in any company?
Mr. M E Y E R . 1 was a director with Mr. Hayden in the Utah Copper
Co. for some years; I think about seven years.
Senator BROOKHART. Is that company still in existence?
Mr. M E Y E R . Yes.
Senator BROOKHART. Do you still have
Mr. M E Y E R . N O ; 1 have not.
Senator BROOKHART. Mr. Hayden was

holdings in it?

also a director in the Utah
Power & Light Co., was ho not?
Mr. M E Y E R . He may have been. I do not know.
Senator BROOKHART. Spencer Penrose?
Mr. M E Y E R . He was a director of the Utah Copper Co.; a brother
of the late Senator Penrose.
Senator BROOKHART. David A. Crockett?
Mr. M E Y E R . I can not remember him. I do not remember ever
having heard of him. He may have been a director of the Utah Copper Co. 1 do not think he could have been when I was there, although
sometimes they did not all show up at the board meetings.
Senator BROOKHART. H O W about the Atland Consolidated Mining
Co.?
Mr. M E I E R . 1 never heard of it.
Senator BROOKHART. The Western Mining Co.?
Mr. M E Y E R . N O .

Senator BROOKHART. Col. R. Babbett?
Mr. M E I E R . Yes; he was counsel, I think. He may have been a
director.
Senator BROOKHART. Of the Utah Copper Co.?
Mr. M E Y E R . I think so.
Senator BROOKHART. Silas W. Eccles?
Mr. M E Y E R . Well, he may have been a director of the Utah Copper
Co. I think he was a technical man, an engineer or a metallurgist.
38819—31
10



142

NOMINATION OF EUGENE MEYER

Senator BROOKHART. Morris Guggenheim?
Mr. M E Y E R . Yes; he was a director of the Utah Copper Co.
Senator BROOKHART. And Solomon R. Guggenheim?
Mr.

MEYER.

Yes.

Senator BROOKHART. John Hays Hammond?
Mr. M E Y E R . I do not remember Mr. Hammond as a director.
He may have been, though.
Senator BROOKHART. He seems to have been. William Loeb, jr.?
Mr. M E Y E R . Mr. Loeb was certainly a director later. Whether he
was when I was there or not, I do not know; I have forgotten. I
imagine he was the last year or two or a few years while I was there.
Senator BROOKHART. Kenneth K. McLarrin?
Mr. M E Y E R . I do not remember him. I do not think they had
very frequent meetings of the board of directors of that company.
I do not believe they met more than once in three months.
Senator BROOKHART. In addition to these companies you have
mentioned, were you at any time interested in Chilean nitrates?
Mr. M E Y E R . I was never really interested in Chilean nitrates. I
had an interest in a company which sent an engineering expedition
to Chile with a view to exploring the possibilities of that business,
and a good deal of money was spent in it. I t was based on an option
on some property, and the thing was abandoned and written off after
conducting some experiments with the treatment of the ore.
Senator BROOKHART. It never was carried out?
Mr.

MEYER.

NO.

Senator BROOKIIVRT. YOU never had but the one option or the one
contract?
Mr. M E Y E R . I think it was extended but finally abandoned.
Senator BROOKHART. When was it abandoned?
Mr. M E Y E R . Either in 1920 or 1921. I think it was in 1915 that we
sent some engineers and metallurgists down there and then the war
came along and interfered with following it through. I think it was
abandoned in 1919 or 1920, somewhere along in there.
Senator BROOKHART. Did it furnish any nitrates for the war?
Mr. M E I E K . N O ; it could not; it was never in operation. There
never was any plant built.
Senator BROOKHART. YOU ^ay that you first became interested in
agriculture in 1904?
Mr. M E Y E R . I was talking about it, intellectually and statistically
and economically. I said 1 became convinced that the agricultural
situation was important in determining the business of the country.
Senator BROOKHART. YOU wore interested from the standpoint of
business rather than from the standpoint of farmers?
Mr. M E I E R . I was hit. ;•; ted in it from the standpoint of economics,
from a scientific s-tandpom*.
Senator BIIOOKHAKI' 1 h( -e are (no economic \ iews of that situation.
Mr. M E ^ L I ; . I am omy tiyinic to explain to you what J meant by
what I said. I meant by that that I began to study it and got very
much intei'cst(d in it.
Senator BROOKHART. There is one class of economists that are
interested in getting a cost of production with at least a cooperative
margin of profit for the farmers themselves. There is another class
interested in getting cheap raw materials for the industries.



NOMINATION OF EUGENE MEYER

143

Mr. M E Y E R . The economic interest that I had was in getting
information, in getting the facts, having particularly in mind the
effect of abnormally large crops which brought low prices, or abnormally small crops with high prices, or fair crops with fair prices. I
came to the opinion that the best thing for the farmer was a fair crop
with a fair price; that abnormally high prices brought in too much
production and broke it down and an abnormally large crop broke
the market and was hurtful.
Senator BROOKHART. You found also that the crop production
could not be controlled by acreage?
Mr. M E Y E R . Yes. The yields play an important part. Take,
for instance, cotton in the last ten years. The difference in the yields
between high and low was quite a factor.
Senator BROOKHART. Conditions of climate during the year affected
the average?
Mr. M E Y E R . I will just give you the figures. Take the crop of
last year. There were 44,000,000 acres planted. If you were to
take the yield of 1921, which was less than 125 pounds to the acre,
according to the official figures, there would have been a yield of
11,000,000 bales. If you were to take the 1926 yields on the same
acreage, no less and no more, there would have been 16,500,000 bales
on the same acreage. I agree with you, Senator, that too much
emphasis may be placed on acreage and not enough on yields.
Senator BROOKHART. Mr. R. B. Mellon, Secretary Mellon's
brother, who took a boat for Europe two or three years ago, said,
"Great prosperity ahead for the United States." He said that steel
orders were larger and prices were higher. He mentioned two or three
other big lines and then he said, "Agricultural prices are lower, as
they should be."
Mr. M E Y E R . What year was that?
Senator BROOKHART. That was about three years ago.
Mr. M E Y E R . Of course, I do not remember the interview, and I do
not know why you bring it up with me. I am not responsible for
Mr. R. B. Mellon. I would not have agreed with him at the time
if it had come to my attention, because I do not think that farm
prices three years ago were too high.
Senator BROOKHART. I took it up with Senator Reed at the time,
and he said that he was a damned fool for saying it, even if he did
believe it. But the trouble is that there are too many who believe it.
Mr. M E Y E R . I am not a believer in it, and I am not saying this
because 1 am talking to you, Senator, I can assure you. A fair crop
at a fair price is what the farmer wants. I do not believe that he
benefits by excessively high prices which overstinmlate production,
bringing in turn excessively low prices.
Senator BROOKHART. The question of getting a price for his products is more a question of long-time marketing, is it not?
Mr. M E Y E R . I felt that time was a very important factor, especially
in the years 1921, 1922, and 1923. I mean this: Orderly marketingis always an important factor, but I had the feeling in 1921, 1922, and
1923 that the time element was the most important factor. I have
talked a great deal before committees of Congress and around the
country regarding the importance of the time element in oraeiiy
marketing, and I think 1 told you at one of the previous hearings that



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NOMINATION OP EUGENE MEYER

I suggested that agricultural paper having a longer maturity than
six months be made eligible for discount under certain conditions.
T h a t 1921, 1922, 1923, and 1924 period, though, it must be remembered, was influenced by the fluctuating foreign exchanges which
changed the time element in the export situation.
Senator BROOKHART. The only remedy that you suggested was this
nine months' rediscounting.
Mr. M E Y E R . N O . We had been lending a lot of money to the
country banks to meet that situation.
Senator BROOKHART. D O you think that nine months will meet
the situation as to agricultural marketing?
Mr. M E Y E R . The nine months' provision related to paper used to
finance the production, carrying or marketing of agricultural products,
including paper secured by warehouse receipts and livestock. Eligibility of agricultural paper for rediscount, of course, is not restricted
to paper that involves marketing of the finished products. The
Federal Reserve banks also take paper from the country banks representing loans for grower credits.
Senator BROOKHART. I t is no help to him at all for grower credits:
Mr. M E Y E R . I t is not?
Senator BROOKHART. I mean nine months in a warehouse.
Mr. M E Y E R . N O . Six months' agricultural paper for production
purposes is discounted by the Federal Reserve Banks.
Senator BROOKHART. Then he is subject to renew his loan, if he
can?
Mr. M E Y E R . Senator, only a small part of the volume of credit in
the country, to the farmers or business men or anybody else, is
rediscounted with the Federal Reserve System. The banks are the
ones, with about 58,000 million deposits, which finance agricultural
and other industries.
Senator BROOKHART. But the country banks are required to follow
this quick turnover which the big city banks follow.
Mr. M E Y E R . I do not think they do because they could not. I
mean that there is no quick turnover in the country districts. Of
course, you have a certain amount in the Corn Belt. There is more
quick turnover in farm cattle and hogs in the Corn Belt than in the
Rocky Mountains where they raise breeding cattle.
Senator BROOKHART. YOU know we raise more cattle in Iowa than
are raised in a dozen Rocky Mountain States, including AVyoming.
Mr. M E Y E R . You mean raise them from birth?
Senator BROOKHART. Yes; something like 2,000,000 and I think
700,000 in Wyoming.
Mr. M E Y E R . Well, Wyoming is a very big sheep State. They
probably run more to sheep.
Senator BROOKHART. I think that we raise more sheep than they do.
Mr. M E Y E R . T h a t may be true. You have a great State with
wonderful soil. You can do most anything.
Senator BROOKHART. Except to get money enough to pay the
expense of doing it.
Mr. M E Y E R . Quite a few people do, Senator. 1 would not like
you to generalize about all of the people of Iowa like that, because
really their credit is pretty good. This last year, according to some
of the people out there, they feel that they are rather better off than
some of their neighboring States.



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145

Senator BKOOKHAET. I will agree with that, but that does not
argue anything.
Mr. M E Y E R . Everybody has been having a tough time, Senator.
Senator BROOKHART. Since the stock collapse perhaps that is true,
except investment companies and those who wrere on the right side
of the market.
Mr. M E Y E R . Even they have.
Senator FLETCHER. Agriculture is largely a problem of distribution.
Mr. M E Y E R . I t is a very complex problem.
Senator FLETCHER. IS not that the main problem with which the
farmer has to contend now?
Mr. M E Y E R . The cost of distribution is certainly one of the big
problems.
Senator FLETCHER. For instance, we have a lot of food products
ready for consumption; we have a lot of hungry people; and we can
not get the food to the people for some reason or other.
Mr. M E Y E R . That is correct, Senator.
Senator FLETCHER. I do not know but that the people in Florida,
who have not suffered from any drought, are about as badly off as
the people who could not produce any crops by reason of the drought.
We have produced an enormous crop of fruits and vegetables.
Mr. M E Y E R . D O you mean the citrus crop this year?
Senator FLETCHER. Yes. But it costs us more to get it to market
than it will bring in the markets.
Mr. M E Y E R . 1 had understood that they had improved the marketing of the citrus fruit down there; that they had gotten a man who
had had experience in California, where they have succeeded pretty
well over a long period of years in their cooperative marketing, and
that they had organized some of the citrus growers. I have not been
there and I do not know personally, but that is what I have heard.
Senator FLETCHER I had a letter this morning from a large grower,
and he is going to let his crop drop on the ground and not attempt to
move it at all, because he says the prospect of having to pay freight
on it would be an additional cost to him. That is a condition that I
imagine obtains practically everywhere with respect to agricultural
products.
Mr. M E Y E R . There is a derangement in all kinds of business that
is extremely distressing.
Senator FLETCHER. We have plenty of food stuff; we can produce
it, but we can not get it to the people that want it.
Mr. M E Y E R . That is true. I had the idea that the orange growers
in your State had succeeded in organizing fairly successfully.
Senator FLETCHER. They have done something in that direction,
hut it does not seem to help the grower very much if at all; it helps
packing houses, but producers do not realize enough to pay fertilizer
bills.
Mr. M E Y E R . 1 think that problem of cost of distribution is one
of the biggest problems. I spent some time talking to various people
about it, having in mind that if large terminal markets and refrigerating plants could be built just outside of the cities—not in the congested areas where land is so valuable and where so much capital
is involved and where they have such large taxes—that that might
be helpful. Of course, you have this market problem here in
Washington. I had in mind particularly the shipment of perishables,




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such as come from your State and neighboring States. If, instead of
going into Jersey City and then over the ferry by lighter and into
Jefferson Market and Washington Market with large losses from
spoilage, they would build large railroad terminals and refrigerating
plants and warehouses over on the Jersey flats to take the place of
the wholesale city markets, provided they could get the cooperation
of the trade, that might be a way to improve conditions. They are
building tunnels under the rivers in New York and bridges over the
rivers, and a large part of the population is over in Brooklyn and up
in the Bronx, anyway. I think the Erie Railroad did build such a
plant in Jersey City, but there again it is right in the congested area.
There are many flats back of Hoboken and east of Newark. I
talked to some of the railroads about it. I t was three or four years
ago that I began to think about this problem. One of them was
willing to join the others in doing something like that, but one of them,
for some reason, did not see it.
I am convinced that with motor-truck transportation, the removal
of the terminal markets from the congested areas, where they were
located wThen we had horse-drawn vehicles, with their limited radius,
is one of the ways of attacking that problem. Of course, I think that
better refrigeration is going to do very much for the perishables,
and there is a lot of progress being made in that direction.
Senator FLETCHER. I think there are needed a lot of cooperative
associations to manage the marketing needed and then proper selling
agencies of their own where they will not be dependent on commission
houses.
Mr. M E Y E R . The city of New York built a big market, which I
happened to notice because I pass it on my way to the country when
I motor out to my farm, but it is so badly placed for some reason or
other that it is not used. I t has a big capital investment, but it is
not functioning. I t was built with the idea of meeting the marketing
and distributing problem in the northern part of the city.
T h a t is a very difficult question. You see, you have these commission men who handle the commodities. They are still located
to a considerable extent in the places where they were when horsedrawn trucks were used for deliveries to the few retail stores in other
parts of M a n h a t t a n or Long Island. There they are and there they
stay in spite of the development of motor-truck transportation.
Senator FLETCHER. I have had great hopes that this Federal
Farm Board would assist largely in solving that problem.
Mr. M E Y E R . I do not think there is any problem that they ought
to think or do more about than that of improving distribution.
Senator FLETCHER. This morning I paid $2.68 express charges on a
box of oranges from Florida. 1 can go down to the market here and
buy a box for almost that price. The carrying charges are too great.
Mr. M E Y E R . I started in ordering oranges direct from Florida,
and I found that I could get them just as good and as cheap locally.
I got some circulars from one of your growers down there and I
ordered a box.
Senator FLETCHER. The carrying charges are an enormous burden;
there is no doubt about that, also packing and selling charges. These
absorb the proceeds in most cases.



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147

Mr. M E Y E R . Of course, I come from California and I do not want
to say too much about Florida. I like your Florida grapefruit, but
I generally eat California oranges.
Senator FLETCHER. YOU have to eat Florida grapefruit.
Mr. M E Y E R . Yes. We have figs and dates out there that we think
we can beat you on.
Senator CAREY. H O W about the climate?
Senator FLETCHER. There is nothing that equals the climate of
Florida, but that is aside from the question.
Mr. M E Y E R . I think you have us all on the right point, the distributing costs and the losses. I think refrigeration is going to be an
important factor in the next 20 years.
I do not have the figures up to date, but a few years ago when I was
interested in looking into this idea of terminal markets and refrigerator
plants, I took the trouble to make some inquiries and T found that
in some instances the losses on the perishables between the time they
left the grower and the time they reached the consumer were around
50 per cent. That is, of course, just a charge on the industry. I
think the refrigerating industry is making enormous progress, and it
ought to get a great deal of attention from the scientific people and
the technicians and the railroads, and 1 think it is. From all I hear
they are building a lot of refrigerator cars. Of course, they have
long had the fast fruit express from California, but there is a considerable amount of ice and loss of time in connection with the present
system. I think they are going to get a refrigerator car that will be
economical.
Senator FLETCHER. I do not mean to give a black eye to the citrus
industry. We are trying to find a way to use refrigerator ships to
take the fruit abroad and market it in England and generally in
Europe. We are also canning grapefruit and oranges.
Mr. M E Y E R . I have not bought any recently in London or Paris or
Berlin because 1 have not been over there for some time, but I remember that years ago I paid 25 cents in Berlin for an Oregon apple.
It was worth it compared to others that could be bought, but it was
a good deal. Now they are selling apples on the streets here to help
the unemployed and they want 5 cents apiece for them. Of course,
5 cents apiece would make every apple grower rich. I would like to
get 2 cents apiece for apples on my farm 30 miles out of New York.
Senator FLETCHER. They are feeding apples to the hogs down here
in Virginia. They are doing that when the people in Washington are
paying 5 cents apiece for apples.
Mr. M E Y E R . Senator, we all want to be eating anything we like
at any time of the year. Our wives do not care to go to market any
more; they like to telephone any hour of the day or night for anything that is needed. We have to pay for that service, and I think
that is a part of the problem. I do not like to discuss the domestic
part of the problem, though, because I am not supposed to know
about it.
Senator FLETCHER. Coming back to the Federal reserve, has the
Federal reserve anything to do with that situation? Can they help
out?
Mr. M E Y E R . Of course, Senator, you know what the function of the
Federal Reserve system is—to provide an elastic currency, to furnish
seasonal credits, etc. At various times in the past thirteen years, I



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NOMINATION OP EUGENE MEYER

have seen the Federal Reserve go out of their way a little, as far as
strict functioning according to the letter of the law was concerned,
and interest themselves in problems in a general way. They publish
a bulletin which disseminates a good deal of information of a statistical character and which I think may be made more helpful.
I think the district banks, the 12 federal reserve banks, can do a
great deal toward influencing the member banks in helpful directions.
You would not want the Federal Reserve Board here, however, to
tell the banks to instruct their member banks what they should do
and undertake to dictate to them, because there is nothing in the law
that warrants that. B u t my feeling is that the desire to be helpful
exists in the system and always has according to their lights. 1 think
sometimes they have made mistakes. They admit that sometimes
they make mistakes.
To tell you the truth, Senator, having been on the Federal Reserve
Board for only four months, I am trying to learn a good deal about
the machinery and the technique and get the feeling of the institution.
I did not go in there with a lot of pre-determined ideas and policies.
Problems come up. They come up from the banks. They are presented to the board. They are discussed by the board. We have
economists, statisticians and experts. Maybe the people from the
local banks will send somebody up to advise us about the details of
problems.
I feel that they can be helpful. I can not say in this or that particular. I know that in the old days of the War Finance we had many
people coming to us with problems. We tried to be helpful to them
always, and I think very often, and most of the time in fact, we were.
Sometimes it is a valuable thing for people who have problems just
to have somebody to go to and talk them over with and get some
sound advice. I have confidence in the Federal Reserve System's
capacity to function helpfully in the future as it has in the past. I
even hope it will do a little better but I do not want to be over confident.
Senator F I ^ T C H E R . I have the impression, Mr. Meyer, that one of
the causes of that performance on the stock exchange, speculation, and
so forth, that went on was partly due to the banks of the country
themselves, for a great many of the banks were anxious to make money
without pursuing the usual and proper banking functions; and, in
order to make money, they attempted to m o \ e away from the communities' deposits and reserves, and that sort of thing in order to get
the big interests that were being paid on call loans in New York;
they took the money out of their communities and focused it in New
York because they could get these high rates. Now, I am quite sure
that that is true, to some extent, because J know banks in Florida
that could not accommodate local business because they had their
money up there and were getting as high as 20 per cent at one time
on call loans. That was not good banking and it was not a good
good thing for the country. Whether the Federal Reserve System
can have any influence in preventing that sort of occurrence again
through their instructions or advice to member banks, for instance,
is something that I would like to know about. Could something like
that be done to prevent that situation occurring in the future?
Mr. M E Y E R . I would hope, Senator, that there would not be a
repetition of that particular form of unfortunate experience. I



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149

want to say this, though, Senator, and this does not refer particularly
to Florida: The speculative fever existed in many other activities
outside the securities market. I t existed very much in real estate,
and I am not speaking exclusively of Florida.
I remember about three years ago coming through one of our
largest western cities—and I do not want to mention the name of the
city, if you do not mind—and people there told me the sppce t h a t
was being built that year in that city was enough to provide for the
normal rate of growth over a period of eight years.
Now, the building activity started up after the war. There was
comparatively little building during the war; it was practically forbidden, except for military purposes, or for purposes that contributed
to the proseculion of the war. Then some building started up but
it stopped again in that panicky period in 1920 and 1921, as the permit
and contract statistics show. After 1921 they started out to fill a
real nerd in both houses and offices and industrial plants. The whole
plant of the country had been relatively stationary while the years
had gone on. There was a great deficiency. Senator Calder's
committee that we were talking about at one of these hearings was a
committee on housing and reconstruction. Because of the deficiencies
in housing, that committee was appointed to look into the matter.
That shows the attitude of the Senate at that time. Then money
began to get easier in the spring of 1922. People began to build, and
there was the most legitimate kind of building. But they could not
fill the deficiency very rapidly, rents went up rapidly and the prices
also, including the price of old buildings. The cost of replacing buildings had gone up about 75 per cent—I think it would be fair to say
even 100 per cent—during the war, between 1914 and 1921, or 1922.
So you had a great rise in land and real estate values, particularly
in the improved properties of the cities and suburbs.
They started in to build and they did ii logically in the beginning;
but the building business had access to large amounts of money,
through the new development of the real estate bond market and the
tremendous amount of mortgages placed but, after a while, the thing
got on a very speculative basis. Conservative builders withdrew
from the business. I think the trouble that developed in this field
is a very big part of the present situation.
Senator BROOKHART. Let me ask a few questions on that proposition with reference to agriculture's relation to all of this speculation.
Agricultural lands reached their peak in 1920, did they not?
Mr. M E Y E R . I do not want to say from my own knowledge. If you
say so, I would be inclined to agree with you, Senator. I do not know
whether it was 1918 or 1919 or 1920.
Senator BROOKHART. YOU said the other day that speculation in
land was the cause of the trouble.
Mr. M E Y E R . Not the only cause.
Senator BROOKHART. Perhaps Iowa lands have advanced more
than the lands of any other State in the Union, except Minnesota and
Florida.
Mr. M E Y E R . I do not remember saying that speculation in land
was the trouble. It has been said a great deal by the people, though,
and it may have been overemphasized to some extent.
Senator BROOKHART. There is a difference in quality of an Iowa
farm and your Westchester County farm up in New York State?



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Mr. M E Y E R . I told you there was when you and I met awhile ago.
Senator BROOKHART. Up there where you live they fertilize graveyards to insure resurrection of the soul practically.
Mr. M E Y E R . A friend of mine told me that if I wanted to plant anything that I should go up in the air and shoot seed into the ground with
a shotgun.
Senator BROOKHART. If you were to use fertilizer to a depth of 6
inches and make that much of your soil as good as the top 2 feet of
Iowa soil it would cost vou about $2,500 an acre to do it, would it
not?
Mr. M E Y E R . Nobody admires Iowa soil more than I do, Senator.
I would like to have some of that soil on my farm in Westchester
County.
Senator BROOKHART. But you do not know anything about these
agricultural economics; you have not studied these ideas out carefully, have you?
Mr. M E Y E R . I do not pretend to know all about them.
Senator BROOKHART. When the Iowa land reached the top peak of
speculation it averaged $224 an acre. That is the highest it ever got.
Mr. M E Y E R . There were some sales at about $400 or $500.
Senator BROOKHART. But that was only an individual sale once in
a while.
Mr. M E Y E R . I do not know that there was any vast amount of land
sold at that price.
Senator BROOKHART. Mr. Meyer, some land sold at four hundred or
five hundred dollars an acre, but the general body of the land did not
sell at all.
Mr. M E Y E R . Of course not.

Senator BROOKHART. And in many of the States there was very
little, if any, land speculation at any time through North Dakota
&nd most of South Dakota; and it is true that in most all of the States
farther east there was very little advance in land. While land started
down in 1920 and has been going down ever since, stocks have been
going up until 1929, have they not?
Mr. M E Y E R . I had the impression that from 1910 to 1920 land had
advanced considerably in some States; and, while 1 think the number
of transfers of land, for instance, in your State, at high prices—I
mean those very high prices which were in some cases reached—has
been exaggerated, still I think there were a good many. You know it
was in that period that many Iowa farmers who had sold their farms
moved to Los Angeles. There is no doubt about that.
Senator BROOKHART. The Iowa farmer up to 1920, until he was
50 or 60 years old, could get enough of a competency to live out in
California.
Mr. M E Y E R . He did it on a rising land market.
Senator BROOKHART. He did it on the rising land because he got
his land at $1.25 in the beginning, but beginning in 1920 the tide
turned and it has been downward ever since, and I have heard just
now of the lowest sales from some foreclosures of joint stock land
banks.
Mr. M E Y E R . 1 do not know about the foreclosures of the joint
stock land banks.
Senator BROOKHART. There has been some of the Milwaukee
receivership in northeast Iowa where they sold at $47 an acre.



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151

Mr. M E Y E R . I do not think that bank loaned in Iowa. The Milwaukee bank loaned in Wisconsin, I think.
Senator BROOKHART. That is an adjoining State to Iowa.
Mr. M E Y E R . They may have had some loans in Iowa. B u t I
would not know about it now.
Senator BROOKHART. The land generally, not only the land in
Iowa, but in Illinois, Indiana, and Ohio and everywhere else, has
depreciated in value almost steadily since 1920.
Mr. M E Y E R . Most too low, I think, for good farms.
Senator BROOKHART. But for nine years of that time stocks and
bonds continued to go up, did they not?
Mr. M E Y E R . Not in 1920.
Senator BROOKHART. From 1920
Mr. M E Y E R . No; they went up

to 1929.
and down, but they went up a

good deal in 1928 and 1929.
Senator BROOKHART. I have a chart of those stocks here prepared
by Prof. Irvin Fisher. That would be a reliable authority, would
it not?
Mr. M E Y E R . 1 have not any check on his authority, but I imagine
he is trying to get statistics that are accurate.
Senator BROOKHART. He would do that about as well as anybody
we have?
Mr. M E Y E R . I imagine so. There are various indexes.
Senator BROOKHART. Please take a look at this chart and see what
happened to stocks from 1920 to 1930. I t shows a tremendous rise,
does it not?
Mr. M E Y E R . Yes. I t is a rise that has been going on, with interruptions, since 1885.
Senator BROOKHART. There never was such a violent rise as in
those 9 or 10 years?
Mr. M E Y E R . That is correct.
Senator BROOKHART. And during that same time agricultural
lands were going down. How do you account for that discrimination
against agriculture?
Mr. M E Y E R . I do not know that I account for it as a discrimination.
Senator BROOKHART. YOU think it was perfectly logical and natural
and economic that it should go that way?
Mr. M E Y E R . I am not saying that it is; 1 am merely saying that
I do not call it discrimination. Taxes went up on the lands, and I
think that has been one of the big factors.
Senator BROOKHART. We will not dispute over that.
Mr. M E Y E R . Of course, industry began to pay very high wages,
and more people went into industry. That naturally took some of
the competition for land out of the situation. Prices, of course,
went down in 1920 and 1921 disastrously for a while.
Senator BROOKHART. We have always been taught that the economic situation v as such that if cities increased the demand for agricultural products would increase and that would increase the prosperity
of the farm.
Mr. M E Y E R . I think the volume of production from the farms
increases through machinery, better roads, and so forth.
Senator BTOOKHART. Machinery does not increase the volume of
production; that simply decreases the number of workers necessary
to operate
 the farm about the same as in a factory.


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Mr. M E Y E R . There was some new land opened up in the Northwest.
I think that on the whole the yields per acre increased in that period
as compared with previous periods.
Senator BROOKHART. The yields per acre increased up until 1900,
but they have not, on the whole, increased any since 1900.
Mr. M E Y E R . Of course, production may have increased due to
mechanical appliances.
Senator BROOKHART. I was talking about the increase in the acreage. The value in 1920 of agriculture, the total value of its assets,
was about $79,000,000,000; but the last estimate we have—I have not
got the census yet, although some advance statements indicate there
is going- to be about foriy-nine billion, a decline of some $30,000,000,000 in capital investment in all agriculture.
Mr. M E Y E R . That was practically the war peak. T do not imagine
that the figure you indicated for Iowa land, $224 an acre, would furnish the basis for that decline and check with it.
Senator BROOKHART. I think that if agriculture had a square deal
that $224 is a cheap price for that valuable Iowa land. Do you not
think so?
Air. M E Y E R . On the best farms I should agree with you.
Senator BROOKHART. Well, on an average of the State. Of course,
three-fourths of Iowa is best.
Mr. M E Y E R . YOU can talk about a farm from the point of view
of the natural qualities of the land; and then you can talk about
whether it is hilly or flat, whether it is near a good road or market,
whether the improvements on it are up to date and in good condition, and whether the farm has been maintained in good condition.
You know better than I that a farm can run down under bad management, no matter how good it is when you start.
Senator BROOKHART. At this time there are plenty of sales being
reported to me for less than the value of the improvement.
Mr. M E Y E R . YOU may find that condition existing in New England in even a greater degree.
Senator BROOKHART. Well, that is what I am getting at. Is
agriculture getting a square deal under this economic situation;
and if not, I want to see what you know about the causes and what
our credit system is going to do for the farmers.
Mr. M E Y E R . When you ask if it is getting a fair deal, I will say
this: I have been here most of the time during the past ten years.
The problem became acute in 1921 with the collapse of prices all
over the world, agricultural and industrial and commercial. I have
never seen a time in the ten years when the Congress of the United
States not only was willing but most anxious to do anything that
it could to help agriculture. I t passed a number of measures designed
to do so. I do not believe, Senator, that any good proposition
that was put before the Congress, or that could have been, ever
had a chance to meet with a better reception from both Houses of
Congress.
Senator BROOKHART. Yes, but I remember how it got vetoed in
the White House, too.
Mr. M E Y E R . There may be some disagreement about what is the
best thing to do; but I will say that I do not think there ever was
a time when the people of the United States, including the people
that you condemn and dislike, if you like—maybe some of them



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153

deserve it and maybe not all of them do, as you seem to think—
when the whole country really has been as much interested in doing
anything that can be done for agriculture legitimately and soundly,
by which I mean properly and effectively.
I feel that the maintenance of a sound agriculture should be a
foremost principle of State policy. I can not speak for other people,
but I believe that the people of the country feel just that way about it.
They do not want this country to be completely industrialized, or
want it to be industrialized, for instance, as much as some of the
European countries are. The people of this country, if it were left
to them on a majority vote at any time within the last few years,
or now, would, I believe, vote for a well-balanced agricultural, industrial, and commercial structure.
The problem, I think, is how to bring it about successfully in a
period of upheaval in the world following the war. You are confronted with different problems at different times. For 10 years
Russia was out of the wheat market completely. Now all of a
sudden Russia has come back into the wheat market.
Senator BKOOKHART. Yes; but with about one-fourth what they
used to sell.
Mr. M E Y E H . Whatever they formerly sold but did not sell for 10
years had to be supplied by somebody. And the Canadians opened
up vast areas in Saskatchewan and Alberta, and they were competing
with our wheat. Now Russia comes in and is creating a new situation in the wheat market.
Senator BROOKHART. And the world situation is very different and
the world business demand has increased.
Mr. M E Y E R . The Canadian production has increased enormously
in the last 15 years.
Senator BROOKHART. And Russia has

Mr. M E Y E R . But they have come back since. They had a series
of events to contend with in the last 10 years.
Senator BROOKHART. I want to go back. You mentioned something about Congress doing an effective thing.
Mr. M E Y E R . I did not say that it did or did not. I said that I
did not know of a time when Congress was not ready to do so.
Senator BROOKHART. Congress did effective things for the railroads, did it not?
Mr. M E Y E R . Senator, I do not know that I am prepared to discuss
the railroad situation and the action of Congress with regard to the
railroads.
Senator BROOKHART. D O you think that has any bearing on agriculture or the economic situation?
Mr. M E Y E R . I t is one of the things.

Senator BROOKHART. If the farmers' railroad rates increase the
farmers' prices decrease, do they not?
Mr. M E Y E R . Not necessarily. Sometimes they do and sometimes
they do not.
Senator BROOKHART. Where is the farmer's price fixed any way?
How does it get fixed?
Mr. M E Y E R . These questions are so broad that the discussion
would load us on forever. The prices of different farm products are
fixed by the markets in different places and under different conditions.




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Senator BROOKHART. We are not getting away from the subjectHere is a man, Mr. Chairman, who is to manage the biggest economic
system in the world; and agriculture, which is the biggest proposition
in the United States, gets the worst of it. This is all material.
Senator CAREY. But Mr. Meyer is not a member of Congress
Senator BROOKHART. I am not blaming him in any way for what
Congress did.
Mr. M E Y E R . Different prices are fixed by the markets in different
places depending on different conditions and different commodities.
Senator BROOKHART. Let us take the big staple crops.
Mr. M E Y E R . Some commodities travel quite a distance and some
have to be sold locally.
Senator BROOKHART. Let us take the big staple crops, such as
cotton, corn, wheat, and livestock products, those that have an
exportable surplus.
Mr. M E Y E R . D O you mean to say that corn is an export crop?
Senator BROOKHART. I noticed you said it was not.
Mr. M E Y E R . Not to any great extent, I said.
Senator BBOOKHART. I looked for the figures for last year, and
found they amounted to 34,000,000 bushels.
Mr. M E Y E R . That is a little more than 1 per cent. We probably
imported some corn, too.
Senator BROOKHART. But 34,000,000 bushels is quite an item.
We have a shortage of corn now, and the lowest price in about 15 or
20 years.
Mr. M E Y E R . Of course it is not the lowest price in 15 or 20 years.
Senator BROOKHART. It is the lowest since 1920, anyhow.
Mr. M E Y E R . It was lower in 1921, Senator, a good deal lower.
Senator BROOKHART. Maybe it was, a little, in 1921.
B u t as a general situation, the farmer's price is fixed by the sale of
his surplus in the markets of the world, is it not?
Mr. M E Y E R . I would not say that in all cases; the export commodities are to some extent.
Senator BROOKHART. The Farm Board has raised wheat recently
above the world market. You are familiar with that, are you not?
Mr. M E Y E R . I have read about it in the papers.
Senator BROOKHART. But last year it was below the world market.
Mr. M E Y E R . It could not be below the world market; otherwise
it would not be the world market. Whatever is the price at which it
is selling is the market.
Senator BROOKHART. Let us take the cashier of the bank at
Humboldt, Iowa. He owns a farm at Portal, N. Dak. Portal is on
the Canadian line. North Portal is across the street, in Canada.
He sold his wheat across the street in Canada and paid 12 cents a
bushel tariff to the Canadian Government to get it across. They have
come up on us now, and it is 42 now, but it was 12 then. He had 9
cents a bushel left more than he was offered for the same wheat the
same date on his own side of the street.
T h a t was the situation in 1929, and that has been the general situation since the war up until this year, when the Farm Board bought
this surplus.
Does not that prove that the farmer's price is fixed by foreign
markets less the freight expense of reaching the foreign market?
The tariff does not protect him any.



NOMINATION OP EUGENE MEYER

155

Mr. M E Y E R . I remember that many years back the hard winter
wheat up there in the Northwest sold for considerably more than the
Canadian price.
Senator BROOKHART. There is some particular brand of hard winter wheat that did, but I am not talking about t h a t ; I am talking
about the general grade of wheat.
Mr. M E Y E R . I am talking about one grade of wheat and you are
talking about another one. Take durum wheat which is exported
and grown for export, and it will be selling at the price on the export market.
Senator BROOKHART. Before we leave the stock market; Prof.
Irving Fisher shows on his chart a scale of 43.2 in 1914 and 132.9
at the beginning of 1930 after the big panic in New York. After
the slump it was still 132. Professor Fisher says that means that
stocks since the slump are still 208 per cent above the 1914 level.
Is that right?
Mr. M E Y E R . I have not the figures in front of me. It may be
right, Senator.
Senator BROOKHART. Does not that mean that stocks are still
enormously inflated, even with the slump we have had?
Mr. M E Y E R . Some may and some may not be.
Senator BROOKHART. But as a whole?
Mr. M E Y E R . You can not take that as a whole, Senator.
Senator BROOKHART. I understand that; but here is the average
of all of them.
Mr. M E Y E R . That does not mean anything to me. I don't understand that, Senator. Take industrial stocks. Each one is subject
to new influences. The automobile industry had a great growth
over a period of years. It is now a grown-up industry. I t can not
expand its business from the present level of volume in the same
proportion that it did 10 or 20 years ago. Every industry has its
own controlling factors. I t is just like your land in Iowa. There
was a time when it was perhaps the cheapest land in the world. Now
it is just as good but not as cheap as it was 30 or 35 years ago.
Senator BROOKHART. I t is as good.
Mr. M E Y E R . 1 would not say it is as cheap.
Senator BROOKHART. I think it is as cheap, considering the improvements.
Mr. M E Y E R . I would not think it was as cheap as when you could
get it at $1.25 an acre.
Senator BROOKHART. You could not get it for that 30 or 35 years
ago.
Mr. M E Y E R . Well, 50 years ago. 1 would not say it was too high
even if selling at a hundred times what it was 50 years ago. I do
not see how that has got anything to do with this.
Senator BROOKHART. You do not see that the economic situation
ought to protect farm values as it does stock values?
Mr. M E Y E R . I do not want you to put those words into my mouth.
I did not say that and I do not think that.
Senator BROOKHART. That has been the result, has it not, whether
it ought to have been or not?
Mr. M E Y E R . I don't understand what you arc driving at, Senator.
Senator BROOKHART. We will try it again, then. I want to see if
I can get you to understand some of this farm problem.



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NOMINATION OF EUGENE MEYER

There is $59,000,000,000 or such a matter invested in agriculture on
an average—unless this Census reduces it—since 1920. There are
about 12,000,000 workers on the farms of the United States. They
have produced a gross value of about $12,000,000,000 a year. During
this same period there has been about $40,000,000,000 invested in
manufacturing and there are fewer than 9,000,000 workers in the
factories of the United States, about three-quarters as many, and
they produce a gross value of about $60,000,000,000 a year.
Does that indicate any discrimination against agriculture?
Mr. M E Y E R . I t may or it may not. Of course, there is not any
moie land than there was before. Plants have been increased by the
investment of large sums. There has been a big expansion, I imagine,
in automobile capacity which may or may not be valuable now,
depending on how useful it is. There has been a great expansion of
steel capacity, I imagine.
Senator BROOKHART. I doubt if there is as much capital investment as there was in 1920, because that was on an inflated value.
As I recollect, it was about 45 billions then and then it ran down to 40
or such a matter.
Mr. M E Y E R . There has been a vast amount of capital put into
industrial expansion in the last 10 years, and perhaps too much.
Comparatively speaking, nobody built any new lands in the United
States since 1920; we have got the same amount of land.
Senator BROOKHART. That would be a good reason for it to advance, would it not?
Mr. M E Y E R . If we were not suffering fixtm competition in other
things
Senator BROOKHART. But we are shutting out the competition by
the tariff, so it is not
Mr. M E Y E R . We are not doing it on things like cotton, of which
50 per cent has to be exported.
Senator BROOKHART. Of course there are some comparisons that
some allowances need to be made for. The raw material bill of the
factory is bigger than the raw material bill of the farm. But 27
per cent on the farm is raw material, feed and seed, work animals,
breeding animals. They must be kept on the farm to operate the
farm. There are also fertilizer, machinery, and the depreciation of
the machinery. T h a t consumes 27 per cent that the farmers produce;
but the manufacturers' raw material bill is still greater, nearly
twice as big. You have to subtract some 16 billions from the 60
billions to get it down to 27 per cent, but there is still 44 billions
produced by two-thirds of the capital and three-fourths of the workers
that produce only 12 billions on the farms.
Does not that indicate heavy economic discrimination against
agriculture?
Mr. M E Y E R . I can not accept the word "discrimination."
Senator BROOKHART. What does it indicate to you, then?
Mr. M E Y E R . I do not know exactly what it does indicate. I remember seeing a building program in this country in terms of seven
billion or eight billion dollars a year—housing, offices, factories and
other kinds of plant—and that has been going on for years.
Senator BROOKHART. YOU can go up to Chicago and see 60 per
cent of those skyscrapers in the hands of receivers.




NOMINATION OF EUGENE MEYEB,

157

Mr. M E Y E R . I know, but they have some value, anyway. You
might see them in the hands of receivers; the hotel Shoieham went
into the hands of a receiver, and I went in there and f6und the place
was full and every room was taken.
Senator BROOKHART. Some F . H. Smith Co. deals went in the slump
too.
Mr. M E Y E R . Yes; but I can not see that the Shoreham Hotel can
be considered as not existing. I t cost two or three million dollars,
possibly. I do not know what it cost.
Senator BROOKHART. I am not claiming it is not existing.
Mr. M E Y E R . I t can not be considered as worthless.
Senator BROOKHART. I t is existing too much, and there is too much
discrimination against agriculture in this situation.
Mr. M E Y E R . You choose to use the word "discrimination" because
it implies an act of an agent maliciously contriving something disastrous; and I do not accept that explanation.
Senator BROOKHART. A little later I will ask you something about
the Federal Reserve Board's action in reference to that identical
thing.
Mr. M E Y E R . At what time?
Senator BROOKHART. At the time the deflation began, in 1920.
Mr. M E Y E R . I do not know anything about the Federal Reserve
Board's policy in 1920.
Senator BROOKHART. I will have to see if I can not show you
something about it.
I have compared agriculture with manufacturing. Now let us
compare it with transportation.
In 1920 the Congress came to the relief of the railroads very efficiently and passed the Transportation Act, and since that law was
passed, there has been, on their own claim, from 19 billion to 23 or
24 billion dollars of capital invested and there have been about a
million and three-quarters workers. They have had a gross revenue
of about six and a half billion dollars, considerably more than half
as much as the 60 billions of the farms and 12 million workers on the
farms. Does not that indicate another heavy discrimination, caused
in that case by a law of Congress? I am not blaming you for that.
Mr. M E Y E R . I do not know whether it does or not. I have
nothing to say about it. I have not studied it.
Senator BROOKHART. I see you have not. I think you need to
study something.
Mr. M E Y E R . I expect to study a lot of things.
Senator BROOKHART. The Interstate Commerce Commission was
directed to fix the value of the railroads as a basis of levying rates
upon the people of the country. T h a t law was passed the first of
March, 1920, and under the rules and regulations the Commission
proceeded to fix that value, and it fixed it about the first of September,
1920, at $18,900,000,000—practically $19,000,000,000. At the moment that value was fixed by law the market value of these railroads, as shown by the value of their stocks and bonds representing
all their property, was less than $12,000,000,000. In other words, if
you had gone out and bought them at their market quotations you
could have bought the whole outfit for about eleven and three-quarter
billion, but the l a w sold them to the people of the country for the purpose of making rates at nearly nineteen billions.

3881&-31
11


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NOMINATION OF EUGENE MEYER

Is not that a discrimination against agriculture when it raises their
rates about 50 per cent?
Mr. M E Y E R . I do not want to put in the position of criticising the
action of Congress, Senator. I am not here for that.
Senator BROOKHART. YOU do not need to criticise anybody. I am
asking you the economic effects.
Mr. M E Y E R . I do not want to express opinions on things which I
do not pretend to know about and which I do not think have anything
to do with this matter. I am not a candidate for membership on the
Interstate Commerce Commission, which has charge of rates.
Senator BROOKHART. We will make another comparison. I have
a bulletin here of the National City Bank which shows that the
national banks of the United States in 1925 earned 8.34 per cent
upon capital, surplus and undivided profits. That is about right,
isn't it?
Mr. M E Y E R . Is that right? I don't know what they earned in
1925. If you say it is right I assume it is; but I don't want to be put
on record as saying something you say is right. If the City Bank
says it, I suppose there is some basis for it; but I don't know. I
haven't got every figure in my mind that you can think of.
Senator BROOKHART. I think the biggest problem for you as Governor of the Federal Reserve Board is to know about these big things
and these totals.
Mr. M E Y E R . D O you think I ought to have in mind all the reports
of that kind for all the banks in the United States?
Senator BROOKHART. I do not think you ought to have any of
them. I t is the total and average that I am talking about, after one
of the statisticians has figured it up for you.
Mr. M E Y E R . You asked me if it was right. I don't know whether
it is right or wrong.
Senator BROOKHART. I meant, is it correct?
Mr. M E Y E R . I don't know whether it is correct. I am not used to
verifying figures without personal knowledge or a chance to investigate.
Senator BROOKHART. D O you know what the net income of all the
capital of the United States is?
Mr. M E Y E R . I do not, and I don't believe anybody else does. I
am not interested in anybody's opinion on it, because I think it
would be nothing but an opinion.
Senator BROOKHART. The Census gives us that information. You
are aware of that, are you not?
Senator R E E D . If you will pardon the interruption: I have just
been told by one of the newspaper gentlemen that I have been quoted
as saying that Mr. Mellon announced that farm prices were too high,
and that I called him a damned fool—
Senator BROOKHART. Oh, no. I t was the other way. I brought in
a quotation from a newspaper in which Mr. Mellon said, as he left
the wharf up at New York, "There is great prosperity ahead for the
United States. Steel orders are larger and prices higher;" and he
mentioned two or three other lines, and he said, " F a r m prices are
lower as they should be."
That is the matter I brought to your attention, and then you said
to me, "Well, he is a damned fool for saying it if he thought it."



NOMINATION OF EUGENE MEYER

159

Senator R E E D . I would like to say, in the same hearing in which
that anecdote has been recounted, t h a t I have no recollection of ever
seeing such a clipping or of ever talking to the Senator about it
Senator BROOKHART. I brought it to you at your desk in the Senate
Chamber.
Senator R E E D (continuing). —or ever hearing that Mr. Mellon
passed in judgment on farm prices. I have known him since my babyhood, and he is almost the last person on earth that I would apply
such an epithet to. I have no recollection of any such thing happening, and I am sure that I never said any such thing as I have been
quoted as saying; and in justice to Mr. Mellon I would like to have that
placed in the record of your hearing.
Senator BROOKHART. I am sure you did say substantially that.
That is substantially what you said to me at the time, Senator.
Senator R E E D . I have called some people by that name, but not
Mr. Mellon.
Senator BROOKHART. I think that last remark is true as a general
proposition.
The census report shows in 1912 to 1922 a capital increase of
about 5% per cent a year. I have the National Industrial Conference Board report which up to 1928 reduces it to 4J4 per cent. If
that is true, in 1930, with all this depreciation, it would be reduced
down below 4 per cent. Senator Howell has estimated it through
the whole history of the country as a little less than 4 per cent. If
we say that 4 per cent is all there is, all the earnings of all labor and
all capital and the increase in property value, including the value of
all the new territory we have acquired, and everything—only about
4 per cent a year—if that is all there is in the American pool of
production, when one block of capital dips out more lhan that, some
other must take less. Is not that true?
Mr. M E Y E R . That is the way the figures are compiled. Of course
if you take the aggregate amount and deduct some, t h a t means the
rest have what is left, or vice versa.
Senator BROOKHART. D O you think that it is of any importance
that in the administration of the Federal Reserve Board we should
consider the production or rate of production of all captial and all
earnings in the country?
Mr. M E Y E R . I haven't much confidence in the figures as collected
on the earnings of the capital of the country.
Senator BROOKHART. You do not think any statistics about earnings of wealth production of the country are of any value in the
economic system?
Mr. M E Y E R . I do not think they are reliable. T h a t is just my
own opinion.
Senator BROOKHART. Then you would condemn the United States
Census for making such
Mr. M E Y E R . No. I think that is their job, to get the best figures
they can.
Senator BROOKHART. But if they are of no value after they do get
them?
Mr. M E Y E R . Some I would not attach too much importance to.
I think they can count the population pretty well, and they know a
lot of things, but on that subject I do not know that I would be



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NOMINATION OF EUGENE MEYER

willing to accept anybody's figures. Do they claim perfection for
those figures?
Senator BBOOKHART. Nobody claims perfection, and I did not ask
my question on the theory that they are perfect, but that approximately they are all right. You ought to know that.
Mr. M E Y E R . I t is just a matter of confidence in their ability to
collect figures of that kind.
Senator BHOOKHART. Don't you think that they are reliable,
approximately ?
Mr. M E Y E R . I would not have any opinion on that, as I do not
know how they collected them.
Senator BROOKHART. Your theory is that it is all right for the
national banks of the country to take out 8.34 per cent of capital,
surplus and undivided profits, even though agriculture has no net
earnings and its capital is depreciated?
Senator W A G N E R . Mr. Meyer never told us any such thing.
Senator BROOKHART. No, but that is what I tell him.
Senator W A G N E R . You tell him what he believes?
Senator BROOKHART. N o ; I am asking him if he believes that.
Mr. M E Y E R . I neither believe it nor disbelieve it. I have nothing
to say about it. I do not see what it has got to do with the subject
under discussion.
Mr. Chairman, I want to be just as patient and as frank as I can
about everything that is proper, but the Senator is bringing in a lot
of figures and facts which do not seem to me to have anything to do
with my qualifications for this position. We can go on with this for
weeks and months and years. I don't know what you think about it,
and the other gentlemen of the committee, but I doubt that any other
candidate for this position was ever subjected to this line of crossexamination. I don't think Governor Young was when he was
appointed, or Governor Harding or Governor Hamlin or other
members of the board. This may not be a matter for me to express
my opinion on; I merely want to raise the question.
Senator BROOKHART. When Paul Warburg came in he took the
same attitude you do and refused to answer for a long time at all,
but he finally answered; and I think the Senate of the United States
will require you to answer.
Mr. Meyer has taken, Mr. Chairman, two or three times as much time
talking and bragging about himself here, as I have asking questions.
Even this afternoon he has occupied more time by a good deal than I
have in this matter.
Mr. M E Y E R . I t takes longer to answer questions than it does to
ask them, Senator.
Senator BROOKHART. I am not complaining about that. What
I am stating is that he has no right to make such criticism as he has
just suggested to the committee.
Mr. M E Y E R . I have a right to raise a question with the committee,
Senator.
Senator BROOKHART. I think these matters that I am inquiring
about are of tremendous importance in the administration of the
credit system of this country, and I shall certainly make the claim
t h a t the man who does not think so and does not try to understand
them and know them is not the man to be at the head of this system.
T h a t is the way I look at it.



NOMINATION OF EUGENE MEYER

161

Senator CAREY. I want to say in answer to your question, Mr.
Meyer, that I do not wish this hearing to go on interminably. I n
fact, we are all getting tired of it. But I would like, when your nomination comes to the floor of the Senate, to have so conducted this
hearing that no one can say that certain questions were not asked
you which should have been asked. I think some of these questions
have little bearing on your qualifications for the position.
As far as continuing this hearing is concerned, if the other gentlemen
of the committee will stay with me we will finish this to-night.
Senator WAGNER. I will stay.
Mr. M E Y E R . I want to be frank, and of course I want to be honest.
I do not pretend to know everything about everything, and so if I
do not know some things, let it not be a great surprise to the committee.
Senator GOLDSBOROUGH. If you did know everything about everything, I think it would be a great surprise.
Mr. M E Y E R . I think it would, too.
Senator FLETCHER. The quickest way is to say you do not know
and have no opinion, and let it go at that, without arguing.
Senator BROOKHART. YOU have read the minutes of the Federal
Reserve Board meeting known as the deflation meeting of May 18,
1920, have you not?
Mr. M E Y E R . I think I did, many years ago, read those minutes, socalled.
Senator BROOKHART. In those minutes, on page 8, Governor Harding
in his speech said that the directors of Federal reserve banks are
clearly within their rights when they say to any member bank, " Y o u
have gone far enough. We are familiar with your condition. You
have got more than your share and we want you to reduce. We can
not let you have any more."
Do you think that the Federal Reserve Board ought to adopt a
policy of general deflation such as indicated by that language?
Mr. M E Y E R . 1 do not know what that language means—a general
deflation. As a matter of fact, Senator, 1 have not read that document, I think, in many years. I had nothing to do with the Federal
reserve system at the time. I did not know anything about that
meeting, of course, and I am not prepared to discuss it.
Senator BROOKHART. This meeting, after discussing the matter of
general deflation, when Governor Harding's whole speech was to the
effect that there were too many Federal reserve loans and that they
ought to be reduced—is not the proper time to reduce these loans
when they are made? Is not that the time to consider inflation or
deflation?
Mr. M E I E K . Of course inflation is much better prevented than
cured.
Senator BROOKHART. But after the Federal Reserve Board had
approved these loans in a wholesale way, do you think it was right
then to turn around and call them in in a wholesale way and bring on
a general deflation?
Mr. M E Y E R . Senator Brookhart, I am not prepared to discuss the
events of 1920 to which you refer. I had an opinion at that time
on proper policy. I advocated the continuance of the War Finance
Corporation to help the situation. I went out and fought for its
revival; but I was not in touch with the Federal reserve policy and
I am not able to bring back to my mind the situation of 1920 frcm the



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NOMINATION OP EUGENE MEYER

point of view of the Federal reserve system, because I did not know
it at the time.
_ Senator BROOKHART. You advocated the War Finance Corporation, and
Mr. M E Y E R . Which had only power to help finance exports at that
time.
Senator BROOKHART. But I believe you said it loaned Iowa
$24,000,000?
Mr. M E Y E R . T h a t was later on, in 1921, under different powers.
Senator BROOKHART. That was following. This deflation did not
start on May 18. They delayed it until October.
Mr. M E Y E R . I t started in 1921, a good deal later—the lending in
Iowa, I mean. The deflation had occurred.
Senator BROOKHART. When you made the loans?
Mr. M E Y E R . By that time.
Senator BROOKHART. And the Federal Reserve Board had called
some $55,000,000 of loans in Iowa?
Mr. M E Y E R . I do not know how many they called in Iowa. I had
no contact with it at the time.
Senator BROOKHART. In the fall of the year, at the time they held
these meetings—and they held four of them in Iowa, in October
Mr. M E Y E R . Who did?
Senator BROOKHART. The Federal reserve bank.
Mr. M E Y K R . I do not know anything about those meetings. I did
not know there was any. I do not know anything about it.
Senator BROOKHART. I was at one of them, so I know a little bit
about it. They said to us, in substance, this: " W e have loaned you
$91,000,000. The Federal reserve allotment is $36,000,000 to the
whole State; and the time has come when the people are entitled to
that fifty-five million of credit and want it; so you will have to sell
your crops and reduce these loans."
That is substantially the statement that was made, And then we
asked the representative of the Chicago Federal Reserve Bank who
it was that had made the allotment of $36,000,000 to the State of
Iowa for Federal reserve loans, and he did not know. Since than I
have inquired of the Federal Reserve Board itself, and nobody knew.
I reached the conclusion that there was no such allotment made.
What I want to ask you is, if there should be such an allotment
made, if that is a right policy, when Iowa produced even in hard
times $600,000,000 of grain and livestock value, and five or six hundred
million of industrial value, because industry is worth two or three
times as much as agriculture. With that amount of production, is
there any reason to limit Federal Reserve loans to Iowa to $36,000,000?
Mr. M E Y E R . I should say not. I have no hesitation in saying
absolutely not. Of course, in 1920 everything was very complicated,
and the railroad congestion and the inability of the products of the
farms to find their way to market were important factors. You
remember, Senator Carey, that lots of cattle and sheep men drove
their cattle and sheep to the railroad yards and sidings and they
could not get freight cars and had to drive the cattle and sheep back
again up into the hills.
Senator BROOKHART. That would call for a greater allowance of
Federal Reserve loans.
Mr. M E Y E R . Yes. I think it was responsible for more, too.



NOMINATION OF EUGENE MEYER

163

Senator BROOKHART. In October when the crops are maturing,
that demands great increase of rediscounts?
Mr. M E Y E R . Yes.
Senator BROOKHART.

They passed still another resolution at this
meeting, besides the one indorsing Mr. Harding's speech, resolving
that the conference urge as the most important remedy that the
Interstate Commerce Commission and the United States Shipping
Board give increased rates and adequate facilities such immediate
effect as may be warranted under their authority, and that a committee of five be appointed by the Chair to present this resolution to
the Interstate Commerce Commission and the United States Shipping
Board.
Do you think it is a correct policy, to send a committee to the Interstate Commerce Commission to increase railroad rates when you are
deflating all the rest of the country?
Mr. M E Y E R . AS a function of the Federal Keserve Board?
Senator BROOKHART. Yes.

Mr. M E Y E R . Without being able to go back to the circumstances of
the time, I can not conceive at the present time of the board—you
say the board did that?
Senator BROOKHART. The board and advisory council and the Class
A directors.
Mr. M E Y E R . I do not see any occasion for such action under
present conditions, but I do not want to criticise what they did,
because I do not know anything about the circumstances. At the
present time, I can not imagine any combination of circumstances
that would lead me as one member of the board to an expression of
opinion on freight rates up or down or sideways. I say it is a matter
for the Interstate Commerce Commission and the railroads and the
Congress of the United States.
1 think, Senator, I might say in general that I would like to see the
Federal Reserve Board mind its own business; and I do not think
freight rates are part of the business of the Federal Reserve Board.
Senator BROOKHART. I think that is one point where we will agree.
Mr. M E Y E R . I think we agree on a lot of points, if you would only
admit it.
Senator BROOKHART. Here comes another. Let us see if we agree
on this.
At this meeting they considered raising the discount rate. In
fact, three-fourths of the discussion was about raising the discount
rate. It was away up then, I believe, to 6 per cent. The general
discussion was to raise it to 7 per cent. However, there was one
gentleman from Iowa suggested even 8 per cent; and then when the
board adjourned Governor Harding said to them:
I would suggest, gentlemen, t h a t you be careful not t o give out a n y t h i n g
about any discussion of discount rates. T h a t is one thing there ought not to be
any previous discussion about, because it disturbs everybody. If t h e people
think rates are koing to be advanced, there will be a mad rush to get into t h e b a n k
before the rates arc p u t up. T h e policy of the reserve b o a r d is t h a t t h a t is one
thing we never discuss with t h e newspaper men. If he comes in and w a n t s t o
know if t h e board has considered a n y rates or is likely to do a n y t h i n g a b o u t a n y
rates, some remark is m a d e about t h e weather, or something else, and we tell
him we can not discuss rates a t all, and I think we are all agreed t h a t it would
be very ill-advised t o give out any impression t h a t a n y general overhauling of
rates was discussed a t this conference.



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NOMINATION OF EUGENE MEYER

Is that the proper method of procedure in reference to discount
rates?
Mr. M E Y E R . I do not know, Senator, what happened at that
meeting about discount rates or the conditions. I do not want to
express an opinion about my predecessors and their actions. I might
disapprove of them as much as you, and more; but I do not think
it would be becoming in me, because some of the men who were present
at that meeting are dead. Governor Harding is dead. What in the
world is the use of you and me criticizing him and his actions here?
Senator BROOKHART. I am not criticizing him. I want to get
these facts out here.
Mr. M E Y E R . T h a t is what it amounts to. The facts I can not
contribute to, because I am not familiar with them. You said it was
a secret meeting, and I did not know anything about it.
Senator BROOKHART. D O you think banks should have the power
of raising or lowering discount rates? Do you think that is the function of a reserve bank?
Mr. M E Y E R . T O lower or raise the discount rate?
Senator BROOKHART. Yes.

Mr. M E Y E R . The law makes it a proper function.
Senator BROOKHART. Is that a proper economic function of a
Federal reserve bank?
Mr. M E Y E R . I assume, from the fact that Congress lodged that
power with the banks, that Congress believed so.
Senator BROOKHART. Congress thought the railroads ought to be
valued at $19,000,000,000, when you might buy them for $12,000,000,000.
Mr. M E Y E R . I believe in the Congress of the United States in the
long run. I t may make some mistakes, but I think it is a pretty
good American institution reflecting the will of the people to a most
extraordinary degree.
Senator BROOKHART. What effect does the raising or lowering of
the discount rate have on commodity prices?
Air. M E Y E R . Commodity prices? I have seen discount rates go
up and commodity prices go up, and I have seen discount rates go
down and commodity prices go down, and I have seen them go
the other way. I do not believe it is a direct control factor.
Senator BROOKHART. I S it a factor at all?
Mr. M E Y E R . It may be, directly or indirectly to a greater or less
degree, depending on conditions and at different times.
Senator BROOKHART. What effect does it have on interest rates?
Mr. M E Y E R . Discount rates?
Senator BROOKHART. Yes.

Air. M E Y E R . Sometimes it has some effect and sometimes it does
not. In general, interest rates—what interest rates do you mean?
Senator BROOKHART. I mean, farmers' rates. You never seem to
remember those.
Air. M E Y E R . YOU were talking about railroads here a minute ago.
Senator BROOKHART. I mean, interest rates in general. What is
the general economic effect on interest rates?
Mr. AIEYER. Lower discount rates have an effect on commercial
borrowers' rates and some perhaps on farmers' rates in some places
and districts, and in others they do not have so much effect. In
some of the states Federal reserve membership is extremely small.



NOMINATION OF EUGENE MEYER

165

You are talking about country banks that loan to the farmers. I think
we can say that out of approximately 23,000 banks in this country
there are some 15,000 banks, and mostly country banks, certainly,
that do not belong to the Federal reserve system.
Senator BROOKHART. Yes; that is true.
Mr. M E Y E R . And there are a great many thousand of those
country banks that are eligible for membership in the reserve system
but do not belong to it. I called the attention of some of the committees of Congress years ago to the failure to enlist in the system a
larger number of the eligible banks.
I do not think you can say that a discount rate does or does not do
a particular thing. I t depends on the time, the particular circumstances and the territory.
Senator BROOKHART. A little later I want to ask you a question as
to why these other banks did not go into the system.
Mr. M E Y E R . I can not answer as to why they did not go in.
Senator BROOKHART. What happened after this meeting of M a y 18,
so far as raising discount rates to force this deflation was concerned—
that was sealed up in secrecy? There was a general statement, and
in October they held public meetings all over the country with
representatives of the reserve banks. They held four of them in
Iowa, and I have told you what happened at the one that I attended.
I noticed accounts of them as far west as California. After this meeting on May 18 was held, the Armour Co. went out immediately and
secured a loan of $60,000,000 and paid 8 per cent to get the money,
and 10 years time, evidently being warned of this deflation that was
to come.
Mr. M E Y E R . I t did not do them very much good, Senator, because
Armour & Co. got into difficulty.
Senator BROOKHART. Yes; in Germany.
Mr. M E Y E R . N O ; here. Armour & Co. had to be reorganized, I
understand. I do not know much about it, but I just remember
that.
Senator BROOKHART. Swift & Co. secured a $50,000,000 loan a
little later. Sinclair Oil Co. got $56,000,000 as a loan. They were a
little forehanded; they started a few days before this meeting was
held. They knew it was coming and got this loan. In that waj
big financial institutions all over the country during this same preiod
went out and got loans. Everybody but Henry Ford. He didn't
get any.
Mr. M E Y E R . He could have, of course, if he had wanted it.
Senator BROOKHART. Just a little later he wanted it and could
not get it.
Then in October they held these public meetings and said, "Sell
your stuff and reduce these loans." Would not the effect of that be
to reduce farm prices?
Mr. M E Y E R . Prices declined at that time, Senator, all over the
world.
Senator BROOKHART. The farm prices declined a percentage three
or four times greater than prices in general.
Mr. M E Y E R . I would not say that, because all prices went down
very greatly. You are talking about a period, Senator, when I had
nothing to do with the policy of the Federal Reserve Board. I have
already told you that I was out of sympathy with the policy that was



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NOMINATION" OP EUGENE MEYER

pursued at that time with respect to the only thing that I had anything to do with, and that was the War Finance Corporation. When
I stated that, you impugned my motives and sincerity. I never was
more sincere in my life. I felt that I had to resign from the War
Finance Corporation in May, 1920 on account of my difference of
opinion. I did not know anything about the meetings to which you
refer; I did not know anything about many other things that you
may know about or that may be known about now. But certainly
I showed by my actions, so far as I had anything to do with any
question of policy, that I was not in harmony with their policy.
I think it got down to this, Senator, in those days. A great many
me,n got frightened. Fear is a great element, and sometimes things
are done because people get worried and fear seizes them. The word
"panic" comes from a Greek word meaning fear. More harm is
done in the world by fear than by conspiracies, which I think you are
inclined to attribute it to. I believe that men are often weak in
critical situations, and act foolishly. I t may look like a conspiracy
later on, b u t I think, really, it is largely lack of wisdom, and the
fear element that controls people much more than the thing you are
talking about.
W'hile I differed with the policy at the time absolutely, I never
felt that there was any conspiracy. I differed with Secretary Houston,
who was Secretary of the Treasury, and resigned. As a matter of
fact, other members of the Cabinet with whom I discussed these
matters at that time agreed with me that something should be done;
but Secretary Houston was an economist of the laissez faire school,
who apparently had the idea that you have to let these natural forces
work themselves out. I did not believe it. I felt we were still
suffering from the economic consequences of the war so directly that
we could not abandon the situation to the extent that he thought was
all right. He thought so at a time when prices were high.
I have never questioned Secretary Houston's sincerity or his
courage according to his lights. I simply differed with him on
grounds of opinion and policy, and in that difference of opinion
some of the most important members of the Cabinet sided with me.
B u t the policy was the policy of the Treasury, and also, perhaps, if
you say so, of others.
• Senator BROOKHAET. Here is an illustration of how that fear works
out. One Iowa Congressman, for instance, bought $2,000 worth of
that Armour paper, sent his money up to Chicago to back up Armour,
and when the fall of the year came around another Iowa Congressman,
who probably is the most prosperous farmer in his county and had
bought $16,000 wTorth of Liberty bonds. His bank called him in.
He was feeding about ten or twelve hundred head of cattle. He
owed something on them, but not much compared with their value.
His banker said, " T h e Federal Reserve Board is calling for a reduction in these loans."
He said, " I can not reduce my loan now. My stuff is not ready to
go. I t means a very great sacrifice if I am forced to sell in this condition."
"Well," the banker said, "you have got your Liberty bonds."
"Yes, but I didn't buy them to sell. I bought them for permanent
investment. I wanted to keep them for my children."



NOMLN ATIC X OF EUGENE MEYER

167

But the banker said that the Federal Reserve Boars demanded
reduction of these loans, and he was forced to and did sell those bonds.
Mr. M E Y E R . Who said that—the banker?
Senator BROOKHART. Yes. I am not blaming the banker, because
that is what Governor Harding said they should say.
Mr. M E Y E R . I want to say just at this point, Senator, that I do not
know whether the Federal Reserve Board said it or these gentlemen—•
Senator BROOKHART. That was the general statement at his meeting; there is no doubt about that.
Mr. M E Y E R . Please let me finish. When a banker out in the
country calls a loan he loves to say sometimes that somebody else
is making him do it. Sometimes it is so and sometimes it is not.
You know that.
Senator BROOKHART. After reading Governor Harding's speech
which I have here and after attending that meeting in which representatives of the Federal Reserve Bank said, " Y o u are $55,000,000
over your allotment and you must sell this stuff and reduce these
loans"—after that public movement on the part of the Federal
reserve system I am not going to blame the local bankers for calling
those loans under those circumstances.
Mr. M E Y E R . I can not discuss it, because I do not know the bank
you are talking about, or the circumstances; but I just want to say
in a general way that all of us here in Washington in Government
bureaus, whether it is the War Finance Corporation or the Farm
Loan Board or the Federal Reserve Board, are perfectly familiar
with the fact that some bankers at times like to blame somebody else
away from their town, maybe in Chicago or St. Louis or Baltimore
or Washington or somewhere else, for making them do something
they want to do.
Senator BROOKHART. But here was a loan that was perfectly good;
there was no doubt about its payment. I can see no reason whatever
for the banker calling that loan except that there was pressure from
the Federal reserve system.
Mr. M E Y E R . I am not prepared to discuss that question, because
I do not have knowledge of it.
Senator BROOKHART. About these 6,000 banks that failed since
1920; what was the trouble with them?
Mr. M E Y E R . There are many causes for that, depending on the
location of the banks and many other factors. The number of banks
grew from 1910 to 1920, by about 6,000, and they have gone down
by about 6,000 since then.
Senator BROOKHART. The country grew in about that same proportion, did it not?
Mr. M E Y E R . N O ; I should not think so. There is no question that
many of the State banking authorities, particularly your State and
North Dakota and some other states, encouraged too many banks.
You know there were some small towns where they had four banks
on four corners.
Senator BROOKHART. And the proper way to get rid of them is to
squeeze them out?
Mr. M E Y E R . NO ; I do not agree with you on that. The proper way
would have been, as you suggested in connection with another matter,
not to have permitted them in such large numbers. But a great many
things, of course, happened. The deflation of course hurt those banks



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NOMINATION OP EUGENE MEYER

very much. The farm loan system had something to do with taking
away from these small country banks a great many commissions
which they used to get on farm mortgages, and there was some
insurance business—a part of their source of revenue—that went with
them. They used to make money on collections, and then money
was deposited more locally until they began to build good roads,
when in many instances it was taken into the larger towns. Some
of the States built up an oversupply of banks through guaranty laws,
like in Nebraska and Oklahoma and, to a certain extent, in South
Dakota, and there was a banking inflation along with other war inflations.
Some of the banks have gotten into trouble on account of
mismanagement, although there are other small country banks that
have been wonderfully well managed. I have a great respect for the
small country banker out of the experience I had with thorn in the
War Finance Corporation, because I found many excellent, fine, able
men among them. In various States there were various causes.
Some States suffered from poor crops and low prices, and others from
drought. The cattle situation was responsible for a great deal of
difficulty, and lately other things I think have had more to do with it.
The War Finance Corporation, I think, saved a great number of
small banks that would have failed but for its help, and the letters that
we received from bankers with whom we did business in 1921 and
1922 made me feel that the corporation rendered a real service to the
small country banker and the farmers who depended on him, because
they did not have to write those letters if they did not wish to do so.
Senator BROOKHART. Let us see the facts and see if that is the case.
You started the War Finance Corporation in 1921, did you not?
Mr. M E Y E R . No. The agricultural credits act was signed August
24, 1921.
Senator BROOKHART. Up to May 18, 1920

Mr. M E Y E R . 1920?
Senator BROOKHART. Yes—I divide this on May 18, the day that
the deflation came—there were, from 1863, for 57 years, only 32 banks
failed in the first Federal reserve district; that is, New England.
About 0.56 per cent of one bank a year, about one bank in two years.
Then the Federal reserve deflation period came along, and the War
Finance Corporation a little later, and failures in the first district
declined about one in eight years.
Senator WAGNER. May I interrupt? I do not want to be complaining. I have avoided it as much as I could; but the Chair remembers, and so do the other Senators, that when the question came
up as to whether Mr. Meyer ought to be questioned again, it was
stated on the floor that the reason they voted for a recommittal was
to give Mr. Brookhart the chance to inquire into anything which had
occurred since the last inquiry. This whole subject of the War Finance Corporation has once been gone into, the whole subject matter.
Senator Brookhart stated upon the floor that there were matters that
had occurred since about which he wanted to inquire, and of course
the opinion of the Senators was that Mr. Meyer, if he were
present, would be willing to submit himself to that kind of an inquiry.
I am not finding any fault at all, but I am suggesting this to your
sense of fairness. You are asking the witness all sorts of questions
on all kinds of economic subjects, which of course we are interested



NOMINATION OF EUGENE MEYER

169

in because you have an exceptional witness here upon these questions. But is it our understanding that you are going to traverse
this whole field again and start from the beginning and go all through
this thing which the Senate and a committee of the Senate have
already passed upon?
Senator BROOKHART. I would have to have a different conception
of what the Senate passed upon. I do not think the Senate put any
limit on what questions I should ask.
But here is what I am going to do now. I am going to make a
comparison now with the condition that existed before, and it is not
going to take very long.
Senator WAGNER. I am just hoping that you will be reasonable
about it.
Senator BKOOKHART. I am going to get at the facts whether they
are reasonable or not. 1 want the facts and I will have them
brought out.
Senator WAGNER. 1 do not want to get into a controversy with
you as to what you regard as facts.
Senator BROOKHART. Now, let us see. The first Federal reserve
district, then, after M a y 18, had a decline of about 75 per cent in
bank failures.
The second Federal reserve district, New York, during this same
57 years, had 1.09 a year, which is slightly over one bank a year.
Then after this date—this is up to 1927, however, not quite up
to date—they had 0.26, a decline of about 75 per cent in bank
failures.
The third district—that is, Philadelphia—had 0.39 per cent, one in
about three years, and they declined to 0.26 per cent, nearly 33 per
cent decline.
When we come to the fourth district, Cleveland, there is an
increase of about 50 per cent in failures.
In the fifth district, North and South Carolina and Virginia, there
is an increase of nearly 300 per cent.
In the sixth district, Georgia and Alabama, there was about a
300 per cent increase.
The seventh district runs about 900 per cent increase.
The eighth district, nearly 700 or 800 per cent.
The ninth district, 2,500 per cent increase.
The tenth, eleventh, and twelfth districts had an enormous increase.
How does it happen that after we got all this assistance from the
Federal Reserve Board and from the War Finance Corporation, the
bank failures went down in the three eastern districts and then went
up so enormously in all the rest of the country?
Mr. M E Y E R . Senator, certainly I am not responsible for the acts
of the Federal reserve system in 1920. I assume you are not stating
that?
Senator BROOKHART. No, I am not attaching to you any responsibility, but I am asking the economic cause of this.
Mr. M E Y E R . When you go into the business of lending to the
country banks in 1921, the War Finance Corporation naturally
loaned the most where the need was greatest, according to the applications received through our agencies. Loans were made in Washington, upon the recommendations of the Corporation's agencies. You
felt that perhaps we did not lend enough- We loaned what the



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NOMINATION OF EUGENE MEYEE

committees recommended for the most part, and I think that what
could be done by lending was conscientiously done. You rather
reproach us for not lending more out of the total. We were ready to
lend more and agreed to lend more than they actually took when they
finally came to it. But a great deal depended on the conditions of the
banks and a great deal on the supervision of the banking department
of the States.
I do not want to criticise it now at this late period, but some of the
banking supervision in some of the States was extremely poor
Senator BROOKHART. Let me pause a moment there upon that
proposition. I find a history here for 57 years, and just preceding
this, when the ssme management was most excellent in all these
States, there were almost no failures to amount to any thing.
Mr. M E Y E R . There was a sreat expansion in banking all through
the war and the first part of the postwar period.
Senator BKOOKHAKT. Tl ere was not much expansion in Iowa,
because we stopped it.
Mr. M E Y E R . You did not stop it in time, Senator. You had
something like 1,900 banks in Iowa. There was 1 for every 600 or
700 people in North Dakota, and it was impossible to support banks
on a prosperous basis in any such proportion. You have many
strong country banks in Iowa now. I remember two or three years
ago driving out through Dallas Center, outside of Des Moines. There
were, I think, about 700 people in that town and they had something
like $2,000 per capita, man, woman, and child, on deposit in the bank
there. I t must he recognized that many of the states in the West
were what they call overbanked, and many of them had very poor
banking supervision. You thought we did not lend enough. If the
quantity of our loans were the critical factor by which you would
judge us, then I would like to ask you why we loaned $24,500,000 in
Iowa, $16,000,000 in South "Dakota, and $28,000,000 in Texas, and so
on through the South and West—12 or 13 million each in North and
South Carolina and six and a half million in Georgia—and the total
loans we made at that time in Maine, New Hampshire, Vermont,
Massachusetts, Connecticut, Rhode Island, New York, Pennsylvania, Delaware and Maryland, were $600,000, that amount having
been loaned to one organization making small loans to farmers.
Now, if it was a gocd thing to lend money to the banks, we certainly
were not fair to the banks in this part of the country if they needed
it—we did everything we could; we could not make a bank solvent
by lending it money, if it was insolvent. We loaned to banks when
we were in doubt whether they were solvent or not, but we thought
they were serving some useful purpose in their community. Nobody
could really tell at that time, because things were in a very doubtful
condition. WTe could not tell whether a bank would come through
or not. Some of them that were in doubt did come through and are
now prosperous banks. Others are not. Of course, wdtat has happened in the last few years I can not tell you, because our main
period of activity was 1921 and 1922, and perhaps a little in 1923 and
1924. But here seven years have gone by and you want to ask me
why those banks failed since the time we were actually in the business
of making loans to the extent that we were authorized under the lawrand, of course, I am not in position to give you the information.



NOMINATION OP EUGENE MEYER

171

Senator BROOKHART. What was the largest loan you made at
any one time to agriculture?
Mr. M E Y E R . I will send you that figure. I do not remember it.
Senator BROOKHART. Can you remember approximately? I do
not care for the exact figure.
Mr. M E Y E R . N O ; these things are eight or nine years old. If I
answer offhand here I might make a mistake. If you will just make
a note of it, Mr. Fahy, I will furnish the figure.
Senator BROOKHART. You can not make some estimate here?
Mr. M E Y E R . I am sorry, but I do not keep every figure in my head.
I am not a walking encyclopedia of the facts of the last 40 years.
Senator BROOKHART. YOU loaned Iowa $24,000,000, you say?
Mr. M E Y E R . Twenty-four and a half million, I think.
Senator BROOKHART. But Iowa's crop value, even at these low
starvation prices, is $600,000,000 as compared with her industrial
production of the figure that I stated. So that was only a drop in
the bucket affecting the Iowa situation.
Mr. M E Y E R . It was a very important drop, though.
Senator BROOKHART. Since the Federal Reserve Board had just
called us for $55 ; 000,000, a good deal more than twice as much as you
loaned us, the biggest drop was against us, was it not?
Mr. M E Y E R . I do not know what the Federal Reserve Board did
in Iowa. I did not have anything to do wTith it.
Senator BROOKHART. And you have no idea why this thing has
worked out to the advantage of the eastern districts and to the
disadvantage of the western districts?
Mr. M E Y E R . Some parts of the West are very prosperous. On the
whole, I think your State is considered as well off as any State in the
country, industrially or agriculturally.
Senator BROOKHART. I practiced law for 30 years in that State, and
I did not know what the foreclosure of a mortgage was. We did not
have them. When I came to the Senate and turned my business over
to my brother, his principal business has been foreclosures and bankruptcies, and he has had more business than I ever had, becpuse we
got all this help from the War Finance Corporation and the Federal
Reserve Board and the railropds—I am not putting it all on you—and
the earnings dipped out of this American pool two or three or four
times as large as the average there is in it.
Mr. M E Y E R . I included in th? record of the hearings, three years
ago, when.you went into this whole War Finance Corporation business, letters from country bankers and others in Iowa and other States
which came to us unsolicited, as far as I can remember, largely in the
course of correspondence, testifying to the helpful and beneficial
effects of the aid we rendered them.
Senator BROOKHART. Perhaps you did help them; but how about
the other fellows that did not write, like myself?
Mr. M E Y E R . I have not seen you very bashful about inserting letters
in the record against mo whenever you had any.
Senator BROOKHART. I have not inserted one up to date, and I have
got a lot of them.
Mr. M E Y E R . YOU said you had one from Mr. Beck, and he told me
you did not have.



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NOMINATION OF EUGENE MEYER

Senator BKOOKHART. I checked that, and I am mistaken about it.
Mr. Beck came to see me with Mr. Davis, the two together, and Mr.
Davis is the one that wrote the letter and not Mr. Beck.
Mr. M E Y E R . I was only referring to what you said.
Senator BROOKHART. I remembered very distinctly Mr. Beck
coming to see me.
Mr. M E Y E R . I do not know Mr. Davis.
Senator BROOKHART. He told me how you had frozen up the
Federal land banks so they could not get any more loans. I have here
some of those letters and a list of those loans that were turned down
by that bank.
Mr. M E Y E R . That happened since I was there.
Senator BROOKHART. If New York does not get too uneasy we will
go into that before we get through.
Senator W A G N E R . 1 am not uneasy. I just want to be sensible
about this; that is all. I want to confine it to the subject that is
before us, and not ramble all over the world.
Senator BROOKHART. IS there anything that is not material to the
operation of this system that 1 have inquired into on any subject,
Senator?
Senator WAGNER. YOU do not want my opinion on that. You
would not like it.
Senator BROOKHART. Yes, I think I would.
There is one other general proposition I want to inquire about.
I have here a chart of the Cleveland Trust Co. showing that in the
last 50 years we have had eight major depressions in the United
States. Look at it if you desire. The Federal reserve system was
designed to stop those depressions by a proper control of credit,
was it not?
Mr. M E Y E R . In the last how many years did you say, Senator?
Senator BROOKHART. 50 years.
Mr. M E Y E R . Of course you do not want to say that the Federal
reserve system had anything to do with the depression of 1884, which
was 30 years before the organization of the system.
Senator BROOKHART. N O ; but that is one of the reasons for enacting the Federal reserve law creating the Federal reserve system.
Mr. M E Y E R . Or even 1895.
Senator BROOKHART. That is another argument for it.
Mr. M E Y E R . Which also was 20 years ahead of it; or 1904.
Senator BROOKHART. That is another argument for it.
Mr.

M E Y E R . And

1907.

Senator BROOKHART. That is another argument for it. If it had
worked out to the benefit of the country, it would have stopped
those depressions, would it not?
Mr. M E Y E R . I t would be very fine if we could achieve the ideal of
stability and perfect balance; but the question is how to do it.
Senator BROOKHART. But since the establishment of the Federal
reserve system we have had the two greatest depressions of all, have
we not?
Mr. M E Y E R . They were all apparently in proportion, on this chart,
in their magnitude.
Senator BROOKHART. According to that chart, we spent nearly
half our time in the last 50 years getting into and out of depressions.
Mr. M E Y E R . We have spent quite a little of it.



NOMINATION OF EUGENE MEYER

173

Senator BROOKHART. And during the Federal reserve period it was
just about as bad, maybe a little worse than the average.
Mr. MEYER. Yes. Of course the Federal reserve had to contend
with the biggest economic disturber of stability in the shape of a great
World War.
Senator BROOKHART. But was not the United States profiteering
out of the World War?
Mr. M E Y E R . I should think not.
Senator BROOKHART. I t was not hit by the World War like the
other countries, was it?
Mr. M E Y E R . I think it was, Senator.
Senator BROOKHART. We went in a debtor nation and came out
heavily a creditor nation.
Mr. M E Y E R . We came out with some credits. I do not know what
progress would have been made by the United States under conditions
of peace between 1914 and 1930. I can not help but believe that we
would be in this country, as in all countries, very much better off in
every way if there had been no war. I do not believe that war brings
profit to anybody; and I think that was one of the great lessons of
this war, that the winners lost. I think it is one of the great deterrents of war in the future, that this war did demonstrate that the
winners lose and the losers lose.
Senator BROOKHART. YOU can not say anything against war that
will offend me.
Mr. M E Y E R . I do not want to say anything that would offend you.
Senator FLETCHER. You would agree with Doctor Butler, that
nobody won?
Mr. M E Y E R . I certainly would. What was the use of the cattlemen making a little money for a few years if they went broke at the
end of the peak? The cattleman would have been better off going
along quietly.
Senator BROOKHART. That has been the trouble about all these
financial schemes to help the farmer. They have all been inadequate and temporary and, in the end, instead of helping they have
hurt.
Mr. M E Y E R . I think Congress did the best it could. I do not want
to criticize Congress. I t spent a great deal of time trying to help.
Senator BROOKHART. Some of these Democrats have got me convinced that it could have been done better.
Senator WAGNER. You and I agree now.
Mr. M E Y E R . I do not think we ought to be too hard on Congress.
I think it did the best it could in a sincere and honest way. There
never was more willingness to help agriculture than was displayed in
the last 10 years.
Senator BROOKHART. H O W long did you run the War Finance
Corporation?
Mr. M E Y E R . The Agricultural credits act was passed in 1921, in
August. I t took a little time, naturally, to organize, and the real
active period of lending was for about a year or a year and a half.
Then the intermediate credit act was passed by the Congress with
the view of doing in a permanent way what the corporation had
done in a temporary way during the emergency.
Senator BROOKHART. In 1923?
Mr. M E Y E R . In the spring of 1923.
38819—31
12



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NOMINATION OP EUGENE MEYER

Senator BROOKHART. YOU mentioned doing something in the way
of credits with cotton in the South before you became Commissioner
of the Federal Land Bank.
Mr. M E Y E R . That was in 1926.
Senator BROOKHART. And who was it you worked with in that
operation?
Mr. M E Y E R . With the Intermediate Credit Banks.
Senator BROOKHART. With what person?
Mr. M E Y E R . Mr. Williams, who was then Farm Loan Commissioner. He was acting with the Farm Loan Board as a whole.
Senator BROOKHART. Mr. Williams went out with you?
Mr. M E Y E R . He went out on the trip.
Senator BROOKHART. T O organize that pool?
Mr. M E Y E R . Simply to carry out the policy of the Federal Farm
Loan Board
Senator BROOKHART. That was the big $200,000,000 cotton pool?
Mr. M E Y E R . $160,000,000 was made available by those organizations potentially.
Senator BROOKHART. Mr. Williams has been friendly in all of these
financial affairs with you, has he not?
Mr. M E Y E R . I do not know that I would characterize such relations as friendship.
Senator BROOKHART. YOU have worked together. You two have
agreed. He has followed your policy all the time.
Mr. M E Y E R . I do not think so.
Senator BROOKHART. In what respect did ho ever
Mr. M E Y E R . When you say he followed my policy, that was not
the situation. Mr. Williams and the whole Farm Loan Board,
consisting of six members, arrived at an understanding with the
president's commission as to what they were willing to do.
Senator BROOKHART. Several of them were removed?
Mr. M E Y E R . Not at that time.
Senator BROOKHART. Well, a little later?
Mr. M E Y E R . In

1927.

Senator BROOKHART. In 1927 they were removed?
Mr. M E Y E R . I did not say that. They resigned.
Senator BROOKHART. YOU came in in their place, you and Mr.
Cooksey and Mr. Harrison, and Mr. Williams stayed on the board
clear through?
Mr. M E Y E R . Yes.
Senator BROOKHART.

When was it these prosecutions began against
some officers of the Joint Stock Land Bank?
Mr. M E Y E R . I don't know exactly.
Senator BROOKHART. T h a t was during the time you and Mr.
Williams were making these arrangements?
Mr. M E Y E R . N O .
Senator BROOKHART. I t was just before
Mr. M E Y E R . T h a t may be, but I think it

you went in?
was after our cotton trip,

which, however, had nothing to do with it.
Senator BROOKHART. Among those prosecutions was that of Guy
Huston of the Minnesota Joint Stock Land Bank?
Mr.

M E Y E R . Yes.
BROOKHART.

Senator
after?




And then you continued that prosecution

NOMINATION" OP EUGENE MEYER

175

Mr. M E Y E R . I continued no prosecution. I made no prosecution.
Senator BROOKHART. Mr. Williams did?
Mr. M E Y E R . H O made no prosecution.
Senator BROOKHART. He went to the trial in the lower court?
Mr. M E Y E R . He was a witness, perhaps. I don't recall about that.
Senator BROOKHART. He stayed all through it.
Mr. M E Y E R . I can not tell you a thing about it. I t did not interest
me very much, Senator.
Senator BROOKHART. You know the officer in the Department of
Justice who wTas sent out to investigate that case reported that there
was no case?
Mr. M E Y E R . I did not know anything about it, Senator.
Senator BROOKHART. A man from down here urged that somebody
else be sent out in his place?
Mr. M E Y E R . I can not tell you a thing about it.
Senator BROOKHART. And then after Mr. Huston was tried—
Senator WAGNER. Senator, Mr. Meyer said he did not know* anything about it. Do you think it is fair to pursue the matter when he
says he does not know anything about it?
Senator BROOKHART. All this occurred during his administration.
Senator WAGNER. He has told us that he does not know anything
about, it.
Senator BROOKHART. You do not know anything about the Huston trial at all?
Mr. M E Y E R . Very little.
Senator BROOKHART. What do you know about it?
Mr. MEYER. I did not interest myself in criminal prosecutions.
Those were matters for the Department of Justice.
Senator BROOKHART. After his trail you know that he appealed
to the Circuit Court of Appeals and they unanimously held that there
was no substantial evidence of any criminal acts at all?
Mr. M E Y E R . I know he was convicted in one court and acquitted
in another.
Senator BROOKHART. But you do not know which court did the
acquitting?
Mr. M E I E R . I could not tell you the name of the court. I am not
a lawyer and I am not very much interested in those things.
Senator BROOKHART. That sort of a prosecution against an innocent man would discredit the joint stock land bank, would it not?
Mr. M E Y E R . He was convicted in one court and acquitted in
another.
Senator BROOKHART. He was acquitted by the court that had the
authority to acquit, the higher court.
Mr. M E Y E R . He was prosecuted by the authority of the Department of Justice for reasons which were referred to the department
before I came into the system. I had nothing to do with it and took
very little interest in it, because I was very busy trying to do something constructive.
Senator BROOKHART. Mr. Huston was president of the Joint Stock
Land Bankers Association, was'he not?
Mr. M E Y E R . At one time.
Senator BROOKHART. He was at the time this prosecution was taken
against him, was he not?
Mr. M E Y E R . He may have been; I don't know.



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NOMINATION OF EUGENE MEYER

Senator BROOKHART. And was the most prominent banker, you
might say, in the Joint Stock Land Bank System?
Mr. M E Y E R . He may have been.
Senator BROOKHART. And to discredit him would tend to discredit
che whole system, the governor and the others, very likely, would it
not?
Mr. M E Y E R . The legal proceedings, as I remember it, were brought
while Governor Cooper was there.
Senator BROOKHART. Not with Governor Cooper's consent, because
he appeared as a witness for him.
Mr. M E Y E R . He may have appeared as a witness for him later,
but those transactions were referred to the Department of Justice, I
assume by the Farm Loan Board, while Governor Cooper was a
member of the board.
Senator BROOKHART. They were referred by Mr. Williams.
Mr. M E Y E R . I do not imagine any member of the board could
have acted alone. I do not know a thing about it, but I do not imagine that was possible.
Senator WAGNER. Does not the Department of Justice determine
upon the facts presented, whether there is ground for prosecution?
Is not that its responsibility?
Senator BROOKHAFT. Sometimes they do. In this case they sent
the best man in the department out and he reported there was no case,
and should be no prosecution, and then they turned around, got
another man, and sent the prosecution through anyway, and the
circuit court of appeals held, after the most exhaustive investigation,
that the first Department of Justice man was right, so that it looks
like there was some
Senator WAGNER. That is an indictment against the Department
of Justice, is it not?
Senator BROOKHART. In part, yes.
Mr. M E Y E R . I referred no case for prosecution, as far as I can remember, while I was commissioner, to the Department of Justice,
about Mr. Huston.
Senator BROOKHART. Then you sent the Milwaukee Bank into
receivership.
Mr. M E Y E R . The Milwaukee Bank was practically bankrupt when
I took office.
Senator BROOKHART. I have the statement of your receiver here
for that bank, and it seems to me that it was a case of forced bankruptcy, because there was not a great deficit, even after all the charging
down of everything. So, that woidd discredit the system and reduce
the bond values and everything again, would it not?
Mr. M E Y E R . If a bank was in a bankrupt condition, it would not
be helpful; but letting a bank get into that condition is the real
trouble, not the receivership.
Senator BROOKHART. I n that case you rushed in and brought suit
to recover an assessment on the stockholders.
Mr. M E Y E R . I did not do it. The Federal Farm Loan Board made
the assessment. You keep talking to me as though I were the whole
board. I was not.
Senator BROOKHART. I think you were pretty nearly the whole
board.



NOMINATION OF EUGENE MEYER

177

Mr. M E Y E R . I disagree with you. I n fact, I know more about it,
perhaps, than you.
Senator BROOKHAKT. I think you do, too.
Mr. M E Y E R . I know that I was not the whole board.
Senator BROOKHART. I think they followed you like good little
boys, all of them.
Mr. M E Y E R . 1 do not know why they should.
Senator BROOKHART. Then, this suit was reversed by the circuit
court of appeals for those assessments. Do you remember that?
Mr. M E Y E R . I think the Supreme Court decision denying the
power of the Farm Loan Board to assess came after I left the board.
Senator BROOKHART. On the appeal, I believe it did. I believe
the lower court was against you, too. I am not sure about that.
Mr. M E Y E R . The circuit court of appeals, in a unanimous decision,
had held that the power to assess was vested in the board. I am
not sure what Congress meant by putting a double liability in the
law if it did not intend that the board should collect it. Senator
Fletcher, did you have in mind when the farm loan act was passed,
and you put in the double liability, that the Farm Loan Board
would collect that liability, or not?
Senator FLETCHER. The intention was that they should collect
all liabilities.
Mr. M E Y E R . They should collect all liabilities, and that liability
of the shareholders of joint stock land banks was one of the liabilities.
Senator BROOKHART. There was no liability in this case, the
court decided.
Senator FLETCHER. I would say in that connection that I rather
differ with Mr. Meyer in putting the responsibility on the Farm
Loan Board or on the Department of Justice in ordering these prosecutions. My impression has always been, frankly—I do not know
that I can prove it, and I do not know that you know it—that the
Treasury Department was back of all that prosecution. Mr. Dewey
sat in with your Farm Loan Board. He was sent there by the Secretary of the Treasury, and without direction of the Farm Loan Board
or its knowledge Mr. Dewey closed up five joint stock land banks.
He put examiners in five of them on one day, the same hour, the same
day. Mr. Dewey was representing the Treasury. I rather think
it was the Treasury Department that inaugurated the prosecutions
and insisted on their being pursued. What purpose they had, I
do not know, except that they might have thought they were reforming and directing' these banks along proper lines, but certainly no
commercial banking system in the world could stand an assault of
that kind. The Treasury stepped in, through its agents and examiners, and closed up absolutely, at the same hour on the same day,
five joint stock land banks. I think the Treasury, and not the Farm
Loan Board, was responsible. The Farm Loan Board knew nothing
about it until after it was done. There was no law to warrant this.
Mr. M E Y E R . I think none of the prosecutions against Mr. Huston
were referred to the department by me, because it all happened before
I was there and I knew nothing about it. When the Department of
Justice takes a course of action, I do not think I should interfere
with it.
Senator FLETCHER. I may say frankly to you, in that connection,
.that I opposed the putting off of Cooper, Landis, and Jones, and sub


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N 0 M I N A T I 0 X OP ETJGFXE MEYER

stituting three other men from the Treasury in their places on the
Farm Loan Board. Mr. Williams came from the Finance Corporation. Cooksey and Harrison and Mr. Meyer came from the Finance
Corporation. I t seemed to me that it was placing the Farm Loan
Board and the entire system under the domination of the Treasury,
and that, I did not think, was the proper thing to do. I t destroyed
the independent character of that bureau as Congress created it.
Mr. M E Y E R . I want to say that so far as we were concerned in the
board, the Treasury never told us what to do, or interfered with us,
or attempted to direct us. We did the best we could, and 1 think we
did a good job. The letters I read to the committee hero from presidents of the Federal land banks, and presidents of joint-stock land
banks, and many others which I did not read, testified to the beneficial effects of the administration that we tried to give it. I have no
desire to critize my predecessors there, as I said, but the system was
not in good shape at the time.
Senator BROOKHART. You yourself were in consultation with Mr.
Dewey all the time, were yoii not?
Mr" M E Y E R . All the time?
Senator BROOKHART. Well, yes; even before you went into the
board?
Mr. M E Y E R . He used to come occasionally to see me about things,
but, of course, I was not in consultation with him all the time.
Senator BROOKHART. He and Mr. Mellon joined with you in
the plan to get you in the board.
Mr. M E Y E R . He may have discussed the matter with Mr. Mellon;
I do not know about that. He did not join me in any plan to get mo
on the board. As a matter of fact, I was asked to go on the board at
one time, and refused.
Senator BROOKHART. Dewey was the man that asked you.
Mr.

MEYER.

NO.

Sen-tor BROOKHART. Who was it that asked you?
Mr. M E Y E R . M r Mellon asked me whether I would consider going
there. Mr. Dewey did not ask me; he had nothing to do with that.
Senator BROOKHART. YOU and Mr. Mellon were in perfect accord
in the management of this system, were you not?
Mr. M E Y E R . I did not discuss all matters with Mr. Mellon after I
went in there. I talked with him occasionally about the situation
in a general way, but he never came to a meeting of the Farm Loan
Board as far as I remember. I do not think we had any meetings in
his office.
We may have once or twice, about some matter.
Mr. Mellon was very glad not to have to hear so much about the Farm
Loan Board, and of course, he was busy about a lot of other things.
Senator FLETCHER. That has been my fear. I am afraid the
Treasury is not friendly to the system, particularly the joint stock
land banks.
Mr. M E Y E R . The Treasury desires to see the system prosperous
and strong, Senator.
Senator FLETCHER. Do you think so?
Mr. M E Y E R . Absolutely. I have every confidence in iu.
Senator FLETCHER. I hope you are right.
Mr. M E Y E R . I am quite confident that the attitude is friendly and
helpful in every possible way.



NOMINATION OF EUGENE MEYER

179

Senator BROOKHART. Then, as a result of
Mr. M E Y E R . They cannot have any other attitude.
Senator BROOKHART. AS a result of your new administration and
the improvements in administration, what happened to the value of
the bonds, both in the land banks and in the joint-stock land banks?
Mr. M E Y E R . Your question is not a fair question, Senator, in the
form you put it. There were many things in the developments of the
last few years besides the administration which contributed to the
market value of the bonds.
Senator BROOKHART. They declined all the time you were managing it.
Mr. M E Y E R . In the fall of 1927 there was no decline in Federal
land bank bonds. Beginning in 1928 there was a decline not only
in the bonds of the land bank system, but all other bonds, including
Government bonds, industrial bonds, r^iroad bonds, and every other
kind.
Senator BROOKHART. The land bank system bonds declined far
more than these others.
Mr. M E Y E R . Some of them did, and some of them did not. I
think, taking them all in all, that the Federal land bank bonds did
not. Some of the bonds of joint-stock banks that were in bad condition declined very greatly.
Senator FLETCHER. I think the Federal land bank bonds have held
up pretty well.
Mr. M E Y E R . I am glad to hear you say that. I think they have
held up remarkably well, considering how much hammering the
system has gotten from its friends, as well as its enemies.
Senator FLETCHER. I t has some enemies, all right, do you not think
so?
Mr. M E Y E R . I do not think that the opposition of the people who
fought the organization of the system, the old-line mortgage bankers,
is in evidence. I could not see any signs of it. Certainly the Treasury Department has no motive or desire other than to see the system
strengthened and prosperous. I t is an important responsibility
of the Treasury Department. Mr. Mellon is chairman, ex officio,
of the board. How he could be helped in his responsibility for a
successful administration by any harm coming to the system, and
how he could help from benefiting by any improvement in the system,
is difficult for me to see.
Senator FLETCHER. Large financial interests opposed the organization and have opposed it more or less ever since.
Mr. M E Y E R . Yes; that was in the old days, in the beginning, but
there have been $1,800,000,000 of bonds sold to investors by large
financial organizations. That is what got the money for the farmers
at these low interest rates on the long-time amortization plan and, of
course, the loans made by the system had the effect of reducing the
rates of interest on the loans made by other lenders.
Senator BROOKHART. Do you consider the interest rates the farmers have had to pay as low?
Mr. M E Y E R . They were lower than they paid previously.
Senator BROOKHART. Yes; they were lower, but does that mean
that they were down where they ought to be, or anything of the
kind?



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NOMINATION OF EUGENE MEYER

Mr. M E Y E R . Money is a thing you have to do the best you can
with. You can not dictate the rates entirely.
Senator BROOKHART. Supply and demand governs credit in somewhat the same way as it governs other things, does it not?
Mr. M E Y E R . Somewhat.

Senator BROOKHART. If we had kept our vast credit that we loaned
abroad, or even a large fraction of it, in the United States, there
would have been such a supply of credit here that the interest rates
would have gone way down, would they not?
Mr. M E Y E R . I t is very hard to say what would have happened if
other things that did happen had not happened. I am inclined to
agree that we loaned too much money abroad in 1927 and 1928. I
thought so at the time. But I do not know that my opinion on that
subject is very expert. I was merely an observer.
Senator BROOKHART. YOU do know that the farmers could not
even afford to pay the rates of interest that were charged by the
Federal land banks and joint-stock land banks.
Mr. M E Y E R . I think they must have thought they could; otherwise they would not have borrowed the money, Senator,
Senator BROOKHART. They thought they could, but they could
not, just the same; and that is the reason the bonds have declined
and all these foreclosures have occurred.
Senator FLETCHER. Bankers generally over the country rather
opposed the founding of the system, but I think the system has been
helpful to bankers. I t has relieved them of a lot of loans that it was
not proper banking to make. They were taken over by the farmloan system, so that I do not imagine that that opposition exists now.
Mr. M E Y E R . I should not think so, Senator.
Senator BROOKHART. What happened to the volume of loans
while you were the head of the system?
Mr. M E Y E R . I have not the figures in mind, Senator. I imagine
the demand was somewhat less in 1927 and 1928 than it had been in
previous years.
Senator BROOKHART. And the volume actually declined.
Mr. M E Y E R . I t may have declined somewhat. I should rather
think the demand was less. Of course, the income from amortization payments has been increasing, so that the lending power of
the land banks, out of their own money, is probably higher than it
ever was. I think I mentioned that the amortization and other
principal payments in the case of the Federal land banks runs about
$50,000,000 a vTear; in other words, approximately that amount is
available for relending out of their own income.
Senator BROOKHART. What were the foreclosures?
Mr. M E Y E R . I could not tell you offhand. I do not know.
Senator BROOKHART. In the intermediate credit bank what was
the largest amount of loans you ever made at one time?
Mr. M E Y E R . The volume was about $80,000,000; somewhere
between $80,000,000 and $85,000,000. I think it is more now.
Senator BROOKHART. The authorized amount was $660,000,000.
Mr. M E Y E R . I do not know that you would be able to float debentures for $660,000,000.
Senator BROOKHART. You were authorized to.
Mr. M E Y E R . Yes. I do not know that you could, though.



NOMINATION OF EUGENE MEYER

181

Senator BROOKHART. What happened to the volume of those
loans?
Mr. M E Y E R . They were about the same during that period as
they had been. I think they are a little higher now. I do not
think the volume is always the critical question. I do not agree
with the idea that service to a farmer is dependent on how much
you can get him terborrow. I would like to see the farmers have less,
debt, borrowing less. The land-bank system is not framed, with
these amortization loans, with any other idea than to get the farmers
out of debt. The farm-loan system has a good many cases where
loans are repaid in full and the farmers are out of debt. I do not.
think that is a bad thing for the farmers.
Senator BROOKHART. YOU do concede the necessity of a credit, and
a big credit, in marketing farm products?
Mr. M E Y E R . I object to the word "concede." I have alwaysclaimed they need it.
Senator BROOKHART. If they need it, then we have to have a credit.
system that will furnish it adequately, have we not?
Mr. M E Y E R . I think they get a great deal of money from banks,
through loans of deposits of banks.
Senator BROOKHART. D O you think the 7, 8, and 10 per cent they
have to pay in the banks represents an adequate credit system for
agriculture?
Mr. M E Y E R . I do not think it is satisfactory. I do not think the
banking system in many country districts is satisfactory.
Senator BROOKHART. I t does not fit agriculture at all, does it? I t
is built on a commercial plan.
Mr. M E Y E R . I t does not, in my opinion, offer a sufficiently strong
banking background for the agricultural needs of the country. I am
not saying this now for the first time. I have said it for years.
Senator BROOKHART. This quick turnover idea of the commercial
banking system does not fit agriculture at all, does it?
Mr. M E Y E R . That is the reason the intermediate credit banks were
organized.
Senator BROOKHART. What is their longest term?
Mr. M E Y E R . They can lend for a year and renew for two years.
They can lend actually for three years.
Senator BROOKHART. But they do not lend to farmers at all.
Mr. M E Y E R . They lend to the cooperatives, and they lend to livestock loan companies and agricultural credit corporations, but they
have not developed much business with banks. When you go into
examining why the intermediate credit banks have not succeeded in
building up much business with the country banks, which was contemplated at the time, there are various opinions as to the reasons.
One reason is the limitation on interest rate that the discounting bank
can charge on the spread. That has been suggested as one reason.
Other reasons are that they borrow from correspondent banks, and
some of them are members of the Federal reserve
Senator BROOKHART. That puts the farmers right back to their
original loans with the banking system as it is, with its quick turnover rules and high interest rates.
Mr. M E Y E R . I do not think the country banks insist on quick
turnover rules, Senator. They are familiar with the business. They



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NOMINATION OF EUGENE MEYER

•do not lend a farmer with the idea that is he going to pay them in 90
•days. They are not quite as stupid as that.
Senator BROOKHART. Bank examiners have closed several national
banks in Iowa in the last few months because their assets were not
liquid. If the farmer's note had to be renewed two or three times, it
had to be charged off or collected.
Mr. M E Y E R . A note may be good or bad.
Senator BROOKHART. Whereas, if it were a 30 or 40-year bond from
New. York, that was liquid.
' Mr. M E Y E R . I can not discuss those cases. I know nothing about
them. The examiner may have been right or he may have been
wrong.
. Senator BROOKHART. D O you take the position that assets ought to
be held liquid when they are made up largely of these long-time
investment bonds?
Mr. M E Y E R . There has to be some liquidity in a bank, because,
if you are a depositor in a bank and you want your money, you have
to be paid, and they have to get that money somewhere. If they
have loaned it to somebody who does not pay it back, and they can
not get it, how are they going to pay you, Senator?
Senator BROOKHART. T h a t was not the question I asked you.
Mr. M E Y E R . I am asking you.

Senator BROOKHART. I am not on the witness stand. I will decline
to answer just now, but I will ask you to answer my question.
Mr. M E Y E R . I am not fencing with you, but really, Senator, the
depositors sometimes want their money.
Senator BROOKHART. I asked you this question, whether or not
the rule of the Federal reserve, or the policy, should be to hold longtime bonds that are not due for 30 or 40 years, to be liquid, when the
farmer's note, which has to be renewed, will not be held liquid?
Mr. M E Y E R . A 40-year United States Treasury bond, let us say,
can be sold, any hour of the day. T h a t would be liquid.
Senator BROOKHART. Take the investment trust bonds of New
York.
Mr. M E Y E R . I t may be 40 years
Senator BROOKHART. I am not talking about United States bonds,
either. We will eliminate those.
Mr. M E Y E R . I am just talking about bonds. Bonds that can be
sold are liquid, at the price at which they can be sold.
Senator BROOKHART. On the stock exchange market.
Mr. M E Y E E . The investment market, or anywhere.
Senator BROOKHART. Are you a member of the Stock Exchange?
Mr.

MEYER. NO.
BROOKHART. Have you
Mr. M E Y E R . Yes.
Senator BROOKHART. When did
Mr. M E Y E R . Some 3 OPTS f go.
Senator BROOKHART. When?
Mr. M E Y E R . I don't remember

Senator

ever been?
you quit?

the exact year. I sold my seat,
I think, in 1922 or 1923.
Senator BROOKHART. How long had you been a member of the
Stock Exchange?
Mr. M E Y E R . From 1901 on.



NOMINATION" OF EUGENE MEYER

183

Senator FLETCHER. Mr. Meyer, may I ask you just one question?
I do not know whether you want to answer it or not. I t is a little
aside. I t goes into the banking situation more particularly. I
want some information on the subject. You have alluded to the
condition of the country banks, the rural banks, where so many
failures have occurred in recent times. Are you inclined to think
that the small-town bank or the country bank, as an independent
institution, is rather fading from the picture?
Mr. M E Y E R . No; I did not say that, Senator. I said that in
some States there were too many small banks in one small town.
Senator FLETCHER. I think that has been the case.
Mr. M E Y E R . This banking situation is being considered, you know,
by a special subcommittee, and I am attending those hearings very
regularly. I am listening to the testimony and the evidence that is
brought out with a great deal of care and attention, and trying to
learn all I can from the witnesses. The Federal reserve system has
some studies going on in connection with the general banking situation,
and they are rather comprehensive. They are trying, at least, to be
thorough.
I have not any general opinions, or conclusions rather, about the
various theories. I think that there is a lot to be said for the unit
system. You see the developments in the other direction, and some
people think that branch banking, or chain banking, or group banking, is more modern and better. I do not agree or disagree with any
of these theories because I am listening with an open mind, and I
want to learn a lot more about the whole situation before I come to
any conclusion for myself. When I do
Senator FLETCHER. D O you know what the Comptroller of the
Currency said?
Mr. M E Y E R . I heard what he said; yes.
Senator FLETCHER. I did not know whether you concurred in that
view or not.
Mr. M E Y E R . I do not accept anybody's view, Senator, just because he has it. I think the Comptroller has had very unusual opportunity to judge the situation, of course, but I can not accept his
conclusions for myself when I have so much to learn about it from all
these witnesses and all these studies that are going on.
Senator BKOOKHART. Have you studied the systems of rural credits
in other countries?
Mr. MEYER. Somewhat; not in detail.
Senator BROOKHART. They are on a different bssis entirely from
the commercial banking basis, both as to short-time loans and real
estate loans.
Mr. M H F E . In feme countries they are.
Senator BROOKHART. In mest of them.
Mr. M E Y E R . 1 made a few inquiries. I have never had occasion
to sit down and study it.
Senator FLETCHER. What contact with the security market should
the Federal Reserve system maintain?
Mr. M E Y E R . I t only maintains a contact with the security market
in accordance with the provisions of the act. I t lends on Government
bonds, 15 days, and it buys and sells Government bonds, depending
"upon the policy determined by the banks, if approved by the board.



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NOMINATION OF EUGENE MEYER

I am talking about operations under the law. Do you mean what
my opinion is on the general theory?
Senator FLETCHER. Yes.
Mr. M E Y E R . I have not any opinion about that yet, Senator. I
am thinking about these things. Those are the questions that are
coming up before the Glass committee, which is accumulating a
great deal of interesting testimony.
Senator CAREY. I think we should have an executive session for a
few minutes before we adjourn.
(Whereupon, at 5.40 o'clock p. m., the subcommittee went inta
executive session.)




NOMINATION OF EUGENE MEYER TO BE A MEMBER
OF THE FEDERAL RESERVE BOARD
TUESDAY, FEBBUAEY 3, 1931
UNITED STATES SENATE,
SUBCOMMITTEE OF THE
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.
The subcommittee met, pursuant to adjournment on Monday, February 2, 1931, at 2 o'clock p. m., in the committee room of the Senate
Committee on Military Affairs, Capitol Building, Senator Robert
D. Carey presiding.
Present: Senators Carey (chairman of the subcommittee), Goldsborough, Brookhart, Wagner, and Fletcher.
Senator CAKEY. The committee will please come to order.
TESTIMONY OF EUGENE MEYER, GOVERNOR OF THE FEDERAL
RESERVE BOARD—Resumed
Senator BROOKHART. Mr. Chairman, on yesterday there was some
little controversy between myself and Senator Reed over the Mellon
incident and the Mellon philosophy, and I want to straighten that
out absolutely first. The newspaper boys got it mixed a good deal
in their report. So I got a photostatic copy of the issue of the New
York Times of Thursday, February 18, 1926, and here is the
statement:
R. B. Mellon Optimistic,

is the big head line, and the little one is,
Banker says 1926 should be a year of phenomenal prosperity.

Then the text says:
Richard B. Mellon, president of the Mellon National Bank of Pittsburgh, who
sailed yesterday on the Mauretania, for a Mediterranean cruise, said that from
present indications he expected the business year of 1926 to be better than 1925
throughout the country generally.
Fundamental conditions underlying business are sound and favorable,

He said:
The steel business in the vicinity of Pittsburgh is showing a great improvement over a year ago. Steel rolling mills are operating at greater capacity
and railroad orders are coming in in larger volume than at this time a year
ago. Grain prices I notice have fallen off, which is as it should be.

The newspaper boys had that twisted around yesterday.
said he quoted grain prices too low, but what he said was,
They have fallen off, which is as it should be.



185

They

186

NOMINATION OF KUGENE MEYER

Then, continuing:
In my opinion, the stock m a r k e t lias not been overbought in view of our
phenomenal prosperity, and it sliould go higher. A few specialties in the
m a r k e t have apparently been overbought, but these conditions have been
quickly righted b,\ t h e m a r k e t itself. B a n k deposits in our section of the
country a r e showing substantial increases over last year, and all reports t h a t
I get show t h a t business is thoroughly sound. Clearing up of the coal situation should help t h e h a r d coal railroads and they sliould show greater prosperity t h a n they have for some time. As a whole, 1 see nothing at all to
worry about regarding t h e busine-is of the country. This sliould be a year of
phenomenal prosperity.

This quotation was first called to my attention by the Senator
from Michigan, Mr. Couzens, and I presented it to Senator Reed
exactly as I said yesterday. He has forgotten it, and I do not dispute
his honesty on that, but the Senator from Michigan remembers it
exactly as I do in regard to this whole transaction.
Now, this is important in this connection, Mr. Chairman, because
it shows the eastern philosophy; grain prices are lower, which is as
it should be. And it is that philosophy and Mr. Meyer's part in it
in handling these economic things and bringing about that result that
have brought me to this opposition to him.
Senator WAGNER. YOU do not hold Mr. Meyer responsible for the
statement by Mr. Mellon, I understand ?
Senator BROOKHART. N O , not for this individual statement, but
I do hold him responsible for a similar philosophy; and, of course,
he said the Secretary, the brother of R. B. Mellon, was the one that
first asked him to take charge of the Federal land banks.
Mr. Meyer, the prosperity of the joint stock land banks would be
reflected in their bond quotations, their bond prices, would it not?
Mr. MEYER. I do not think the condition of the banks is accurately
reflected in the bond prices.
Senator BROOKHART. "What measure would you suggest is more
accurate than the bond value?
Mr. MEYER. The intrinsic facts and figures which are not always
appreciated and understood in the market; the valuations
Senator BROOKIIAET. Well, valuations of the land. I s that what
you mean?
Mr. MEYER. N O ; the bonds are based, of course, on the land as
security, but I mean primarily the solvency of the bank and the condition of the bank; in general its ability to pay interest and principal
on the bonds.
Senator BROOKHART. The value of the land, of course, is dependent
upon the prices of the products of the lands?
Mr. MEYER. I t is one of the factors. But temporary prices might
not affect the value of land so much.
Senator BROOKHART. If they go lower, of course, the value of the
land will go lower?
Mr. MEYER. If the products go lower %
Senator BROOKHART. Yes.

Mr. MEYER. If the products go lower permanently that affects the
land to a considerable extent, I should think. Of course, some prices
are in part lower due to decreased cost of production. I n Kansas
they say_that the cost of growing wheat with the combine has gone
down quite a lot.



NOMINATION OF EUGENE MEYER

187

Senator BROOKIIAET. So when you figure the decline in the price
of wheat you figure it on the cost of production ?
Mr. MEYER. N O ; I do not figure it on that. I just say that if the
cost of producing a product is decreased a greater profit can be made
at a lower price than if the cost of production were higher.
Senator BEOOKHABT. If the cost of production increases then the
price ought to increase.
Mr. MEYER. I t will in the long run.
Senator BROOKUAKT. I S not the cost of production the real basis
for determining what farm prices ought to be the same as in any
other business ?
Mr. MEYER. In the long run it will be, because if it can not be produced at a profit it will not be produced, and production will decrease and the price advance. We saw that happen in livestock.
There was too much livestock. The pri.e went down. I t stayed
down too long, and too low, and the first thing we knew there was
a shortage of livestock and the price went up. I do not like to see
those things adjusted that way, but that is what happened.
Senator BBOOKHART. That is not what happens to automobiles or
aluminum ware or the oil prices.
Mr. MEYER. I can not tell you anything about aluminum ware. I
do not know anything about it.
Senator BEOOKHABT. YOU have heard of all of these things that I
have just mentioned to you, have you not?
Mr. MEYER. Some of them.
Senator BROOKUAKT. I S it not true that those prices are fixed by
the factories that produce them?
Mr. MEYER. Well, I suppose the producers try to set the price, but
if they can not get it they have to reduce it sometimes. We have
seen factories selling products at a loss frequently.
Senator BROOKHAET. Then they discharge their men and quit
producing.
Mr. MEYER. They try to reduce production. Of course, they are
up against the problem that if they curtail production sometimes
costs go up somewhat.
Senator BROOKIIAET. The farmer can not close down his farm and
not run it.
Mr.

MEYEK. NO.

Senator BROOKIIAET. The world demand for farm products has
always consumed them all, has it not?
Mr. MEYER. In the long run; temporarily it may not.
Senator BROOKIIAET. But in the 5 or 6 years periods they are
all consumed, even cotton.
Mr. MEYER. There is always a floating supply of almost all these
commodities, except the perishables.
Senator BROOKIIAET. That is a necessary and a sound thing to
have ?
Mr. MEYER. I consider it sound.
Senator BEOOKHABT. And it would not be an unsound situation
if the United States had a whole year's supply of wheat on hand
all the time, would it?
Mr. MEYER. I t would not from one point of view, and from another point of view it could not help, being a depressing factor in
the price.




188

NOMINATION OF EUGENE MEYER

Senator BROOKHART. That would depend upon the policy of holding, would it not?
Mr. MEYER. That is the question in my mind that I have not been
able to settle. A very large physical supply in one hand, even a
hand as strong as the Government of the United States, I am afraid
would have a depressing effect on the prices.
Senator BROOKHART. If the policy were determined and announced
and financed so it would not be sold until they got their money
back?
Mr. MEYER. I do not know.
Senator BROOKHART. Did not Mr. Hoover actually do it that way
in the operation of the Wheat Corporation?
Mr. MEYER. I do not remember the details of that, Senator. I do
not believe I ever did know. Of course, war conditions were a
little different.
Senator BROOKHART. • H e bought $535,000,000 worth of wheat at
one time.
Mr. MEYER. The Government guaranteed a minimum price for the
crop.
Senator BROOKHART. And he announced that he would hold it
until he got his money back. There was not any selling on the
boards of trade. They never sold a bushel of wheat on futures after
he made his first bid.
Mr. MEYER. Was this during the war, Senator ?
Senator BROOKHART. Yes. He wrote his letter to President Wilson on the 15th of July, 1917, asking for the Food Administration
law. The law was passed on the 10th of August, 1917, and four
days later the President appointed his F a r m Board. Sixteen days
later, on the 30th of August, they completed their deliberations and
fixed the price of wheat, just like Ford does the price of his automobiles, at $2.20 per bushel. That is for Chicago No. 1, northern.
That same day Mr. Hoover bid that price for all the wheat that was
offered; not for any little bite or slice, but for all, and the price
went to that level. Later it went to $2.26. They added 6 cents
more on when the railroad rates went up, but that was for the
railroads and not for the farmers, and he bought and held as much
as $535,000,000 worth of wheat.
Then, 1918 came along, in the fall, the war was still not over, and
we needed more bread and the President said: " Bread will win the
war." You remember the slogan at that time.
The farmers sowed 18,000,000 acres more. Then the armistice was
signed. We went through the winter good. On the 1st of March
they were predicting a 1,200,000,000 bushel crop of wheat. Eight
hundred is about the ordinary crop. A 50 per cent increase. Then
Mr. Hoover sent Julius Barnes—you know him, do you not?
Mr. MEYER. I have met him.
Senator BROOKHART. H e sent Julius Barnes to Congress. He got
a little scared about the matter. Congress had given him only
$150,000,000 in cash and authorized him to borrow more money from
the banks if they needed it. They came to Congress and asked for
a billion dollars on the 1st or 2d of March, 1919, and got it. Congress voted it all without batting an eye.



NOMINATION OF EUGENE MEYEB,

189

Then the season was not so good. The yield was cut down. They
got 968,000,000 bushels instead of the 1,200,000,000 that they had
prophesied the 1st of March.
Mr. Hoover quit the corporation on the 31st of May and Mr.
Barnes went ahead and bought 138,000,000 bushels of the 1919 crop,
and they maintained the price and stabilized it. They got all their
money back and $59,000,000 profit and turned it over to the Treasury
of the United States. Mr. Mellon has it down there safely to-day
and will not let us have that, because Mr. Mellon's philosophy is
that the farm prices ought to go lower instead of higher.
Is not that a sound economic way and the only sensible business
way to handle this agricultural surplus in the United States?
Mr. MEYER. I do not know whether that way is a sound or an
unsound way. Senator, because those conditions were war conditions;
and, of course, I think at that time a good deal of the wheat was
being sold to Europe on Government credit. You had a market
certainly in 1918, during the war, for almost any amount of wheat
in Europe for the armies and for the civil population which was
not able to grow wheat.
Senator BROOKHART. Here was the condition from the European
side, and it is practically existing to-day: England, France, and Italy,
combined together and appointed one buyer for all their wheat, and
they decided to bid $1.50 per bushel for No. 1 Chicago northern.
That was the principal reason that Mr. Hoover gave for organizing
this holding company on this side.
Mr. MEYER. I think during the war they had to concentrate their
buying.
Senator BROOKHART. And if it had not been for a holding company, financed to the limit on our side, $1.50 is all the farmers
would have gotten for the wheat.
Mr. MEYER. The Canadian pools had a great deal of wheat,
Senator. I think they were very strongly supported by the banks,
and in some cases by the provincial governments, and they had a lot
of wheat—I think at one time a considerable part of a year's supply.
They have been liquidating it at a huge loss.
Senator BROOKHART. The head of the Canadian pool has been
before the agricultural committee of the Senate and expressed
approval of cooperating with an American pool in the same way.
Mr. MEYER. I have an idea that there might be a good deal of
merit in the Canadian and American wheat growers cooperating,
so far as export wheat is concerned. I have always thought that.
Of course, Canadian wheat exports are a great deal more important,
so far as quantity is concerned, than ours.
Senator BROOKHART. Yes; that is true now.
Mr. MEYER. I have just received the Canadian production figures
for the last 20 years. The years from 1910 and 1915 apparently
averaged around 200,000,000 bushels.
Senator BROOKHART. That is our export?
Mr. MEYER. N O ; this is Canadian production.
For the last five years, from 1926 to 1930, inclusive, the production
averaged 431,000,000. With the small population in Canada, that,
of course, leaves a very much larger surplus for export.
38819—31

13




190

NOMINATION OF EUGENE MEYER

Senator BROOKHART. But to offset that the Bussian production
has declined about three-fourths as compared to the time of the
Czar.
Mr. MEYER. Now they are entering the export market.
Senator BROOKHART. We have made a big fuss but there was not
much wheat.
Mr. MEYER. I t has an effect on the market.
Senator BROOKHART. That means that the market condition is
unsound if it is going to be affected by all of these unsound rumors,
does it not?
Mr. MEYER. I t is hard to tell what affects people's minds. They
may buy wheat or they may carry a stock of wheat or they may
not. Fluctuations in the stocks of wheat in the hands of consumers
are very great.
I went abroad in 1923 to look into that very thing. I found that
the stocks in Europe in 1923, at the time I was there to study the
question, were about 15 per cent of the pre-war normal stocks of
wheat.
Senator BROOKHART. Automobile producers do not let that affect
their price. They hold right at a steady price and get it.
Mr. MEYER. No; I do not think that is so. I thought last winter
that the stocks of automobiles were excessive. In many instances
they had to cut the price and move the stock at great sacrifice. I do
not think anybody guarantees the automobile industry a price and
a profit. I do not think that they think so.
Senator BROOKHART. Well, the economic system gives them a much
stronger guaranty than the farmers ever had.
Mr. MEYER. I do not think it gives anybody a guaranty on either
side.
Senator BROOKHART. Do you think the farmers have had just as
good a chance and just as good credit in the country as industries?
Mr. MEYER. I do not think they did or did not.
Senator BROOKHART. D O you not think that that is a good thing
for you to know as governor of the Federal reserve banks ?
Mr. MEYER. I do not care to express an opinion on it. When you
talk about squareness in discussing these matters, you are putting
the question of motive and honesty into a situation with which I think
changing conditions at different times have a lot to do. You see,
Senator, it gets down to the use of wTords, to some extent.
You talked yesterday about discrimination. I can not accept that
term. You talk now about squareness. I said yesterday that I
thought the Congress of the United States, for the last 10 years, has
been more agriculturally minded and anxious to help in any sound
way that you or anybody else had to propose, which was convincing
and acceptable and promised real results, than anybody could expect;
surprisingly so.
Senator BROOKHART. Maybe if I could get you to understand what
a square deal and what discrimination mean I might not have any
opposition to your confirmation, because I think those are pretty
important to understand.
Mr. MEYER. I have expressed dissatisfaction with the operation
of the financial system in relation to agriculture, but I do not want
words put in my mouth by you such as squareness or honesty or



NOMINATION OF EUGENE MEYER

191

discrimination or malicious intent. I think there are more mistakes
made than conspiracies conducted, and you insist on making it
a conspiracy. I think people sometimes make mistakes that you
call conspiracies.
Senator BROOKHART. There are some of both going on.
Mr. MEYER. There may be. I can not say that I know all about
everything, but I attach major importance to the mistakes. I
think men are more ignorant than you give them credit for being.
I think they make more honest mistakes than you think they do,
but you say that it is a conspiracy.
Senator BKOOKIIAKT. Well, I would think that the philosophy
announced by Mr. It. B. Mellon was in the nature of a conspiracy.
Mi'. MEYER. I am not interested in his philosophy. I do not
consult with Mr. Mellon about these things, and I am certainly
not guided
Senator CAREY. I do not think that you should bring that in,
Senator.
Senator BROOKHART. I have as much right to my view on that
as you have.
Senator WAGNER. Mr. Meyer did not finish his answer. Mr.
Meyer, you said something about not being guided.
Mr. MEYER. Mr. Mellon does not guide me in my ojnnions, and
M-. K. B. Mellon does not. I do not believe I have seen him twice
in my life, and I have never talked with him about the agricultural
situation.
Senator BROOKHART. Since 1926 the agricultural situation has
steadily grown woise, ha,-- it not?
Mr. MEYER. There was a period in 1927 when there seemed to be
some improvement, and from the beginning of 1928 until the middle
of 1929 the prices of farm products on the average were about
stationary.
Just for the benefit of the committee, I have had prepared a chart
which may be interesting. I was thinking over our discussion yesterday. Senator, regarding the period of activity by the W a r Finance
Corporation under the power to make agricultural loans, which began on August 24, 1921, and terminated December 31, 1924. During
that period agricultural commodity prices did not decline. On the
contrary, they advanced. I sent for a chart on the prices of farm
products, which is based on the index of the Bureau of Labor Statistics, and I found that on the 1st of July, 1921, shortly before the
War Finance activity began, the index price, which is the average
as compiled here, was about 87.
Senator BROOKHART. That had dropped clown from what?
Mr. MEYER. One hundred and sixty.
Senator BROOKHART. I t had gone off 50 per cent right following
Federal reserve deflation?
Mr. MEYER. I am talking about the War Finance period of activity. When the authority to make loans expired the price averaged
112. I n other words, taking it through the whole period, there was
a rise from 87 to 112, although there were minor fluctuations during
the period as there always are. I do not want to be in the position
of claiming credit for this, Senator, but if it had gone down in the
period of the activity of the W a r Finance Corporation as much as it



192

NOMINATION" OF EUGENE MEYER

went up, you certainly would charge me with a great deal of responsibility in connection with it.
Senator BEOOKHAET. Then following the War Finance you continued in charge of the agricultural financing through the intermediate credit banks?
Mr. MEYER. Not at all. I had nothing to do with it for three and
a half years after the corporation discontinued the making of new
loans. And I was not in charge of the agricultural situation when I
was farm loan commissioner and member of the board supervising
the intermediate credit banks. That is only a small part of the
situation.
Senator BROOKHAIIT. Well, that is a p a r t of it. Of course, I am
not now charging you with all of this blame.
Mr. MEYER. I hope you are not. I t would be ridiculous if you
did.
Senator BROOKHART. I have something to say about the railroads
and the tariff contributing, and even in some cases the Senator from
New York agrees with me; but this element in it was a considerable factor.
Mr. MEYER. N O ; not a considerable factor.
Senator BROOKHART. And the policy of the Federal land banks
and the intermediate credit banks has continued the same since you
went out ?
Mr. MEYER. I do not know anything about them since I left there,
about two years ago.
Senator BROOKHART. And prices have gone down, as this chart
shows.
Senator GOLDSBOROTTGH. Mr. Chairman, I suggest that the chart be
put in the record.
Senator CAREY. If there is no objection, it will be incorporated in
the record.
(The chart above referred to, headed, " Prices of Farm Products.
Index of Bureau of Labor Statistics, 1926-100," appears on following

P a g e -)
Senator \\ AGNER. Senator Brookhart, I do not know what you
meant when you referred to the Senator from New York. The
Senator from New York voted for every one of the agricultural
bills, including the equalization fee.
Senator BROOKHART. He is all right most of the time.
Senator WAGNER. Well, of course, you are right all the time.
Senator BROOKHART. On agriculture I think I am.
Senator WAGNER. I do not want to raise a controversy. Your
intentions are sincere; there is no doubt about that.
Senator BROOKHART. Well, I think the same of the Senator from
New York.
Senator GOLDSBOROTTGH. This is beginning to be pleasing.
Senator BROOKHART. I n reference to these Joint Stock Land Banks
you went into business of stabilizing them and bringing them back
to soundness, and they were getting in a bad way. Was that the
idea?
Mr. MEYER. To do' what could be done to improve conditions in
the bureau and in the banks.
Senator BROOKHART. Then your policy has been continued?
Mr. MEYER. I have no control over the policy, and I have no

knowledge of it since I left.


KOMHsTATIOST OP BT7GEK"E M E T K R

193

Senator BKOOKJTAKX. A r e not t h e men t h a t you p u t in t-hero still
therei
Mr. MKTF.K. Some of t h e m are.
Senator BKOOIUIAKT. W h i c h ones?

Mr M E T E R . T do not know. I can not give yon a list of the m e n
in the bureau. There, are 100 or snore people In Hie b u r e a u here,
a n d a considerable- n u m b e r in the field.
S e n a t o r BIEOOKIIART. Y O U know who were on the board I
Mr. M E T E K . T h e board is t h e same fif= it was w h e n I left, w i t h t h e
exception of t h e a p p o i n t m e n t of my successor,Mr. B e t t o r of S t . Bonis,,
Senator BKOOIO-IAKT. T h a t is what I understood.



194

NOMINATION OF EUGENE MEYER

Mr. MEYER. Well, there is no secret about it, and there is no
mystery about it.
Senator BROOKHART. Then I wonder why you could not have
admitted it at once.
Mr. MEYER. If you had asked me I would have done so.
Senator BROOKHART. This is a quotation of December 15, 1930:
"Atlanta bank, bid 45 and asked 50; and the Atlantic bid 57 and
asked 60." The " Bankers CD." What is that?
Mr. MEYER. I do not know.
Senator BROOKHART. Well, they bid 20, and there are two other
issues each with a bid of 20 in there. The Burlington. What one is
that? Is that Burlington, Iowa?
Mr. MEYER. I do not remember. I t might be. I think probably
it is.
Senator BROOKHART. Bid 55 and asked 58. Now, as I run down
through all of these joint stock land banks there is only one, the
First Trust of Chicago, which bid 100 and asked 102, and on another
issue bid 97% and asked 100. Those are the only issues that are at
par in any of the banks. Does not that indicate that your co-called
efficient management did not get the results that you expected?
Mr. MEYER. I t doe.-, not. Those prices, to the extent that they do
reflect conditions, either largely reflect conditions which were in the
banks at the time I went in there but which became more evident
later on, or are the residt of changes of an adverse character that
have occurred in the conditions affecting agricultural products and
land values. The drought has been a very serious factor for some
of the banks.
Senator BROOKHART. Well, the discontinuance of loans and the
forced sales had more to do with that situation than anything else,
did they not ?
Mr. MEYER. I do not know, Senator. There has been no discontinuance of loans by the banks, so far as I know.
Senator BROOKHART. I mean the new loans.
Mr. MEYER. I do not understand. Senator, that there has been any
discontinuance of new loans by the Federal land banks. The joint
stock land banks have funds available from amortization and other
principal payments that they can use to make new loans or buy their
own bonds according to their own judgment.
Senator BROOKHART. Let me see if we can get a little light on that
from Mr. Davis and Mr. Beck about whom we have had some talk.
This letter that I have here was written from Marion, Iowa, to the
Federal F a r m Loan Bureau. Washington, D. C.
Mr. MEYER. What is the date of it, Senator ?
Senator BROOKHART. I t is dated January 8, 1929. You were still
there then, were you not?.
Mr. MEYER. Yes. I t was written by whom?
Senator BROOKHART. This is written by Mr. Davis's board.
Mr. MEYER. What bank ?
Senator BROOKHART. I t is the loan association at Cedar Rapids,
Iowa.
Mr. MEYER. I t is the association ?




NOMINATION OF EUGENE MEYER

Senator

BEOOKHAET.

195

Yes. The letter reads as follows:

We as stockholders and members of the Iowa National Farm Loan Association of Linn County, Iowa, beg leave to report that our secretary-treasurer of
this association, T. J. Davis, has served this association for 10 years, since its
organization.
That to our certain knowledge, he has faithfully advised with not only the
loan committee, but seeks advice from different members as to the lands and
owners of farms he examines.
He has at our annuals detailed the business of the past year in detail to us
as members, and he has this year comprehensively gone over the business of
the past 10 years as to every borrower.
Our secretary-treasurer has taken up with the directors and others some of
the increasing difficulties he has in completing loans and reviewed the correspondence regarding the same.
With the knowledge that this association has had an enviable record during
these years with no delinquent payments, we have a justifiable pride and full
confidence in the ability of our secretary to present safe loans.
From reports shown us from time to time and from the complete review given
us this day we are impressed with the fact that each year, particularly for the
past three years, our applications have been misused by the Omaha office, for
we are shown from a recent report of 51 loans submitted that 21 of their own
appraisers report were cut as to amount. This shows that our secretary, the
three local appraiser reports, as well as the Omaha appraisers reports, were
reduced or rejected by the Omaha office.

Now, would not that have a tendency to reduce the land values,
that sort of system of appraisal?
Mr. MEYER. I can not remember the letter; maybe I saw it at the
time; but there were frequent differences of opinion between associations and banks, which, for the most part, were taken up by the
officers of the associations and the banks.
Senator BROOKHEAET. But here was an association manager, a man
of exceptional ability and exceptional intergrity and exceptional
knowledge of all of these things; and yet that is the way his applications are met.
Mr. MEYER. Senator, I cannot tell you about these particular applications, but the Board prabably took that matter up with the
bank. What happened to it I can not say from memory now after
two years, but you will remember that Mr. Beck had some difficulty
with the bank about some of his loans and appraisals. He took them
up with me when I was in Omaha, and he wrote you a letter that the
matter had been adjusted to his entire satisfaction.
Senator BROOKIIART. But he came to me with this same Mr. Davis,
and the policy had been revived against him and he was just as
much displeased as ever.
Mr. MEYER. YOU can realize that with twelve banks doing
business with over 4.500 associations there is bound to arise some
difference of opinion as to valuations. I n particular cases, the bank
may be wrong and the association right, or vice versa.
Senator BEOOKHAET. The letters that I have here are from most of
the State banks. I see it is everywhere.
Mr. MEYER. But with 4,500 associations operating in the United
Slates you can not expect to have everything work absolutely)
smoothlySenator BROOKII^KT. But should there be any serious question in
an association that for 10 years has never been delinquent and
that is jointly liable on the loans that it is proposing?
Mr. MEYER. I do not know the details of the matter sufficiently.



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NOMINATION OP EUGENE MEYER

Senator BROOKHART. Would it not appear to a business man that
it was sound?
Mr. MEYER. I would be prejudiced in favor of the association if
its record was good, but sometimes an association exhausts the good
loans in its territory and wants to bring in some that are not so
good. Mr. Beck, I happen to know, is highly regarded by the bank,
and I understand was not only operating his own association, but
was also put in charge of another, showing that they thought very
well of him.
Senator BROOKHART. And Mr. Beck was a good man and not any
better than Mr. Davis?
Mr. MEYER. H e may not have been. I just happen to know Mr.
Beck, and I do not know Mr. Davis personally.
Senator BROOKHART. H e was a man of wider experience than Mr.
Beck.
Mr. MEYER. Probably so; but with 4,500 associations all over the
United States, do you think the board in Washington can judge all
the details of each of the situations ?
Senator BROOKHART. The board graded and classified them and
p u t them on this roll of honor.
Mr. MEYER. N o ; the bank did.
Senator BROOKHART. And you had that report from the bank at
the board.
Mr. MEYER. But the board does not make the loans. I t is the bank
that makes the loans. As a matter of fact, the board has no power
to compel a bank to make a loan if it wants to.
Senator BROOKHART. There is no doubt about that, but it has a
very great influence in the system regarding the policy to be f ollowed.
Now, let us note sonle of the facts. This letter continues as
follows:
We briefly allude to a few. Mr. Bremers w a s rejected and every p a r t of his
f a r m showed safety and t h a t he m a d e money. Mr. MeOreary. on which our
secretary worked for nearly a year, was accepted and then refused after the
acceptance, although Mr. Davis had a banker and other m a k e affidavits as
to t h i s land, sent in photos, soil analysis, and in fact proved by every method
t h a t the f a r m w a s a good risk.
T h i s he appealed to Washington, and it would appear that from t h a t time
it became more difficult. This year Mr. Penri was reported favorable by t h e
Omaha appraiser and rejected from head office. Mr. J. W. Johnston was cut
deplorably. Mr. W a g o r to many of us well known, was radically reduced,
and t h e same day a loan of Mr. Etzel was accepted for the sama amount per
acre and not as good. Mr. Boone, on which much correspondence was carried,
w a s the worst case of malfeasance of all. Tins man had never mortgaged in
his life, had enough stock to pay all he owed, had 260 acres with some $17,000
of buildings and wanted about $40 per acre joining on three other risks not
as good who were granted some $05 per acre. P a r t of his $11,000 asked for
w a s to buy new lands t h a t would be clear. H e w a s cut to $9,500, or about $37
per acre, although t h e corre pondence shows t h a t it was recommended for
full a m o u n t by their appraiser. This was lost and the Connecticut Mutual
loaned Mr. Boone $12,000 as he decided to build another barn.
Our Secretary was told t h a t this was a poor farm b.\ two members of the
home office. Mr. F i n n e g a n w a s rejected on 160 acres, although lie went to
Omaha a n d told them he could get along w i t h $5,000; 115 acres were in crops
and 80 acres w e r e safe for t h e $5,000. All above secured from good companies,
the loans and this association lost. Mr. Messner w a s rejected on a request
for $13,000 on a farm he h a d over $40,000 In on No. 30 and near Cornell College,
nearly a picture f a r m w i t h some p a s t u r e , rough b u t good, balance of farm
all plow land.



NOMINATION OF EUGENE MEYEB

197

Mr. Hemphill was rejected for $2,000 on 155 acres, never before mortgaged,
because lie rented p a r t of this and farmed t h e balance himself and directly
managed as shown by t h e application.
Mr. Charles McCreary, brother of t h e other McCreary, w a s cut to $9,500
from $10,800, and this had been reduced from $4,000 from t h e original mortgage, $2,000 of which he paid this winter and h a d in addition spent several
thousand in tile, a big barn, cement hog house, and so forth, since h i s original
mortgage. All of which was paid from his farm earnings.
Mrs. Ford was cut from $22,000 to $18,000 on 240 to $18,000, although t h e
N. W. Life w a s carrying $17,000 on 200 acres of t h i s farm, and we have a loan
of $100 per acre as a p a r t of this large estate and did carry $100 per acre on
40 of this same 240.
Mr. L. J. Johnson was cut last week on 140 acres from $11,000 to $10,000,
and the same date Mr. Rauch on 176 acres w a s cut from $13,000 to $10,000,
and Mr. Rauch is carrying $10,000 insurance and Johnson only $3,000.
T h e Rauch land is 35 acres more, $7,000 in insurance and easily w o r t h $25
per acre, more t h a n Johnson's both very safe and desirable loans with big
crops on both farms.
Mr. Erien on 192 acres of value of about $32,000 to $33,000 asked for $14,500
and was reduced to $13,500, and by t h e assistance of t h e Secretary helping him
in accepting the cut.
These three last above all occurred in December last. Many applications
reduced in recent years have been completed by the Secretary loaning them
the difference.
This is but a small p a r t of t h e complaints t h a t h a v e led to much correspondence with our secretary, and h e has been asked t o appeal t o t h e
F a r m Loan Board for some relief and back of him w e s t a n d united as a n
association.
H e has reviewed the interest reductions due to some of u s t h a t h a s been
allowed to some and refused to others although his files show t h a t i t w a s
promised and then by various contradictory l e t t e r s w a s shelved a n d w e h a v e
found our Secretary a t all times working for t h e f a r m e r s w i t h ever a
regard for t h e safety of loans submitted
We feel t h a t this association h a s not been used fair and more especially
when we a r e shown t h a t some other secretaries who h a v e equally a s good
quality have been also so treated while others seem to have success, leading
us to the belief t h a t gross p a r t i a l i t y h a s been used against us. W e wish t o
place ourselves on record as upholding him and in t h e stand he h a s t a k e n
fairly and we also will support him as it now stands in his efforts to secure
for us the interest reduction we a r e entitled to as promised by h i m in securing
our loan and a s promised to him by t h e Omaha officials; this we consider both
unfair and not honorable, a n d from the best a u t h o r i t y we can find, is not legal.
We dislike to enter t h i s protest, but it is either do this or lose not only our
secretary but also our own pride in t h e working of t h e splendid F e d e r a l l a n d
system.
We a r e even told by officials t h a t an appeal to Washington is of no avail
a s Congress has nothing to do with t h e F e d e r a l land banks which we have
always supposed were promoted and protected by Congress.
This and much more could be given from t h e letters and files shown us, a n d
it is with full knowledge and proof of these m a t t e r s t h a t we subscribe to t h i s
and recommend its following up with the authorities who surely will be fair
and impartial.
Signed:
C. I. MITCHELL.
MARTIN L U T H E R .
GEO. R. R. TOURII.
CLAREXCE MARTIN.
E. M. ROBSON E S T . ,
By R. F . ROISSON.
E D W I N HALSTEAD.

C. R. H A W K .
FRED SNYDEK.
D. C. H A M P T O N .
E L M E R YOUNG.
H . N. ROCKWOOD.
Mrs. J U L I A BOOTH.

Mr. MEYER. When did you get this, Senator? Did you get it at
the time?
Senator BROOKHART. No; it was brought to me by Mr. Beck and Mr.
Davis.



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NOMINATION OF EUGENE MEYER

Mr. METEK. When was that ?
Senator BROOKHART. I could not remember the date. I might be
able to find it.
Mr. METER. Was it after I had resigned on May 10, 1929 ?
Senator BROOKHART. I rather think it was before that, but it continued on after that.
Mr. MEYER. Of course, with 4,500 associations, it is impossible to
remember them all. Any matter of that kind that came to me at the
time I tried to give proper attention to. Sometimes I would be away
when a thing like that would come in. Sometimes it would be dealt
with by the bureau, but I am sure that the bureau was endeavoring to
see that the relations between the associations and the banks were
smooth and that the system was functioning. Occasionally friction
developed, and, of course, the bank or the-association, or both of
them, might be at fault. I n this matter, Senator, I would like, if
you will and if you are interested, to send to the bureau and find out
what it was all about and what wTas done about it.
Senator BROOKHART. I did have it up with the bureau later.
Mr. METER. I do not believe that you took anything of that nature
up with me while I was there.
Senator BROOKHART. I think it was after you had gone, but not
long afterwards that I took it up.
Mr. METER. Those things develop in a system doing an enormous
business all over the country; and, of course, the bureau does what
it can to improve the organization and the working of it.
Senator BROOKHART. When I get those things and similar things
that I have here from many States, and then when I see that the
farm loan system has supplied only one-eighth of the demand, that
looks to me like it had been worked as a system and as an idea all
through the system.
Mr. METER. Well, it is not an eighth of the demand. I t is oneeighth of the total amount of the farm mortgage indebtedness.
Senator BROOKHART. There was a demand for all of those loans.
Mr. MEYER. They did not all come to the land bank system, of
course.
Senator BROOKHART. I know of nothing that will injure land value
more than that sort of a lending system.
Mr. MEYER. I do not remember that you ever took up with me
while I was there a single thing connected with the bureau.
Senator BROOKHART. The things began to come to me about the
time you quit.
Mr. METER. I am sure that the bureau would be very glad to hear
from you in every case about which you receive a complaint and to
go into it most carefully and conscientiously and let you know what
the trouble is, if there is any trouble. Both sides of these questions
have to be heard.
Senator BROOKHART. These men write a letter that ought to have
attention without a United States Senator bothering about that.
Mr. METER. But if you bring in complaints that you get, I am
sure that the bureau wrould take them up and study them and perhaps give you some information which may explain them. They
may also get some information by Avhich they can improve the
operation of the system.



NOMINATION OF EUGENE MEYER

199

Senator BROOKHART. I n this same quotation on the Federal land
bank bonds I found 4's in May, bid 85 and asked 88; 4's in November, bid 85 and asked 88: 4y*'s July, bid 86 and askecl 88y 2 . There
is only one up to par. December, bid 100 and asked 100%.
"Was it not this restriction policy, together with forced sales of
land, that brought that about?
Mr. METER. Not in my opinion. All bonds went down between
May, 1928, and May, 1929, including Treasury bonds. United
States Government bonds—long time bonds—went down something
like 10 per cent.
Senator BROOKHART. Then you put on a system of having the joint
stock land banks—-I do not know how this is as to the Federal Land
banks—buy in their own bonds and resell themMr. MEYER. I put on no system.

Senator BROOKHART. They did that.
Mr. MEYER. They have authority to do that under the law that
Congress passed.
Senator BROOKHART. YOU advised that and supported that?
Mr. MEYER. NO ; I did not. I n some cases, they asked the board's
approval of their buying their bonds and the board considered it.
• Senator BROOKHART. And granted it?
Mr. MEYER. And granted it where they could properly.
Senator BROOKHART. And they are all doing that now, or practically all of them ?
Mr. MEYER. I do not know what they are doing now, Senator.
Senator BROOKHART. And were while you were in there?
Mr. MEYER. Some of them were; by no means all of them.
Senator BROOKHART. That meant liquidation of the banks, did it
not?
Mr. MEYER. They were using their revenues for buying bonds.
Senator BROOKHART. Instead of making new loans to the farmers?
Mr. MEYER. I n some cases.
Senator BROOKHART. And that would tend to depress the bonds?
Mr. MEYER. Not necessarily. On the contrary, it would have a
tendency to prevent the bonds from going lower.
Senator BROOKHART. But they did not buy them unless they went
lower ?
Mr. MEYER. I do not know about that, Senator. Probably some
of them did and some did not.
Senator BROOKHART. They were bears in the market?
Mr. MEYER. I hope not. I always urged them, if they did buy, to
buy at the market. They could not buy any other way; they could
not buy below the market.
Senator BROOKHART. I n order to get part of the money to buy
these bonds they foreclosed mortgages in default ?
Mr. MEYER. That did not cive them cash, because even when they
sold the property, they usually sold on a deferred payment basis.
Senator BROOKHART. Sometimes they got cash?
Mr. MEYER. Not much, I should think, as a rule.
Senator BROOKHART. I n Iowa they nearly always did.
Senator CAREY. The joint stock band bank is a private institution,
is it not?
Mr.

MEYER. I t

is.




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XmilXATIOST OF EUGENE MEYEB

Senator CAKEY. I t is simply under Government supervision, the
same as a national bank is?
Mr.

MEYER. I t

is.

Senator CAREY. And your board could not dictate to them as to
how they should conduct their business?
Mr. MEYER. Except as provided under the law.
Senator CAREY. With reference to whether they should foreclose
or whether they should buy bonds, you had no power to dictate to
them as to that, had you ?
Mr. MEYER. N O ,

sir.

Senator CAREY. That is all.
Senator BROOKHART. You did dictate as to their managers and
officers, did you not?
Mr. MEYER. I did
not.
Senator BROOKHART. When

they were not satisfactory to you
they were forced to resign?
Mr. MEYER. YOU mean joint-stock land banks?
Senator BROOKHART. Yes.
Mr. MEYER. No.
Senator BROOKHART. That is true in Mr. Huston's case.
Mr. MEYER. I n what bank?
Senator BROOKHART. I n Southern Minnesota.
Mr. MEYER. H e never was at the head of the Southern
Senator BROOKHART. W h a t bank was he in ?
Mr. MEYER. The Chicago Joint Stock Land Bank.
Senator BROOKHART. That is right.

Minnesota.

Mr. MEYER. Mr. Huston resigned as the result of a consideration
of the case of the joint-stock land bank by a committee of the Joint
Stock Land Bankers Association, and also as a result, I think, of
the opinion of some of the bankers that had sold the securities and
also as the result of the attitude of the board of directors of the bank
in 1927.
When Mr. Huston organized the Chicago Joint Stock Land Bank
with $250,000 capital, a contract was made with him and his brotherin-law, a day or two after he organized it, which provided, among
other things, that he and his brother-in-law should get, I think—I
am not sure—a part of the profits amounting to 50 per cent above
6 per cent earnings on the stock. All the shares, or most of them at
least, that he sold subsequently, amounting to three and three-quarter million dollars par value, as I recall it, were sold at a considerable premium on the prospectuses which he put out, without any
knowledge, so far as we could ascertain, on the part of the buyers
or the public that Mr. Huston and his brother-in-law had a contract
of that character.
At the time I went on the board Mr. Huston asked for a conference
and submitted a proposition which called for a cancellation or a
modification of the contract. The board felt that Mr. Huston's
contract was a contract involving a dual relationship as principal
and agent. H e was the beneficiary of the contract and he was the
principal, in that he was the president and a director of the bank
when the contract was made. The board felt that a contract of
that kind—and you know as a lawyer more about contracts than
I do—that that method of making a contract in itself presented



NOMINATION OF EUGENE MEYER

201

difficulties. An adjustment of the contract, no matter how fair
and how proper, seemed to be difficult to make while Mr. Huston
remained as an officer of the bank—modifying the contract in the
same manner that it was originally made. The board, through its
secretary and general counsel, pointed out that difficulty, and it was
felt that the stockholders' protection lay in having that matter considered by officers of the bank other than the executors of the contract—the beneficiary of the contract and the modifier of the contract. A committee of five members of the Joint Stock Land Bankers Association selected a new president; I did not select him, nor
did the board select him. I suppose his salary was approved. I t
had to be.
That is my recollection of the course of events in a general way.
I t was a long time ago and it was one of many incidents in a very
busy period.
Senator BROOKHART. While he handled the bank its bonds stayed
at par ?
Mr. MEYER. I do not know anything about the price of the bonds.
Senator BROOKHAKT. Then after your committee got charge of it,
they began to decline.
Mr. MEYER. Not my committee—a committee of the Joint Stock
Land Bankers Association.
You agree that that kind of a contract could not be properly executed in that way, Senator, don't you ?
Senator BROOKHART. Oh, yes; and I agree that there was nothing
criminal brought against him.
Mr. MEYER. There was no criminal prosecution on that contract.
Senator BROOKHART. Not on that, but on other things, similar ones.
Mr. MEYER. I do not know anything about that.
Senator BROOKHART. And the court so held; and the prosecution
was a very great injury to the whole joint-stock land bank system of
the country, because he was secretary of the Joint Stock Land Bank
Association.
Mr. MEYER. Not at the time I came into the situation. Mr. Hendrick was president of the association, I think.
Senator FLETCHER. With reference to the relation between the
F a r m Loan Board and the joint-stock land bank, the cliarter of the
Joint Stock Land Bank is granted by the F a r m Loan Board?
Mr. MEYER. The charter is granted by the F a r m Loan Board.
Senator Wagner, you are a lawyer and used to be on the supreme
court. Could the board, in your opinion, on the facts as stated,
have taken any other position? I do not see what else it could have
done.
Senator WAGNER. I think it was your duty to take the stand that
you did.
Senator BROOKHART. There was no controversy with Mr. Huston
about that. He simply did it the way you wanted it done without
any controversy at any time.
Mr. MEYER. There was quite a delay. H e did not want to resign
until after his trial was over, and to that, as I recall it, the board did
not offer objection.
I do not think Mr. Huston was treated by myself or by my colleagues in a way that justifies his feeling that he was persecuted.



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NOMINATION OF EUGENE MEYER

On the contrary, I think he should feel, even if he doesn't, that he
was treated with consideration. H e sent his lawyers to see me later
about the prosecutions, and I told his lawyers that I had nothing to
do with them, because they were matters which were in the hands of
the Department of Justice.
Senator CAREY. Did Mr. Huston control the board of directors so
that such a contract could be entered into, or did they approve it?
Mr. MEYER. At the time of the organization of the bank, I could
not say whether he controlled it or not. That was many years before I became a member of the board.
Senator WAGNER. He executed it as president ?
Mr. MEYER. He must have.
Senator WAGNER. I was wondering whether the board of directors
took the matter up.
Senator BROOKIIART. Oh, yes. There was no secrecy about it at all.
Mr. MEYER. Yes, there was, Senator, if you will pardon me.
Senator BROOKHART. A S to a similar contract in the other case, the
circuit court of appeals held there was not.
Mr. MEYER. That was a different contract entirely. That was a
contract for the sale of securities, and I do not understand that the
case in Minnesota had to do with that. I do not know about the
Minnesota case. I did not get into that. There was no lawsuit over
the Chicago situation so far as I know.
Senator BROOKHART. N O ; but it Mas reorganized
•
Senator WAGNER. H a d you heard of such a contract?
Mr. MEYER. The stock was sold without knowledge on the part of
the buyers of the existence of such a contract. Therefore it was
secret from them.
Senator BROOKHART. When he managed it, under this bad contract, his bonds were at par and everything was in good shape. This
quotation I have here shows that as to 5i/>"s, bid 50; asked 5:>; 5's, b'd
46, asked 50; 4%% bid 43, asked 46; 41/fT's, bid 40. a^ked 1:5.
Mr. MEYER. The statement of the condition of the bank as published in that period by Mr. Huston did not properly reflect the
condition of the bank. Real estate was carried in the names of
dummies instead of being shown as real estate, for one thing. That
I happen to remember.
Senator BROOKHART. That real estate dummy business: that is
a custom of banks of all kinds. I n our country when they get a
piece of real estate they put it in the name of some of the directors
or officers of the bank and carry on the books in that way. Thereis no concealment of the fact that it is carried in that way. That
is the same way that this was done, was it not ?
Mr. MEYER. I do not consider that carrying real estate in the name
of a dummy and classifying it as a farm loan is a true statement of
the facts to the stockholders and bondholders and to the public. If
a bank chooses to carry real estate in the name of a dummy, it may
perhaps, as a private institution, do so under certain circumstances,
but not if it calls it a loan instead of real estate.
Senator BROOKHART. Do you claim that there was any fraudulent
purpose in carrying that real estate in the name of some one in that

way?



NOMINATION OF EUGENE MEYER

203

Mr. MEYER. I do not care to discuss that point. Perhaps sometimes there was and sometimes there was not. Anyway, it did not
reflect the facts as to the condition of the bank with regard to real
estate; and I think when the security holders found the facts by the
publication of them in proper form, with t r u t h instead of concealment, they found the condition of the bank was not quite as good as
they thought it was or as it had been represented to be.
Senator BROOKIIAET. Then this policy of buying their own bonds
at a low figure and canceling them put it in a worse condition?
Is that true?
Mr. MEYER. No; not in my opinion. I , however, always advised
banks, if they asked me, to buy the bonds at the market price whatever it was.
Senator BKOOKHART. There are a few general questions on international matters, before I take up the matter of the remedy of this
situation.
How much money did Europe owe the United States on trade
balances in 1920?
Mr. MEYER. Senator, you do not want me to walk around with
those figures in my head, do you ?
Senator BROOKHART. I thought probably you would know that
big figure.
Mr. MEYER. I could not tell you offhand how much it was. How
much did they owe on trade balances ?
Senator BROOKHART. YOU kept track of the trade balances, did
you not, all the time?
Mr. MEYER. I used to. Whenever I want to know, I look it up,
but I can not give you the balance of trade for years back. I feel
very highly flattered at your asking me.
Senator BROOKHART. I did not mean to hold you to any absolutely
accurate statement.
Mr. MEYER. I have no idea what it was, Senator, in 1920.
Seantor BROOKHART. Was Europe in a position to pay that ?
Mr. MEYER. The Bureau of Foreign and Domestic Commerce
publishes figures on that point. Of course there are many other
items in the balance besides the merchandise trade balance.
Senator BROOKHART. AYas Europe in position to pay this balance
in gold?
Mr. MEYER. I n 1920?
Senator BROOKHART. Yes.

Mr. MEYER. I do not know what the balance was, so I can not
discuss it.
Senator BROOKHART. YOU know the general situation with reference to gold, do you not ?
Mr. MEYER. Yes, but I can not talk about the ability to pay an
amount that I do not know.
Senator BROOKHART. Should it have been the policy of the
Government to demand that this trade balance be settled in gold?
Mr. MEYER. Our Government does not settle trade balances in
gold. The Government does not control the settlement of trade
balances. I will put it that way.




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NOMINATION OF EUGENE MEYER

Senator BROOKHART. So they should say nothing about it?
Mr. MEYER. They can not do very much about something that
they do not have any control over.
Senator BROOKHART. The Federal reserve system has something
to do with that. What about it?
Mr. MEYER. The Federal reserve system settles merchandise
trade balances?
Senator BROOKHART. I t might. Doesn't it handle some of those
things? Should it require the payment in gold?
Mr. MEYER. Everybody who owes money to the United States—I
mean by that the merchants and business men and farmers, indirectly—has to pay in United States money ultimately, and that is
the equivalent of gold. Would you want a cotton farmer to take his
money in marks or lira? What would he do with it? He would
have to sell it and turn it into dollars.
Senator BROOKHART. N O ; I am not wanting anything. I am just
asking for information. What would have been the result if they
had taken it in marks ?
Mr. MEYER. The people here would have had to sell them and
turn them into dollars.
Senator BROOKHART. That would have made a general depression
in money, do you think?
Mr. MEYER. A depression in money? What do you mean by a
depression in money?
Senator BROOKHART. A deflation or depreciation.
Mr. MEYER. All our exports have to be settled for in dollars, Senator. They may have credit, but sooner or later the people of the
United States want dollars for their goods.
Senator BROOKHART. After a review of all this situation, it is true,
is it not, that agriculture is in a depression and has been quite steadily since 1920?
Mr. MEYER. Different branches of agriculture at different times
have not been in depressions.
Senator BROOKHART. W h a t branches, if any? I would like to find
them out.
Mr. MEYER. I have not got them all in mind.
Senator BROOKHART. Name what you earf.
Mr. MEYER. I do not care to name any. I remember that cotton
once went to 35 cents for one crop. I t averaged a pretty good price
lor two or three years. Hogs commanded at the same period a good
price, as did lards and fats. Sheep sold at a good price at some periods, and wool also brought good prices. Beef cattle at one time
commanded good prices
Senator BROOKHART. And hogs at the same time were so low that
the farmers all lost money.
Mr. MEYER. At some periods hog prices have been very good.
Senator BROOKHART. YOU know that beef prices can not all be
figured separately from hog prices in determining whether agriculture is prosperous or not, don't you?
Mr. MEYER. That is true in the corn belt. I t is not true in the
breeding country. They do not run hogs and cattle together.
Senator BROOKHART. I n the breeding country, Senator Carey's
country, they send their cattle over to us to be fed.



NOMINATION OF EUGENE MEYEE

205

Mr. MEYER. They market quite a few good grass cattle.
Senator CAREY. A lot of them go directly to the packers.
Senator BROOKHART. We feed an awful lot of them; I know that.
Mr. MEYER. Yes; I know you do.
Senator BROOKHART. I n the feeding country the corn belt cattle
never do pay when fed alone without hogs.
Mr. MEYER. No; I know it is a joint operation. I have seen it,
Senator.
Senator BROOKHART. I S it your idea of agricultural prosperity
that if a farmer gets a fairly good price for cotton one year and
then gets such a low price next year that he loses his farm, lie is
prosperous ?
Mr.

MEYER. N O .

Senator BROOKHART. That has been the situation, has it not?
Mr. MEYER. I would not say that describes if.
Senator BROOKHART. Since 1920?
Mr. MEYER. I would not say that describes it generally. I do
not think most of the farmers have lost their farms. I hesitate
to be as pessimistic and as extreme in my expressions as you do,
because, Senator, on the basis of your representations, no farmer
would be entitled to credit under such conditions.
Senator BROOKHART. I think that is what you have brought
him to.
Mr. MEYER. No; I don't think so; and I did not bring him to
anything.
Senator BROOKHART. That is my opinion.
Mr. MEYER. I called your attention to the rise in the price of farm
products during the period the W a r Finance Corporation was doing
business. I did not bring the farmer to anything. I feel highly
flattered by the importance that you attribute to me, but really I am
not entitled to it.
Senator BROOKHART. YOU were very modest, I noticed, this
morning.
Mr. MEYER. I am particularly interested in these problems. I have
tried to do what I could to help; but I was just one factor out of
many and not a very important one.
Senator BROOKHART. I tried to mention some other factors. First
I brought up the question of the 50 per cent increase in railroad rates
on farm products. Did that have anything to do witli the agricultural depression now, do you think?
Mr. MEYER. I am not prepared to discuss the present agricultural
conditions; I have been out of the F a r m Loan System for two years.
Senator BROOKHART. We will confine it to the time you were in,
then, two years ago. I t has got a little worse, has it not?
Mr. MEYER. Freight rates disturbed conditions at times in some
districts very much. I n others they were not so big a factor.
Senator BROOKHART. They are a pretty big factor all over the
Middle West, are they not? Senator Smoot stated one day—I
have not checked the accuracy of his statement—that the Canadian
farmer pays 14 cents a bushel less on the average to get his wheat
to the seaboard than does the American farmer.
Mr. MEYER. Of course all of the farmers do not send their wheat to
the seaboard. That would be detrimental to the farmers.
38819—SI
14



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NOMINATION OF EUGENE MEYER

Senator BROOKHART. The price of all their wheat has been fixed
by the seaboard prices all the time, until the F a r m Board got a little
busy recently H a s not that been true?
Mr. MEYER. I do not know, Senator. There are so many grades
of wheat. People talk about wheat as though it was just one thing,
but there are a great many different grades of it and all work under
different conditions.
Senator BROOKHART. These extra grades of wheat and the extra
hard wheat are minor matters and do not cut any big figure in determining what the farmers are going to get for their wheat crop in
a general way.
Mr. MEYER. I would like to see the farmers get better prices for
wheat, certainly. I think it would be not only in the interest of the
farmer, but in the interest of the whole country. We have the difficulty here, though, of the increasing production in other countries—
a 100 per cent increase in Canada in 15 years.
Senator BROOKHART. On what. They do not raise any cotton up
there.
Mr. MEYER. NO. Were we not talking about wheat?
Senator BROOKHART. I am talking about the whole problem. Of
course, just now we were mentioning wheat; but it all looks alike to
me.
Mr. MEYER. Take cotton. Before the war we used to figure as a
matter of statistics that the world consumption of American cotton
increased 3 per cent per annum. Is not that right, Senator Fletcher ?
Senator FLETCHER. I do not recall the exact figure.
Mr. MEYER. And the normal American crop was fourteen and a
half million bales. Now it is 15 years later, and the American crop
is fourteen and a half million bales and the world crop has gone up
several million bales. There is some increase in Egypt, some in
India, a little in many British colonies, because the British Government is encouraging cotton growing and subsidizing it. The world's
increase has come and is coming from sources outside of the United
States.
Senator BROOKHART. Have you the world figures ?
Mr. MEYER. I think it is about 26 million bales production.
Senator BROOKHART. That is about what it was before the war.
Mr. MEYER. NO ; it was around 20 to 21 million, Senator.
Senator BROOKHART. And, of course, the world demand has grown.
Mr. MEYER. I t has grown some, but it is not good just now.
Senator BROOKHART. Russia wanted to buy cotton from the United
States, but it was refused any credits by the F a r m Board.
Mr. MEYER. I just happened to hear a little while ago that Russia
had 40,000 bales of cotton here which they sold.
Senator BROOKHART. At the same time they wanted to buy several
million from the United States. These Russians have a mysterious
way of operating.
Mr. MEYER. I understood that the Russian production went up
from a million bales before the war to 1,700.000 bales this year.
Senator BROOKHART. I think that is t r u e ; and the Russian demand
probably increased several hundred per cent. They are not anywhere near able to supply it.



NOMINATION OF EUGENE MEYER

207

I t is true that there has been an agricultural depression here since
1920, and it has been constant, has it not ?
Mr. MEYER. I said it was not constant, a few minutes ago. There
have been very considerable fluctuations in conditions.
Senator BROOKIIART. YOU mentioned some particular items?
Mr. MEYER. Yes.
Senator BROOKHART.

And when cattle are high, does that mean
that all agriculture in the United States is prosperous?
Mr. MEYER. N O , not necessarily. I t might be.
Senator BROOKHART. When cotton is high, does that mean that
agriculture in the United States is prosperous as a general thing?
Mr. MEYER. I say that all the time different conditions control in
different areas. I do not believe that in industry all industries are
prosperous at any particular time necessarily.
Senator BROOKHART. I will agree with that. We will not have
any argument about that phase of it. But that is no defense of this
system.
Mr. MEYER. I am not defending anything, Senator. I am not
here on the theory that I am responsible for the business conditions
of the United States for the last 10 years.
Senator BROOKHART. If agricultural products had been handled as
Mr. Hoover handled wheat, and the farmers had been allowed to
fix the cost of production price with a cooperative margin of profit
of 4 per cent, at least, on their capital investment, their buying power
would have been immensely increased in the United States in these
ten years, would it not?
Mr. MEYER. Their buying power?
Senator BROOKHART. Yes.

Mr. MEYER. I assume it would if you say so, Senator.
Senator BROOKHART. And then they would have bought more
from over in New York and everywhere and added to the prosperity
of the whole country?
Mr. MEYER. I think the whole country would like to see farmers
much more prosperous right now.
Senator BROOKHART. D O you agree with the proposition that agriculture is the basic industry in the United States ?
Mr. MI:YER. I have said so repeatedly in the last few years,
publicly and privately.
Senator BROOKHART. Then if we are to have a stable prosperity
it must be b'ised on agricultural prosperity; is not that true?
Mr. MEYER. That is the way I feel about it. I think it is true.
I hope it is true, because that is what I think; but I have not discovered that to-day. Senator, nor am I learning it from you for the
first time.
Senator BROOKHART. I do not expect you to learn anything from
me. That is my complaint.
Mr. MEYER. I feel that I have an open mind, Senator, and I am
very anxious to learn anything I can from anybody.
Senator FLETCHER. Something has been said about the price of
cotton during the war and afterwards. I remember that during the
war freights on cotton increased enormously—I mean, ocean freights.
The freight on a bale of cotton from Galveston to Liverpool before
the war was $2.50. During the war it went up to $50 a bale. That



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NOMINATION OP EUGENE MEYER

of course was reflected to some extent in the price of cotton, which
the producer received. I t was because we had no carriers. The
German ships were out of commission; the British ships were commandeered largely for war use, and we had no merchant marine of
our own, practically, in overseas service.
I think the rate on wheat went up from about 3 cents a bushel
before the war from New York to Liverpool to 50 cents a bushel
after 1914. So that must have had some effect on the price of those
commodities here.
Mr. MEYER. I n raising them or lowering them, Senator?
Senator FLETCHER. Lowering them; because the cost of the freight
was reflected in the price in this country. Cotton was selling about
8 cents.
Mr. MEYER. When?
Senator FLETCHER. When the war started in 1914 and for some
time after that. I recall the appeal to everybody to buy a bale of
cotton. I bought a few bales at 8 cents.
Mr. MEYER. Cotton was 8 cents Avhen the war broke out, but it
went up, beginning a few months later, and was up above that all
through the war and for a long time afterwards.
I happen to remember, because when I came down to Washington
in 1914 and discussed with some of the people here the desirability
of the Government's doing something for the cotton situation, they
told me I was a socialist, or something.
Can you imagine such a thing, Senator Brookhart?
Senator BROOKHART. I can imagine they made an awful mistake.
Mr. MEYER. I thought the Government ought to do something for
cotton, because you fellows in Iowa, or rather the west, were getting
a hundred per cent more for your wheat, and the cotton farmers were
getting 50 per cent less for their cotton.
Senator BROOKHART. Not being a wheat State, of course that did
not affect us much out in Iowa.
Mr. MEYER. YOU did not worry about cotton. I did, because I
thought it was disastrous for the cotton farmer. But they told me
I was a radical, Senator.
Senator BROOKHART. I think they made another mistake there.
The important thing in this matter is the control of credit on all
these problems. The control of credit is an important matter in
business, is it not i
Mr. MEYER. One of the factors.

Senator BROOKHART. The amount of business we do on credit is
a very great factor in the United States, is it not'(
Mr. MEYER. Taking the credit as a whole, the bulk of which comes
from loans which are made by banks which are lending their deposits.
Senator BROOKHART. Here is what our farmers in the west think
now—and I have a telegram from the Agricultural Association of
Illinois, the second biggest farm bureau in the State, against this
confirmation. I t came yesterday. The way they feel about it is lhat
this credit control in the East, all of this vast sum being diverted into
speculation, reduces the credit that the farmer ought to have, first,
and, second, increases his interest rate enormously; and they feel that
it has done that both as to long-time mortgage loans and short-time
loans.



NOMINATION OF EUGENE MEYEB

209

The bankers out there who called me a radical and a bolshevik
in the beginning have reached about the same conclusion now, and
I get along very nicely with them, and they say to me something
like this: " We are forced now to invest our funds in investment
bonds that are promoted up in New York. This system has shaken
up and weakened land values and commodity values in agriculture.
I t is not safe to make the farmer the loans he ought to have. Bank
examiners always approve our long-time investments in the East,
and hence we are practically forced to make that class of loans."
Is there anything t h a t the Federal Reserve Board can do to relieve
that situation?
Mr. MEYER. Senator, the only public statement issued by the
Federal Reserve Board since I have been a member of it, other than
the seven announcements of reductions in discount rates which were
initiated by the respective banks and approved by the board, and
routine statements, was the statement on September 24, 1930, eight
days after I became a member of the board, which reads as follows:
At a preliminary conference held by the Federal Reserve Board in connection with the regular fall meeting of the governors and chairmen of the twelve
Federal reserve banks, a comprehensive review was made of the agricultural,
general ecomonic and credit situation throughout the country. Being the
season of usual marketing of the country's crops, reports were made with
particular reference to the status of agricultural staples in each of the Federal
reserve districts and there was special discussion of the conditions affecting
their marketing and financing.
The hoard was assured and satisfied that in each of the 12 Federal
reserve districts ample credit facilities are available for financ.ng the marketing of the crops, and that such facilities are being provided by the banks and
•other agencies concerned in the orderly marketing of agricultural commodities. The 12 Fedeial reserve banks through rediscounts for their member
banks, loans to Federal Intermediate Credit Banks on agricultural paper of
•cooperative associations and purchases of bankers' acceptances covering agricultural commodities, are making their resources available for the marketing
of the country's crops at the lowest rates in the history of the sj stein.
It was the view of the conference that the extension of credit to support
the orderly marketing of crops—at all times an important function of the
Federal reserve banks—is of special importance at the present time. To that
end, the Federal Reserve Board was assured that the Federal reserve banks
will continue their efforts to acquaint their communities with the facilit es of
the sjstem and the disposition of the management of those banks to meet
the problems connected with the marketing of the crops.
T h a t is t h e only a n n o u n c e m e n t t h a t ha* come out f r o m t h e b o a r d
t h a t h a s t o do witli t h e subject t h a t y o u a r e discussing.
S e n a t o r BKOOKHART. T h a t is a very beautiful g l i t t e r i n g g e n e r a l i t y ,
b u t I h a v e n o t noticed it r e d u c i n g t h e i n t e r e s t r a t e t o a n y f a r m e r
in m y c o u n t r y or a n y w h e r e else.
M r MEYER. T h e i n t e r e s t r a t e to t h e f r a m e r is fixed b y h i s b a n k ,
n o t b y t h e F e d e r a l reserve system.
S e n a t o r BROOKHART. A n d t h e reserve system c a n n o t do a n y t h i n g
t o lower t h e i n t e r e s t r a t e s ?
M r . MEYER. I t is a m a t t e r for t h e v a r i o u s b a n k s in t h e d i s t r i c t
to t a k e care of.
S e n a t o r BROOKHART. V a r i o u s reserve b a n k s , y o u m e a n s , or t h e
members ?
M r . MEYER. T h e m e m b e r b a n k s a n d t h e S t a t e b a n k s t h a t a r e n o t
m e m b e r b a n k s , w h i c h in y o u r S t a t e a r e f a r m o r e in n u m b e r t h a n
the member banks.



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NOMINATION OF EUGENE MEYER

Senator BROOKHART. Then the fault in that is due to the banking
system generally and not to the Federal Reserve Board ?
Mr. MEYER. I t has a lot to .do with it, not enough of the banks
in some of the States, particularly your State, belong to the system,
in my opinion.
Senator BROOKHART. A great many of those who do belong, wish
they did not. I do not know how that will balance out, exactly.
But I am not disagreeing with you much on the proposition, so
far as that is concerned.
Mr. MEYER. On what proposition, Senator?
Senator BROOKHART. A S to where the trouble with the higher
interest rate lies.
Mr. MEYER. I think they pay too much for deposits in some States,
which is one reason the lending rates are too high.
Senator BROOKHART. I think perhaps that is true.
Mr. MEYER. I think, Senator, that is the key element in the situation. If it were possible for the Iowa State banking department OF
the legislature to reduce the high rates paid on deposits, in many
instances, they could perhaps lend money at lower rates and pay
their expenses and get a fair return on the capital. I think that
would be true not only in your State, but in many States.
Senator BROOKHART. YOU have advanced a very far-reaching
proposition, now. Let us see if you follow it through logically.
If the legislature would reduce these deposit rates
Mr. MEYER. I do not know who could or should do it, but it should
be done.
Senator BROOKHART. YOU said the legislature.
Mr. MEYER. Well, whoever has the power to do it.
Senator BROOKHART. Upon this proposition of the accumulation of
all this surplus credit in New York which was so offensive to the
origin;tl idea of the Federal reserve act, is not this the case, in part, at
least, and in large part, that the reserve bank gets deposits from its
member banks as well as to make loans? I t does those two things:
I t receives deposits and makes loans ?
Mr. MEYER. The member banks maintain their reserves in the form
of deposits in the Federal reserve banks.
Senator BROOKHART. This law, in reference to rediscounts, prohibited the reserve banks rediscounting speculative paper, and the
reserve banks have lived up to that law, have they not 1
Mr. MEYER. I presume they have.
Senator BROOKHART. Since your administration you have seen
no sign of violating the law against rediscounting speculative paper,
have you ?
Mr. MEYER. The Federal reserve banks can lend only on eligible
paper or on Governments. They can not lend on any speculative
securities, if that is what you mean.
Senator BROOKHART. Speculative securities are not eligible ?
Mr. MEYER. No.
Senator BROOKHART. And they have been living
Mr. MEYER. I am sure they have.
Senator BROOKHART. SO, on the rediscount side

up to that law?

of the Federal
Keserve System, you have stopped speculation or the use of credit



NOMINATION OF EUGENE MEYER

211

for speculative purposes, so far as the Federal reserve banks are
concerned ?
Mr. METER. That is a question that is under discussion by Senator
Glass's committee. Witnesses are being heard and I have not heard
enough nor have I seen enough to have an opinion on that.
Senator BROOKHART. That committee, or some members of it, have
a view, and probably rightly, that in another way aside from rediscounting speculative paper it could be controlled by the Federal
Reserve Board, and I will ask you about that.
Could you control it by refusing to rediscount eligible paper to
banks that are making speculative loans ?
Mr. METER. YOU know that is a subject that is being considered
by the Glass committee and witnesses are being heard. The board,
of course, does not make loans or refuse loans. I t is a question of
bank administration rather than board administration. There is in
the Glass bill some provision aiming at or dealing with that, I think
Senator BROOKHART. But here comes a New York bank with a lot
of eligible paper for rediscount, we will assume, and at the same time
it has a large volume of speculative loans that are not eligible for
rediscounting. Under those circumstances should the Federal reserve bank rediscount that eligible paper?
Mr. METER. Senator, you did not ask whether a bank should be
allowed to rediscount eligible paper if it has ineligible paper ?
Senator BROOKHART. Yes; that is what I am asking you about.
Mr. METER. Some kinds of agricultural paper might not be eligible. Would you say that a bank can not discount its eligible agricultural paper because it has some ineligible agricultural paper?
Senator BROOKHART. There is hardly a parallel there, because this
speculative paper is prohibited by the law, because it is illegitimate
business to begin with. We will confine it to that idea for the present. I t is not radical any more to say that margin loans are gambling
deals, because the Supreme Court of Illinois, in a unanimous decision, has so held in reference to the board of trade in its own State.
So we have responsible judicial authority now to back up what they
used to call me a radical for.
Mr. MEYER. I t seems to me, Senator, that this is a question in
connection with the banking situation that Senator Glass' committee
is studying and investigating.
Senator BROOKHART. Yes; but I want to know what you think
about it.
Mr. MEYER. I am attending those hearings and listening to the
witnesses and trying to learn something about it, Senator, but I have
not arrived at any opinion as to what is desirable, or what is the
most desirable way to achieve what is desirable. I have a good deal
to learn about it, and I am proposing to keep my mind open.
Senator BROOKHART. We will pass that question if you have no
opinion about it.
Mr. MEYER. No. I want to learn about it, and I go every morning
and spend two or three hours listening to the witnesses.
Senator BEOOKHAET. I will go to a further question on this
matter, the deposits by member banks in the reserve bank. The




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NOMINATION OF EUGENE MEYER

law does not permit a reserve bank to pay any interest rate at all
for those deposits, does it?
Mr. MEYER. NO ; it is not authorized by the law.
Senator BROOKJIAKT. Even on the reserves there is nothing paid.
They must be deposited and no interest rate paid for their use at
all. A bank will, in the course of a year, have a surplus a good deal
more than its reserve?
Mr. MEYER. I am sorry to say that the banks, generally speaking,
try not to. That is one of the things that make a little trouble.
Senator BROOKHART. B u t in spite of wdiat they are trying, do
they do it from time to time?
Mr. MEYER. Not so much, Senator, as a rule.
Senator BROOKHART. A S to that extra surplus over and above the
7 or 10 or 13 per cent of reserve that they may have on hand
Mr. MEYER. YOU mean, that the banks have surplus reserves in the
Federal reserve bank ?
Senator BROOKHART. A surplus credit on hand.
Mr. MEYER. Money in the vaults ?
Senator BROOKHART. Yes.

Mr. MEYER. They do not keep very much as a rule.
Senator BROOKHART. NO ; they do not.
Mr. MEYER. Except banks that are far away from a Federal reserve bank or branch do have to keep a little more.
Senator BROOKHART. But if they do have more than their reserves,
they do not deposit it in the Federal reserve bank, do they ?
Mr. MEYER. I do not think they do, as a rule.
Senator BROOKHART. Because the big banks in Chicago or New
York offer an interest rate for those redeposits ?
Mr. MEYER. They do not offer very much; I think about 1 per
cent, now.
Senator BROOKHART. But most of the time since the Federal reserve system has been in existence, about 1.75 per cent ?
Mr. MEYER. I could not say. I have not looked it up. I was not
interested.
Senator BROOKHART. And they take right away from the reserve
banks practically all of these redeposits except the reserves which
must be redeposited by the member bank in the Federal reserve bank ?
Is not that true ?
Mr. MEYER. I could not tell you, Senator, because I have not been
in the situation long enough to study it.
Senator BROOKHART. You know this, that the banks are rather
careful to keep their deposits with the reserve banks down to somewhere near the reserve ?
Mr. MEYER. Yes; I think that is probable.
Senator BROOKHART. A result of the law—I am not blaming the
administration of the bank for this proposition—is practically to
drive this surplus credit of the ordinary bank that is over and above
its reserve into the big banks which will pay a redeposit rate. That
is the practical effect of the law, is it not ?
Mr. MEYER. I am afraid that I am not fully familiar with the
workings of that part of the banking situation.




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213

Senator BROOKHART. Would it not necessarily work that way?
Mr. MEYER. Oh, they might buy Government bonds or Treasury
certificates with it.
Senator BROOKHART. They might.
Mr. MEYER. Or they might invest it locally in loans on warehouse
receipts, etc.
Senator BROOKHART. But the tendency would be to drive in into
the other bank ?
Mr. MEYER. I imagine some of your banks in Iowa would deposit
in the larger cities of the State, and if the larger cities had too much
and did not know what to do Avith it, it Avould probably go to
Chicago.
Senator BROOKHART. But the banks in my State redeposit in New
York.
Mr. MEYER. I did not know that. I can not tell you about that.
Senator BROOKHART. I n New York, the same as in Chicago, is not
that working of the law one of the big causes, perhaps the biggest
cause, of the accumulation of surplus credit of the country in New
York?
Mr. MEYER. I have not studied that, Senator, and I have no opinion now.
Senator BROOKHART. I think that is one thing that needs the study
of the Federal Keserve Board. I do not know of any bigger proposition than that that needs its study.
Mr. MEYER. T O a certain extent a State like yours has seasonal
requirements as well as regular requirements.
Senator BROOKHART. Oh, yes; that is true. But I know little
banks in little towns that have $200,000 in New York on redeposit
because they can not get any interest rate anywhere else; and after
it gets there, there is no restriction in the law about the New York
bank lending it, and they can lend it to the speculator on margin.
Mr. MEYER. But a money market like New York or Paris or London attracts liquid balances of a temporary character from many
places. There is noAV a lot of money carried on deposit in New York
by foreigners, simpy because they like American money. They feel
an unusual confidence in it.
Senator BROOKHART. Paul Warburg said in his book, before the
Federal reserve system Avas established, that about the only reservoir
Ave had for the collection of this surplus credit was the margin
speculation in New York.
Mr. MEYER. Yes; he favors the enlargement of the acceptance
market and the reduction
Senator BROOKHART. But since the Federal reserve system Ave
have already pointed out that that reservoir increased from
766,000.000 up to 7,000,000,000 or more.
Mr. MEYER. That Avas at the peak. At the present time it is
much less.
Senator BROOKHART. I t is about $1,750,000,000 noAV.
Mr. MEYER. Something like that.
Senator BROOKHART. There' is nothing that the Federal Keserve
Board can do in its administration to stop the AOAV of this surplus
credit back to the NeAv York banks, is there ?



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NOMINATION OF EUGENE MEYER

Mr. MEYER. I do not know, Senator. I have not been there long
enough to find out what the board can do or what it wants to do.
I am just one of the members, and there have been a great many
things to think about in the last three or four months. I confess
that I have not arrived at an opinion on every subject.
Senator BROOKHART. I t is amazing to me that you have not
studied that important question.
Mr. MEYER. YOU would not be so amazed if you knew all the
other things that have been occupying our time. They have been
considerable.
Senator BROOKHART. The Comptroller of the Currency is suggesting a system of branch banks. Is that suggested as a remedy for
this accumulation of credit in New York?
Mr. MEYER. I do not know all that was in the Comptroller's mind
when he made the suggestion. I t is his suggestion, not mine.
Senator BROOKHART. I heard him make it at the Glass committee
in a limited way.
Mr. MEYER. Yes; I heard him. I can not give you all his reasons
for making it.
Senator BROOKHART. I want to know what you think about it.
Mr. MEYER. I have not studied it. The Glass committee is conducting hearings on it, and it is being studied by a committee in the
Federal reserve system, which we hope will report within some
reasonable time.
Senator BROOKHART. I t is a very vital and material matter with
regard to whether or not you ought to be confirmed as Governor of
the Federal Reserve Board.
Mr. MEYER. I have not any opinion on it at the present time,
Senator.
Senator BROOKHART. D O you know anything about branch
banking systems?
Mr. MEYER. A little, not much.
Senator BROOKHART. W h a t do you think about them from what
you know of them ?
Mr. MEYER. I have not arrived at any opinion, Senator. I do not
know enough about them. I hate to have opinions until I feel I
know all I can find out. Then I have an opinion.
Senator BROOKHART. T h a t means that you never will have an
opinion on anything.
Mr. MEYER. Oh, yes. I said, all I can find out.
Senator BROOKHART. There never comes a time when you can find
out all that can be found out.
Mr. MEYER. I did not say I could find out all. I said, all I could
find out. T h a t is very different. I hope you do not think I am
being too conservative in deferring opinions until I feel I have a
basis for them.
Senator BROOKHART. I have a strange feeling that you really know
more about it than you let on to know.
Mr. MEYER. Senator, again I am afraid you attribute more knowledge to me than I possess. I think it is one of the big subjects
that requires a great deal of careful study. I do not think there
is any subject more important to the people of this country than the
question of a sound banking system, and I do not think that in my



NOMINATION' OF EUGENE MEYER

215

position I would be justified in going off half-cocked and expressing
opinions without adequate foundation and study and information.
Senator BROOKHART. I am going to conclude this examination by
asking you about a sound banking system. Is this commercial quick
turn-over competitive banking system a sound system for the financing of agriculture?
Mr. MEYER. I am not satisfied under present conditions with the
services of the banking structure of the country as applied to the
agricultural interests.
Senator BROOKHART. S O there is something wrong with the banking system, so far as agriculture is concerned?
Mr. MEYER. I will say, not only agriculture, but in general; particularly, perhaps, with regard to agriculture.
Senator BROOKHART. Senator Pepper said many times—and I think
he was an expert on the proposition—that 92 per cent of American
business ultimately fails. That is, in number, not in volume. If
that be true, there is something unsound all along the line, is there
not, in this American business system?
Mr. MEYER. I would have to get statistics from other countries,
Senator.
Senator BROOKHART. I t is not that high in other countries. I can
not give you the figures.
Mr. MEYER. D O you have the statistics, Senator ?
Senator BROOKHART. I have some of them.
Mr. MEYER. I would be inclined to want to inquire into the basis of
that estimate of 92 per cent. I have a high regard for Senator Pepper, and sometime when I see him I will ask him how he got that
figure.
Senator BROOKHART. Senator Harreld, who was long an expert in
bankruptcy matters, said it was 96 per cent. I have seen one estimate as high as 97 per cent, and I never saw an estimate lowjr than
80 per cent.
Mr. MEYER. I should say, if that is the case, that it is a clear
evidence that men are weak.
Senator BROOKHART. Senator Glass, in his speech on the t r u t h
about the Federal reserve system, delivered in January, 1922, said
this:
I quite agree, Mr. President, in tiie next place, t h a t t h e r e is need in t h i s
country for a strictly r u r a l credit system adapted to the peculiar w a n t s a n d
processes of the agricultural communities. Such a system conjoined with t h e
existing F e d e r a l Land B a n k system extending long time seasonal credits,
embracing crop reparation a s well as orderly and advantageous m a r k e t i n g ,
would be of inestimable value to the f a r m e r s of t h e United States.

Mr. MEYER. Was he discussing intermediate credit?
Senator BROOKHART. N O ; he was suggesting a complete cooperative banking system, the Senator told me when I called his attention
to it the other day.
Mr. MEYER. I have a high regard for Senator Glass, as you know.
Senator BROOKHART. YOU have investigated these cooperative
banking systems to some extent, have you not?
Mr. MEYER. Senator, I am sorry to say that I have not had a
chance to do it.



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NOMINATION OF EUGENE MEYER

Senator BEOOKHART. I remember your talking to me about it in
Paris and London both.
Mr. METER. No. I think you misunderstood me. You refer to
that occasionally, but I am sure that you misunderstood me. I saw
you in Europe in 1923. You went to a meeting where there was a
lot of speech making, and I went to visit the headquarters of the
Wholesale Consumers Cooperative in London and in Manchester and
discussed the operations Avith some of the people there. That is a
big consumers' cooperative which also does some producing and some
banking. But I have never discussed what you call cooperative
banking with you or anybody else, and I have not been able to find
out anj^thing from you about it.
Senator BEOOKHART. I am going to ask you a few questions
about it.
Mr. METER. You can not ask me any questions that I can answer,
because I am not informed about it.
Senator BEOOKHART. Of course at that time I remember very distinctly your position. You had a very decided opinion then that
these big consumers' cooperative
Mr. MEYER. Don't say " these." I was talking about the WholesaleConsumers' Cooperative in Great Britain. I was not talking about
anything else.
Senator BEOOKHART. That is all I am talking about—that this
consumers' cooperative system of Great Britain needed and must have
its own cooperative credit system, because it was made up of consumers and did not have a basis of credit, and in the United States
the cooperatives are producers.
Mr. MEYER. YOU misunderstood me if you understood that I said
that, certainly, it is not what I intended to convey, if you so understood it.
Senator BEOOKHART. I quite well understood it at the time.
Mr. MEYER. I was not discussing the banking end of it. What I
was saying was that that organization, the Wholesale Consumers'
Cooperative of Great Britain was organized by the consumers with
a view to helping the consumer cooperatively. Our big commodity
co-operatives here are producers' co-operatives; and those were the
two types of institutions that struck me by way of contrast.
Senator BEOOKHABT. Your theory then was
Mr. MEYEE. I did not have any theory.
Senator BEOOKHART (continuing). That the consumers needed cooperative credit and that producers did not.
Mr. MEYER. The W a r Finance Corporation made very large loans
to the cooperative associations composed of producers of cotton,
tobacco, and other staples. So I was just contrasting the fact that
the cooperative movement in America had advanced principally along
lines of interest to the producers, whereas in Great Britain apparently, as far as I could see from that one outstanding cooperative, it
had been organized in the first instance by consumers.
Senator BEOOKHART. These cooperatives in the United States are
only a meager little fraction of the farm business of the United
States.
Mr.

MEYER.

Yes.




NOMINATION" OF EUGENE MEYER

217

Senator BROOKHART. YOU only loan them a little amount of money
compared with the $9,000,000,000 worth of farm stuff that was sold.
Mr. MEYER. We agreed to lend them a good deal of money; and
our willingness to lend was a great factor in their ability to get the
money somewhere else.
Senator BROOKIIABT. The fact that you loaned it to them
Mr. MEYER. I t does not matter, Senator. All I was talking about
was the fact that in England the big cooperative was a consumers'
cooperative, and the ones that we had done business with in America
were composed of producers.
Senator BROOKHART. I have their yearbook here for 1927.
Mr. MEYER. Would you lend it to me, Senator?
Senator BROOKHART. Yes; I will lend it to you. I think you need
to study it.
Mr. MEYER. I will be very glad to see it.
Senator BROOKHART. They had 158 producing factories when you
investigated them that belonged to that wholesale organization.
Mr. MEYER. Yes, I know; but it started with consumers.
Senator BROOKHART. That was the name only. They were producers
Mr. MEYER. I quite understood that. But it started with the consumers. That is all I was saying. And here we started with the
producers.
Senator BROOKHART. I t does not make any difference about the
start in cooperation.
Mr. MEYER. Not in the end. no. The machinery is different. The
cooperatives in foreign countries are a little different from our
domestic cooperatives
Senator BROOKHART. There is not any difference in any cooperative, whether it is domestic or foreign or national or international.
I t has the basis of the same three cooperative principles. That is
the trouble in this country. Many have gone out and organized
cooperatives, but of course they all failed. You know Sapiro, of
course 1
Mr. MEYER. Yes. I have not seen him in many years.
Senator BROOKHART. He organized a great many cooperatives, all
financed under our competitive financial system, and they all failed.
He made the same argument to me that you did in London, that we
did not need cooperative credit institutions in the United States
because we were producers, and only the consumers had any basis
pf credit, and therefore had to have their own banking system.
Of course the result was that his cooperatives blew up. They were
financed by this competitive system that is hostile to the whole idea
of cooperation.
In this book is a picture of the cooperative reserve bank in Manchester. I t was not there when you were there.
Mr. MEYER. Yes; they had a bank.
Senator BROOKHART. Yes; they had a bank which was in this
building [indicating] when you were there. Since then they have
erected the building shown in this picture [indicating].
When you were there the turn-over of that reserve bank was some
two and a half billion dollars. This book was printed in 1929, but



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NOMINATION OF EUGENE MEYER

these are 1927 figures. It was three and a half billion then, or a
little over that, and it is more than four billion to-day. I t is one
of the biggest banks in the world.
Mr. MEYER. That association is about 05 or 70 vears old, is it
not?
Senator BEOOKHART. It is about 85 years old. It started on the
21st day of December, 1884, at Rochdale, in England.
Mr. MEYER. I t was a well established institution.
Senator BROOKIIART. I t was started on the shortest darkest day of
the yeir. I t had 28 flannel wea\ers in it, and they had a pound
apiece—$140. That is the way it started. But it had at least one
man who invented the third cooperative principle. Robert Owen,
known as the father of cooperation, had spent a great fortune trying to establish cooperatives, and they failed. He started it in this
country. Posey County, Ind , is famous as Robert Owen's headquarters. But he sold his goods at cost and he had losses, and then
there had to be assessments, and then the membership became dissatisfied and his organization broke up.
Charles Hawarth invented the trade dividend. He sold at a fair
profit and then at the end of the quarter year took out 25 per cent
of the net and put it in the business and then distributed the other
75 per cent of the net back to the members in proportion to the
business they transacted in the enterprise.
That principle, together with the absolute limitations of the
earnings on capital, gave capital a fixed and definite wage, the same
as men are given a wage; and one man had one vote in the cooperative enterprise, regardless of how much stock he owned, just as one
man has one vote in the Government of the United States.
On those three principles this started. Finally it succeeded. I t
was a joke at first, but it had a big sucess.
Then they looked around and said, " I t would be better if we had
our own wholesale business," and then the stores subscribed cooperative capital to start the wholesale. They put in the same three
principles in its management and it succeeded at once. They kept
25 per cent of its net earnings in the wholesale, so it grew and became larger. The other 75 per cent was distributed to the stores
in proportion to the business they transacted with the wholesale, and
they had that profit to distribute on down.
They had two or three thousand of these stores and they had a
lot of failures, like we have in this country. The banks sold them
out and therefore closed them.
Finally they said, " We would do better if we had our own credit
system." And then they started with a little deposit bank, a sort
of a department of these stores, with a reserve bank in the wholesale
and it has become one of the great banks of the world, doing business all around the world, paying no more attention to Pierpont
Morgan or the Bank of England than if they were not on earth, because they have got more money in their own vaults to check against,
and they buy more wheat in the United States than any other buyer
and buy more in Canada than any other buyer.
I s that system suitable to agriculture in the United States?
Mr. MEYER. I would like to read the book and learn more about it.
I t is not particularly a cooperative that deals with agricultural membership, is it?



NOMINATION OF EUGENE MEYER

219

Senator BROOKHART. The basic societies would have the membership, of course, the farm bureau and the Grange and all these
farm organizations.
Mr. MEYER. I mean, in the case of the English organization, is the
membership composed largely of farmers, or is it largely
Senator BROOKHART. I n this English concern it is nearly all
labor.
Mr. METER. That is what I had an idea it was.
Senator BROOKHART. When I was in London, and you were there
at the same time, farmers were beginning some cooperative
organization.
Mr. METER. Have they made much progress with it?
Senator BROOKHART. Not very much at that time. They have
made some since.
Mr. METER. That has been seven years, Senator.
Senator BROOKHART. And the head of the farmers' cooperative
in London told me at that time that he had a committee in Denmark
studying farmers' cooperatives and would bring a report back to
England. I then told him that Uncle Peder Pedersen in Iowa,
the organizer of the Farm Bureau, had forty years before gone
from Denmark to Rochdale, in England, to study this identical
system that I have described to you, and took it to Denmark for
the farmers of Denmark.
So it fits into agriculture just as well, and I think the farmers of
Denmark are probably better organized than the laborers of England
are. They have a complete banking system as perfectly organized
as any bank.
There are a few other points I want to ask you about this.
I have here Mr. Myron T. Herrick's book on Rural Credits, Land
and Cooperative. He autographed it to me on May 14, 1923, about
the same time I saw you over there.
On page 5 of that book Mr. Herrick says:
The machinery for credit in the United States is defective and inadequate
from the point of view of agriculture.

He was also one of the big bankers of our country.
There is plenty of money, it is true, for well to do farmers who are able to
meet all requirements imposed by the lender, but there are no means whatever for granting long-time loans, no arrangements, except in a few local and
special cases, for promoting the movement of the people back to the land,
no outside sources for short-time credit, nor any system whereby agriculture
may have first use, as it should, of the wealth it creates for financing itself.

Senator GOLDSBOROUGH. AVhen was that book written, Senator?
Senator BROOKHART. I n 1929. [Reading further.]
About the only facility of which farmers avail themselves at the banks is the
straight loan on promissory note. They depend too much on the merchant
to carry them over from harvest to harvest, and on this indirect credit, always
expensive, of installment purchases and running accounts they are paying
excessive interest in all localities remote from financial centers, and their
unfructuous debt is increasing with no prospects of immediate reduction.

Would that situation be improved if we had a branch banking
system ?
Mr. MEYER. I have no opinion on that, Senator.



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NOMINATION OF EUGENE MEYER

S e n a t o r B E O O K H A E T . T h e n a g a i n , on p a g e 8 M r . H e r r i c k s a y s :
Furthermore, the shorest period needed for agriculture is too long for the
banks, and so the 90 day paper of the merchant gets the preference over the
six months or one year paper of the farmer. As a result, the major portion
of the farmers' credit is not bankable under the present system, and only a
comparably small amount of their paper reaches the outside world. Consequently, when they wish to realize upon their credit to its fullest extent, the
farmers must pay a premium for the risk incurred, besides the highest interest
charged in their immediate vicinity. A new system to be added to the old is
necessary to rectify this trouble also, in spite of the powers recently granted to
national banks by the Federal reserve act of 1913.
Y o u h a v e h a d experience w i t h the f a r m e r s . "What do you say as
t o t h a t conclusion?
M r . M E T E R . W h e n was t h a t w r i t t e n ?
S e n a t o r BROOKHART. T h i s w a s published in 1919.
M r . M E Y E R . I t h i n k I t o l d you t h a t I suggested some years ago a n
a m e n d m e n t m a k i n g eligible for rediscount w i t h t h e F e d e r a l Reserve
B a n k s , u n d e r c e r t a i n c o n d i t i o n s , a g r i c u l t u r a l p a p e r h a v i n g a longer
m a t u r i t y t h a n six m o n t h s .
S e n a t o r BROOKHART. B u t t h a t seems to be but a little bite. H e
says we need a g r e a t system, a new system, t o be a d d e d t o t h e old.
A n e w , complete system is w h a t he is t a l k i n g about, " to rectify this
t r o u b l e also, in spite of t h e p o w e r s recently g r a n t e d to n a t i o n a l
b a n k s b y t h e F e d e r a l reserve act of 1913."
M r . M E Y E R . I should t h i n k t h e Glass committee would be s t u d y i n g

that.
S e n a t o r BROOKHART. N O ; t h e Glass committee is not s t u d y i n g t h a t
at all. W e are g o i n g to h a v e a n o t h e r c o m m i t t e e s t u d y t h i s question,
a n d it is i m p o r t a n t t h a t we k n o w s o m e t h i n g about w h a t the F e d e r a l
Reserve S y s t e m ' s a t t i t u d e w o u l d be.
M r . M E Y E R . I t is a b i g p r o b l e m .

S e n a t o r BROOKHART. A g a i n , on p a g e 9, M r . H e r r i c k s a y s :
Agricultural wealth and production in the United States are greater than
in any other country. The figures are stupendous. In 1910 farm property
was valued at $40,991,449,090, of which $28,475,674,169 was in land. If this
capital were mobilized the credit needs of farmers could be supplied for all
time to come. The annual returns were $8,417,000,000. This is more than
sufficient to finance a banking system for the exclusive use of the farmers.
Mobilization can be accomplished, however, only through institutions capable
of lengthening the period of loans, allowing repayment by amortization, and
able to make heavy and constant sales of debentures issued against the mortgages taken. As regards short term credit, the best banking system ever devised for enabling farmers to utilize their own funds and revenues for their
own purposes is a cooperative system.
N o w , d o you t h i n k t h a t is a sound p r o p o s i t i o n ?
M r . M E Y E R . Y o u h a v e r e a d a few e x t r a c t s f r o m t h e book. I h a v e
n o t r e a d t h e w h o l e book, a n d I d o not r e a l l y feel t h a t I h a v e t h o u g h t
i t o u t e n o u g h to express a n o p i n i o n .
S e n a t o r BROOKHART. W e l l , I will r e a d one m o r e q u o t a t i o n , from
p a g e 478, a n d t h e n we will q u i t :
The unions
T h e s e a r e t h e basic societies t h a t h e is t a l k i n g about.
The unions, with officers consisting of experienced and capable farmers and
other persons identified with agriculture, would see to the supervision, inspection, and auditing of their local credit societies and regional banks and associations, which would finally be linked together through the unions by State
and national federations with central institutions.



NOMINATION OP EUGENE MEYEE

221

Then, again, he says:
There a r e no F e d e r a l or S t a t e l a w s in the United States under which t h e
farmers might organize themselves into systems with credit societies a s t h e
basic units.

And we are the only civilized country in the world where that is
true.
Senator CAREY. D O you know anything about the mutual banks
we have in New England? How do the English cooperative banks
differ from these?
Senator BROOKHART. That is mentioned in the next sentence,
Senator. [Reading:]
The laws of Massachusetts on credit unions of 1909, of T e x a s on r u r a l credit
unions of 1913, of Wisconsin on cooperative credit associations of 1913, and of
New York on credit unions as finally enacted in 1914, provide for t h e organization of associations intended for thrift and small credit for feeble folk.
Texas limits the loans to $200 at not over 6 per cent for productive purposes,
thus absolutely preventing large undertakings, while the restrictive m e a s u r e s
of all four laws render them useless for r u r a l banking and credit systems.
A n d t h a t h a s to d o all t h e f a r m e r ' s business.
All require the members to be n a t u r a l p e r s o n s ; none allows associational
members. This alone would prevent credit societies from being the basic u n i t s
of a system.

I got a cooperative banking law passed out in my State, but the
bankers' association got a joker in it so they can not organize and
assist anybody. [Reading further:]
All forbid the acceptance of deposits from outsiders, t h u s closing t h e greatest
source of funds for operations. All require s h a r e capital and prohibit t h e
societies from doing any other business and from using t h e i r funds for any
other purpose t h a n t h a t of making loans.

Why should not a cooperative bank have a right to get deposits
the same as any other bank? Why shouldn't they have the right to
do the business that any other banking system has ?
This rejection of Raiffeisen principles is t h e most serious and regrettable
defect in the laws. T h e farmers of the United S t a t e s a r e capable and independent men and they should h a v e t h e r i g h t under the l a w s to organize themselves as best suits their own ideas or circumstances, w h e t h e r it be in
associations with shares or w i t h o u t shares, or with collective liability limited
or unlimited. Moreover, they should be able to decide for themselves w h e t h e r
they will have syndicated local associations or j u s t one Raiffeisen credit society
for each neighborhood. They have no choice under any of these laws, and t h u s
the play of private initiative and freedom of action is blocked.

Do you think those who believe in cooperation, like all the farm
organizations do, and like all the labor organizations do, and like
the independent retail merchants are coming to believe, should have
a law that would give them permission at least to organize this cooperative system complete, with a reserve bank and all from top to
bottom in the United States ?
Mr. MEYER. I have not studied the question enough. I think what
you have been reading is very interesting, Senator, but I can not
jump at any conclusion.
Senator BROOKHART. The Senator from Florida (Mr. Fletcher)
knows what this all means, because he investigated these systems
and made a magnificent report upon them quite a number of years
ago.
38819—31
15



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NOMINATION OF EUGENE MEYEE

Senator FLETCHER. Mr. Herrick was very much interested in the
subject of rural credits. He was of great assistance to our commissions in Europe.
Senator BROOKHART. I went into Herrick's office and told him
that I came there to study cooperative banking, and all his ambassadorial dignily left him at once and he said, •' Sit down. You are
on the greatest commission in the world." And he pushed a button
and a boy came in and he told the boy to get this book. He autographed it and signed his name and the date. May 14, 1923, and
he said, " I want you to read this. As you go over the countries
of Europe you will find that the United States is the only civilized
country in this world that by law is prohibiting its people from
organizing a cooperative system with its own reserve banks and all
under their own control."
And I have found out something about why that was. I went
up to New York one time and talked to about 200 people. Not your
friends, Senator Wagner, but that other crowd up there.
Senator WAGNER. They are all my friends up there.
Senator BROOKHART. Not your political friends, anyhow.
Senator WAGNER. HOWT do you know?
Senator BROOKHART. Because you did not get all those "stand
pat " votes up there.
There were about 200 of them there that night, and after talking
eooperation and standing around waiting for my train—I did not
specifically mention cooperative banking that night; it was just cooperation in general—but after it was over there was a man who
came to me and called me off to one side and said—I want to tell you something. I think Paul Warburg is the greatest financier
this country has ever produced, and what I want to tell you is that he believes
lots more of your cooperative ideas than >ou think ho does, and if jou want
to consult anybody about the big business of cooperation, he is the man to
consult, because he believes in you and you can rely on him.
H e slipped away, then, and about 10 minutes later I was steered
against Mr. Warburg himself, and he said to me, " You are right;
you are absolutely right on this cooperative idea. I want to let you
know that the big bankers are with you." He said, " I want to let
you know now, so that you will not start anything on cooperative
banking and turn them against you."
I said—
Mr. W a r b u r g , t h e heaviest burden t h a t we have to c a r r y down in the country
is t h i s accumulation of surplus credit in New York for speculation, and then
t h e deflation policy of the F e d e r a l Reserve Board of which .\ou were once a
member. I have already prepared, and to-morrov. [ am going to offer, an
a m e n d m e n t to t h e Lenroot bill to authorize the- establishment of cooperative
n a t i o n a l banks.

That was the intermediate credit act that was then pending to
authorize the establishment of cooperative national banks.
That ended my conversation with Mr. Warburg, and we have not
had any since.
Senator FLETCHER. Mr. Meyer, turning away from this very interesting subject which Senator Brookhart has been asking about, we
are all concerned, of course, greatly in the present depressed condition of the country. Various people have var'ous views about the
causes of it and how to remedy it. I do not know that the Federal



NOMINATION OF EUGENE MEYER

223

Reserve B o a r d can deal w i t h t h i s subject a t all, b u t I h a v e been
struck by an article which h a s been very widely d i s t r i b u t e d , I t h i n k ,
anonymously, b u t it r e a d s like t h e m a n k n o w s w h a t he is t a l k i n g
about. F o r instance, he says, after g i v i n g a list of 25 stocks, " T h e
a
gross loss to t h e p u b l i c on t h e 25 stocks given w a s above $17,000,000,000. A n d this on 25 stocks alone ! B u t figures m a k e d u l l r e a d i n g .
A n d he lists those 25 stocks a n d b o n d s w h i c h can be p u t into
the record if y o u like.
( T h e narmv of t h e companies r e f e r r e d t o a r e as follows:)
General Electric.
Allegheny Corporation.
General Motors.
American Superpower.
Gold Dust.
American Telephone & Telegraph.
International Telephone and TeleBeiidix Aviation.
graph.
Case Threshing Machine.
Johns-Mauville.
Cairo de 1'aseo.
Kennecott Copper.
Columbia Graphophone.
Montgomery Ward.
Commonwealth Southern.
Nevada Copper.
Congo! eum Nairn.
Consolidated Gas.
Radio Corporation of America.
Continental Oil.
Standard Brands.
Electric Bond and Share.
United States Steel.
Erie Railroad.
United Corporation.
Seventeen billion one hundred sixty-two million nine hundred
thousand dollars was lost in September, 1929, and then in 1930
there was even a greater slump, and he charges the whole trouble
in this country to that situation.
I do not know that I follow him there. F o r instance, he says:
Surely the perpendicular declines of November, 1929, and the long-drawnout, even more depressing, slump of 1930, which has followed the manipulated
rise of last spring (when stocks again were unloaded in volume at the highest
prices then humanly possible), have caused the present deplorable conditions.
Just as surely, because conversely, any substantial recovery in stock prices
would at once improve confidence and greatly mitigate the various demoralizing evils from which the country is now suffering, and gradually bring back
normal prosperity.
He suggests as a remedy that the New York Stock Exchange
should be regulated in order to cure that situation. First, he proposes Federal incorporation of all stock exchanges.
Second, absolute prohibition of stock " split-ups " and kindred
devices.
Third, the appointment of a Federal commission, experts in
finance, auditing and economics, to check up, pass upon and consent
to all listings.
Fourth, to hold to some measure of responsibility those bankers
who sponsor and profit from the sale of overcapitalized stock and
bond issues.
That is his remedy. I do not know whether the Federal Reserve
Board can have any influence or effect in that situation or not. H e
thinks that is the remedy, and he thinks prosperity will be restored
if those things are accomplished.
Has the Federal Reserve Board anything to do with that situation
at all?
Mr. MEYER. Not under the present law, certainly.
Senator FLETCHER. For instance, these listings of overcapitalized
stocks ?



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NOMINATION OF EUGENE MEYEE

Mr. MEYER. I t has nothing to do with t h a t ; not under the existing
law.
Senator FLETCHER. NOW, one other question. With reference to
business ills being laid to a big gold reserve, Mr. Roberts, vice
president of the National City Bank, in an article says:
Undoubtedly the abnormal distribution of gold resulting from the war was
to the disadvantage of business the world over. It disturbed the normal
equilibrium in world affairs upon which prosperity depends, and I venture to
bay that it did as much or more harm in the United States than elsewhere.
It disturbed normal conditions in the United States while supplying the
basis for the greatest inflation of credit and the wildest period of speculation
ever known anywhere.

Has the Federal Reserve Board any way by which it could influence the supply of gold in the United States?
Mr. MEYER. That is a question. Some people think that it is a
matter with the banks. Of course the board does not do business,
but some people think that the banks of the system can control such
things. But most people disagree with that, because the forces operating which affect them are very complex and numerous and have
various motivations. F o r instance, as long as people in other parts
of the world feel more confidence in American banks than they do in
other banks, by which I mean they feel that they can always get
their money whenever they want it, and that it will be paid in gold,
the increasing tendency is to deposit money in the United States.
What people like Mr. Roberts are talking about seems to be that
somebody or a group or a system, after the gold finds its way into
American banks, would get it into some other bank or some other
channel where it is needed. But the practicability of that has not
been demonstrated. I think people underestimate, Senator, the constant tendency of bankers and individuals and others all over the
world to have a certain amount of money in America and investments in America.
B u t on the point of whether the world disturbance makes the gold
and the money flow to America, or the flow of gold to America
makes the world disturbance, you can take your choice. Anybody
can.
H e says the world disturbance is produced by it. Other people
say it is the world disturbance t h a t produces that result. I t is like
the hen and the egg—which comes first?
Senator FLETCHER. I was wondering whether, through the Federal reserve system, there could be any sort of regulation of this
supply of gold moving in and moving out.
Mr. MEYER. That was one of the things that caused the discussion in 1927, from what I have heard and read, that the Federal
reserve system thought it would be desirable to have gold move out.
Maybe too much moved out or maybe it kept moving too long, I do
not know; but it did not apparently work in a satisfactory way.
As a member of the board temporarily, I would like to ask you,
do you think the board should control those things with any small
group of men?
Senator FLETCHER. I confess I am not an expert on these questions at all. I do not know very much about it. I am trying to find
out something.



NOMINATION OF EUGENE MEYER

225

Mr. MEYER. There is nothing in the act that particularly puts the
responsibility upon the Federal Reserve Board of moving the gold
supply of the country up or down.
Senator FLETCHER. I think the Federal reserve system should have
a good deal of influence there. That is just my idea. They know
the situation and condition and they would be able to ascertain
whether an oversupply of gold invites depression or what the effect
is, and they might have an influence, with the banks at least.
Here is a statement from the Irving Trust Co. of NewT York,
dated January 17, 1931 I t says:
Another heritage from 1980 is the unsolved problem of silver. A new low
record of 28% cents an ounce was registered on J a n u a r y 9, 1931. The debacle
clearly is not due to overproduction, but to legislation. As a m a t t e r of fact,
(he world output during 1930 declined 17,000,000 ounces from the previous year,
but the price declined from an average of 45 cents an ounce in J a n u a r y to
32.635 cents in December, or approximately 27.5 per cent. The I n d i a n Government threw about 29,500,000 ounces on the m a r k e t d u r i n g (he p a s t year, a n d
the demonetization in French Indo-Chinn another 22.000.000 ounces. Maldistribution of monetary gold is another major problem which is p e r h a p s not
unrelated to the severe decline in commodity prices. T h e total monetary gold
supplies of 45 countries including Russia a r e approximately $10,900,000,000.
Of this amount the United States and F r a n c o together hold $6,745,000,000,
or nearly 62 per cent.

The United States holding much more than France, I think.
Our business, our trade, our commerce, our commodity prices, are
affected by these silver using countries being in this situation, China
and India and other countries.
Mr. MEYER. I have been reading some memoranda and articles
that have been circulated, and I have been very interested as you
read from that article that the cause of the trouble is attributed to
the action of the Indian Government and the Indo-Chinese Government. I was rather interested in the fact that cotton exports to
China for the first 11 months of 1930, as reported by the Department
of Commerce, increased about a hundred per cent in bales. Of
course, as somebody said, China does not buy by selling silver; it
buys by selling goods. That may be true to a great extent, and still
the silver situation may be an unfavorable factor. There is civil
war in China and a social and political disturbance in India. How
much is due to these things and how much to economic conditions
I am not prepared to say. Those are all important questions to
study. You, of course, are well aware that the Federal Reserve
Board and svstem has no control over the price of silver or anything
to do with the silver market.
Senator FLETCHER. I can conceive of how it could affect it by way
of using its influence; but of course the people in China would not
like to make contracts for cotton when they do not know what they
have got to pay for it. There may be a drop in silver the next day
and the whole thing would go to smash.
Mr. MEYER. They are carrying stocks of cotton in China; I just
happened to hear of that some weeks ago. So they do not have to
speculate so much in the exchange.
Senator FLETCHER. I think maybe we can do something about
that. We are trying to see if we can not get England away from
that position with reference to India.



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NOMINATION OF EUGENE MEYER

Mr. MEYER. Of course that is principally a problem which hat
to do with British-Indian policy.
Senator FLETCHER. But this maldistribution of the silver and gold
also is greatly responsible for this decline.
Mr. MEYER. I t is well to bear in mind, of course, that while we
have 48 per cent of the world supply of gold in the United States
we have more than that percentage of the bank liabilities. Sometimes when they talk about the United States they forget how big an
economic factor in the total world economic situation the United
States is.
Of course it is the habit of people in times like these to criticize
I t is the regular thing. I do not want to limit it. I am in favor ot
full and free discussion. By that we sometimes get results. But one
should not jump at conclusions that everything is wrong from the
fact that there is something wrong. You have to be careful in
analyzing in order to get at the facts.
Senator FLETCHER. D O you think the Federal Reserve Board can
have much to do with foreign financing and international banking;
Mr. MEYER. The Federal Reserve Board has not anything to do
with it under the law, so far as I know. Senator.
Senator FLETCHER. I think that is all.
Senator BROOKHART. I have a few more questions.
If a cooperative system were established and developed in the
United States, something as I have described it, do you think it
would stabilize business as it has done in Great Britain ?
Mr. MEYER. Senator, that is a hypothetical question. Everything
would depend on what was worked out and how it was worked out.
I n Great Britain they do not have conditions stabilized at all. do
they? They are extremely unstabilized.
Senator BROOKHART. I want to call your attention to a chart
here of stock values of various countries. That is the exchange's
own chart. I call your attention to the line for England
[indicating].
Mr. MEYER. I t ends in January, 1928. Of course you find much
more violent fluctuations in 1928, 1929, and 1930 in the London
market.
Senator BROOK HART. I have them on a chart on the Senate wall
now. Our panic caused some little wobbling of them, but they
are slight compared with our own.
Mr. MEYER. YOU are likely to find fluctuations in a young country
like the United States greater than fluctuations in an old, settled
community.
Senator BROOKHART. I can not say that. I think in France it
fluctuated quite as much as in the United States.
I would like to have the committee look at this chart and then
•also look at the one I have hung on the wall that brings this nearly
up to date.
Senator CAREY. You mean, on the wall in the Senate Chamber?
Senator BROOKHART. Yes. The one I have on the wall was made
by the Federal Reserve Board, or by Mr. Cunningham and Mr.
James.
Mr. MEYER. We are always glad to cooperate in giving any facts
or information.



NOMINATION" OF EUGENE MEYER

227

Senator BROOKHART. That is a chart made by the New York
Stock Exchange. I did not make it.
There are a few other questions that I do not care much about,
but Mr. Meyer asked mc what I had done to correct this
situation
Mr. MEYEK. I was just joking, in a way, Senator. I do not want
to hold you responsible any more than T think you ought to hold me
responsible.
Senator BROOKHART. I am very glad to be held responsible for
what I have done. I might ask a few of these questions. You said,
Why should not the legislature reduce the deposit rate out in our
country?
1 offered an amendment to the Federal reserve act to fix a deposit
rate of 2 per cent for redeposits for member banks of the Reserve
banks.
Senator GOEDSKOROUGH. You mean, the banks putting in their
reserves ?
Senator BROOKIIAKT. Yes. And then I prohibited any other bank
from paying and interest rate for redeposit so that all the surplus
credit would go to the Reserve bank.
That is somewhat in line with your suggestion of controlling
deposits out in our country, is it not?
Mr. MEYER. N O . I had more in mind the high rates paid by some
commercial banks for deposits.
Senator BROOKIIAKT. I understand; but it is the same principle, is
the same principle, is it not?
Mr. MEYER. I do not know that it is. I do not think so.
Senator BROOKHART. The reserve bank is doing the same thing
for banks that a bank does for individuals ?
Mr. Meyer. A small p a r t of the resources of the country as a whole
would go into the reserve banks.
Senator BROOKHART. I further provided that the rediscount rate
should be 3 per cent. "Would not that have a tendency to stabilize
things more than by pushing the rate up and down?
Mr. MEYER. There is a variation in demand and supply, and I
do not see how any one rate could be fixed. Circumstances and
times change, and it would not seem to me to be practical.
Senator BROOKHART. These cooperatives have made it practical,
have absolutely fixed the earnings on capital as the basis of their
whole system. No capital can have a speculative value in a cooperative enterprise, because you know what it is going to get when you
start. That has stabilized business' as we have seen in Great
Britain, when Great Britain was hit a hundred times harder by the
war than we were, and there are many more reasons why they
should have ups and downs than we have; so that some of the same
kind of rules would have saved some of this 92 per cent failure.
Have you any opinion about that ?
Mr. MEYER. N O . Conditions vary in different countries.
Senator BROOKHART. If banks out in our country, for instance,
could rediscount at 3 per cent, I think after a time t h a t might even
be reduced, and we might accumulate more surplus than we would
need. Then they could afford to loan farmers for 5 per cent, could
they not?
Mr. MEYER. I do not know.




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NOMINATION OF EUGENE MEYEE

Senator BROOKHART. If the deposit rate was reduced accordingly.
I t was suggested when I offered this amendment that it would drive
the business all into the State banks. Of course, I extended the language of the Federal Keserve Act in reference to prohibiting rediscounts of speculative paper. I extended that to original bank loans
in the member banks and prohibited them from making a speculative
loan in the same language that the reserve banks are prohibited from
rediscounting a speculative loan. Is there not the same reason for
doing that as there is for prohibiting the rediscount?
Mr. MEYER. I t would involve a great deal of judgment as to what
was a speculative loan. I t would be very difficult to interpret and
enforce.
Senator BROOKHART. Have you not enforced it ?
Mr. MEYER. I t involves the security on which the rediscount is
based. But I would not, if I were a farmer, like to have a banker
say that he can carry my paper for three months, but if it is carried
three and a half months it is speculative.
Senator BROOKHART. I n a cooperative system we will never have
any arguments over a technicality like that. Among farmers that
does not happen in a cooperative system.
Mr. MEYER. Speculation is a mental operation, and nobody can
exactly say where it begins and ends.
Senator BROOKHART. I asked you to examine the matter of Senator
Glass's proposition of levying a 5 per cent tax on all sales in stock
exchanges where the stock was resold within 60 days. Have you
done that ?
Mr. MEYER. N O , I did not think you asked me to. I am going to
testify before the Glass' committee, and if he asks me I will examine
it and give him my opinion.
Senator BROOKHART. YOU have no opinion now?
Mr. MEYER. NO ; I have not studied it.
Senator BROOKHART. I supported Senator Glass' amendment very
ardently. I thought it was a very excellent way to raise revenue
and stop speculation.
Mr. MEYER. I would like to hear some of the testimony about that.
Senator BROOKHART. Another think: I have provided that State
banks must comply with these rules or be denied the use of the
United States mails and interstate commerce. I thought that would
not drive the business into the State banks.
That is what I have done toward remedying this situation.
(Whereupon, at 4.45 o'clock p. m., the subcommittee adjourned to
the call of the chairman.)




NOMINATION OF EUGENE MEYER, TO BE A MEMBER OF
THE FEDERAL RESERVE BOARD
THURSDAY, FEBRUARY 5, 1931
UNITED STATES SENATE,
SUBCOMMITTEE OF THE COMMITTEE ON
BANKING AND CURRENCY,

Washington, I). 0.
The subcommittee met, pursuant to the call of the chairman, at
2 o'clock p. m., in the committee room of the Senate Committee on
Military Affairs, Capitol Building, Senator Robert D. Carey, presiding.
Present: Senators Carey (chairman of the subcommittee), Goldsborough, Brookhart, Wagner, and Fletcher.
Senator CAREY. The committee will please come to order.
Senator BROOKHART. Mr. Chairman, the first witness will be Congressman Rainey.
TESTIMONY OF HON. HENRY T. RAINEY, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF ILLINOIS
(The witness was duly sworn by the chairman.)
Senator CAREY. Will you please state your name for the record?
Representative RAINEY. Henry T. Rainey, Member of Congress,
Carrollton, 111.
I appear here at the request of Senator Brookhart in opposition
to the confirmation of Mr. Meyer for reasons which I shall endeavor
to make plain to the committee.
I am meeting Mr. Meyer to-day for the first time. I have great
respect for him, but I am not at all attracted by his career, particularly so far as his service as farm loan commissioner and head
of that board is concerned. I want, in order to make myself perfectly plain at the outset, to charge that he has ruined the joint stock
land bank system of this country, and has intentionally done so;
and I shall endeavor to furnish reasons for that belief.
I want to charge, in the second place, that his blundering has
ruined the Federal land banks system.
THE WRECKING OF THE BANKS

When Mr. Meyer on the 10th day of May, 1927, became farm
loan commissioner and the head of that important board nearly
all of these joint stock land banks, although the farm depression
had been in progress for five or six years, were getting along well,
in view of the conditions which surrounded them; their bonds were



229

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NOMINATION OF EUGENE MEYER

selling at par on the market and their stocks had depreciated out
little.
Senator CAREY. May I interrupt you a minute? What year was
it that their bonds fell below par?
Eepresentative RAINEY. I do not know just what year it was.
Senator CAREY. Was it in 1920 or 1921 ?

Representative RAINEY. N O ; it was much later than that. They
were at par substantially and most of these banks wore able to issue
bonds and to place them on the market at the time Mr. Meyer was
appointed to this important position.
Senator CAREY. I am referring to the joint-stock land banks.
Representative RAINEY. Yes; the joint-stock land banks. To-day
the joint-stock land bank system is ruined. I have here the report
as to the price on the market of joint-stock land bank bonds on the
second day of February. The 5 per cent bonds of the Atlanta Co.
were selling at 45. That is, they were bid at 45, and I am quoting
the bid column as I go through this report. The Atlantic Joint
Stock Land Bank 5 per cent bonds were selling at 45. The Burlington were selling at 54; the California at 84; the Central Iowa at 41,
and so forth, throughout the entire list.
Only three of these banks were, so far as the market quotations
show, able to function on the second day of February of this year
and place bond issues or sell their bonds on the market if they desired to do so. The first trust of Dallas 5's were selling at 99 bid.
The first trust of Chicago bonds were selling apparently at 100
and 102.
Now, both of these banks are owned and controlled by the First
Trust & .Savings Bank of Chicago, and that is the reason these prices
are quoted. But the First Trust & Savings Bank of Chicago has
announced, so I am reliably informed, that it proposes now, on account of the disrepute into which the joint-stock land bank system
has fallen, to liquidate these two banks. That is going to happen in
the near future, just as soon as they can bring it about.
The Fletcher Joint Stock Land Bank's 5i/>'s were selling at 98 bid
and 5 per cent bonds at 94. But the Fletcher bank is owned by a
trust company and its stock and its bonds are closely held. I am not
advised whether they intend to liquidate or not, but I would not be
surprised.
All of these other banks are gone. Banks whose undefaulted
bonds are selling as low as these bonds are can never hope to function again as banks. The wreckage of that system is absolutely
complete.
Now, while that has been going on the stock of these banks has
fallen until the stock of the Chicago bank is selling for $3 bid and
$5 asked; of the First Carolinas $2 bid and $5 asked; of the Lincoln
$27 bid and $32 asked, and there are many other banks whose stock
is quoted low.
I t will be interesting, whenever there is an investigation of these
banks, to find out what has become of this stock. My information
is that it is being bought up by street men with no financial responsibility, who are holding it for somebody else, and when the time
comes this stock will go up in the market.




NOMINATION" OF EUGENE MEYER

231

A POSSIBLE MOTIVE

An accountant in St. Louis sent me the other day a statement, and
he figured out that the stock of that bank has a potential value today of 1,800 to 1. The holders of the stocks in these banks do not
know what is going to happen to them.
About the only affirmative proposition for which the Federal F a r m
Loan Board stands is to get through legislation which will override
the decision of December, 1929, or perhaps it was in November, of
the Supreme Court of the United States clarifying the law and
holding that in order to assess double liability against stockholders,
the Federal F a r m Loan Board must go into a court of equity in
order to give the bondholders their day in court. From that time
until this the Treasury Department and the Federal F a r m Loan
Board have confined their attention principally to getting through
a bill which will authorize the Federal F a r m Loan Board to arbitrarily impose a double liability on this stock. When it is imposed
then the wreck can be complete. When that authority is granted
it is possible for the Federal F a r m Loan Board to pick out two
of these banks or one of them somewhere, arbitrarily impose the
double liability, and then complete the wreck. Then when they are
ready, the stock of the others can go up on the market.
Take a bank in this condition, and more than one of them is in
this condition; take a bank operating with capital stock of seven
or eight hundred dollars and which owns a million dollars and a half
of real estate, which will happen soon with reference to some of
these banks when this 1930 report comes out, which I assume will be
after the adjournment of this Congress. Who owns that land?
The stockholders own it. If there is six or seven hundred thousand
dollars worth of stock outstanding, and if that stock owns a million
dollars or a million and a half dollars worth of land, leaving out of
the question entirely the seasoned mortgages, which belong also to
the stockholders, that stock, although it may be selling for 4 and 8,
and even less than that to-day, is Avorth two lor one right now.
So whenever you have an examination by a joint committee of the
House and Senate you will have the right to find out from the books
of these banks who is buying this stock, and then examine the purchasers of this stock under oath and compel them to disclose for
whom they are buying it. When that happens a scandal will develop
in this country which may surprise all of us.
Senator WAGNER. Congressman, do you know the individuals who
are buying the stock now?
Representative RAINEY. No; I do not know any of them and
nobody else does, so far as I know.
Senator WAGNER. I t is a pretty serious charge, and I wondered
whether you had any more than a rumor.
Representative RAINEY. Nothing more than the opinions that I
get from brokers.
Senator WAGNER. On what was their opinion based, some definite
purchase ?
Representative RAINEY. They did not give me any definite purchases, but they said they understood that that was being done.



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NOMINATION OF EUGENE MEYEH

Senator WAGNER. I wondered whether you thought that was efficient for any reasonable person to draw a conclusion from.
Senator BROOKHART. I got the impression that this Giannini
Senator WAGNER. I will not ask you to guess, Senator, because
it is dangerous to use names based upon a guess.
Representative RAINEY. I am not going to use any names.
Senator WAGNER. I think if you know you ought to.
Representative RAINEY. But an investigation of this silbject might
disclose this scandal. These banks are liquidating; they are buying their bonds at less than 50, some of them less than 30, bonds
that have never defaulted. As fast as they buy in their own bonds,
using their amortization payments, they are extinguishing the indebtedness of that particular bank, and they are making the stock
more and more potentially valuable.
THE HUGHES OPINION

And may I call attention to the dangers which confront this
Government at the present time ? When Mr. Norris was at the head
of the Federal F a r m Loan Board, at the request of Griswold & Co.,
of Baltimore—1 mean Alexander Brown & Co., of New York—Mr.
Griswold is the active man there in these bond matters—they obtained an opinion from the leader of the American bar a.-, to the
liability of the Government for the losses of these banks, and the
leader of the American bar rendered an opinion, which is hidden
away now in the files of the Federal F a r m Loan Bureau, in which
he held that the good faith and credit of the United States Government were back of the Federal Land Bank bonds, and I understand also were back of the joint-stock land bank bonds.
Senator FLETCHER. Does he say they were back of the joint stock?
Representative RAINEY. I think so. I never saw the opinion. At
any rate, I know he said the other.
Senator GOLDSBOROUGH. Who rendered the opinion?
Representative RAINEY. The opinion was prepared by Charles
Evans Hughes, now Chief Justice of the Supreme Court of the
United States; and, if any case should arise and should ever reach
that court, he would hold that way again, if he does not hold that
the giving out of that opinion when he was practicing law—and that
occurred after the presidential election in which he was interested
and before his appointment to his present position—if he does not
hold that would make it improper for him to participate in any
opinion that the Supreme Court might render.
Senator FLETCHER. The opinion was rendered at the request of the
F a r m Loan Board?
Representative RAINEY. On the initiative of Alexander Brown &
Co., who are at the head of the group of brokers who distribute
these bonds, and requested by the Federal F a r m Loan Board, and
they paid Chief Justice Hughes for that opinion. Since he rendered
it, he has been requested more than once by the Treasury Department to modify it, but he has steadfastly refused, and it stands
to-day.
Senator WAGNER. May I get what is the point about that? I
mean supposing that were finally determined by the court to be the
fact.



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233

Representative RAINEY. Then the Federal Government would
have to make good these losses.
Senator WAGNER. No; I mean in relation to our matter here.
Representative RAINEY. Incidentally, I want to show that Mr.
Meyer should not be given the important position he now occupies
when his conduct and his administration of the Federal F a r m Loan
Banks has resulted in this situation which may involve this Government in great losses and large appropriations.
Senator WAGNER. I take it that you are going to tell us exactly
what the acts of Mr. Meyer were that brought about these conditions.
Representative RAINEY. Yes; I am going to. Now, Mr. Meyer,
when he nominally resigned his position at the head of the Federal
F a r m Loan Board, did not really cease his activities. H e went
right along. H e left back of him an able body of wreckers and
they are continuing his policies and are consulting with him.
Even before his appointment—this can not be proven by definite
evidence, perhaps—my understanding is that he was frequently in
consultation with the Secretary of the Treasury and especially with
Assistant Secretary Dewey in the matter of these banks.
RECEIVERSHIPS

Just before his appointment the Chicago Joint Stock Land Bank,
the Dallas Joint Stock Land Bank, the Kansas City bank, the Des
Moines bank, and the New York bank were all functioning. Their
bonds were selling at par. The farm loan commissioner was called
to the office of the Secretary of the Treasury and was advised by the
Secretary and by Mr. Dewey that they understood some of these
joint-stock land banks were in difficulties. H e agreed to that proposition and said that some of them were, notably, the Greenville
Joint Stock Land Bank, a small bank in Illinois, and one other;
but he insisted that steps were being taken to consolidate those banks
with stronger banks and get them out of their difficulties. H e also
advised the Secretary that he had imparted to him this information
before, and then he had an understanding with the Secretary that
nothing would be done without the consent and the approval of the
Federal F a r m Loan Board.
A few days afterwards United States marshals, with pistols
strapped at their sides, sometimes with drawn pistols, entered these
five banks and demanded that the banks be turned over to them.
Word went all over the United States at once through the newspapers as to what had happened, and this led to the breach with the
old Federal F a r m Loan Board and to the resignation of three of
its members—two of them stayed and are there to-day—and to the
appointment of Mr. Meyer at the head of that board.
Senator CAREY. Who authorized the marshals to take over the
banks, the Secretary of the Treasury or the F a r m Board ?
Representative RAINEY. Assistant Secretary Dewey.
Senator FLETCHER. The F a r m Board had not anything to do
with it?
Representative RAINEY. The farm board had nothing to do with
it; that is, the farm board as then constituted. The farm board
did not know anything about it until it was done.



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Senator FLETCHER. They were all closed on the same day were
they not?
Representative RAINEY. I think they were; at any rate, very near
together; and that started the ruin of all of these banks.
Senator CAREY. H O W do you connect Mr. Meyer with that?
Representative RAINEY. Because I think he was in consultation
with the Secretary of the Treasury and Mr. Dewey all along.
Senator WAGNER. Was he a member of the farm board ?
Representative RAINEY. N o ; this was immediately prior to his
appointment.
Senator GOLDSBOROUGH. Would you be good enough to give me the
approximate date of that opinion of Mr. Hughes ?
Representative RAINEY. I t was rendered after his campaign for
the presidency and while he was practicing law and before his appointment to the Supreme Court, considerably before his appointment to the Supreme Court.
If the Federal F a r m Loan Board can not find that opinion for
you gentlemen—and it ought to be printed now and see the light of
day—I think I know where I can get you a copy, although I have
not even seen a copy.
Senator CAREY. How long ago did you say that opinion was
rendered by Mr. Hughes ?
Representative RAINEY. I said it was rendered while Mr. Norris
was at the head of the F a r m Loan Board. I know it was after
Mr. Hughes's campaign for the presidency.
The most prominent man in the United States in these joint
stock land banks was Guy Huston, of Chicago. H e was the
president, I think, of the Chicago Joint Stock Land bank and also
of the New York Joint Stock Land bank, an important official in
the Milwaukee Bank, and was connected with at least one other
bank and perhaps two other banks.
Senator FLETCHER. Before you pass from that, at the time there
were three resignations called for, Cooper, Landis, and Jones ?
Representative RAINEY. Yes, sir.

Senator FLETCHER. And Mr. Meyer, Mr. Cooksey, and Mr. Harrison were all appointed at the same time.
Representative RAINEY. Resignations were called for in the cases
of Governor Cooper, who was the farm loan commissioner then,
M r . Landis, and Mr. Jones. Mr. Gill and Mr. Pettijohn remained
on the board and they are on the board to this day.
THE GXTY HUSTON OUTRAGE

Guy Huston, just before the appointment of Mr. Meyer, was the
most prominent land bank president in the United States. H e was
president of these two banks. I have given their names. He was
connected with some other banks. H e owned, himself personally,
$180,000 worth of stock in the Chicago Joint Stock Land bank.
That is probably the largest amount of stock ever owned in any
of these banks by any individual. H e helped build up the system.
I think he owned stock in other banks, too.
I n order to complete the wreckage of this system, or to initiate it
effectively, it was necessary to get rid of Guy Huston, and this is



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235

the way they did i t : H e was indicted in the Federal District Court
at Toledo, Ohio. The principal charge against him was that in the
case of the Joint Stock Land Bank of Milwaukee, as I understand
it, those bonds had depreciated on the market. Therefore, he was
charged with conspiracy to use the mails to defraud. T h a t
indictment was quashed.
Then the Treasury Department and the Department of Justice,
acting on its initiative, went to Boston and got another indictment
there against him. Before they got any indictment, however, they
sent their indictment expert from the Department of Justice out
into this area to look into the facts and to find out whether t h a t
could be done. H e refused to draw the indictment. They sent
a more obedient official and he prepared the indictment and the
indictment was returned.
Senator BROOKIIART. The Department of Justice official was Judge
Pagan?
Representative RAINEY. I think you are right.
Senator WAGNER. Who was Attorney General at the time?
Senator BROOKHAET. I think Mr. Sargent was.
Senator WAGNER. What was the time?
Representative RAINEY. This was early in 1927, when this first
indictment was returned, or late in 1926, I am not sure which.
Senator WAGNER. Then it must have been Mr. Sargent.
Representative RAINEY. I t might have been. At any rate, that
Toledo indictment was quashed. Then they got out another indictment charging the same thing, conspiracy with intent to defraud,
from the district court in Boston and issued a fugitive warrant
against Guy Huston.
Senator WAGNER. D O you mind interruptions?
Representative RAINEY. Not at all.

Mr. WAGNER. I have a peculiar failing; I would like to be a
little specific. When you say '' they," you mean Attorney General
Sargent directed this situation?
Representative RAINEY. Yes; on the initiative of the Treasury
Department. Almost any Attorney General would have directed
almost any indictment to be returned if any cabinet officer asked
it to be done.
Senator WAGNER. YOU mean Secretary Mellon ?
Representative RAINEY. Yes; or Assistant Secretary Dewey acting
through him. And I might say in passing that Secretary Dewey,
who has been a consistent enemy always—of course, he is out of the
Treasury Department now—of the entire land bank system, was
prominently connected in Chicago before he came here and commenced his war against the system with some mortgage bankers,
farm mortgage bankers' organizations in Chicago, and the farm land
banks were impinging upon the field of that company.
I mention that to show a possible reason for his conduct in these
matters.
When they return the Boston indictment they issued a fugitive
warrant against Guy Huston. When he heard the warrant was out
he went into the district court at Toledo and asked that it be served
so that he could give bond. They refused to do it. They admitted
afterwards that the reason for refusing to do it was that they



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NOMINATION OF EUGENE MEYER

wanted to arrest him under circumstances that would humiliate
him and his associates.
Senator CARET. Who made that statement?
Representative RAINEY. Guy Huston himself made that statement
to me.
Senator WAGNER. Who was the person that made the statement
to Mr. Huston?
Representative RAINEY. I do not know. 1 presume it was some
of the officials connected with the serving of the warrant, somebody
from the Department of Justice.
At any rate, this is what happened: The fugitive warrant was
not served until later. He was never tried on that Boston indictment. On the 10th day of May, 1927, Mr. Meyer took the oath of
office as farm loan commissioner. On the 19th day of May, nine
days after he qualified and had full control of the entire machinery,
which he had had partially even before that time, Guy Huston
started on the Century Limited from Chicago to New York. That
train was stopped early in the night in Ohio, at Toledo, Ohio, and
United States Marshals went into the sleeping car where Guy Huston
was and dragged him out and served that warrant.
Senator FLETCHER. Mr. Rainey, do you remember that case the
Supreme Court decided with reference to the double assessment?
Do you remember the name of the case ?
Representative RAINEY. NO, sir; but I can get it for you, Senator.
Senator FLETCHER. I think I have a reference to it. And that
Fletcher Bank, do you know where that is located ?
Representative RAINEY. I n Indiana, I think.
Mr. MEYER. Indianapolis.

Representative RAINEY. Indianapolis, yes.
Senator CAREY. Mr. Rainey, you may proceed.
Representative RAINEY. We were discussing the question of the
serving of that fugitive warrant in that dramatic and impressive
way. I t was served in the nighttime. The newspapers had been
notified, the morning papers, all over the United States.
Senator WAGNER. Congressman, whom do you hold responsible
for that?
Representative RAINEY. I am holding Mr. Meyer responsible for it.
Senator WAGNER. F o r that dramatic arrest ?
Representative RAINEY. Yes; he was in charge of the whole thing.
Senator WAGNER. Is there anything more than your statement
which shows that he was in charge of this whole thing? Anything
more than your statements?
Representative RAINEY. He had been nine days F a r m Loan Commissioner at that time, and was in control of the whole thing.
Senator WAGNER. What I want to know is this: Is there any more
than your conclusion, simply, from the fact that ho was chairman
of this F a r m Loan Board, or a member of it that he directed the
method by which this gentleman was to be apprehended? I want
to find out what evidence you have of that.
Representative RAINEY. Well, if somebody had stolen a horse from
me and I afterwards found it in his possession, I would think that
he stole it.
Now, the newspapers were notified
•



NOMINATION OP EUGENE MEYER

237

Senator WAGNER (Interposing). Is that your answer to what I
asked you?
Representative RAINEY. Yes, sir.

Senator WAGNER. That is wrhat I wanted to find out.
Represenative RAINEY. The newspapers were told to hold their
headlines in the morning papers of the next day for a " Government
b u s t " ; that is the language of the reporters, as I understand it.
Reporters were there by invitation, from as far away as 500 miles.
They knew it was going to happen before Guy Huston did.
Senator CAREY. You do not know wdio notified them?
Representative RAINEY. I do not know how it was sent out, but it
was part of the conspiracy to discredit Mr. Huston and his bank and
his associates.
Senator WAGNER. Congressman, may I ask you who was notified
about this incident; what individuals, and what particular newspapers ?
Representative RAINEY. My information is that a great many
newspaper reporters were present.
Senator WAGNER. I know, but do you know any particular individuals or newspapers, so that the committee might inquire of them?
Representative RAINEY. NO. You might call Guy Huston, himself, and he will give you the names, and then you can call them.
Photographers were there with flash lights, and the arrest was
effected in that way. He demanded to be taken before the district
judge there in Toledo. H e did not have any bondsman present,
and he would have been thrown into jail if he had not been able to
establish the fact that he had $25,000 on deposit in a Chicago bank.
Then he was released until he could get his bond.
He was never tried under that indictment, and they never intended
to try him under that indictment. The indictment returned in the
Toledo court had been quashed, and another indictment was obtained,
I think, in a Milwaukee court, that wTas the indictment under which
he was tried. Perhaps it was a Milwaukee court. I think it was.
Senator BKOOKHART. I t was a Minneapolis court.
Representative RAINEY. Yes; the Minneapolis court.
Senator WAGNER. YOU mean the grand jury?
Representative RAINEY. Yes; the grand jury in Minneapolis.
That is true. He was tried and convicted and sentenced to 10 years
in the penitentiary.
Senator CAREY. What was the charge?
Representative RAINEY. Conspiracy to use the mails for the purpose of defrauding. And the conspiracy charged was that this
stock had depreciated on the market prior to the time the indictment was returned—the stock of one of his banks, probably the
Milwaukee bank. I am not sure which bank.
He took the case up to the United States Circuit Court of Appeals,
and a sweeping decision was rendered in that court in favor of
Mr. Huston, and a scathing denunciation of the methods which
brought about his conviction.
And recently, within the last two or three months, an investigation was made in Chicago, in the district attorney's office, and they
issued a statement completely exonerating Guy Huston and all his
38819—31
10



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NOMINATION OP EUGENE METER

associates from any improper conduct in connection with the banks
in which he was interested. And so the matter stands.
Now, the man who was at the head of the Federal Farm Loan
Board when that damnable record was made ought not to be given
this more responsible position to which he now aspires. Within
three months from the date of that dramatic and spectacular arrest
the stock of these joint stock land banks depreciated $100,000,000.
Now, in addition to completely wrecking the Joint Stock Land
Bank system at a time when that system is most needed, he has
blundered along and through his policies he has ruined the other
system.
I started out in my investigation of this subject a little over a
year ago, because I had a great many of my constituents who owned
stock in the Kansas City Joint Joint Stock Land Bank
Senator CAREY (interposing). That bank failed, did it not?
Representative RAINEY. Yes. That was the first of three to be
placed in the hands of a receiver.
Senator CAREY. I thought so.
Representative RAINEY. T h a t occurred ju>t before Mr. Meyer
assumed his position at the head of the Federal F a r m Loan Board.
And that bank, the stockholders' committee insisted, was perfectly
solvent when it was closed by order-of the Federal F a r m Loan Board.
THE KANSAS CITY JOINT STOCK LAND BANK

The offense committed out there by the president of that bank was
t h i s : H e also had charge of a water power development in Missouri,
or perhaps in Arkansas, or perhaps in both States, which would
men the flooding of a large amount of land, and a great many farms.
The Kansas City Joint Stock Land bank had taken over a great
many farms at that time, and the president of the bank was also at
the head of this development, and he had a system of trading these
farms that he had taken over to the farmers who were to be flooded
out in this water power development. And that met with the approval of the F a r m Loan Board; but, afterwards, when Mr. Mellon
looked into it, or Mr. Dewey, or both of them, they did not approve
of t h a t ; and although a statement had just been issued by the Federal
F a r m Loan Board their regular report showing that this bank was
perfectly solvent a short time before, they went in there with United
States marshals and seized the bank, some of them with drawn revolvers. This was the ruin of that bank. And the other two banks
soon afterwards had receivers appointed at the instance of the Federal F a r m Loan Board, and this receivership was created after Mr.
Meyer assumed office.
Senator WAGNER. D O I understand this first bank to which you
referred
Representative RAINEY (interposing). The Kansas City Joint
Stock Land bank.
Senator WAGNER. That before Mr. Meyer became a member.
Representative R A I N E Y . Yes; a little before.
Senator BROOKHART. That is, during the period that Mr. Meyer
was laying the foundation to get control of this?
Representative RAINEY. Yes; I think so. He will probably deny
this, but T think so.




NOMINATION OF EUGENE MBYBK

239

SECRETARY M E L L O N

Now, I have not any criticism to make of Mr. Mellon at all. He
is intellectually honest. He is a pleasant, intellectual, agreeable old
gentleman, easily influenced. The way to influence Mr. Mellon is
to assure him that he is the greatest Secretary of the Treasury we
have ever had since Hamilton; and whenever that statement is made
by an orator at a banquet table surrounded by these fat, sleek, muggy
millionaires who are under his influence, he thrills to it and agrees
to it, and that is all. He sits comfortably amid his automatically
accumulating millons—and they accumulate rapidly and automatically now, without any effort on his part—and if they say he is the
greatest Secretary of the Treasury since Hamilton he thinks they are
right about everything else; he is sure they are right about that,
therefore he thinks they are right about everything else. And so
these influences result in this situation and are possible even though
Mr. Mellon is intellectually honest. I do not think he is a financier.
That is a misnomer, as I understand the term, and I am going to get
back to that presently.
FEDERAL SYSTEM IN TROUBLE

The Federal land banks are now in trouble. I t is the policy of
Mr. Meyer, who represents a class in this country, to preserve the
Federal land banks. He wants to do that and to destroy the other
system because, evidently, his theory is that on account of the interlocking liabilities of borrowers in the Federal land bank system if
is possible to keep the tax-free bonds of that system which are so
inviting to his friends at par, or near par, and he evidently hopes
by destroying the joint stock land bank system to extend the Fedderal system through the agency of branch banks, which have never
been called into operation, but the Act provides for branch banks,
so as to occupy the entire field. Five hundred thousand farmers
to-day toil on American farms in their efforts to keep the price of
those bonds at par. We are told, when we talk about a moratorium
and an interest paying stay, we are told by Mr. Mellon that it would
injure their morale; they must keep on at the business in which they
are engaged, to wit, toiling to furnish investments which are attractive and tax-free, and if they can be maintained at par, they are
much more desirable than Liberty bonds, because you can own all
of them that you want to own. The holdings of Liberty bonds
are limited, and you can not hold over $65,000 or $75,000. But you
can hold these bonds, which carry a higher rate of interest than Liberties—you can hold $10,000,000 worth if you want to.
I started out upon the theory that the joint-stock land banks had
been improperly and fraudulently administered, and that some of
these people ought to be in the penitentiary who were responsible
for it. As long as I confined my attacks to joint-stock land banks,
and my efforts to reorganize them, or suggesting methods to the
committees for reorganizing them, I got along with the Farm Board
all right; but when I commenced to look into the Federal system, and
when I ascertained and suggested that the Federal system was worse
off. even, than the joint-stock land system, then I incurred the



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NOMINATION OF EUGENE MEYER

enmity of these wreckers whom Mr. Meyer has left back of him in
charge. There never will be another issue of Federal farm land
bank bonds. I have been on the carpet twice before Mr. Mellon, and
I have been advised that my speeches on that subject, and my interviews were likely to disturb the financial structure of the United
States, and that I ought to quit. I was advised by him last June
that the Federal farm land bank system was perfectly sound; that
at that time he was arranging with a group of bankers to float an
issue of $20,000,000 worth of Federal farm land bank bonds, and I
was interfering. I did not see how it could be done. The Federal
farm land bank bonds Avere then selling around 96, the 4%, and that
was what he wanted to issue. I did not see how he could float an
issue on the market at par, I could not see how it was possible to
float an issue of Federal farm land bank bonds. So as soon as I
got back to my office I wrote to Mr. Griswold of Brown & Sons,
who is at the head of the syndicate which sells these bonds, and asked
him how soon that issue was going to make its appearance. He wrote
back to me and said he had never heard of it, and there would be
no issue of that kind.
At the same time I wrote to Mr. Bestor, at that time and still farm
loan commissioner, and I have his reply in which lie denied that such
an issue was going to be made. He had never heard of it, and said
we did not need it.
I wrote to the President of the Federal farm land bank at St.
Louis, Mr. Netherdahl, and T have his reply denying there was going
to be any issue of $20,000,000, and that it was not going to be done;
that they had all the money they needed out there in those three
States, and did not want it at all.
To my surprise, on the 17th day of last November, there appeared
in the newspapers the official announcement of this issue of bonds.
They were callable in two years, and payable in three years. And the
notice stated that these bonds were to be offered by the 12 Federal
land banks, and by the three or four firms operating under the direction of Mr. Griswold up here, who always circulates these issues. I
think perhaps I can give you the names of them for the record, and
perhaps you know who they are. The National City Co. is one of
them. Alexander Brown & Co. is another. I think Forbes & Co. is
another. Here they are. Alexander Brown & Sons; Harris, Forbes
& Co.; Brown Bros. & Co.; Lee, Higginson & Co.; National City Co.;
and the Guaranty Co. of New York. Those are the companies which
always float these bonds, taking down 1 per cent commission for
doing it. And those are the companies to whom were assigned
and divided up this $20,000,000 issue of bonds.
I wrote to each one of these companies about this bond issue, and
received back from them identical replies. I wrote to every Federal
land bank pre-ident, and those who replied—and nearly all of them
replied—said they did not have the bonds; they said I could get
them from this group of brokers.
I t was announced that these bonds were closed out at par a few
hours after they were issued, and that is the way it was done. The
purchasers were advised—let me see if I can find one of those letters.
The purchasers were advised that these Federal land bank bonds—
I am quoting now from their letters—



DOMINATION OF EUGENE MEYER

241

a r e especially suitable for corporations and for individuals subject to the
higher surtax. For example, based upon t h e present asked price, the t a x a b l e
equivalent yield to the corporation, subject to the 12 per cent corporation
inconre tax, would be 4.90.

So that there was no competitive bidding for them. They are
selling now at 101. I asked Mr. Bestor to advise me what collateral
was deposited with the Treasury for this bond issue; how much of
it consisted of Government bonds, and how much consisted of farm
mortgages. And he replied evasively by saying he did not know
how much; both Government bonds and farm mortgages were
deposited.
Senator CAREY. Has it not been the policy of the Federal F a r m
Board for many years, long before Mr. Meyer had any connection
with the board, to sell their bonds in that way ?
Representative RAINEY. Yes, it was. The law does not require
it. They need not do it that way. For a few minutes' work these
brokers took down $200,000 in commissions on this issue, and the
farmer's are paying it, because they are charged that much more on
their mortgages.
The issue of those bonds is a confession that the Federal land
banks can not float long-term bonds at par. Under the theory of
the Federal farm loan act these bonds were to be long-term bonds,
secured by long-term mortgages, mortgages running 33 years, and
more than that. They can be for a less period of time. This issue
was perfectly legal, but it was unusual and unprecedented, and it
is a confession that these banks can no longer float an issue at par.
That issue has got to be paid in three years.
Now, with that confession and that record staring us in the face,
and with those bonds now selling around 93, the 4% per cent bonds,
what is going to happen when those bonds come due? They are
callable, some of them, in 1932. Those that are callable in 1932 are
due in 1942, and we ought now to be making arrangements to refund
those bonds when they are callable, issuing bonds with a longer
maturity, but we can not do it. We are drifting along, and this
Congress is doing nothing. You can not get before these committees
a proposition to investigate this thing. This Congress is doing
nothing, except to sit here and listen to the thunder of events as
they pass. And we are plunging right along toward the greatest
catastrophe that ever happened to this Nation, because we ought
to pay those bonds in full when they come due. Who is going to pay
them? They can only be paid by other issues of bonds. Of course,
some reserves are being set up, but not enough to meet these bonds
when they come due. They ought to be refunded when they are
callable if we are to keep this system going.
Now, what is it that makes the bonds of the Federal system attractive to Mr. Meyer and the class he represents so efficiently and so
well? When a farmer borrows from a Federal farm land bank he
does more than that. He pledges his farm. H e is compelled to take
out 5 per cent of his loan in stock, through these numerous loan
associations which are organized. And that stock is subject to a
double liability. When he mortgages his farm, on every $100 the
mortgage calls for, he does not get $100; he gets only $93. Five
per cent goes for stock, which he never sees, and it is included in



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NOMINATION OF EUGENE MEYER

his mortgage. Three per cent goes to pay the secretary-treasurers
of these national farm loan associations who are the effective grafters
and schemers of this system, although they do not get much; some
get $3,000 or $4,000 a year, probably. And some small additional
compensation goes to them, what the National F a r m Association
pays them. One per cent goes to these companies who are floating
the bonds; and the rest of the 1 per cent goes to pay for abstracts,
opinions of attorneys, and so forth. He gets only $93.
Now, the stock he takes pays dividends—is supposed to pay dividends. But seven of these land banks have suspended dividends at
the present time, and that is over half of the entire system. So
these farmers are getting nothing on their stock. And their stock
is liable for all the disasters that may happen in any part of the
United States to any National Farm Loan Association or to any
Federal farm bank operating anywhere, to the extent of their stock,
and to the extent of a double liability. No wonder borrowers are
getting out of it as fast as they can, especially in the territory served
by these banks which have suspended dividends, they are getting
loans elsewhere if they can. When the 1930 report makes its appearance, which will not be until after this congress has adjourned
on the 4th of March—it will be delayed that long anyway—T predict
it will show no increase, but some diminution in mortgages in some
sections, owing to the fact that these frightened farmers, subjected
now to the loss of dividends, and the loss of their stock, are getting
out of it as fast as they can, and abandoning the system.
That is a part of the record which lias been made in the matter
of these banks. The bonds are, by the law, made lawful investments
for fiduciary and trust funds. The banks are made government depositories under both systems. The bonds issued bear on their
faces, " This bond is an instrumentality of the Government." A
number of the States relying upon the Federal Government, which
has failed them miserably in this matter, have also passed laws
making the bonds of both systems a lawful investment for fiduciary
and trust funds. They are all tax free.
During the first year of the life of these bonds, from the Farm
Loan Board, and from the Agricultural Department, and from the
Treasury Department, there were sent out 2,000,000 bulletins advertising these securities and telling people how safe they were. I can
not get the figures for subsequent years, but if anything like that
ratio has kept up, 20,000,000 documents have been issued in the
United States under the authority of the Federal Government
showing what a desirable investment these bonds are, and what a
desirable investment the stock is, and what a desirable thing it is to
borrow money under this system which the Government has so
kindly provided for the farmers of this country.
And the result is—I have only detailed a p a r t of it—the result
of it all amounts to this: The Federal Government to-day rides
grandly at the head of the biggest land swindle ever perpetrated in
the history of the world.
Now, what are you going to do about it? The Government is
going to have to do something for these banks. And that is what I
have been advocating whenever I have had an opportunity, in public
and in private, in speeches made upon the floor, and in addresses to
committees. And that is all I have done. But I have incurred the
displeasure of the Federal F a r m Loan Board.




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243

MEMBERS OF CONGRESS INTIMIDATED

If a member of Congress—and I think the same thing applies to
a Senator—proposes some proposition that this board does not approve of, he commences to hear from home. I n most of these districts where a man is likely to be independent enough to make
trouble, they maintain a sort of legislative committee.
Senator CAREY. I S that not true of other departments as well as
the Federal F a r m Loan Board?
Representative RAINEY. I suppose that is true, but I know it is
true of the Federal F a r m Loan Board.
He commences to hear from home, and he receives advice from
these secretaries-treasurers, and the directors generally in the system,
because these directors sometimes get paid for their services. H e
begins to hear from the banks where they deposit money. He hears
from the attorneys who examine the abstracts and who get a part of
their income from doing that. And he is told that his conduct does
not meet with the approval of the farmers in his district, and that
he had better quit.
That is the system which prevails generally. I know it prevails
in my case. I know these men have been stirred up against me, and
I have been charging that it was done by the Federal F a r m Loan
Bank operating in that section, and perhaps by the F a r m Board
itself, or at their initiative.
Senator BROOKIIART. Do you know of the Federal F a r m Board or
the Secretary of the Treasury taking a hand in the election of the
officers of the individual land banks, with the stockholders?
HOW THE FEDERAL LAND BANKS WERE STOLEN

Representative RAINEY. Yes; they do that. They accomplish a
control of those banks in this way. Now, you gentlemen who were
Members of the Senate in 1923, at the close of the Sixty-seventh
Congress, probably do not know what happened during the two closing days of that session. I n the nighttime there passed through
both House and Senate a bill creating the intermediate land bank
and credit system.
Senator FLETCHER. The intermediate credit bank ?
Representative RAINEY. The intermediate credit banks.
Senator BROOKHART. What year was that?
Representative RAINEY. That was 1923, that was the Sixty-seventh
Congress.
Senator BROOKHART. I tried to amend that law.
Representative RAINEY. I t is too bad you did not. There was
injected into that bill an amendment to the Federal farm loan act
which provided this: That in the future the directors of the Federal
farm loan banks should be seven in number, three to be selected by
the Federal Farm Loan Board, three to be selected by the borrowers
in that district, and the seventh, who is to be called a director at large,
to be elected in the following way: The farmer borrowers were to
cast their ballots, in the manner described, for the election of the
seventh director, and were to submit the three highest names to the
Federal F a r m Loan Board, and the Federal F a r m Loan Board could



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NOMINATION OF EUGENE MEYEB

then select from the three highest the seventh director. That stole
the banks from the farmers. I t gave entire control to the Federal
F a r m Loan Board, and they are responsible, whoever is at the head
of it, for whatever happens to that system.
Immediately after this bill became a law—and it went through
surreptitiously—and I have stated many time, and it did;.you Senators did not know it was in the bill; Members of Congress did
not know it was there. I t passed without reading in the Senate.
The original act provided for 9 directors, 6 to be elected by the
farmer borrowers, and 3 to be selected by the bank, and that was fair.
But the Government originally owned all the stock, and all the
_bonds. The war came on, and they needed $200,000,000, and the
Government took up that issue of bonds, and the Government originally owned all the stock and owned all the bonds, the promise
being that when the bonds were absorbed and the stock taken up by
borrowers was all met, the banks would go back to the borrowers
who would then own them.
The government now owns less than $300,000 worth of stock, and
that is held in two banks, the Spokane Bank and probably the Berkeley Bank—I do not know. But that is the way we met the situation
in 1923, by stealing the banks from the farmers.
But that is not all. After the act of 1923 was passed, the Federal
F a r m Loan Board advised each of the presidents of those land banks
that he should get to be the seventh director, who is called the
director at large, by getting the highest number of votes, so that
they could not be criticized for selecting some one who did not
have the highest number. Of course, the presidents were subservient,
and the F a r m Loan Board knew that, and so in the case of every
bank, in the elections which followed—they held little conventions
and called in a few over the telephone—the Federal farm land bank
presidents got the highest number of votes, and they, in each
instance as I understand it, became the seventh director. That completed the theft of the banks. These presidents, or some other high
official in the banks, are still the directors at large.
Senator FLETCHEK. This amendment also increased the membership of the F a r m Loan Board from five to seven, which in my judgment, was a mistake. I t was unnecessary.
Representative R A I N E T . Yes; from five to seven. I think you are
right about that. Yes; that was done at that time, the control by
five directors selected by the Government was to cease when the
bonds had been absorbed and when the stock was taken up by
farmer borrowers.
Now, by resort to that kind of a method, the banks were completely
taken away from the farmers. I made that statement in a speech
t h a t I printed in the Congressional Record on the 21st day of last
J u n e . And I called attention to other things that were happening.
I t was an arraignment of the Federal F a r m Loan Board that they
had to answer in some way. And this is the way they did it: They
had a Member of Congress—I am not going to tell who it was, because I am on the same side with him now in the matter of this
confirmation of Mr. Meyer, and I hope to remain that way until
it is ended; but I am going to answer that speech, I may say, before
the end of this Congress. They answered it by inserting a speech



NOMINATION OF EUGENE MEYEE

245

in the Congressional Record three weeks after the adjournment of
Congress which was a tissue of falsehoods from beginning to end
and was intended as an attack upon me, and intended to defeat
me in the coming election, because I had told the truth in the
matter. And that was all.
Just a little while before the election last fall that speech found
its way into the mail boxes throughout my congressional district.
I do not know who paid for it.
Senator CARET. Was it franked?
Representative RAINEY. I t was franked.
Senator CAREY. Who franked it?
Representative RAINEY. That is what I am not going to say now.
We are proceeding harmoniously now. But the Member whose
frank was used did not write that speech, I will say that.
I am saying this to show how they try to influence Members, and
how they try to intimidate them if they do not influence them, and
how they attack them for criticizing their methods. That speech
was built up around this proposition, and this was given as a complete answer, to my speech, that my story of the events in the House
and Senate which occurred when the bill passed shows that I was
present when it happened, and that the Record shows I voted for
it. Now, of course, that wras a complete answer from the standpoint of the ordinary demagogue.
Senator CAREY. Had Mr. Meyer ceased to be a member of the
Federal F a r m Board when this speech was sent out?
Representative RAINEY. Yes; but it was a part of the methods
inaugurated when he was there, and it is still carried on at the
present time.
That statement around which this speech is assembled, to wit,
that I was present and voted for the act of which I complained, I
denounce, now, and I will denounce it on the floor of the House as
an unqualified, deliberate falsehood, because I was not a Member of
that Congress. You can now see what they will resort to in order
to punish a man who has simply introduced some bills, and who has
simply told what happened.
GRAFT IN THE SYSTEM

The farm-loan system is full of graft from beginning to end.
Under the act the Presidents can appoint, subject to the approval
of the Federal F a r m Loan Board, as many employees as they want
to appoint, and they can fix their salaries, and they do it.
Senator BROOKHART. Do they fix their salaries in the bank ?
Representative RAINEY. Yes; every salary is subject to the approval of the Federal F a r m Loan Board. Every appointment is
made subject to the approval of the Federal F a r m Loan Board.
They dictate everything. The opportunities for graft in this system
are equaled only by one other system in the United States that I can
think of, and that is the Chicago sanitary district.
I do not know how many employes they have. Nobody knows.
There are said to be 800 in the Federal loan system, and more in
the other system.
Senator BROOKHART. There was an enormous increase since Meyer
came in, was there not ?




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NOMINATION OF EUGENE MEYER

Representative RAINEY. Yes; I think so. No document is published showing the names of these employes and the salaries they
get. And you can not find it out from any source. If you write to
the Federal F a r m Loan Board and ask them what their salaries are,
they reply—or they replied to me that that is information they do
not give out.
Now, this is another thing they do—and perhaps I just ought to
relate my own experience. When I commenced to criticize the Federal system, it was perfectly all right with them for me to discuss
the joint-stock system, but not the Federal system. That was their
baby; that is the particular baby of the men who are interested in
big business. All over at least two States, and I think three States
out there where I live, these National F a r m Loan Associations
commenced to pass resolutions denouncing me. And then they
cheerfully mailed the resolutions to me. I t often happens that the
secretary-treasurer is also the farm adviser or, at any rate, one of
the directors of the farm bureau organization in that county; he goes
to the directors of the local farm bureau organization, and they
adopt a resolution denouncing the Member of Congress, and then
they cheerfully send it to him, letting him know that he is getting
what is coming to him. I have been advised by these secretaries in
Illinois that my conduct marks me as an enemy to agriculture.
F a r m i n g is the only business I have. I live on one of the best farms
in Illinois and have been trying to make it pay, and I have been
fighting to save this farm loan system. A t the instance of the Federal F a r m Loan Board I have been subjected to that sort of abuse
and to that sort of criticism, hoping it would shut me up, but it
has not, and it is not going to do it. I am going to keep up this
fight and expose, every time I get the opportunity, the conduct of
this wrecking board organized by Mr. Meyer, and left there, and
the harm they are doing in this country, and the destruction they
are occasioning to this tremendously important function of this
Government.
What I have tried to do, and that means with their disapproval,
is to lower this interest rate. If the Federal Government takes over
these banks they can lower the interest rate under bills that I have
introduced. Farmers can not pay Gy2 per cent on their loans, because if they borrow under a 4 % per cent bond issue, the interest
rate is £>y2 per cent, and to that is added one per cent of amortization
charges. They are paying more—three times as much as farmers are
paying for their money in France, and we borrowed our system from
France. I n France farmers who borrow from the Le Credit Agricole Mutuel, pay from 2y2 to 2.75 per cent interest, and that is all
they pay. The Government has arranged so as to make that possible,
and we can arrange to make possible a much lower rate of interest
than they now pay.
LOW RATES TO FARMKRS IN FRANCE

The short-term loans such loans as are made by our Intermediate
Credit Banking system—are made at a \y2 per cent rate. These
banks there are functioning—they have loaned there as much money
as we have loaned—through some 800 subsidiaries. They have assets
of 13,000,000,000 francs, and that is as much as we have loaned in



NOMINATION OF EUGENE MEYEH

247

both of our systems. And they have just as many borrowers. And
the prosperity of France is due to that low interest rate. And you
can not account for it in any other way.
Senator CAREY. Is it not due, in part, to the fact that they do not
pay their debts to this country?
Representative RAINEY. Well, that is our fault. They did not
pay their debts to us because we kindly remitted 50 per cent, and
gave them 63 years to pay the balance.
Senator GOLDSBOROUGH. H O W many million francs?
Representative RAINEY. Thirteen million francs; roughly stated,
it is $2,500,000.
Senator GOLDSBOROTOII. YOU do not mean 13,000,000 francs?
Representative RAINEY. Thirteen billion francs—$2,500,000.
Senator FLETCHER. This interest rate could be lowered to the advantage of the farmer if they would cut down the cost of administration ?
Representative RAINEY. Absolutely.
Senator FLETCHER. That cost is a spread of 1 per cent, the cost
of administration. If they would reduce that cost of administration,
that would go to the advantage of the farmer.
Representative RAINEY. If the Government would reduce this cost
of administration—give these farmers credit for their 5 per cent of
stock—stock they are compelled to take, which is paying nothing now,
on their mortgages; if this Government should take over this stock,
then the Government would then own the banks. The Government
can take over both systems, and then of course the Government
should get rid of the entire present personnel of the Federal F a r m
Loan Board. I t can never be a success with the wreckers Mr. Meyer
has left in those positions.
FEDERAL RESERVE A POWERFUL AGENCY

To-day Mr. Meyer emerges from the wreckage he has left in this
system and asks that you confer upon him the governorship of the
Federal reserve system of the United States, which system is to be
the most powerful agency in the world in the next three or four years
in the economic conditions which confronts us now.
Senator FLETCHER. I never thought that they ought to have
increased the membership of that board. I think five would be
better than seven. I t added to the burdens of the borrowers.
Representative RAINEY. Yes; I think you are right.
Senator FLETCHER. I t adds to the expense and comes out of the
farmers.
Representative RAINEY. The seven could not be any worse than
the five could be. They are doing as bad as they can, whether it is
five or seven, or any number.
MISREPRESENTATIONS BY FARM LOAN BOARD

Now, the statement was made by Mr. Harrison, a member of the
board, the other day before one of these committees—I do not know
whether it was before this committee or before the House committee—to the effect that the moratorium proposition which is now



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NOMINATION OP ETJGBNE MEYER

being discussed has resulted in a drop in the value of these bonds of
$4 a hundred. That is a p a r t of the misleading statements given
out by the Federal F a r m Loan Board for the purpose of bolstering
up this system.
I want to tell you what has happened to those bonds. On the
second day of last June—I am just quoting the 4% per cent
bonds—I could quote the rest of them; they show substantially the
same—the 4=y2 per cents were selling at 9634. That condition continued, selling at 96% and 97, until the 1st day of August, 1930.
On the 1st day of August they were still selling at 96%—the iy2
per cent bonds. On the 15th day of August they dropped to 9 2 ^ .
I n my studies I have not found out yet what caused that drop.
Senator WAGNER. Was there a drop in other bonds? I mean,
in bonds generally in the whole market ?
Representative RAINEY. I do not think they did, in August. I
think the drop was later. At any rate, the important thing in denying this statement of this Federal farm loan commissioner is that
this drop in bonds occurred between the 1st day of August and the
15th day of August. On December 15 they were still selling at 92.
Now, when this drop occurred, Congress was not in session.
There could not have been any moratorium propositions advanced
anywhere, and there wTere none. The drop was not on account of
that, and that statement is absolutely without foundation, and intended to prejudice the country and the constituencies of members
against the moratorium. As late as the 15th day of December these
4y2 per cent bonds were still selling at 92.
ATTEMPTED BOND MANIPULATION

But let me show you what happened. On the 2d day of January
of this year—as late as the 2d day of January, 1931—4% per cent
bonds were selling at 92. Now, they commenced to go up the next
day, to wit, J a n u a r y 3, they went up a little. And the reason for
it is here. I am holding now in my hand a full page advertisement
sent out by the Federal F a r m Loan Board. I t contains a statement
from every one of the Federal farm land presidents, except the president of district No. 5, which is the Louisiana, Mississippi, and Alabama district, and he said he was sick and could not send them a
statement. At any rate, that is the statement made here.
No statements have ever been issued by any corrupt stock-jobbing
firm as to the value of the securities they were offering was ever so
misleading and so false as the statements made at the dictation of
the Federal F a r m Loan Board by these 12 presidents.
Senator WAGNER. Of course, whether you are right or wrong about
that
Representative R A I N E Y (interposing). I might read some of them.
Senator WAGNER (continuing). Mr. Meyer is not a member of that
board now.
Representative RAINEY. No; I am simply discussing the policy he
inaugurated, and where it leads us.
Now the next day after the appearance of this statement, a fullpage statement



NOMINATION OF EUGENE MEYEE

249

Senator FLETCHER (interposing). What is the date of that?
Eepresentative RAINEY. The 3d day of January, of this year. On
the day preceding that 4V£'s were selling at 92. On the afternoon of
the next day—and that appeared in the morning papers—they went
up to 93, as a result of this kind of fraudulent stock-jobbing operations. And they have been going up since then until they got to 95,
and they are down now again to 93 and 94, and will be down soon
again to 92; and they are going to go lower than that, because this
system is wrecked.
Senator FLETCHER. What is your particular objection to that
statement ?
Representative RAINEY. That it was absolutely misleading as to
the condition of agriculture; as to the condition of those banks; as
to their prospects, and as to the way they were functioning. I t was
intended to induce buyers to buy these bonds at higher prices. And
they did.
Senator CAREY. Mr. Rainey, do you feel that those bonds were
not worth par at the time they were issued?
Representative RAINEY. N O ; they were worth absolutely par.
Senator CAREY. Then what is misleading in this statement?
Representative RAINEY. They do not represent the bonds as being
worth anything. All these discussions are confined to statements
as to the prosperity of farmers in the respective land bank districts,
and to the success of their banks, and their future success, because
the value of the bonds on the markets depends on how those banks
are functioning, and whether they are a success.
Senator CAREY. You do not consider those bonds worth the price
they were selling at?
Representative RAINEY. I consider them, until Mr. Meyer entered
the picture, as worth absolutely par. But they are not worth par
now, and never will be again.
Senator CAREY. D O you mean they will not be worth par again on
account of the situation you have mentioned ?
Representative RAINEY. They are below par because of the conduct of the bank and this board.
Senator CAREY. Then you mean the banks are in a bad condition ?
Representative RAINEY. Absolutely. Seven of them have suspended dividends. And that is over half of the system. One is
in receivership right now. a camouflaged receivership—the Spokane
bank.
Two more of them are in a worse condition, if possible, even than
the Spokane bank. Let me tell you what their condition is, to show
you what has happened to them.
Senator BROOKHAKT. YOU think that this condition has been
brought about by the management and not by the defects in agriculture itself?
Representative RAINEY. Yes, brought about by the management,
because these banks were intended to be absolutely foolproof when
we organized them. They were organized for the purpose of meeting
exactly the conditions that confront us now.
Under this Federal F a r m Loan act the Secretary of the Treasury
can at any time advance money to these banks to the amount of
$6,000,000. And that was done once. I t has not been done recently.



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NOMINATION OF EUGENE MEYER
DESTRUCTIVE METHODS EMPLOYED

Under this act it is contemplated that if an amortization payer
is in default he shall be carried for two years before there is a foreclosure. That is provided here in this act. They institute foreclosures at once, after the expiration of ninety days, and the Farm
Loan Commissioner has told me himself with reference to disposing
of these lands that the thing to do for a bank if they acquire these
lands as the result of foreclosure, was to get rid of the farms as
quickly as they can and take their losses and they would recover
sooner.
Senator BROOKHART. That has the most depressing effect on these
bonds of any policy that could be imagined.
Representative RAINEY. Absolutely. As a result these farms are
selling for 20 per cent, frequently, of the amount loaned on them.
Farms on which loans have been made of $10 an acre have been
sold for as low as $1.75 an acre. That could not bo very good land,
in the State of my friend from Pennsylvania.
Senator BROOKHART. H O W much did they loan on that land?
Representative RAINEY. $10 an acre, and sold the land for $1.75
an acre.
Senator WAGNER. When was that loan made?
Representative RAINEY. I could not tell you.
Senator WAGNER. Approximately?
Representative RAINEY. The foreclosures have occurred in the
last two or three years. I do not know when the loans were made.
Senator WAGNER. Congressman, I have several questions I would
like to ask you, and do you wish that I ask them now, or would
you rather have me wait?
Representative RAINEY. I t is all right, Senator; ask them any
time you like.
Senator WAGNER. I have been listening as attentively as I am
capable of——
Representative RAINEY. Thank you, Senator.
Senator WAGNER. And I would like you to tell us specifically
what acts on the part of Mr. Meyer as you say had the effect of
" wrecking," the word you used, the system. What particular
act? I do not mean the general statements, but some specific acts
that he performed which had that effect.
Representative RAINEY. This liquidating system of banks was organized and put into effect, and this method of disposing of farms
quickly, which has had such a depressing effect upon the farm market, was organized under Mr. Meyer.
Senator WAGNER. No; I mean I would like to get down to more
specific things, because, after all, when you find fault with an individual and his administration, in order that the individual may
answer or that we may be informed, you have to tell us specifically what he did. That is what I would like to know. Just what
did he do which caused this result that you complain of ?
Representative RAINEY. The resignation of the three old board
members was obtained principally for the reason that they would
not agree to these liquidating policies which the Treasury Department wanted and which Mr. Meyer has put into effect.



XOMINATIOX OF EUGENE MEYER

251

Senator WAGNER. Well, just what was it that Mr. Meyer put into
effect ?
Representative RAINEY. The proposition to dispose of land as
quickly as you can, and at any price.
Senator WAGNER. Do you mean that he issued an ultimatum or a
fiat or written instruction? That in what I am trying to find out.
And what were those instructions? Personally I may be the only
member of this committee that has that simple mind, but I do not
grasp these generalities, and I can not find fault with an individual
unless you tell me something that he did on the basis of which we
would be in a position to find fault with him.
Representative RAINEY. Before his term of office commenced, the
farmer borrowers in botli systems were carried along and given ample
time on the occasion of crop failures fo meet their payments. When
farms were taken in, the policy of the farm board which preceded
him was to carry those farms along until they could realize as nearly
as possible the amount of money invested by the banks in these
farms in the way of loans. Those two policies were entirely overthrown under the administration of Mr. Meyer.
Senator WAGNER. Well, exactly what was done? Can you not
give us an instance of where something was done to an individual
who owned a farm or who had a loan from a bank, and what was
done to his injury, or what were the facts in connection with it?
That is what I would like to know.
Representative RAINEY. You would probably find 5,000 farmers,
10,000 farmers in the United States who have been subjected to these
new theories and who have lost their farms.
Senator WAGNER. I do not want to be too insistent, but I would
like to hare an instance of what was done.
Representative RAINEY. I would have to enumerate those farmers,
Senator.
Senator WAGNER. Give us the instances of what was done. How
can we say an individual did something which was wrong and destructive in his management unless we know just exactly what he
did? That is what you would have to do in a court of law.
Representative RAINEY. The reports submitted by the Federal
Farm Loan Board sfiow these foreclosures. They show these hurried
sales of lands.
Senator WAGNER. But does that give us any information?
Senator BROOKITART. I t shows the policy, Senator. I t shows the
policy quite clearly.
Representative RAINEY. I am discussing the policy of the board
and its results. The results are reflected in the losses thousands of
farmers have sustained.
Senator WAGNER. Well, if the rest of the committee is satisfied
with that sort of statement
Representative RAINEY. Well, I am sorry.
Senator WAGNER. I do not want to criticize you, Congressman, but
I want to know of specific instances of what was done.
Senator BROOKIIART. A banker told me of a case in northeast Iowa
where the Bankers Joint Stock Land Bank of Milwaukee sold a farm
for $37 an acre which he said was Jess than the value of the improvements on the land.



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NOMINATION OF EUGENE MEYER

Senator WAGNER. I am putting myself for the moment in the position where Mr. Meyer where he is charged with mismanagement.
How could he answer that unless you tell him the instances in which
he did the mismanagement? What he did? If he would know
the case we would get all the facts with reference to the case and the
F a r m Loan Board might be perfectly justified in doing what
it did in connection with it. But short of that, how can he decide
the question ?
Senator BROOKHAET. I gave you one letter from the secretary of
an association showing how they froze up on the loans in that association.
Senator WAGNER. YOU read some complaints of somebody who said
he wanted $11,000 and got $10,000. If we examine that case we
might find a reason for that. Mr. Meyer had nothing to do with
that.
Senator BROOKHART. Well, it came to him, and he said he generally
saw those letters, but he did not remember this one.
Senator WAGNER. I want to express my helplessness here in reaching any conclusion from such indefinite statements.
Representative RAINEY. I can only call attention to the policies,
and the changed policies, and the admittedly changed policies of the
new Federal F a r m Loan Board from the old Federal F a r m Loan
Board which has resulted in this liquidation of land. I am in
receipt of letters from bankers and from individuals along this line.
Senator WAGNER. Well, there you might give us a specific instance. If you will give us the name of a bank which complained
about some particular case, some particular thing that was done for
which Mr. Meyer was responsible, then we might inquire, and we
would know the reasons for it. A man may go to a bank and ask for
$100,000 on collateral and the banker might say, " No, I will only give
you $50,000." Well, he is not very pleased with the decision of that
bank, but when we inquire into the facts we might find complete
justification for the refusal to lend any more. Now, short of that
information, how can you reach any conclusion?
Senator BROOKHART. I n these cases I cited to you, Mr. Meyer's
own appraisers had appraised the land high enough, and there was
no occasion to reduce the loan.
Representative R A I N E T . If I had known that you wanted letters
from the victims, I could have brought you 200 oi them, Senator.
Senator BROOKHART. Let us have those.
Representative RAINEY. I have them in a separate file in my office.
Senator WAGNER. We want to know all the facts.
Representative RAINEY. Letters from the victims of these systems.
Senator BROOKHART. And the facts are stated in these letters?
Representative RAINEY. Yes; the facts are stated in these letters.
If you want them I will bring them over here. You can print them
all in the Congressional Record. Some of them are most pitiful
stories.
I was discussing the condition of the Federal land bank system.
The three banks which are in trouble of course, the Spokane, the
Columbia and the St. Paul, those are Federal land banks. One of
them is under a camouflaged receivership. And what happened in
the case of the Spokane bank—and this happened, I think, under Mr.



NOMINATION OP EUGENE MEYEK

253

Meyer's administration, or soon afterwards; at any rate the condition
of that bank developed during that period of time—is that a personnel of 40 administrators has taken over that bank. An extensive personnel. And they are administering upon its assets. I t is a receivership, a camouflaged receivership.
Under the powers granted this board they have levied an assessment on all the other Federal land banks, on the other 11, raising
$3,000,000 in all. That is taken out of their profits, the profits which
belong to the stockholders. And that money has been turned over
to the Spokane bank to keep it going. Upon that amount of money
Spokane certificates were issued to the other 11 banks, and they have
got them, and that is all they have done. On those certificates
$440,000 of interest had accrued a year ago. I do not know how
much is due now. To the condition of that Spokane bank is due the
fact, or that is an element which perhaps has made it necessary for
some of these other seven banks to suspend their dividends.
Senator CAREY. Mr. Rainey, if the other banks had not come to
the rescue of the Spokane bank, would not that bank have had to
close ?
Representative RAINEY. I t would.
Senator CAKEY. Was it not better to do what thej 7 did than to let
that bank close?
Representative RAINEY. I t was. I am telling you just what has
happened under the present administration of both of these banking systems, and the necessity for reform. And when I call attention
to this I incur the enmity and the opposition of the Federal F a r m
Loan Board and everybody connected with it.
Senator CAREY. Was Jiot the Spokane bank in bad shape before
Mr. Meyer became a member of the board ?
Representative RAINEY. Yes; it was.

Senator CAREY. And would it not be his duty as head of that
board to work the bank out of that condition ?
Representative RAINEY. I t was. That was the way to do it.
Senator CAEEY. YOU are not criticizing Mr. Meyer on account
of the Spokane bank?
Representative RAINEY. N O ; I am just telling what is happening
to the entire system. That was a perfectly proper thing to do.
Mr. MEYEK. Mr. Chairman, the advances to the Spokane bank
were made by the other banks in 1925, 1926, and 1927, before I became a member of the board—none since then.
Representative RAINEY. That may be true.
Mr. MEYEK. I t is true, Mr. Congressman.
Representative RAINEY. I am just telling what has happened to
the system and suggesting how it might be remedied.
Senator CAKEY. I would like you to confine your testimony to Mr.
Meyer's activities, because that is what we are really investigating;
his connection with the bank.
Representative RAINEY. I am holding him responsible for most of
these things, because he is the brains behind most of these things.
Senator CAKEY. Tint as to the Spokane bank, you said that was
all right?
Representative RAINEY. No, that situation occurred before his
appointment as Federal farm loan commissioner. I am simply call38819—31
17



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NOMINATION OF EUGENE MEYER

ing attention to that because somebody asked mc in what condition
the Federal land banks were, and I am showing that they are worse
off than the joint-stock land banks, and in that connection I discussed
the Spokane situation.
Senator WAGNER. I thought I understood Senator Fletcher, the
other day, to say that as the result of the establishment of this system.
the farmers were really paying less interest for their loans than they
were compelled to pay before the establishment of this system.
Senator FLETCHER. Yes; I noticed some of the newspapers said
that that had happened under the Farm Loan Board. What I said
was that the act itself, the F a r m Loan Act and the principles of the
act, if it is carried out, meant the saving to the farmers of the
country from $400,000,000 to $500,000,000 a year in interest alone.
Senator WAGNER. I understood that there had actually been reductions. Did they not force reductions by other banks?
Senator FLETCHER. Because they got it cheaper; yes.
Senator WAGNEK. I thought I understood you to say that.
Representative RAINEY. Yes; their interest rate is lower.
Senator BEOOKHART. But it is still not as low as it ought to be.
Representative RAINEY. Their interest rate is lower, but when
you add to that the amortization payments they are compelled to
make, the interest and the amortization together, the combined rate
is just about what they paid in many States before the sj'stem went
into effect, except they have an opportunity to amortize their mortgages in 33 years.
Senator FLETCHER. I n some States that was true, I think, Mr.
Rainey, but in a good many States they were paying 8 to 10 per
cent and even higher and in many instances could not obtain financial accommodation at all. The farmers were paying about 6 per
cent in the Western States to loan companies—possibly with commissions.
Representative RAINEY. I n the Western States.
Senator FLETCHER. And in a good many instances in all portions
of the country they could not get accommodations at all. Real
estate was not acceptable as security by conservative banks. The
farmer's chief asset was taboo. The farm loan system was intended
to meet the needs of agriculture as well as lower interest rates.
Representative RAINEY. Yes, in the Western States that is true.
I t has lowered the rates there.
Senator BROOKHART. From a commercial standpoint?
Senator FLETCHER. Yes.
Representative RAINEY. And if the system were functioning properly it would be better than what they had.
Senator FLETCHER. Yes.
Represenative RAINEY. But not as goo.d as farmers require now.
Senator FLETCHER. I see. I n other words, before we established
this farm loan system, before the Federal farm loan act was passed,
we had only a commercial system of banking in this country, and the
farmers had to go to the commercial bank for their accommodation.
Represenative RAINEY. Yes, or to an insurance company.
Senator FLETCHER. And this farm loan system was established
to benefit agriculture by helping the farmers to get loans on terms
they could meet.



NOMINATION OF EUGENE MEYER

2.55

Representative RAINEY. Yes, it was supposed to do that.
Senator FLETCHER. T O serve their needs.
Representative RAINEY. Yes, we thought it would.
In discussing what has happened to the Federal land bank system, I might call attention to the fact that the Treasury Department
holds $100,000,000 worth of these bonds of the Federal system.
Those are the bonds out of which they expect to pay the adjusted
service certificates when they become due. And those bonds have
been subject to this depression. If they are 4y» per cent bonds, they
are worth 1)2 or 1)3 now. So the Government has lost.
DISTRACTING E F F E C T S

I do not know how many of the bonds of the joint land bank system and the Federal land bank system are owned by the banks generally in this country. They own an immense amount. The method
of accounting up here in the controller's office does not show, and I
am going to try to get him to ask that question the next time he sends
out a request for information as to the assets of banks.
This is what is happening to insurance companies. I have in
mind now an insurance company in Illinois which insures automobiles engaged in interstate traffic. They took out their charter
in Illinois. I n Illinois we have a law that requires them to deposit
in approved bonds a certain amount to secure people who might
have claims against them. The secretary of state in Illinois advised them to take out Federal and joint stock land bank bonds.
And the law which created them, following the Federal law, authorized them to do that. In Illinois those bonds are made legal investment for fiduciary and trust funds. So they deposited as collateral Federal land bank bonds; and principally joint stock land
bank bonds. This insurance company was doing a good business.
Then these bonds fell on the market. The secretary of state required them to put up additional collateral, they could not do it,
and they went into the hands of a receiver.
In Chicago we have—I do not live in Chicago, but I am advised
as to this—we have two insurance organizations operating, the
park employees insurance organization and the park police insurance organization. They are annuity organizations. These men
contribuate a certain amount of their wages each month to that fund,
expecting to live on what they get out of it when they are retired on
account of age. The acts under which they were organized authorized them to invest their funds in joint stock land bank bonds and
Federal land bank bonds, following the leadership of the United
States in our act. And they did. On account of the depreciation
of these bonds, one of these organizations has now lost $300,000 and
the other one more than that. And the park policemen and
the park employees generally in Chicago are demoralized on account
of the situation in which these banks find themselves at the present
time.
THE

AGRARIAN

RESOLUTION

I want to call your attention to what is going on in the world, and
to the danger that will come if you put at the head of this system
a man who represents—and he does it conscientiously and with




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NOMINATION OP EUGENE MEYER

remarkable efficiency—the class of the very rich in the United
States.
The whole world is in the grip to-day of an agrarian revolution.
I t is the outstanding movement of the postwar period. We have
had agrarian revolutions before, but we never had the agrarian
revolution Ave are having now.
Agrarianism, as I define it from my study of economics, is an
organized effort on the part of the farm population, or a socially
conscious group of farmers, to secure either a redistribution of
land or the establishment by law of conditions more favorable to
the use and occupation of land and to those who live on the land.
I n Russia they are standing, and successfully standing for a
redistribution of land. Here, and especially since the war, the
agrarian revolution consists of an attempt on the part of a class conscious group of farmers to establish by law more favorable conditions for those who live on the land. And the agrarian revolution
Avhich grips the world now is felt principally in the United States
and Russia.
U p to the present time here it finds its expression at the polls.
You heard of i t ; a great many Members of Congress and a great
many Senators heard of it last fall. And more of them are going
to experience the effect of this agrarian revolution in the elections
of next year.
This tide of agrarianism in the world has resulted in the following startling situations: The paying off of mortgages on farms in
France and Belgium. And that has been made possible by a farm
loan system which functions at low rates of interest for farmers.
The predominance of the agricultural plains section of America.
The rise of the popular party in Italy. The recent concessions in
Ireland. The situation which presents itself now in India.
I n a sort of awful silence the farmers of the world are fighting a
pitched battle with capitalism everywhere. And everywhere the
farmers are slowly winning. That is the agrarian revolution which
marks this post-war epoch in the history of the world, and it is the
alarming thing for all of you. As long as it manifests itself in the
United States in an attempt to get legislation making living conditions on the land better, there is not the danger Russia experienced
just during and after the World War.
Unless we meet that situation here in the United States by the
selection of men to these important posts who are not conspicuously
and avowedly understood to be wedded to the doctrine of capitalism
to the exclusion of the rights of the masses of the people, we may
have something more in this country come out of this agrarian revolution we are experiencing now than a mere reflection of it at the
polls.
I n Russia to-day, as the result of their agrarian revolution there,
Ihese astonishing conditions prevail. The best posted man on Russia
in the United States is Col. Hugh L. Cooper, the great engineer, who
built the Keokuk Dam, who built the dam at Assuan, and the Roosevelt Dam. For five years he has lived in Russia. He is just back.
He testified before my committee, the Ways and Means Committee
of the House, the other day, and I asked him these questions, and
this was his testimony. And I believe every word he said. I t is all



NOMINATION OF EUGENE MEYER

257

in the h e a r i n g s ; everybody can see it. I a m g o i n g to quote as n e a r
as I can w h a t he said. H e said in r e p l y t o m y q u e s t i o n s :
Tlie 5-year period in Russia ends in 1933. It is a success so far. Ii will be
a success in 1933. There is no problem of unemployment in Russia. Every
man is employed. There is no forced labor in Russia. Every man selects his
own job.

He said:
I am at the head of a development in the Dnieper River and—
to use his exact words—•
I am building there the biggest dam ever built in anj man's river in the history
of the world. I have 16,000 employees under me. And they are an efficient
group of workers. Just as efficient as American workmen. I employ them
myself. They can quit when they want to. I give them a ."i-clay week and an
8-hour day, and I pay common laborers $1.85 a day, and I furnish them with
quarters in which to live, and I furnish them with light and heat. The salaried
men, whom we ordinarily call white collar employees, I pay $130 a month,
and furnish them with quarters, lighted and heated. And that is $20 a month
more than Stalin gets. And he owns no property except the clothes he wears.
No m a n is so t h o r o u g h l y i m b u e d w i t h a n o p p o s i t i o n t o c o m m u n i s m
a n d a b h o r r e n c e for w h a t it s t a n d s for as H u g h L . Cooper, a n d h e so
expressed himself on the s t a n d before t h e W a y s a n d M e a n s C o m mittee t w o or t h r e e d a y s ago.
H e said (lie coiimumal f a r m s were o p e r a t i n g successfully.
He
h a d been over t h e m . T h e t r a c t o r factories are o p e r a t i n g successfully. H o k n e w about t h e m . I n one c o m m u n a l f a r m t h e r e are
300,000 acres. A n d t h e y p a y f a r m l a b o r e r s on t h a t c o m m u n a l f a r m ,
t h a t is Russia p a y s t h e m , $50 a m o n t h . A while ago I said t h a t
he was p a y i n g this m o n e y to h i s o w n l a b o r e r s . I t is p a i d by t h e Gove r n m e n t of Russia. Of course h e does n o t p a y it. "When I m e n tioned t h a t he did it. a while ago, I m e a n t , of course, S t a l i n a n d
the c o m m u n i s t i c g o v e r n m e n t , a n d n o t M r . Cooper. H e is s i m p l y employed on a s a l a r y , a very l a r g e s a l a r y , i n c h a r g e of t h a t w o r k i n
the D n i e p e r R i v e r . T h e G o v e r n m e n t of R u s s i a p a y s f a r m l a b o r e r s
¥50 a m o n t h a n d furnishes t h e m w i t h q u a r t e r s h e a t e d and l i g h t e d .
H e said t h a t in just a little while Russia w o u l d be p r o d u c i n g w h e a t
for the world. A n d t h a t t h e t i m e was a p p r o a c h i n g , a n d it w o u l d be
here in jiuit a few y e a r s , w h e n we could not sell on the m a r k e t s of
the w o r l d a n o t h e r bushel of w h e a t f r o m a n A m e r i c a n f a r m . I n a
few y e a r s t h e y will be p r o d u c i n g cotton for t h e w o r l d .
Now when t h a t h a p p e n s , a n d as t h e e n d of t h e i r 5-year p r o g r a m
a p p r o a c h e s , A\e are confronted w i t h t h i s s i t u a t i o n h e r e in t h i s
country. W e h a v e 230,000,000 bushels of w h e a t stored u p , i n c l u d i n g
w h a t the F e d e r a l F a r m B o a r d h a s . A n d t h e m e n are s t a r v i n g w h o
raised the wheat. W e h a v e got $4,500,000,000 w o r t h of g o l d in o u r
vaults. A n d factories have closed. A n d men a r e out of e m p l o y m e n t . 5,000,000 of (hem t h r o u g h o u t t h e U n i t e d S t a t e s . O u r laborsaving m a c h i n e r y is more efficient t h a n it ever was. A n d m e n a r e
in more distress t h a n t h e y ever were before. W e are b e t t e r fitted
now w i t h money and w i t h food g r a i n s a n d food a n i m a l s t o k e e p
our p o p u l a t i o n comfortable t h a n Ave ever were before. A n d y e t
we are face t o face with the c o n d i t i o n s of food riots in a g r i c u l t u r a l
sections where t h e y produce food, on account of h u n g e r i n t h e i r
families. W e have 511 m e n i n the U n i t e d S t a t e s whose a n n u a l



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K0MTXAT10X OF El'GEXK MEYEK

income is a $1,000,000 a year and we have many thousand millionaires. What defense can capitalism make to these conditions when
attention is called to these facts two years from now in this country
and when they call attention to what is happening in Russia, if
Col. Hugh L. Cooper is right about it, and I have the utmost confidence in his judgment and in what he says?
Is this a time in the history of the world when \\<\ the richest
nation in the world, and the most powerful, can afford to place at
the head of this great arm of this Government a man who will
be in a position to control the value of stocks and bonds and investments in opposition to other values in this country which are even
more important than these? A man who is completely committed
to the doctrines of extreme capitalism? And it is capitalism that
is going to meet the attack two years from now in this country if
conditions continue as they are.
The time has come when we have got to have more Republican
Members of Congress who are not so thoroughly devoted to the doctrine of laissez faire—"let things drift. We are prosperous, we
are happy, we will come out all right." We have got to have fewer
Democrats in the Congress of the Ignited States and in the Senate
Mho still make their defense for every one of their votes upon some
utterance of Thomas Jefferson. We can not live in the period of
100 years ago. We have got to meet the new conditions which confront us now with new methods, with new legislation to create new
remedies, and you are not taking a step in that direction when you
put in control of this agency which is going to have so much to do
with the economic events of the future of this country and of the
world, a man with the record Mr. Meyer has, a man who stands for
the propositions that he stands for and for the old method of
carrying them into effect. Tt is a danger which I think T can see,
and 1 hope this committee can see it. and T hope the Senate can see
it and save us from the peril his appointment would mean to the
economic structure of this country in the new conditions which
confront us now.
Gentlemen, I apologize foi the time 1 have taken, and I thank
you for your very courteous and patient attention.
Senator CAKEY. Mr. Bestor, would you mind answering a question
or two?
Mr. BKSTOI;, Certainly not.

TESTIMONY OF PAUL BEST0E, FARM I0AN COMMISSIONER
(The witness was duly sworn by Senator Carey.)
Senator CAI:EY. Mr. Bestor. when did vou come to the Farm Loan
Board?
Mr. BESTOK. May 10, 19'2<).

Senator CAREY. Was that when Mr. Meyer went there? You
•went before that, did you not?
Mr. BESTOR. N O ; 1 went there after Mr. Meyer had left the board.
Mr. Morrill is not a member, but he is general counsel of the board,
and perhaps he can tell you what you want to know.
Senator CAEEY. 1 want to ask you about one matter that you might
be acquainted with. You have heard Mr. Iiainey testify as to a
speech that vias sent out during the campaign?



NOMINATION OF KTTGENE MEYER

259

Mr. BESTOK. Yes, sir; I heard that.
Senator CAREY. Have you any knowledge as an officer of your
board of the speech being sent out ?
Mr. BESTOK. I have not. None whatever.
Senator CAKEY. D O you know of anything being done by the Federal F a r m Board in connection with the election.
Mr.

BESTOK. NO, sir.

Senator CAKEY. That is all. The other things that I intended to
ask you about happened before you became farm loan commissioner.
TESTIMONY OF EUGENE MEYER. GOVERNOR OF THE FEDERAL
RESERVE BOARD—Resumed
Senator CAREY. Mr. Meyer, have you any further statements you
want to make?
Mr. MEYEK. I think not, Mr. Chairman.
Senator CAREY. I think we have been over most of the ground
before.
Mr. MEYEK. T think so. Of course a great deal of the discussion
centered on matters occurring before and after I was on the F a r m
Loan Board.
I might say as far as Huston, who has been mentioned, was concerned, assuming the date Mr. Rainey says he was arrested, May 19,
1927, to be correct—I will assume it is so; I do not know—I will say
that I had no discussion directly or indirectly with the Department
of Justice concerning- his arrest or any of the criminal proceedings
connected with him. The only tiling, so far as I recall, that I had to
do with anything that was connected with the criminal proceedings
against him was this: As I remember it, his friends or his attorney
or somebody representing him or appearing to do so said that Mr.
Huston would like to defer his resignation, which had been called
for by his board, and which he had decided to offer anyway, until
after his trial—and I do not know what trial it was; some criminal
trial—had taken place, so that his resignation as head of the bank
and his elimination from the bank would not prejudice him at the
trial. I consulted the F a r m Loan Board about it and recommended
that that be done, and the board agreed that there was no necessity
to press the matter of his resignation if it would prejudice him in the
criminal trial.
Senator CAREY. To what do you attribute the low price of Federal
farm loan bonds at this time?
Mr. MEYER. Farm loan bonds?
Senator CAREY. Yes. The bond market, the general bond market?
Mr. MEYER. All bonds had a very bad time beginning in the late
spring and summer of 1928. In the case of farm loan bonds, I feel
that one factor is that the system has been under constant discussion
and attack. Land values have been declining, which is another
factor. But really I think one of the things that is unfortunate is
that most of the outstanding bonds were issued for 30 years, with an
option to call them at the end of the tenth year, as is necessary under
the law. I think that, to a certain extent, the form of that issue—
for a 30-year period with a call period of 10 years—has worked
against the bonds because the option means that if the bond is an



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NOMINATION OF EUGENE MEYER

advantageous investment it will be called any time during a period
of 20 years, as many of them have been called, and if it is a
disadvantageous investment it will not be called. And while a
great many bonds were sold that way, I feel that it was a mistake,
and is now and has been in recent years hurtful to the market for
the bonds.
The receivership of the Kansas City Joint Stock Land Bank. Mr.
Chairman—it has already been stated, and I merely repeat it—took
place prior to my advent on the Farm Loan Board. I was not
consulted about it, and had nothing to do with it. I knew nothing
about it, having returned from Europe after or about the time it
took place. I was away four weeks before it took place and did
not hear of it until after I returned.
The bond sales have been made from the beginning by the same
group that Mr. Norris selected, in the same way. T did not initiate
it. I t has been going along before I was there, while I was there,
and after I left there, in the same manner.
As to Mr. Hughes's opinion, that was an opinion that was rendered
to the bankers' group, I understand. I think it was a question
of the constitutionality of the act.
Senator CAKKY. Did you ever see a copy of that opinion?
Mr. MEYEH. I have never seen a copy of the full opinion, but I
think that in the circulars of the banks there was frequent reference
to the opinion in the earlier days. They read, as I remember it,
something like this, that while the United States Government did
not guarantee these bonds, they were, in accordance with the opinion of Mr. Charles E. Hughes, as sustained by the Supreme Court
of the United States in the suit to test the constitutionality, instrumentalities of the United States Covernment, and therefore legal
and tax exempt in accordance with the provision of the act.
Dividend actions of the banks, I do not need to tell the committee,
I think, are taken by the boards of directors of the banks.
The amortization payments, which, of course, are added to the
interest on the loans, are the amounts applied on the principal, so
that, at the end of «S3 years, or whatever the life of the loans may
be, the debt of the farmer is paid oif. I t was considered a wonderful plan at the time the act was passed.
That, Mr. Chairman, I think is all I have to say except that in
the case of the Kansas City .Joint Stock Land Bank, the president
of the bank was indicted on something over SO counts, if I remember
correctly, and, I think, convicted on all of the counts.
Senator CAREY. That all happened previous to your going to the
board ?
Mr. MEYER. The indictment, I think, did, but the trial happened
subsequently. I think. As I said before, I was so busy trying to do
what I could to save the situation, to the best of my ability, that I
did not devote time and attention to the criminal proceedings. I
do not think in the entire period of two years, or at any time before or
after, I ever consulted with the Department of Justice about these
proceedings. Those are legal matters; the legal department of the
board considered those. And I am not a lawyer, and I am not very
much interested in legal prosecutions, especially criminal ones.



NOMINATION OF EUGENE MEYEK

261

The receiverships, three in number, I have already referred to in
my testimony. The Kansas City Joint Stock Land Bank, by far
the largest, took place before I was there, and, as I said, I knew
nothing about it until after it happened.
The Milwaukee bank had been in the hands of a creditors' committee in a way, or the directors had had an advisory committee
appointed. Just before the announcement of the receivership, the
general manager of the bank addressed a letter to the stockholders
which stated as follows:
• In our letter to you of April 16, we stated t h a t the advisory committee w a s
considering- a plan for voluntary liquidation of t h e bank and t h a t when
completed the plan would be submitted for the approval of the F a r m Loan
Board and the stockholders.
The advisory committee has made every effort to establish a workable plan
for liquidation but has been unable to interest sufficient capital to w a r r a n t
adoption of such a plan. Accordingly, the committee is unable to submit any
plan of reorfiair'zation to the F a r m Loan Board and the stockholders.
Under the circumstances, t h e committee is of the opinion t h a t an orderly
liquidation of the bank under the supervision of t h e F a r m Loan Board is t h e
most desirable procedure and has so advised t h e board of directors of t h e bank.

The advisory committee had been appointed quite a while before
I entered into the position of commissioner of the F a r m Loan Board.
I have already explained the circumstances of the receivership of
the Ohio Joint Stock Land Bank of Cincinnati, which had been
practically in liquidation for some period of more than two years
before I accepted that position.
Senator FLETCHER. Which bank was the one you referred to just
before the Ohio bank?
Mr. MEYER. That was the Bankers Joint Stock Land Bank of
Milwaukee.
So that one receivership, by far the largest, and two others that
took place in a formal way after I accepted the position, were either
actually or practically in process before I entered the position.
Senator BROOKIIART. There arc a few questions I want to ask Mr.
Meyer, Mr. Chairman.
Senator CAREY. All right.
Senator BROOKIIART. YOU say you did not consult with the Department of Justice, but you did consult with Mr. Dewey?
Mr. MEYER. NO, I'did not.
Senator BROOKIIART. And Mr. Williams?
Mr.

MEYER. I did

not.

Senator BROOKTIART. And they did consult with the department?
Mr. MEYER. You mean about the criminal proceeding?
Senator BROOKHAUT. About the criminal proceeding.
Mr. MEYER. Not at all. Nobody consulted me, and I consulted
nobody.
Senator BROOKIIART. You paid no attention to that whatever?
Mr. MEYER. NO, sir; nobody consulted me.
Senator BROOKHART. DO you not think a good, efficient manager
ought to have paid some attention to that?
Mr. MEYER. To these criminal proceedings?
Senator BROOKIIART. Yes.

Mr. MEYEI;. Well, Senator, I was as busy as could be with a tremendous amount of work. I am not a" lawyer, and I did not



262

NOMINATION OF KUGENK MEYBH

know anything about these things which had taken place before
I was there. They were matters in the hands of the Department
of Justice, and there was nothing I could do about them one way
or another, so I can not see exactly why I should have undertaken to
spend a lot of time on them. We were working day and night on
other things that we thought Mere constructive. In any event,
whatever my opinion may have been about the criminal proceedings I could not undertake to influence the Department of Justice
one way or another on anything they had undertaken.
Senator BKOOKHAHT. Did not the prosecution of Huston, for
instance, on a charge that was absolutely without merit, do more
damage than all the constructive things that you did with the
institution ?
Mr. MEYER. I did not have anything to do with the bringing of
those charges. I did not know whether they had merit or not; that
was a matter for the Department of Justice. T could not undertake
to run that department, Senator. I think interference with the
operations of the Department of Justice by other departments would
not be well received.
Senator BEOOKHAKT. There are one or two other matters that I
forgot to inquire about the other day. What have been your relations with the Allied Chemical Co. ?
Mr. MEYER. I am a stockholder and an investor. 1 have nothing
to do with the management. I have never been a director. And
I am not now.
Senator BROOKHAKT. And what is your principal private business?
Mr. MEYER. I haven't any private business.
Senator BKOOKHAKT. Have you any other investments a^ide from
Allied Chemical?
Mr. MEYEK. Yes.
Senator BKOOKHAKT. What are their nature £
Mr. MEYER. Industrial and mining investments.
Senator BROOKHAKT. And up to the time you went

in the public
service, your prinicipal business was investments and handling of
stocks as a broker ?
Mr. MEYEK. I was in what I would call the investment banking
business, Senator.
Senator BROOKHAKT. And dealing on the Stock Exchange?
Mr. MEYEK. Sometimes. Investment market. Just as other investment bankers do.
Senator BROOKHVRT. Was that where you bought and sold these
investments, on the Stock Exchange ?
Mr. MEYER. Not always, not always.
Senator BKOOKHAKT. Was that where you did it principally?
Mr. MEYEK. N O ; I would not say so.
Senator BROOKHAKT. HOW was the ret-t of it conducted?
Mr. MEYER. As investment bankers conduct business—by distributing securities to people who wanted them; firms and individuals,
mostly other firms which applied for them.
Senator BROOKHAKT. I believe that is all.
Senator CAREY. I would like to consult with the committee for a
few minutes.
(Thereupon the committee withdrew from the hearing room for a
short time, and on returning an adjournment was taken at 5.15
o'clock p.
 m. until 2.30 p. ni. the next day, Friday, February 6. 1931.)'


NOMINATION OF EUGENE MEYER TO BE A MEMBER
OF THE FEDERAL RESERVE BOARD
FRIDAY, FEBRUARY 6, 1931
UNITED S T VIES SENATE.
S I lit OMMITTEE OF THE COMMITTEE
ON BANKING AND C I I;I:ENCY,

Washington, I>. C.
The subcommittee met. pursuant to adjournment of Thursday,
February 5, 1!>31. at 2.30 o'clock p. in., in the committee room of
the Senate Committee on Military Affairs. Capitol Building, Senator
Robert D. Carey presiding.
Present: Senators Carey (chairman of the subcommittee). Goldsborough, Brookhart, Wagner, and Fletcher.
Senator CAHEY. We have received a letter from Mr. Charles B.
Brewer, an attorney here in Washington, in which he has made
certain charges against Mr. Meyer; also suggesting that he be called
before the committee.
After conferring with the members of the committee it has been
decided not to call Mr. Brewer, as the matters to which he refers
have all been covered in previous hearings or in this hearing, and it
would simply add to the length of this hearing without furnishing
any additional information.
STATEMENT OF HON. LOUIS T. McFADDEN, A REPRESENTATIVE
IN CONGRESS FROM THE FIFTEENTH DISTRICT OF PENNSYLVANIA—Resumed
Representative MCFADDEX. Mr. Chairman and gentlemen of the
committee, supplementing what I said when I appeared before the
committee last week, in my letter to Senator Norbeck under date of
January 5, I said of Mr. Cook that he was a lawyer and a brotherin-law of Eugene Meyer, jr., and George Bhunenthal. These he
admitted, and he admitted that he was attorney for La/.ard Freres
and that he was attorney for the New York Times. All of these he
confirmed by his testimony before your committee, and admitted
that he was a director of and attorney for the Fidelity Trust Co.
on a retainer up to December 30. 1930, and is retained without salary
until July 1, 1931.
He told you that he organized the Fidelity 'Trust Co., and that
the purchase of the control of the stock of that company by the
Marine Midland Corporation was consummated in his office, and that
the Fidelity Trust Co. is now a subsidiary of the Marine Midland
Corporation, and that he was a stockholder in the Marine Midland
Corporation.



264

NOMINATION OF EUGENE MEYER

H e denied only that part pertaining to activity in the appointment of Mr. Piatt as vice president of the Marine Midland Corporation.
I am making this clear to you now because of the statement made
by Mr. Cook when he appeared before your committee, as follows:
All the statements made in this letter by Mr. McFadden are founded on
whole cloth and are untrue so far as any reference to me is concerned, directly
or indirectly in any way, shape, manner, or form.
I feel that I should correct that reference in his testimony which
tended to indicate that he was in the employ of J. P . Morgan & Co.
in the colloquy that took place between Senator Brookhart and Mr.
Cook. If this sup230sition came from my letter, it is entirely without foundation. I never stated that Mr. Cook was in the employ
or connected with J. P . Morgan & Co.
Senator BROOKHART. I think that was my mistake in asking the
question.
Representative MCFADDEN. What I did say was that his brotherin-law, Mr. George Blumenthal, was connected with Lazard-Freres
and was the liaison between J . P . Morgan & Co. and the French
Government. Mr. Cook made no reference whatsoever in his testimony in regard to this and it is for the purpose of correcting a
wrong impression that might be gained from this colloquy that I
make this statement.
I feel, also, that I should say that my reference to Mr. Cook's
employment as counsel for the W a r Finance Corporation did not
embody any question of ethics whatsoever. I t wTas simply a recital
of the fact that he had had experience with the War Finance Corporation here in Washington when it was being managed by his
brother-in-law, Mr. Meyer. I t was more for the purpose of identifying Mr. Cook that I made this reference than for anything else.
1 am glad, however, that Mr. Cook disclosed to the committee his
and Mr. Meyer's connections with Kuehn, Loeb & Co. and other affiliated brokerage houses in New York in this sale of $->00.000,00() worth
of equijmient trust notes which the Government was desirous of
financing for the Director General of Railroads. This relationship
disclosed by Mr. Cook is important in connection with the fti'ure
operations of the Federal reserve system under the management, of
Mr. Meyer, and I will have more to say concerning it later on.
Referring to the statement before this, committee of Mr. George F.
Rand. Arthur A. Cook, and Roy A. Young as regards their participation in any of the negotiations or incidents leading up to Mr.
Edmund Piatt's resignation as a member of the Federal Reserve
Board and vice governor, and his employment as vice president of
the Marine Midland Corporation at a salary practically double that
which he was receiving as a member of the Federal Reserve Board
whose term of office would not expire for eight years, it is a wellknown fact that since the death last March of W. P . G. Harding,
who was governor of the Federal Reserve Bank of Boston, this position was being held open for Roy A. Young, if and when he resigned
as Governor of the Federal Reserve Board, which resignation was
being withheld until such time as his successor could be named and
could be qualified.



NOMINATION OF EUGENE MEYER

265

I t was also equally as well known that if Mr. Piatt's resignation
could be secured, Mr. Eugene Meyer would be appointed a member
of the Federal Reserve Board and designated its governor.
The obstacle to this was Mr. Piatt.
The testimony given by these men to your committee conveys the'
information that on September 1 Mr. Piatt was on vacation in Connecticut; that Governor Young had not seen him since July. Mr.
Piatt says he came to Washington September 2 to attend a meeting
of the Federal Reserve Board for the purpose of fixing Governor
Young's salary as governor of the Federal Reserve Bank of Boston.
Governor Young disclaims having seen Mr. Piatt at this time and
knew nothing of his resignation.
I would point out that Governor Young's resignation was followed immediately by the resignation of Mr. Piatt and that on
September 3 an item appearing in the New York Times in which it
was definitely stated that Eugene Meyer, jr., " would be appointed
governor of the Federal Reserve Board " and that " the legal difficulty offered by the fact that another New Yorker was a member of
the board could be overcome," proves conclusively that negotiations were pending to eliminate Mr. Piatt and evidently had been
successful.
I would call your attention to an article appearing the following
day, September 4, in the Washington Post, which says:
Government authorities indicate t h a t they believe a solution can be found,
and acting on this belief P r e s i d e n t Hoover is said to have eliminated a l l
others t h a n Mr. Meyer for consideration.

I t is apparent that Mr. Piatt came to Washington for other reasons
than to attend the meeting of the Federal Reserve Board for the
purpose of fixing Mr. Young's salary. I t is perfectly clear from
the testimony before your committee that Mr. Piatt's definite assurance of resignation and acceptance of Mr. Rand's offer was secured
while he was in Washington between September 2 and September
5, the definite date of the announcement, and the Government authorities who had this matter in charge were at this time properly informed and did report that the impediment had been removed.
The final result of this is that Mr. P i a t t resigned as vice governor
and a member of the Federal Reserve Board and accepted a position at practically double the salary (besides employment of his
secretary) as vice president of the Marine Midland Corporation—a
newly created position to fit his particular employment. As to whoor how negotiated, this still remains undisclosed.
I t is significant, however, that the man who could furnish the
best information on this particular matter, Mr. Edmund Piatt, has
not been called before this committee.
I t is significant also that while Mr. Meyer has been before your
committee two days explaining his own activities in the administration of the W a r Finance Corporation as regards loans to cooperatives
and cattle loan companies and his administration of the Federal
farm loan system, he has made no statement or explanation as to
his own activities in securing this appointment. W h y is he silent?
He is the one man who could tell you about the incidents leading
up to this appointment.



266

NOMINATION OF KT'GKNE MEYER

Senator CAKEY. A S to why Mr. Piatt was not called: The reason
was that the afternoon that I went to the House to see you regarding this hearing, which was before this committee met, t asked you
the names of witnesses that you thought should be called and you
did not include Mr. Piatt among those that you mentioned. I wired
all the others. That is how it happened that Mr. Piatt was not
called.
Representative MCFADDEX. It was mentioned in my letter to Senator Norbeclc.
Senator CAKEY. I had not seen your letter to Senator Norbeck, but
I went to see you in the cloak room of the House and made a list of
the names that vou suggested. For some reason or other you failed
to include Mr. Piatt.
Representative MCFADDFN. 1 want now to call your attention to
the fact that the Marine Midland Corporation is a public utility
bank. It is interested, and its board of directors and stockholders
are to a large extent engaged, in the development of water power,
chemicals, and public utilities, and I refer for my information in
this respect to a statement made by George F . Rand, the president
of the Marine Midland Corporation, before the Committee on Banking and Currency of the House in connection with House Resolution
141, on April 23, 24, and 25, 1930. The Niagara power interests are
closely identified and affiliated with this institution.
The New York Times of February 3 gives some very interesting
information in this respect. This article is headed " Rig Depreciation for Niagara Share—Asset Value On" $29,001,834 in 1930 to $ft.7f>
a Share, Against $13.07 in J929."
Then it goes on and s a \ s that the balance sheet shows investments
in stocks and bonds costing ^141,0H4,24\ with a market value on
December 31 of $78,283,208. It says that the net income for the year,
after all charges, was $3,075,388, " which includes income from assets
acquired from Marine Union Investors"—Marine. Union Investors
is a subsidiary of the Marine Midland Corporation—""and Union
Rochester Share Corporation."
The, Union Rochester Share Corporation I do not know about.
I t refers also to the income from Schoellkopf, Hutton & Pomeroy.
closely affiliated with the Marine Midland Corporation. The article
says further:
T h e portfolio of i m e s l m e n t s reveals holdings of :!47,T74 shares of the Murine
Midland Corporation, m a k i n g Niagara Share the largest stockholder in the
bank-holding company. The t r u s t also owns 3,602,133 shares and 1,000,204
class A w a r r a n t s of the Niagara Hudson Corporation.

The balance sheet shows the other assets.
The common-stock holdings as printed in this article are what I
desire particularly to call your attention to. Among them is—
Consolidated Gas of New York, 29,100 shares.
Electric Bond & Share. 7,330 shares.
Stone & Webster, 7,120 shares.
Du Pont de Nemours, 1,500 shares.
General Electric, 4,400 shares.
St. Regis Paper, 35,000 shares.
Standard Brands, 22,000 shares.
National Investors Equity. 17.200 shares.



NOMINATION OF EUGENE MEYER

267

Marine Midland, 347,774 shares.
Niagara Securities, 48,000 shares.
Bank of Manhattan Trust, 4,300 shares.
Public National Bank and Trust, 3,800 shares
Senator BROOKHART. I did not quite get the connection there with
the Marine Midland Corporation. What is this ?
Representative MCFADDEN. This is the annual report of the
Niagara Share Corporation. I t shows that the Niagara Share Cor 1
poration is a controlling interest in the Marine Midland Corporation.
Senator BROOKUART. It has a controlling interest in the Marine
Midland, or the Marine Midland has a controlling interest in the
Niagara Share? Which is that? That is where I am confused.
Representative MCFADDKX (reading) :
The portfolio of investments reveals holdings of 347,774 shares of the Marine
Midland Corporation
Senator BROOKHART. Oh, I see.

Representative MCFADDEN (continuing reading) :
Making Niagara Share the largest stockholder in the bank-holding comi>an>.
Then it goes on with the other interest*.
I want to point out clearly to you Senators that the Marine Midland Corporation is a public utility bank. It is interested, and its
board of directors and stockholders are to a large extent engaged, in
the development of water power, chemicals and public utilities; and
I refer for my information in this respect to a statement which Mr.
Rand made, in addition to what T have already read you here from
the clipping from the New York Times. His statement, which is
fully set forth in the hearings before our committee on April 23,
24 and 2."), 1930, shows that the Niagara Power interests are closely
identified and affiliated with this institution.
These same interests are closely allied and affiliated with the
United Corporation which is the superpower creation of J . P . Morgan & Co. which organization ties in with the Mellon group, the
United Oas Improvement group, the Consolidated Gas-Brooklyn
Edison and Brady group. Niagara & Hudson Power Co., the Carlisle group, and the "On Pont interests. I t was these interests that
gave Mr. Piatt his new job. It is these interests which have prevailed upon Mr. Piatt to retire from the Federal Reserve Board,
which created a vacancy in the only district from which Mr. Meyer
could be appointed. They want Mr. Meyer to be governor of the
Federal Reserve Board. He is their man—he is one of tliem
Senator WAGNER. Congressman, on what do you base that? I s
there any statement made by any responsible source that any such
arrangement was made between all these groups and the President
of the United States? You must base this statement upon some
evidence, I take it. or you would not make it.
Representative MCFADDEN. I want to follow that up. Senator.
Senator WARNER. I S it of the same type?
Representative MCFADDEN. I want to call your attention to the
fact, as Mr. Meyer told you vesterrlav. that he is still interested in
the Allied Chemical Co.'
Senator WAGNER. I S that your basis?
Representative MCFADDEN. That is part of my basis; yes.



268

NOMINATION OF EUGENE MEYER

I t is interesting also to bear in mind that I have already called
your attention to the fact that you should ascertain Mr. Meyer's connection with big business and big finance and with Allied Chemical
Co. You should know how he became interested initially in the
Allied Chemical Co. Yesterday he disclosed the fact that he was a
stockholder in that company.
We have a provision in the law that forbids the Secretary of the
Treasury being identified in any manner whatsoever with financial
institutions or business undertakings that in anywise contact the
Government. You are all familiar with that, and the oath.
There is also a provision forbidding a member of the Federal
Reserve Board from being connected with a national bank or member banks. Here is an instance where power and chemical interests
control a bank.
I t is important that you know what private bank affiliations, if
any, Mr. Meyer has. This is particularly pertinent because during
his career in the Government service he has maintained these close
relationships with important private financial interests as well as
with the big important groups of banks. I want to call your attention now to the fact that the Allied Chemical Co. is a consolidation
of several important chemical companies. The principal companies
that went into this Chemical combination were the Niagara Falls
Co.'s, owned and controlled by the Schoellkopfs, who control the
water power at Niagara Falls and are directors of the Marine Midland group of banks, and the Dupont chemical and water power
interests, who are tied in with the United Co.
I also want to call your attention to the close relationship of the
General Electric Co., the Electric Bond & Share Co., the Niagara &
Hudson Power Co., American Super Power, and of their affiliated
groups, both foreign and domestic, as a part and parcel of this water
power and chemical control all under this same financial control.
And then also the Aluminum Co. of America is affiliated with the
Marine Midland group, which is controlled by the Mellon group, of
which the present Secretary of the Treasury, Andrew W. Mellon, is
the head and dominating influence, and Mr. Mellon is chairman ex
officio of the Federal Reserve Board.
Senator CAREY. The Marine Midland is a member of the Federal
reserve system, is it not ?
Representative MCFADDEN. Yes.
Now, to make more clear what I am saying to you, I want to
point out the names and connections of the directors of the Marine
Midland Corporation as proof of what I am saying to you, and I
am placing in the record at this point a list of the board of directors
of the Marine Midland Corporation which was furnished me by
Mr. Rand when he appeared before our committee.
(The list of board of directors of the Marine Midland Corporation
is here printed in full as follows:)
George G. Allen, president D u k e Power Co.
J o h n L. Clawson, c h a i r m a n of the board, Olawson & Wilson Co.
W a l t e r P. Cooke, chairman of the board, t h e Marine T r u s t Co., of Buffalo.
A r t h u r V. Davis, c h a i r m a n of the board, Aluminum Co., of America.
William C. F e a t h e r s , president the Manufacturers National Bank, of Troy.
Seymour H. Knox, president Marine Union Investors ( I n c . ) .
E d w a r d H. Letchworth, director and general counsel, the Marine T r u s t Co.,
of Buffalo.



NOMINATION OF EUGENE MEYER

269

Raymond V. V. Miller, White, Weld & Co.
George O. Muhlfeld. vice president Stone & Webster ( I n c . ) .
B a y a r d F . Pope, president Stone & Webster and Blodgett ( I n c . ) .
George F . Hand, president t h e Marine T r u s t Co. of Buffalo.
F a r i s R. Russell, White, Weld & Co.
J. F . Schoellkopf, jr., vice president Schoellkopf, H u t t o n & Pomeroy ( I n c . ) .
P a u l A. Schoellkopf, president N i a g a r a Hudson Power Corporation.
Eustace Seligman, Sullivan & Cromwell.
E r n e s t Stauffen, jr., chairman of t h e board.
Charles Winslow Smith, t r e a s u r e r Sherwood Shoe Co.
H a r r a l S. Teniiey, vice president Marine Midland Corporation.
Thomas A. Wilson, president Peoples T r u s t Co., Binghamton, N. Y.
Frederick W. Zoller, president Union Trust Co. of Rochester.

These are important circumstances, to say the least, when it was so
desirable for Mr. Piatt to resign, and instead of having to go out and
hunt a position that one comes to him out of a clear sky from a group
which is so largely controlled by friends of Mr. Meyer both in and
out of the administration.
I point to the interests in the Marine Midland Group of the MelIons through representation on the board of Arthur V. Davis, chairman of the board of the Aluminum Co. of America, the Bank of
Manhattan interests now represented on the board by George Murnane who is also a partner in Lee, Higginson & Co. and a director
of the American & Continental Corporation, owned and controlled
by the Warburghs and the Bank of Manhattan Co., and the stockholding interest of the Public National Bank of New York in the
Marine Midland group of banks on which board of, directors is
Mr. Meyer's brother, Walter E. Meyer, and Alfred A. Cook, a stockholder and attorney for an affiliate of the Marine Midland Corporation. These family relationships, I am emphasizing and would call
your attention to the further fact that Lazard Freres, the international banking house of New York and Paris, seems to have been a
Meyer family banking house, and it is important now because of
the fact that whether Mr. Meyer personally is still interested in this
banking house, the family relationship is, and I am stressing the
importance of this connection because of the important position that
this international house occupies in French finance in Paris. I t is
a well-known fact in financial circles in the city of New York that
this is one of the most important international financial houses in
New York whose international transactions are very carefully
guarded at all times. This house frequently figures in imports and
exports of gold, and one of the important functions of the Federal
reserve system has to do with gold movements in the maintenance of
its own operations.
In looking over the notes of the hearing which was held last
Tuesday, I desire to refer to the testimony, on page 413 of the
stenographer's notes, when Mr. Meyer was .questioned by Senator
Fletcher.
Prior to the question that Senator Fletcher had asked Mr. Meyer,
to wit:
Do you think t h a t the Federal Reserve Board can have much
foreign financing and international financing?

to do with

To which Mr. Meyer answered:
The F e d e r a l Reserve Board lias not anything to do with it u n d e r t h e law,
so far as I know, Senator.

38819—31
IS


270

NOMINATION" OF EUGENE MEYER

Senator Fletcher asked Mr. Meyer:
Have you any connection with international banking?
Mr. Meyer answered:
Me? Not personally.
This last question and answer do not appear in the stenographic
transcript. I have consulted with Senator Fletcher with reference
to this situation, and Senator Fletcher remembers asking the question, and the answer. I t is an odd omission, and this omission
Senator FLETCHER. I have not seen the transcript.
Senator CAREY. I have not seen it.
Representative MCFADDEN. I was furnished a copy of it from
Senator Norbeck's office.
Senator FLETCHER. 1 do not know how the, question was omitted
unless the stenographer just left it out.
Representative MCFADDEN. It may have been left out in the correction of the record. I do not think a thing like that ought to be
left out in correcting the record.
Senator CAREY. YOU can put it in the record now.
Representative MCFADDEN. I have seen the stenographic report——
Senator BROOKIIAHT. I understand that Mr. Meyer looked over it
for correction.
Mr. MEYER. YOU are saying that the uncorrected copy is what
you saw, and therefore it is not a question of its being corrected.
I t is the uncorrected copy as shown from the notes of the stenographer.
Representative MCFADDEN. Of course, it may have been an oversight on the part of the stenographer, but the incident should be
clarified.
Senator GOLDSBOROUGII. Somebody left it out ?
Representative MCFADDEN. Yes.
Senator GOLDSBOROTJGH. Who is the somebody?
Representative MCFADDEN. There is nobody but the stenographer
that makes the record, Senator.
Senator CAREY. The question was, " Have you any connection
with international banking? "
Representative MCFADDEN. Yes; and Mr. Meyer's answer was:
MeV Not personally.
Mr. MEYER. The conversation had been about various other people.
I have no interest in international banking, and I have never had
except when I was an employee—a clerk—in the firm that my
father resigned and retired from in 1901.
Senator CAREY. That firm was what?
Mr. MEYER. Lazard Freres. My father retired from business SO
years ago.
Senator CAREY. Did you ever have any interest in that firm?
Mr. MEYER. I never had any.
Senator CAREY. Since your father died (
Mr. MEYER. I never had any. I was a salaried employee. The maximum salary I received, up to the time I left in 1901. was $2,500 a
year. I did not think I was getting enough, and that was one of
the reasons why I left. You don't get enough from your own relatives—that is wdiat I thought. My brother-in-law and my father



NOMINATION OF ETTGENE MEYER

271

were tliere, and I did not think I was getting enough. But
thej^ both retired from the firm and from business, Senator. My
father retired permanently from business in 1901, and he died in
January, 1925. My brother-in-law retired five or six years ago,
and he has been out of business since then.
Representative MCFADDEN. And has no interest in Lazard Freres?
Mr. MEYER. Absolutely none, and has not had for five years. I t
has been stated already in these hearings. I told the committee that
the reason I got out, among other things, was that I did not want to
be interested in international banking because I thought when I was
a young man the future of banking was going to be in America and
not anywhere else.
Representative MCFADDEN. And you have no interest, directly or
indirectly, in the firm of Lazard-Freres at this time?
Mr. MEYER. N O ; and never had, other than my salary check which
I got regularly twice a month when I was working for them in 1901.
Representative MCFADDEN. On April 24, 19))(), Mr. Rand appeared
before the House Banking and Currency Committee and explained
to the committee the character and type of interests which constitute
the Marine Midland financial group. Included in his list of directors as given during his testimony before the committee are the
following:
George G. Allen, president Duke Power Co. The Duke Power Co.
is one of the power companies developed in the South. This is the
only one connection that I have been able to see between the Duke
power interests and the northern power interests that I am referring
to here. I have already mentioned to you that Arthur V. Davis,
chairman of the board of the Aluminum Co. of America, is a director also of the Mohawk Hudson Power Co. The Aluminum Co.
of America is controlled by the so-called Mellon group, and he is
also a director of the Mellon National Bank.
Paul A. Schoellkopf, president Niagara Hudson Power Corporation, is also a director of the Duke Power Co., also Allied Chemical Co., also associated with J. P . Morgan & Co. in the United Corporation representing combination of power and utility interests in
which are merged the Mellon interests, the Du Pont interests, the
Brady interests, and so forth.
The Aluminum Co. and the Allied Chemical Co. are among the
heaviest users of water power in the United State-.. As I have
pointed out previously, Mr. Meyer is one of the largest stockholders
of Allied Chemical Co. He told you yesterday of his stockholding
interests.
George O. Muhlfeld and Bayard F . Pope, are president and \ ice
president of Stone & Webster and Stone. Webster & Blodgett (Inc.),
one of the largest operators and financiers of public utilities in the
United States.
Raymond V. V. Miller and Faiis R. Russell are of the firm of
White, Weld & Co., New York City, an investment banking house
engaged together with Stone & Webster & Blodgett in the sale and
distribution of the stock of the Marine Midland Corporation and
other public-utility securities.



272

NOMINATION OF EUGENE MEYER

J . F . Schoellkopf, jr., of Schoellkopf, H u t t o n & P o m e r o y ( I n c . ) ,
and Seymour II. Knox, president Marine Union Investors (Inc.),
a r e d i s t r i b u t o r s in a like m a n n e r .
T h i s p o w e r a n d b a n k g r o u p control or l a r g e l y d o m i n a t e m a n y of
t h e i m p o r t a n t d i s t r i b u t i n g houses a n d b a n k s in t h e U n i t e d S t a t e s ,
a n d , of course, t h e house of J . P . M o r g a n & C o . ; L a z a r d - F r e r e s ;
K u h n , L o e b & C o . ; I n t e r n a t i o n a l M a n h a t t a n C o . ; Lee, H i g g i n s o n &
Co., h e a d t h i s list.
A n d w h a t I a m s a y i n g h e r e not only a p p l i e s t o the d i s t r i b u t i o n
of t h e securities h e r e i n r e f e r r e d t o . b u t a p p l i e s as well t o the issuance of foreign securities i n w h i c h t h i s g r o u p is i n t e r e s t e d a n d i n
w h i c h t h e i r b a n k i n g g r o u p s are more m a t e r i a l l y interested.
T h e best i l l u s t r a t i o n of t h i s affiliation is g a i n e d from t h e list of
b a n k s w h i c h h a n d l e d t h e last issue of commercialized r e p a r a t i o n
loans? i n t h e U n i t e d S t a t e s . T will insert t h a t w i t h o u t r e a d i n g it.
( T h e list of b a n k s r e f e r r e d t o a n d s u b m i t t e d by t h e witness is
h e r e p r i n t e d in full, as follows:)
Kuhn, Loeb & Co.: Guaranty Co. of Now York: Harris, Forbes & Co.: Dillon,
Read & Co.: International Manhattan Co. (Inc.) : Corn Exchange Bank Trust
Co.; Bonbright & Co. (Inc.) ; Field, Glore & Co.; Stone & Webster & Blodgett
(Inc.) ; Ludenburgh, Thalmann & Co.; Kounlze Bros.; Hornblower & Weeks;
J. P. Morgan & Co.: First National Bank: Bankers Co. of New York; Lee,
Higginson & Co.; Halsey, Stuart & Co. (Inc.); the New York Trust Co.;
Bancamerioa-Blair Corporation; Spencer Trask & Co.; Hayden, Stone & Co.:
E. H. Rollins & Sons: Edward B. Smith & Co.: J. G. White & Co. (Inc.) :
Callaway, Fish & Co.; Kissel, Kinnicutt & Co.; W. A. H.irriman & Co. (Inc.) ;
the National City Co.; Chase Securities Corporation; Kidder, Peabody & Co.;
Brown Bros. & Co.; Chemical National Co. (Inc.); Chatham Phonix Corporation ; J. & W. Seligman & Co.: White. Weld & Co.; Goldman, Sachs & Co.;
Chas. D. Barney & Co.; Kean, Taylor & Co.: Dominick & Dominick; Lazard
Freres; Clark, Dodge & Co.: Hallgarten < Co.; Hemphill, No^es & Co.; A.
k
Iselin & Co., Redmond & Co.
R e p r e s e n t a t i v e M C F A D D E N . M r . R a n d is a director of the A m e r i can S t u d e b a k e r C o r p o r a t i o n . T h e i n t e r l o c k i n g s i t u a t i o n in t h a t
respect is t h a t a n o t h e r d i r e c t o r of t h e S t u d e b a k e r C o r p o r a t i o n a n d
a close associate of M r . R a n d is M a t t h e w B r u s h , p r e s i d e n t of t h e
A m e r i c a n I n t e r n a t i o n a l C o r p o r a t i o n , w h o is a director of t h e b a n k
of the M a n h a t t a n Co., of w h i c h P a u l M . W a r b u r g is c h a i r m a n .
B e f o r e t h e m e r g e r he was a d i r e c t o r of t h e I n t e r n a t i o n a l Acceptance
B a n k , of w h i c h P a u l W a r b u r g was c h a i r m a n .
T h e n a m e of George M u r n a n e was recently a d d e d t o t h e list of
t h e d i r e c t o r s of t h e M a r i n e M i d l a n d C o r p o r a t i o n on November 10,
1930, s h o r t l y a f t e r M r . P i a t t became a n officer of t h e M a r i n e M i d l a n d . H e is also a d i r e c t o r of t h e following companies :
T h e B a n k e r s T r u s t Co., a M o r g a n c o m p a n y ; S w e d i s h - A m e r i c a n
I n v e s t m e n t T r u s t ; A m e r i c a n S t e e l : Rockefeller M e d i c a l ; Lee, H i g g i n s o n & Co. Lee, H i g g i n s o n & Co. I h a v e p o i n t e d out to y o u was
closely associated w i t h J . P . M o r g a n & Co. a n d , as I u n d e r s t a n d , is
t h e r e p r e s e n t a t i v e of t h e R o t h s c h i l d s of P a r i s in t h i s c o u n t y . J u s t
a t t h i s t i m e t h i s m o r n i n g ' s p a p e r s are s a y i n g t h a t t h e y are about
t o float a loan, or t o j o i n w i t h t h e s y n d i c a t e to float a loan t o Germ a n y , a n d a p o r t i o n of t h a t is to be sold a n d d i s t r i b u t e d in the




NOMINATION" OF EUGENE

273

MEYEE

United States with the French bankers. The other connection of
Mr. Murnane is the American & Continental Corporation.
The Swedish-American Investment Trust is a holding corporation
for the Kruger & Toll interests which own the Swedish match monopolies and have various foreign governments for their partners.
Lee, Higginson & Co. have distributed their securities in this country.
The American and Continental Corporation is a subsidiary of the
Bank of the Manhattan Co.. of which Paul M. W a r b u r g is chairman. The International Acceptance Bank and the Bank of the
Manhattan Co. merged in 1929.
Herman A. Metz, a director of the Bank of Manhattan, is also,
I believe, heavily interested in Allied Chemical.
Senator Fletcher has called your attention to a group of 25 of the
so-called Morgan stocks that have, during the panic, depreciated
over $17,000,000,000. The names of these companies, the number of
shares outstanding, the highs of 1929 and the recent lows, loss per
share, and gross shrinkage, I am placing in the record at this point.
These figures are taken from an authoritative source, and I believe
arc correct in every particular. Senator Fletcher did not put the
whole story in in regard to it.
(The list of stocks referred to and submitted by the witness is
here printed in full as follows:)
[Quotations, D e c e m b e r 1, 1930]
N a m e of compan>

Alleghany C o r p o i a t i o n
American Super P o w e r *
American T e l e p h o n e & T e l e g r a p h • .
*
Bendi\ \ \ i a t i o n 1 .
Case T h r e s h i n g M a c h i n e '
Cerro de Pasco
_ .
Columbia G r a p h a p h o n e
Commonwealth Southern
Oongoleum N a i r n _ .
- .
Consolidated Gas 2
. . . . . .
C o n t i n e n t r l Oil
_
Electric lionet & Share '
E n e Railroad
. .
General Electric
General M o t o r s
Gold D u s t ? .
I n t e r n a t i o n a l T e l e p h o n e & Telegraph
Johns-\I.ir\ilIe - .
K e n n e c o t t Copper
Montgomery Ward 2 . .
Nevada Copper _
R a d i o Corporation of \ n i e n c a ^ Standard Brands .
..
.
U n i t e d States Steel ( c o m m o n ) . _
. .
TTmt< d C o r p o r a t i o n . . .
. _.

Shares outstanding
4, 132, 500
S, 243, 000
17, 635,000
2, 097, 000
104, 000
1,123,000
2, SB1), 000
34, 000, 000
1,641,000
11,400,000
4, 473, 000
0, 500, 000
1,511,000
28, 846, 000
43, 500, 000
1,795,000
0, 572,000
750,000
9,391,000
4, 6C0, 000
4, *50, 000
13,160,000
12, (134, 000
8, 560, 000
7, 000, 000

Total . .
1
2

1929
highs
$56
71
310
104
467
120
89
29
36
183
38
180
U
101
92
82
119
242
105
156
03
115
44
261
73

Recent
lows
.88
10
179
15
104
26
10
8
8
80
10
39
27
45
32
30
25
02
25
16
10
13
14
138
16

Loss p e r
share
$48
61
131
89
363
94
79
21
2s
103
28
141
66
36
60
32
124
180
80
140
53
102
30
123
39

Gross
shrinkage
$199, 300, 000
502, 800,000
2, 309, 600, 000
186, 600, 000
70,400, 000
105, 500, 000
203 000, 000
711, 000, 000
46, 000, 000
1, 180, 000, 000
124, 700, 000
1, 339, 500, 000
99, 700, 000
1,589,000,000
2, 010, 000, 000
93, 300,000
815, 000, 000
135,000,000
751,200,000
644, 000, 000
257, 000, 000
1,342,300,000
379, 000,000
1,053,000,000
413, 000, 000
17,162, 900, 000

c

Curb Kxchange tocks, floated through "Honbiight
Joint sponsors with First National
Joint sponsors with other houses.




274

NOMINATION OF KU6ENE MBYEE
Mhccllancou*
No of
shares

Atntibi. P. & P. 5's 'S3.
Allegheny S's '44
Allegheny S's '49. .
Allis-Ohalm. S's '37
_
Am. Ag. Oh. 7%'s '41
Am. Beet Sug. O's '35
Am. F. P. 5\s2f30
Am. I. Q. Oh. 5,%'s '49...
Am. Int. Op. 5%'s '49 . .
Am. N. Gas 6%'s '42
Am. S. & R. 1st S's '47...
Am. Sug. Kef. D's '37 . . .
Am. T. & T. cv. 4%'s '39
Am. T. & T. S's '05
Am. T. & T. o. tr. 5's '46
Am. T. & T. 5's s. f. '60
Am. T. & T. 5%'s '43..
Am. W. Wks. 5's '34.
Am. Wat. Wlf. O's '75
Arm. * Co. 4%'s '39
Arm. Do] 5%'s '43
Assoc. Oil 6's '35
Bell Tel Pa. 5's I). '48....
Bell Tel Pa. o's O. '60
Beth. Steel pm. S's '36
Bk. Ed. gn. \ 5's '49
Bush. T. Bldg. S's '80
Oert-td. deb. 5%'s '48
Chile Oop. tib. 5's '47..
Colon Oil O's'38
Col. G. & E. 5's Wav ''52
Com. Inves. 5%'s '40 _
Com. Inve.5. 6's '48
.
Con. G. N. Y. 5%'s '45
Consum. Pow. 5's ' 5 2 . . .
C. Am. Sug. col. S's '31..
Denver Gas 5's '51
Det. Eds. g. 4%'s D w . . .
Det. Ed. rf. S's B '40...
Dodge Br. cl. 6's '40
Duquesne4%'s ' 6 7 . . . .
Fisk Rub. 8's '41
Gen. Motors 6's '37
Gen. P. Sv. 5%'s 39 . . .
Gen. St. Oas. 5%'s '49. .
Gen. Th. Eq. 6's 40
Goodrich cv. 6's '45 _. ..
Good. 1st 0%'s '47
Goody'r Rub. 5's '57...
Hoe & Co. 6%'s '34
Humble Oil 5's '37..
Hum. O. & R. 5%'s '62..

14

.

V
,!

..

21
45
14
4
II

|
l
1
'

I'

.

112 '
13
20
21

..
.

TlIK G K U M . W

High

1
I
19
20 !
1 I
2 !
4

OS
24

«

2
21
1

8
14
102
0
9
33
4
10
15
10
34

50
18

21
1
1
11

C l l K i U C U . TltOST. Co.MMOM.I
TKt'S'lH

KNOWN

76%
84%
83? '
102
104!4
46%
84%
100
93%
42%
103
104
129%
107%
100%
107%
109.' '
102%'
102%)
90%
78%!
102%
108%
112
102s 4
106%
101%
34%
94 '4
70
08' i
97
10434
106%
1051-4
99%
102%

75%
83%|
83,' i\
102
104%|
45
8314
99'4i
93 '
41
103

103%
128%
107
100
107

109
102%'
102%
89%
78
102%
108%
112
102%
106%!
101%!
33.' 2
93%'
08
98

%'.,

104%

105%
89
103%
35
103
94.4
94
72.4
69%
101
89%
61'a
101%
102%

105%i
99%l
102 !
101 !
105%
89
103
32%l
103 i
94.' i\
93%
72.' 2,
69%l
100%
89
61' i\
101%l
102,%|

\S THF

1. (5.

101.' 2

CKI.ATi:» '10 S U K I M I I ' M ' B V

Applied individually by various separate m a n u f a c t u r i n g enterprises, lunvever, even these radical reforms proved insufficient to meet tlie stern requirements of the financial situation. The industrial overlords, under their bankers'
lash, soon saw that, to escape the catastrophe that had befallen H u s o Stinnes'
sons and heirs, they would have to get together i l u d regulate both production and prices.
T h u s there came being such mighty conglomerations of industrial productivity as Vereinigte Stahhverke A. G.. commonly called the Kuhr Steel T r u s t ;
I. G. Farbenindustrie, its equivalent in the field of dyes and other synthetic
ebemical p r o d u c t s ; and the P o t a s h Syndicate, a sales organization embracing
all German potash mines. In the electrical industr,\ the A. E. G. (General
Electric Co.I a n d Siemens & Halske, both of which had working arrangements with American interests—the former with t h e American General Electric
Co. and the latter with the Westinghouse Go.—virtually formed an electrical
trust.



XOMTNATIOX OF EUGENE MEYER

275

In the m a c h i i i o o , textile, and other lesser industries similar a m a l g a m a t i o n s
of capital took place. Official estimates place t h e total number of German
cartels in 1925 at some three thousand, of which 2.500 were industrial a n d
the remainder commercial.
From the international standpoint, Vereinigte Stahlworko (United Steel
W o r k s ) , with a capital of more than one billion m a r k s , w a s the most important at the start, for its creation p a \ e d the way for the coining of t h e
European Steel and Iron ('artel t h a t established a rational p a r t n e r s h i p between
Lorraine ore beds mid Huhr collieries.
F r a m e d after the mode! of t h e United S t a t e s Steel Corporation, this huge
concern was founded in J a n u a r y . 1020. It comprised seven of the most important steel companies in the R u h r and Uhineland. including t h e powerful
Deutsch-Luxemburg. Th.\-son. and Phoenix groups. In its fir-t year Vereinigte
Stahlwerke produced 7.4 million ton- out of the total of 15.8 million tons of
r a w steel produced in Germany, or 4fi.8 per cent of t h a t total. It also mined
22 per cent of the total coal production and close to one-half ot the iron production.
The influence of t h e R u h r t r u - t on i n t e r n a t i o n a l steel relations has been
far-reaching:. It is through its efforts chiefly that the steel and iron production
of most of flie Continent h a s been aligned on a common front ostensibly directed against nobody in particular, but obviously t h r e a t e n i n g to the British,
and American steel industries.
INTEHNATION'AL STEEL C O M B I N E A S S E S S E S P E N \I.TTES FOR OVERPRODUCE ION

Germany, with h e r Vereinigte Stahlwerke. provides the lion's share of the
European steel cartel's a n n u a l output, 43 per cent. T h e Germans were most
active in organizing this cartel, which came into existence in September, 1926,
with France, Belgium, and Luxemburg as its other members. P r i m a r i l y it is a n
organization for the international control of steel production. Representatives
of the member States, which now also include Czechoslovakia. Austria, and
Hungary, and which may shortly be joined by Poland, meet every three months
to fix the total production for the ensuing three months.
Originally, t h e first productive quotas were fixed on the basis of each member State's production in the first q u a r t e r of 1920. T h e national i n d u s t r y of
each member State obligates itself to limit its output to the quota assigned it.
Each nation whose product exceeded its quota originally contributed ,$4 to t h e
cartel's common fund for every excess ton of steel produced. Any nation whose
production fell below its quota received from this fund .$2 a ton. This scale is
modified from time t o time. T h e cartel's q u a r t e r l y o u t p u t now aggregates
about thirty million tons.
It is interesting to note t h a t Germany t h u s far has consistently produced
more steel t h a n the quota assigned to her by the cartel.
The cartel exercises no control over prices, either domestic or foreign. T h u s
competition in the export m a r k e t exists normally among its member nations.
MORE T H A N i n T R U S T S NOW OPERATING

INTERNATIONALLY

The other mutual benefit organizations internationally uniting E u r o p e a n
industry in general follow the principles of the steel cartel. T h e r e a r e m o r e
than 20 such trusts in official existence to-day.
They cover the following t r a d e s : R a w steel, steel rails, tubes, roll wire, rayon
(artificial silk), chemicals, potash, linoleum, borax, white lead, quinine, calcium carbonate, zinc, ferromanganese, tanning extracts, activated carbon, aluminum, e 'amoled wares, glue, plate glass, bottles, superphosphate, incandescent
lamps, and copper. Germany belongs to all of them with the exception of t h e
plate glass and copper trusts. Incidentally, the former and t h e bottle cartel
a r e the only ones t h a t were founded before the war.
F r a n c e is a member of most of them, but G r e a t Britain of only seven of t h e
lesser ones. The United States t h u s far has joined only t h e copper and incandescent-lamp organizations.
Like the British, American i n d u s t r y h a s held aloof from the more powerful
cartels, such as steel and chemicals. T h e former of these two offers the most
direct competitive danger both to B r i t a i n and America.




276

NOMINATION" OP EUGENE MEYER

As r e g a r d s t h e chemical cartel, t h e backbone of which is t h e formidable I. G.
F a r b e n i n d u s t r i e , or German Dye Trust, there have been numerous negotiations
between t h e G e r m a n s and I m p e r i a l Chemical Industries, (Ltd.) t h e foremost
British concern in t h a t t r a d e ; but t h u s far they have been inconclusive.
GERMAN

AND FRENCH

CHEMICAL

I N D U S IKIES

COMBIVK

American policy, a t least as interpreted by European observeis, appears to
consist of establishing contacts with individual members of the cartels while
holding aloof from membership in them.
P r i o r to t h e w a r Germany w a s in virtual control of the world'.-* dyt --tuff
m a r k e t s . B u t during the w a r dye industries were built up by othei great
powers, including the United States and Great B r i t a i n . The consequence of
this w a s t h a t Germany's exports of this product dwindled dangerously. The
total export of aniline dyes, for instance, dropped from 04,000 tons in 1913 to
17,000 in 1925.
In t h a t year German dye m a n u f a c t u r e r s saw the rocks looming ahead. They
lost no time in organizing a united national defense against the economic
c a t a s t r o p h e confronting them.
Under the leadership of the former Badische Anilin-und-Sod.i-Fabrik, whose
poison-gas plant a t Ludwigshafen was the o b i e c i h e of so many allied air raids
in the World W a r , and of the equally prominent Friedrich Ba>(r Co.. internationally known as t h e maker of aspirin, a merger of the eisht foremost
chemical concerns was carried through the German I >ve Trust, capitalized at
1,000,000,000 marks, came into being.
I n t h e y e a r after its formation Germany exported 21,000 tons of aniline
dyes, and in the first 11 months ot' 1927 20.000 tons. Durinu the latter year
negotiations were begun in P a r i s for the organization of the International
Chemicals Cartel.
I n 1927 the signing of a Franco-German dyostufCs e n t e m e as the basis of a
billion-dollar E u r o p e a n cartel w a s reported.
Since the value of American chemical exports is almost $200,000,000 per
annum, the menace of a pan European combine can leadily be perceived.

T H E GERMAN C I H M H L A I Tin

ST

rTlic Saturday Evtniiii> Post. November 1, 10001
The limitation-- of space proxent any de'ailod account of G e i m a n industry.
One significant advance this year nnisi be emphasized, however. It is the
working p a r t n e r s h i p between the North German Elojd an 1 the HamburgAmerican Lines. The pact, w i i k h at the s t a r t is a c> mpreheusive pooling
agreement, is on a strict parity basis and run.-, for ."50 years. Each concern
gets half of the profit". The arrangement will end the costly rivalry between
t h e two leading German shipping companies and will make for reduction of
oveihead in t h e shape of single offices everywhere.
Two final details have a distinct bearing on American expoit-. Tli - first
grows out of the continued expansh n of the German Dye Trust, the vast corporation called ' ' I . 6 . " for short, whose production in 1929 amounted to the
equivalent of $3,000,000 000. No phase of its work is more significant t h a n
the progress made in the m a n u f a c t u r e of synthetic gasoline. From 100 tons
a d a y the output has grown to more than 300 tons. T h e process has long
since reached t h e commercial stage. You can see tank wagons hauling t h e
synthetic gasoline on t h e streets of Berlin and other cities. Though the price
is not yet lower t h a n that of gasoline made from real crude petroleum, it is
giving Germany an increasing independence of American jui-e.

Representative MCFADDEN. I t would be equally interesting to have
similar comparisons of the secuntie.-, sponsored and sold by these
other affiliations with whom Mr. Meyer is «o closely affiliated.
Showing Mr. Meyer's views and connections, Mr. Meyer wrote an
article which is published in the Yale Review of May, 1909, entitled
" The Stock Exchange and the Panic of 1907." This is a special
pleading for the New Stock Exchange. He defends the practice
of short selling. He says speculation on the stock market did not



NOMINATION OF EUGENE MEYER

277

cause the panic of 1907 because the banks had quietly liquidated
months before. He avers that the New York Stock Exchange is an
indispensable adjunct of American business life, and so forth.
He says it is better than other (foreign) stock exchanges because
it is less regulated than they are.
T recall his testimony before this committee in which he had no
idea of what caused the panic of 1929. I t is rather strange that Mr.
Meyer seemed competent to offer a diagnosis of the panic of 1907
and can not even guess what caused the crash of 1929. Your committee should know whether Mr. Meyer still holds the opinions he
expressed in this article. I t has a bearing on the future conduct of
the Federal reserve system and has to do with his qualifications.
Referring to the stock crash of 1929, the report to the stockholders
of the International Acceptance Bank (Inc.), for the year 1928,
under date of March 7, 1929, by Paul M. Warburg, chairman of the
board of directors, is significant and was a large factor. Congress
should know the details of the causes of this crash in order to guard
against a future recurrence. The way to get the facts is for Congress to call upon the New York Stock Exchange for full facts
and records of brokers who were placing big orders to sell short or
actually selling short and know definitely from wdience these tremendous orders for sale of important securities came. This is a
matter which is easily obtainable and goes to the crux of this whole
situation, disclosure of which will involve the associations of Mr.
Meyer and his friends that I am referring to here, and I am stating
this as further evidence to you, gentlemen, as to why Mr. Meyer
should not be placed in this responsible position at the head of the
banking and credit system of the United States.
Senator BROOKIIAET. I would like a little more detailed explanation of that, if you can make it orally.
Representative MCFADDEN. I will put in the record, Senator, the
report that I have referred to by Mr. Warburg, in March of 1929,
and 1 will aho call your attention to and put into the record an
editorial in the New York Times commenting on that report.
Those two things together were a tremendous factor in the beginning- of the crash in 1929.
Senator HROOKHAKT. The two particular items referred to are
what?
Representative MCFADDEN. The report of the chairman of the
board of the International Acceptance Bank for the year 1928, which
was published, I think, on March 7. 1929
Senator BROOKTTAKT. The idea being that the report
Representative MCFADDEN. If you would like to have me read
some of it. Senator. 1 would be glad to do so.
Senator BROOTCIIART. N O ; I want to get the bearing of the report
on the panic. Did it help cau^e the panic? Is that the idea you
suggest ?
Representative MCFADDEN. I t was one of the most potential influences in creating in the public mind a feeling of insecurity, and
you will find that tremendous selling orders immediately followed
the issuance of this statement and the editorial in the New York
Times of the same date.



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NOMINATION" OF EUGENE MEYEK

Senator BROOKHAKT. I S the report of such a nature as to cause
great selling orders?
Representative MCFADDEN. I would say so'; yes. I mention that
to show that this has a bearing on the whole situation of Mr. Meyer's
fitness to serve as governor of the Federal Reserve Board because
of these close associations.
(The report to the stockholders of the International Acceptance
Bank for the year 1928, referred to and submitted by the witness, is
here printed in full, as follows:)
REPORT TO T H E STOCKIIOIDETSS OF T H E INTERISATION.U. ACCEPTANCE T'AXK
FOB T H E YEAR 1928

(INC.),

I t h a s been our custom a t the annual meeting of our stockholders to s i r e a
full account of the activities of the I n t e r n a t i o n a l Acceptance Bank ( I n c . ) , during the preceding 12 months. This year we thought it well to deviate from
this custom a n d to delay our report until after t h e formal ratification and
definite conclusion of the amalgamation of the International Acceptance Bank
( I n c . ) , with the B a n k of the M a n h a t t a n Co., of New York. The stockholders
of the Bank of the M a n h a t t a n Co.. having voted on March 5 to increase its
s h a r e capital by $6,250,000 and to offer these 02,500 new shares to our stockholders in exchange for 125,000 of our shares, and 123,780 s h a r e s of our stock
having been tendered for exchange, the union of these two institutions is now
an accomplished fact. I t ought to be added t h a t in fact all our stockholders
have informally assented, and it is due only to some technicalities (such as
estate proceedings) t h a t the actual deposit of t h e few shares still outstanding
h a s been delayed.
When the count was t a k e n of the shares deposited for exchange by our
stockholders it w a s interesting t o observe t h a t in excess of 95 per cent of our
stock was in the h a n d s of original holders and of officers and employees of the
I n t e r n a t i o n a l Acceptance B a n k ( I n c . ) , and t h a t over 90 per cent of our stock
h a d been pledged for exchange within four days a Iter the formal invitation
to do so had been sent out by us. It is doubtful whether the administration
of any bank h a s ever received a more overwhelming demonstration of t h e
loyalty and unreserved support of its shareholders. In such circumstances it
is n a t u r a l t h a t I should wish to begin this report—the last one to bo addressed
to t h e stockholders of the I n t e r n a t i o n a l Acceptance Bank ( I n c . ) . for from
now on they will be holders of the stock of t h e M a n h a t t a n Co. -b.\ expressing
to them on behalf of my associates and myself the w a r m e s t and sincerest appreciation of the confidence they have shown and the allegiance they have
given us from t h e verj day our bank was born until now when it has closed
its career as a single unit.
Upon the accomplishments of these j e a r s we may look back with undivided
satisfaction. When in 1921 we ventured out into stormy and uncharted seas
t h e r e were few who believed that the development of the American acceptance
bus'ness would w a r r a n t the existence of an acceptance corporation operating
on a substantial scale. We foresaw in the constellation then existing not only
a g r e a t opportunity for the development of a new branch of American banking,
but a call to m a k e America's great gold strength m a i l a b l e to an exhausted
world desperately in need of credit and struggling to escape or emerge from
the p a n g s of exchange instability. The opportunities for service then envisaged
came t r u e : indeed our expectations were surpassed by subsequent developments.
If the graph presented in these pages, indicating the steady growth of our own
acceptance business from 1921 to 1928, may be considered as typical for the
development of American acceptance banking as a whole. I believe it w a r r a n t s
t h e confident assertion t h a t Uncle Sam's position as an acceptance hanker may
now be considered as permanently established. It is no small satisfaction for
your officers to feel t h a t in t h ' s phase of American banking history your bank
h a s contributed its s h a r e in rendering pioneer services.
T h e I n t e r n a t i o n a l Acceptance Bank (Inc.) s t a r t e d with a paid in working
capital of $10,250,000. By the conversion of its special stock this amount has
now been increased to $12,500,000. consisting of $0,250,000 of cap'tal, with an
uncalled liability of t h e same amount, and $0,250,000 surplus. To these funds,
provided by its stockholders, the bank and its t r u s t company have added



XGMrevnoN OF ETTGKXE MEYEI;

279

$0,622.94.") in undi\ i<le<l profits and in execs-i of $3,000,000 in hidden reserves,
free and unencumbered, to pro\ ide for un'orsoen contingencies. At the moment
of its union w th the B.-'nk of the M a n h a t t a n Co.. the International Ac •optance
Bank (Inc.) had. therefore, total capital funds in excess of !f21.000.0i)0. T h e
fact t h a t these additions to our capital funds were made, aside from the dividends paid, w a r r a n t s , I belie\e. the statement t i n t the earning power of the
bank has more than \ indicated (he expectations of its organizeis.
The question ma.\ well he asked why in the face of these results, a t t a i n e d
in the brief span of less than eight years, instead of " l e a v i n g well enough
alone," we thought it wise to recommend to our stockholders t h e adoption of
a plan involving *o far-reaching a change in our previous course. I t ought t o
he emphasized at the outset t h a t while by the acceptance of (he plan our old
shareholders, like the old stockholders of the Bank of the M a n h a t t a n Co.,
have now become joint owners of both institution*!, the management a n d
policies of the two hanks will remain practically unchanged. It is, of course,
expected that there will he the closest cooperation between the two, some of
the principal officers of the two institutions serving on both directorates, but
they will remain distinct units under two separate boards. The two companies
will thus continue to serve the purposes to which they have been devoted in
the past, under their original names and under a management substantially
the same as t h a t which lias directed them up to (he present.
In order fully to understand the considerations moving your officers and
directors in recommending the amalgamation, one h a s to analyze the conditions and tendencies prevailing to-day in the broad field of banking. It is a
fact (hat, not only in industry, hut also in finance, we are living in the age of
the horizontal and vertical trusts. Branch banking ( a n d chain banking) express the horizontal t e n d e n c y : while " a complete service," including domestic
and foreign banking, acceptance facilities, t h e origination and distribution of
securities, as well as the services of fiduciary departments, evidence the vertical
tendencies, corresponding to t h e industrialist's ambition to cover t h e whole
reach from the r a w m a t e r i a l to the finished article, from the producer to the
consumer. I believe it is safe to say t h a t t h e evolution in the industrial field,
to a certain degree at least, is directly responsible for the similar development
in the field of banking, because the gigantic form assumed by industrial corporations on both sides of the Atlantic render their banking requirements so large
and so all-encompassing that only banks with gigantic resources of their own
a r e able to offer them commensurate facilities. W h e t h e r or not one may regret
the abandonment of the old t r a d i t i o n a l system of "specialized banking," the
trend toward " departmental hanking " seems irresistible at the present time.
In the midst of an era of persistent bank consolidations, the Bank of the
M a n h a t t a n Co. and our hank were both faced with the a l t e r n a t i v e s either
of merging with a n o t h e r institution specializing in the activities which they
had not developed or of embarking upon a program of building up a powerful
departmental organization from within.
Tim! would have meant for t h e
Bank of the M a n h a t t a n Co.. strong its (he held of domestic depository and
commercial banking, the task of aggressively de\eloping its foreign and security
business, Comersely. it wotdd h a \ e meant for t h e International Acceptance
Bank ( i n c . ) , strong in the field of foreign banking and already established
in the security business, the task of aggressively do\eloping its activities in
the domestic field. F o r both, these would have been very expensive undertakings, and, in view of the keen competition existing, they would have involved
an uphill fight. Both institutions had already started in the direction of independently completing their structures. As will he remembered, two years
ago the International Acceptance Bank ( I n c . ) , organized the I n t e r n a t i o n a l
Acceptance T r u s t Co. in order to cultivate domestic business, and recently
the Bank of the M a n h a t t a n Co. had begun to build up a foreign d e p a r t m e n t
of its own and was contemplating pushing forward into the field of security
distribution. In these circumstances the a d v a n t a g e s to be gained by joining
forces, by a m a l g a m a t i n g two institutions each so admirably complementing
the other, became quickly apparent, and I believe the stockholders of both
may be sincerely congratulated upon the conclusion of (he negotiations t h a t
brought about the happy union between them.
The consolidated balance sheet, combining the assets and liabilities of both
concerns as given in their published s t a t e m e n t s as of December ,->>1, 1928,
shows !«22,250,000 capital, .1>40,000,000 in surplus and undivided profits, and
total resources slightly under .$700,000,000. As may be readily seen from these



280

NOMINATION OF EUGENE MEYEB

figures, the amalgamation will t h u s give the new combination a wide power
to serve its friends both a t home and in foreign lands. By a greater concentration of domestic activities in t h e organization of t h e Bank of the M a n h a t t a n
Co. and of foreign activities in t h a t of the International Aceptance Bank (Inc.).
it is hoped t h a t duplications of effort will be done away with, and substantial
economies and increased efficiency rendered possible.
As you will remember, since 1926, your bank has been actively and successfully engaged in the security business. This branch of its activities as well as
t h e security business of the Bank of the M a n h a t t a n Co. will be transferred to a
new corporation to be known as the International M a n h a t t a n Co. (Inc.). which
will be jointly owned by the two banks. The highly developed system of
branches of the B a n k of t h e M a n h a t t a n Co. will offer, it is hoped, a promising
field for the distribution of investment securities.
T h e balance sheet of the I n t e r n a t i o n a l Acceptance Bank (Inc.) for December
31, 1928, shows t h a t the year just completed has been one of continued growth
and satisfactory profits. I ' a f l e u r a r l y gratifying is the uniformly high tolal of
acceptances outstanding throughout the vear. as is indicated on the graph on
page 25. While t h e composite picture of the use of our acceptance facilities
by our clients showed constant changes, both as to the commodities financed and
t h e countries for which the bills were drawn, the aggregate volume outstanding
showed the very satisfactory daily average of $62,635,108, as compared to
¥45,300,833 during 1927, and $40,259,000 during 1926. At the close of the year
total acceptances outstanding amounted to $68,167,358, against $65,785,508 on
December 31. 1027. As regards commissions on such business, it is unfortunately necessary to record t h a t t h e ill-advised a t t e m p t on t h e p a r t of American
acceptors to increase their share in the business by cutting r a t e s has continued.
To this struggle we referred in our last a n n u a l r e p o r t ; unhappily it has again
resulted during the p a s t >ear in a further decline in the rate of return. Our
average acceptance commission during 1028 w a s 1.250 per cent, compared to
1.426 per cent in 1027, 1.912 per cent in 1926. and 2.096 per cent in 1925.
As in previous j e a r s , our credits are well distributed, both geographically
and by commodities; at t h e end of the year our acceptances covered 38 countries and 35 major commodities. I am happy to be able to report t h a t once
more t h e year's acceptance business was carried through without any credit
loss.
In t h e per'od under review, we have arranged several important syndicate
acceptance credits, as weH as extended for further periods a number of such
t r a m actions a r r a n g e d in previous years The < rodit of $30,000,000 which we
a r r a n g e d in 1027 for the Deutsche Golddislcont Rank was enlarged this year
to a $50,000,000 revolving reserve credit, to run for two .veai'v Another interesting transaction, which we jointly a n aimed with National Rank of Commerce in New York, w a s the increase of the syndicate credit placed at the d'sposal of t h e Crude Rubber Agenc.v from $40,000,000 to $60,000,000.
Our balance s-hoet of December 31. 1928. presented in this icport. shows th.it
t h e high degree of li.piidiC for whi'-h we h a \ e aimed f'r< m t i e start has been
maintained.
T h e net earnings of the bank loi' t i e year I92-< without taking into consideration t h e profit from the sale of its real estate, although below the record,
figure for 1926, were slightly in excess of those for 1027. As in pievious j c a i s .
we have set aside a substantial amount for reserves, in addition to transferring $674,500 to undivided profits. In accordance With the policy announced
in our a n n u a l report for 1027. the dividend rati 1 was raised from 8 per cent
to 12 per cent per a n n u m on the p-iio in capital, effective J a n u a r y 5. 1928. At
t h e meeting of the board of directors on J a n u a r y .'!, 1029, on the occasion of the
declaration of t h e dividend for t h e last q u a r t e r of 1928, an add.tional 1 per
cent w a s declared, placing the stock on an annual dividend basis of 16 per
cent. F o r your information we give on page 22 the usual comparative schedule
of earnings and expenses.
In order to give our sro khold i s a eomple e p'ctuve of the doiolopmont of
the b a n k since its organizat on, most of the comparative statements and graphs
in this final report to them cover the period from the close of 1021 to the end
of 1928.
T h e activities of the bank in the issuing of securities have further developed
d u r i n g the past year, exceeding by a very satisfactory margin the volume of
such business u n d e r t a k e n in 1926 and 1927. In 1928 the bank participated in
t h e public offering of 22 issues, totaling approximately $300,000,000, and origin a t i n g in the following c o u n t r i e s : 11 in Germany, 3 in Scandinavia. 3 in



NOMINATION OF EUGENE MEYER

281

South America, 1 in J a p a n , and 4 in t h e United States. F o r comparative purposes we might mention that during 1027 the bank p a r t i c i p a t e d in 16 issues,
totaling, roughly, $200,000,000. and. in 1926, in 7 issues, totaling slightly over
$112,000,000. In addition to the issues in which the bank appeared publicly
during 1928 there were also a large number of syndicates in which t h e bank
had a silent interest. F r o m the point of view of profits, t h e results of this
department were very gratifying.
The high efficiency attained by the staff in years past h a s been m a i n t a i n e d
during 1928, so t h a t it has been possible to t r a n s a c t the growing volume of
business with a comparatively small increase in personnel. At t h e close of
1928 our employees numbered 252, including all officers and clerk-., as compared
with a total of 238 at the close of 1927. It is a pleasure to record here once
more the loyally and devotion of rhe staff, many of whom have been in c u r
employ since the establishment of the bank. The only changes t h a t took place
among the bank's officers during the year were the election of Mr. R a l p h W.
Proctor as treasurer, and of Mr. K. T. Giblin as m a n a g e r of t h e commercial
credit department.
In June. Mr. Horace H a \ e m e y e r , president of Havemey ers & Elder ( I n c . ) ,
was elected a director of your bank, filling the vacancy occurring through t h e
resignation of Mr. Robert F. Herrick, who had resigned in order to become a
dir"ctor of the International Acceptance T r u s t Co. At a special meeting of t h e
stockholders on July 3, the number of directors w a s increased from 18 to 20,
and the new seats thus created on the board were filled by the election of Mr.
George V. McLaughlin, president of the Brooklyn T r u s t Co., and Mr. George M.
Shriver. executive vice president of t h e Baltimore & Ohio R a i l r o a d Co.
Mr. Walter E. Frew, president of the Corn Exchange Bank, decided t h a t ,
as president of an institution competing directly with the Bank of M a n h a t t a n
Co.. it would not be proper for him to continue to serve as a director. T h e
board accepted Mr. Frew's resignation with profound regret, as from t h e first
beginnings of our bank he has been one of" its most valuable directors and one
of its staunehesf friends. In addition four members of the board of directors
of the International Acceptance Bank, (Inc.) resigned so t h a t together with
your chairman, your president, and one of your vice presidents (seven in all)
they might accept service on the board of directors of the Bank of t h e Manh a t t a n Co. It is planned to increase the number of directors of the I n t e r n a tional Acceptance Bank (Tnc.) from 20 to 25. The additional seats t h u s provided and the vacancies created by the resignations j u s t mentioned will be
filled by the election of throe directors of t h e bank of the M a n h a t t a n Co., including the vice chairman and the president of t h a t institution, and of seven
directors of the I n t e r n a t i o n a l Acceptance T r u s t Co. The composition of t h e
boards of the Bank of tlie M a n h a t t a n Co., the I n t e r n a t i o n a l Acceptance Bank
(Inc.). and the I n t e r n a t i o n a l M a n h a t t a n Co. (Inc.) as they will be constituted
after the completion of this program will be found in this report.
The appended balance sheet of t h e I n t e r n a t i o n a l Acceptance T r u s t Co. indicates a year of healthy growth. In order to facilitate its f u r t h e r development
and to enhance its power to serve our friends, its capital and surplus were
each increased on F e b r u a r y 8, 1928, from $."500,000 to $1,000,000, bringing its
total capital funds to $2,000,000, plus undivided profits, on December 31, 1928,
amounting to $445,940.
In reviewing the year's operations of the t r u s t company, it is p a r t i c u l a r l y
gratifying to note the development of the strictly fiduciary business. D u r i n g
the year 42 corporate t r u s t e e appointments were received, in addition to a
satisfactory number of personal trusteeships.
When the t r u s t company w a s organized it w a s thought t h a t the greatest
degree of efficiency and economy in operation would be secured by t r e a t i n g it
like a department of the bank, even though in form it represented a legal
entity of its own. W i t h this end in view t h e board of directors of the t r u s t
company was filled primarily from t h e r a n k s of the officers of the International
Acceptance Bank ( I n c . ) . D u r i n g the past year t h e conclusion w a s reached
t h a t for the successful development of its fiduciary as well as its banking
functions the t r u s t company would be greatly strengthened if permitted to
secure the support of a representative independent board of its own. As a
consequence, on J u l y 5 three of our officers resigned as directors, and at t h e
same time authorization was obtained to increase t h e board from 10 to 14
members. To fill these vacancies, t h e following were elected: Mr. H o w a r d S.
Cullman, vice president of Cullman Bros. (Inc.) ; Mr. Robert F . Herrick, of



282

DOMINATION OF EUGENE MEYER
f

Herric'k, Smith, Donald & F a r l e y : Mr. David F . Houston, president of t h e
Mutual Life I n s u r a n c e Co. of New York: Mr. Otto v. Schronk, of Briesen &
S c h r e n k ; Mr. J a c k S t r a u s , A ice president of li. II. Macy & Co. ( I n c . ) ; Mr.
J o h n L. Wilkie, of Gould & W i l k i e ; a n d Mr. Bronson Winthrop, of Winthrop,
Stimson, P u t n a m & Itoberts. T h e following new officers of the trust company
were elected during the y e a r : Mr. G r a h a m B. Ulaine, Mr. C. li. Hall, and Mr.
W. T. Kelly, vice p r e s i d e n t s ; Mr. It. .1. Keennn, secretar) ; and Mr. .John P .
Collins and Mr. P. F . W a r b u r g , assistant vice presidents.
T h e business of the t r u s t company in due course will now be transferred to
t h e Bank of t h e M a n h a t t a n Co.
On December 19. 1928, the Cedar Street Corporation signed a contract for
t h e sale of the bank's office building a t 52 Cedar Street for $1,850,000 in cash.
T h e title w a s t r a n s f e r r e d on J a n u a r y 19. 1929. T h e contract gives us the
privilege of occupying the building for five years. The affairs of the Cedar
Street Corporation, which is owned by the I n t e r n a t i o n a l Acceptance B a n k
( I n c . ) , will now be wound up. As against t h e amount a t which t h e property
w a s carried on our books this sale results in a profit of over $900,000 which is
not included in the bank's published earnings, and has been added to its assets
as a building reserve.
T h e American & Continental Corporation has completed ils fourth j e a r of
operation. We are pleased once more to be able to report satisfactory progress
D u r i n g the year the company h a s earned and paid di\ idends of 7 per cent on
t h e $2,000,000 paid in class A stock ($10,000.(100 subscribed), and of 8 per cent
on $812,500 of fully paid class B stock, and it has added $257,1,'17.C4 to undivided profits, bringing t h a t account to $1,578,274.47. During the year the company obtained additional working capital by selling, through a syndicate
headed by Kuhn, l„oeb & Co., $7,500,000 in 15-year 5 per cent gold debentures,
due April 1, 1943. These funds were obtained at a cost to the company of less
t h a n 5 L Per cent.
V>
GKNERAL R E M A R K S

We !ia\e already advanced so far into 1929 t h a t it is too late to offer you
my customary review of the past year. Suffice it to say t h a t w r i t e r s upon
economics and finance a r e likely to record the following four events as t h e
o u t s t a n d i n g occurrences of 1928:
First. F r a n c e ' s return, not only to complete exchange stability, but to a
dominant position amongst the financial powers of the world.
Second. T h e absorption of the British currency notes by the Bank of England, accompanied by a far-reaching reconstruction of the hitter's issuing
department.
Third. The loss of control by the Federal reserve system over the American
money m a r k e t .
F o u r t h . The agreement by t h e nations concerned to convoke a conference
of e x p e i t s for t h e purpose of developing a plan for the final settlement of t h e
r e p a r a t i o n problem.
T h e first two events require further elaboration; with regard to the third
and fourth, some brief observations may perhaps be opportune.
In aeronautics t h e public is generally inclined to look upon t h e a r t of rising
into the air as the sole accomplishment. The layman is apt to overlook t h e
fact t h a t t h e m a s t e r y of t h e a r t of descending is of equal, if not greater, importance. No central banking system may safely permit its facilities to expand
unless it is certain of its determination and ability to bring about contraction
when circumstances require. If Doctor Kckner had not been possessed of t h e
unrestricted a u t h o r i t y to shape t h e course of his Zeppelin according to t h e
meteorological conditions he would meet, and to give his orders for landing
within the fraction of the second t h a t circumstances required, if he had not
been certain of t h e prompt response of his engines and his crew, he never could
have ventured to rise. H a d his maneuvers been dependent upon the directions
of 120 men, acting through 12 separate boards of directors, and operating " s u b ject t o t h e review and determination " of a central board of eight men, who
m a y be wide a p a r t in their views and bewildered by political influences and
attacks, his ship would have been wrecked.
Now. while it i s obvious t h a t w e could not and should not give to one man,
or to one single set of men, t h e wide autocratic powers that would assure the
greatest efficiency in t h e a d m i n i s t r a t i o n of our central banking system, it is
equally clear t h a t , as a t present constituted, the machinery governing its steering a p p a r a t u s is too complicated to be either safe or efficient. T h e Federal



NOMINATION OF EUGENE MEYER

28a

reserve system, pursuing a well-conceived and far-sighted policy, rose to a position of world leadership. Yet within the short span of a year it lost t h a t leadership, owing to its failure promptly and effectively to reverse t h e engines a t t h e
critical moment. T h e rudder then passed into t h e h a n d s of stock exchange
operators, who have now for many months governed t h e flow of money, not only
in the United States, but in the principal m a r t s of the world. History, which
h a s a painful way of repeating itself, h a s t a u g h t m a n k i n d t h a t speculative
overoxpansion invariably ends in overcontraction and distress. If a stock exchange debauch is quickly arrested by prompt ;md delennined action, it is not
too much to hope t h a t a shrinkage of inflated stock prices m a y be brought about
without seriously affecting t h e wider circle of general business. If orgies of
unrestrained speculation a r e permitted to spread too far, however, t h e u l t i m a t e
collapse is certain not only to affect t h e speculators themselves, but also to bring
about a general depression involving the entire country.
From tlie economic lessons t a u g h t by the a f t e r m a t h of the Great W a r , we
learned t h a t the excessive creation of money or bank credit without an equivalent production of assets spell inflation. Yet the public mind does not a p p e a r
to realize that the creation of an inflated purchasing power is not a monopoly
enjoyed by g o \ e i n m e n t s . When we consider t h a t the m a r k e t value of t h e 50
industrial stocks, the 20 public-utility stocks, and the 20 r a i l w a y shares,
which are used in computing the S t a n d a r d Statistics Oo.'s index of t h e prices
of stocks, has grown within two years from approximately $17,500,000,000 t o
.$33,000,000,000, we find an accretion of approximately $15,500,000,000, an accretion, in the majority of cases, quite unrelated to respective increases in p l a n t ,
property, or earning power. Yet this stupendous bulge in " v a l u e " covers
only a limited number of corporations, and it does not include bank stocks, or
some of the subtlest elements of inflation—incorporated stock pools, called
" i n v e s t m e n t t r u s t s . " Nor does it comprise the gigantic enhancement of
real-estate values. One can only leave it to the imagination to guess t h e
amount by which the inflation of values such as these exceeds the entire w a r
debt of the United States. In order to grasp the vastness of the sums involved,
it may be well to remember t h a t t h e total value of our cotton, wheat, a n d
corn crops combined would amount to approximately $4,000,000,000. T h e r e a r e
those who claim t h a t the increase in t h e m a r k e t value of our securities is
w a r r a n t e d by their intrinsic value. One might be more inclined to agree with
t h a t view if the present level of our stocks were not sustained by a colossal
volume of loans carrying unabsorbed securities, of which $6,000,000,000 of
brokers' loans form only a part, and if t h e hanking s t r u c t u r e c a r r y i n g this
inflated inverted pyramid did not rest on a basis of Federal-reserve credit,
which in these last two years h a s been stretched by an increase in t h e e a r n ing assets of about half a billion dollars over what used to be t h e i r approximately normal size. Conditions such as these recall to our minds the painful
events of the >ears 1919-21. Yet t h e parallelism between t h a t period a n d t h e
present does not seem to be properly appreciated by the general public on
account of (he fact t h a t billions of dollars poured in to the stock exchange by
domestic corporations and from across the seas a r e not revealed by t h e barometer indicating the F e d e r a l reserve system's condition and because the index
does not register t h e same striking rise of commodity prices shown in t h e
inflation priod of 191!) to 1920.
I t should be remembered, however, t h a t in those years t h e r e prevailed a
shortage of commodities and a passionate demand for them, while a t present
the world is craving for the ownership of shares and for the satisfaction of
new wants. Nobody would object to a fulfillment of these desires so long a s t h e
necessary funds were provided from savings. B u t when t h e savings of t h e
masses a r e deposited as m a r g i n s for stock-exchange speculations, and when
t h e e x t r a v a g a n t use of funds for speculative purposes absorbs so much of
the nation's credit supply t h a t it t h r e a t e n s to cripple the country's r e g u l a r
business, then t h e r e does not seem to be any doubt as to the direction in which
the Federal reserve s j s t e m ought to exercise its influence quickly a n d forcefully. People who express the fear t h a t increases in t h e F e d e r a l reserve
bank's rediscount r a t e s might h u r t business overlook the far greater h u r t t h e
country will have to suffer if their advice to permit t h e situation " to work
itself out " were followed. Moreover, for approximately t h e last six m o n t h s
we have had, in effect, a bank r a t e of 7 or 8 per c e n t ; for it is t h a t r a t e which




284

NOMINATION OF EUGENE MEYER

d u r i n g t h a t period h a s directed t h e flow of gold to our shores and which has
exercised a decisive influence in the fashioning of our domestic rate structure.
W h e n commercial paper commands 5% per cent, and when bankers' acceptances sell a t 5% per cent, rediscount rates of 4 % per t'ent and 5 per cent seem
grotesquely impotent a n d out of line. Procrastination in bringing such rediscount r a t e s into a proper relation to actualities, hesitation in taking effectual
m e a n s to reassert t h e F e d e r a l reserve system's leadership, place a grave responsibility on those in charge of i t s administration. It is t r u e t h a t our inability
to develop a country-wide bill m a r k e t and our failure to establish on our
stock exchange a system of term-settlement dealings aggravate the difficulties
of our problem. B u t these defects of our system render t h e need for determined leadership all t h e more imperative. T h a t the country's banking system is tossing about to-day w i t h o u t its helm being under the control of its
pilots gives cause for deep concern. Yet the fault does not seem to lie so much
with t h e men in charge of it as with the s t r u c t u r a l defect of its administrative organization. T h e banking fraternity would be well advised to anticipate radical congressional proposals by taking the lead in seeking the lines
along which reform may be brought about.
W i t h regard to the fourth of the principal events of 1928. the calling of
t h e conference of experts for the final settlement of the reparation problem,
one might well say t h a t in t h e realm, not only of economics and ihiance but
also indeed of i n t e r n a t i o n a l relations, nothing could p r o \ e of greater benefit t h a n t h e finding of a fair and permanent solution of this puzzling question.
T h e exceptional qualification of the representatives delegated bj the countries
involved w a r r a n t s t h e highest hopes and expectations for a favorable outcome
of their deliberations. On t h e other hand, we must remain mindful of the
appalling difficulties of the task.
I t would not be surprising if in the end the expert.-* should find that, aside
from " deliveries in kind," " Germany's capacity to paj " will largely depend
upon " Germany's capacity to borrow." In t h a t case the experts' principal
problem would resolve itself into gauging the ability and willingness of intern a t i o n a l m a r k e t s to absorb German loans for a given number of years and
into estimating the amount up to which Germany from ,\ear to ,\( ar. by borrowing for productive purposes, might increa-e here foreign indebtedness without destroying the credit which obviously forms the basis of her '• capacity
to borrow."
In spite of t h e wide gap which, in the public mind, separates hopes from
realities, t h e character and ability of the men struggling with the problem
encourages the belief t h a t a proper solution will be found and t h a t the prestige
of its sponsors may enable t h e Governments concerned to carry it into effect.
I can not close this report without expressing once more, on behalf of my
fellow directors and myself, the sincerest appreciation of the excellent work
done by the officers of t h e bank, and on behalf of my fellow officers their
profound g r a t i t u d e for t h e loyal and invaluable support they have received
from t h e directors and our stockholding associates both in the United States
a n d across t h e seas. T h e results achieved a r e due in largo p a r t to the intimate
cooperation of these three elements, and it is my earnest hope t h a t this happy
relationship will remain a s close and auspicious in the future as it lias been
in the past. I consider this bond between directors, officers, and stockholders
a n d t h e spirit of loyal devotion t h a t permeates the bank t h e two most valuable
assets in its balance sheet.
B A N K OF T H E M V X H A l ' T A N

CO.. 1!()\RI> OF 1)1 ItF.l 1 Olis

Chairman : Stephen Baker.
Associate c h a i r m a n : P a u l M. W a r b u r g .
Vice c h a i r m a n : P. A. Rowley.
P r e s i d e n t : .T. S t e w a r t Baker.
M e m b e r s : Hon. F r a n k F . Adel, county j u d g e ; J. E. Aldred, Aldred & Co.;
H e n r y C. Bohack, president H. C. Bohack & Co. (Inc.) ; B e r t r a m H. Borden,
president M. C. D. Borden & Sons (Inc.) ; Matthew C. Brush, president
American I n t e r n a t i o n a l C o r p o r a t i o n ; H a r r y I. Caesar, H. A. Caesar & Co.;
George W. Fennell, Geo. Fennell & Co.; Marshall Field, president Field, Glore
& Co.; Michael F r i e d s a m , president B. Altman & Co.: F . Abbot Goodhue, president I n t e r n a t i o n a l Acceptance Bank ( I n c . ) ; Joseph Huber, Brooklyn, N. Y.;




K O M I S A T I O S 0.1? E-CGE5TE MEYER

285

Raymond JE, ."Tones, first vice president. l>avkl II. Knott, chairman The Knofct
Corporation : George MeNeir, chairman Mohawk Carpet Mills (Inc.) : Herman
A. Mofz. president II. A. Metz k Co. (Inc.) : John t'. Moore, president Tiffany
& Co.: George H. Patterson, Geo. li. MeFadden & Bi'o. : Georfie M. Shrivcr.
senior vice president TSaHiniore & Ohio Kniiroad Co.; Samuel Sloan, rice president Farmers Loan & Trust Co.; Jamps Mijoyer, Hpe\er & Co.; Carl F. Sfiirhalin,
president RossU Insurance Co.. H a r t f o r d ; .James I'. Warbui'K. president international Manhattan Co ( l a c ) ; H. Pushno Williams, president F i r s t Mortgage
Guarantee Co.: Daniel (>. Wiii.y. chairman First, Xntional Xiunk of Bos!on.
Consolidated statement shoirhw tt coiiitiinalion ot tlie Jmtonec sheet x of Bank
of the Manlt'1 fttni Co. and rutvrwitioiiut
Accept a nvc Bank (Jnc.'i nx of December SJ. !!><>8
HUSOl K( J . s

Cash on hand and hi Federal i-osoi-ve bank. Duo from I n u f c anil bunkers
__ __
Cull loans secured })> acceptance^
__
_Acceptances of other hanks
United States Government, S t a t e and municipal boRds _
Collateral loans
„
,
IJOMUS and discounts
__
Other bonds and securities.._ 1 __ _
__ _
("ustipjnpi's' liability tor act eptaneo - (less anticipations )„„
BauK premises
__
_.
Other a s w l s . _
-..
_-

$27,148,920.07
23«. 294. 632. 00
5, 175, 000.. 00
0,500,225.44
__ 29, 557, S'.ii). 75
100. 650, »«4. 74
150. 767, ,'SH). 3S
15. 722. 080 10
SO. 56:-t, 305. 85
10. s-07, 0*52. OS
,
1. 020. 927. 64
682, 817. 058. 54

Capitals
. __..
_
Surplus and undivided piofits

i ( vwrxri'ies
.
-

X22. arrfk, t;oi.'. do
42. 572. 130. 40

Iteserve (or dividends
_
__
Deposits and duo fo banks and customers
._
Acceptances o u t s t a n d i n g . .
-Unearned discount
.Reserve for taxes
.
_ _ .._.. __
Other liabiiUes .
.
.
_

,?()£, 822. 1H«. 4il
770. 625. Ot)
510. 355, 2;>0. 19
- O.'l, 5 05. 817. 07
__
_
1. OVA, S8S. 80
_
577, 218. ?>7
3.089,050.73
082, 81 7. 958. 54

SXT111X.\THIXM,

U C-ilPTA > OK if A \ K I L V C . )

BOABD O F

DIBECIWH

Chairman: Paul M. Wsit'bai'fj.
V co c h a i r m a n : J. Stewart Haker.
President : F, Abbot Goodhue.
Members: S n u w r i ! ) Carhon. pi'esidevit Wi«tcni Fnion Telegraph Co ; Howard S. Cullman vice president Otiilnnm Pros, (inc.) ; Horace lln-semeys r. president JPuemeyors & Hitler (Inc.I : Robert F. Herrick. Herriek, Smith. Donald &
Furle\, Poslon: David F . Hotision. prosiden! Mutual Life Insurfliice Co of New
i'ork ; Ceoi-sie > McFansrhlia. presideJJt Brooklyn T u i s t Co.; jj, Xaeiiuiaiui, vice
president; L'. A. R « w k j , vice chainnan Il«tilt of ilio Mrmhattan Co ; Oito V.
Sclirenk, l>i'ieseu & Sclirenk ; Charles P.. Seger, cliauauaii of the Finaiiee Committen. Fnioa 1'nollle Haiiroad Co.: Lawrowt' IF Shojirman. \iee tircsideist \Y. 11.
Grace & Co. { f rsc. > ; WiiJiam Skinuer, Wijiij)iw ^feijuicr & Sons; Philip Stockton,
president Old Coloisj Triist <Jo., Bostoo : Charles A. Stone, cliaimian Si one &:
Weiwier (Inc.! : duck Straus, vice president R. IJ. MJIC.V & Co. (Inc.) ; Ilenry
Tatnuli, retired vice president Pennsylvania Railroad Co, : Felix M. W'arhurji,
Kutin. l,oeh & <"o. ; Janu'S 1*. Warluirj, jiresident In! cnin 1 ional Mauiistttaii Co.
(Inc.) : Thomas II. West, jr., prc-idesd Ithede Island Hospital Trust Co..
Providence, John P. Wilkte, (irould iV W d k i e : Hronson Winthrop. Winthrop,
Stimson, I'litnam t t Roberts, and George Zahriskie. Zabriskie. Sage, tjray &
Tortd.
IJKSIO 3 5 - HI



286
Statement

NOMINATION
of condition.

OF E U G E N E

International
31,

Acceptance
1988

MEYER
Bank

(Inc.),

as of

December

HESOURCES

Stockholders' liability
called subscriptions

for

un$5,625,000.00

C a s h on h a n d a n d d u e f r o m b a n k s
Call l o a n s secured by a c c e p t a n c e s
A c c e p t a n c e s of o t h e r b a n k s

$8, 098, 396. 60
5,175,000.00
6,108,214.48

United States Government. State, and municipal bonds
Collateral loans
Loans and advances :
D u e w i t h i n 30 d a y s
$6,496,070.57
D u e a f t e r 30 d a y s
3,736,146.20

$19, 3 8 1 , 611. 0 8
12, 076, 382. 47
8, 683, 515. 4 0

10, 232, 216. 77
6. 964, 482. 89
65, 218, 655. 24
», 900, 268. 20
308, 7 6 2 . 1 1

Other bonds and securities
C u s t o m e r s ' l i a b i l i t y for a c c e p t a n c e s ( l e s s ; m t i c i p a t i o n s ) C u s t o m e r s ' l i a b i l i t y u n d e r l e t t e r s of c r e d i t
A c c r u e d i n t e r e s t re e . \ a b l e a n d o t h e r a s s e t s

132, 765, S94. 16
I.IAHIi.ITIES

Capital a n d surplus fully subscribed

$17, 000. 000. 0 0

C a p i t a l p a i d In
S u r p l u s p a i d hi
Undivided piilils
R e s e r v e for d i v i d e n d s p a y a b l e Jni>. 15. 192!)
D u e to b a n k s suid c u s t o m e r s
Acceptances outstanding
L e t t e r s of c r e d i t
R e c e i v e for t a x e s , u n e a r n e d disc< u::t, : nd o t h e r l i a b i l i t i e s

5,750,000.00
3,625,000.00
• >. 177, 005. 21
170,625.00
37.694,548.47
68, 167,358. 87
9,900,268.20
281,088.41
132, 765, 894. 16

Contingent liability, including American bank acceptances,
A m e r i c a n t r a d e acceptances with h a n k indorsements bought
for a c c o u n t f o r e i g n c u s t o m e r s : F o r e i g n c u r r e n c y bills, etc.,
sold
INTERNATIONAL MANHATTAN

CO.

26, 632, 856. 54

(INC.) BOARD OF DIRECTORS

Htep' en B a k e r , J . S t e w a r t B a k e r . F . A b b o t G o o d h u e , 1*. A. l i o w l e y . P a u l M.
Warburg, J a m e s P. W a r b u r g , president.
Intcmutitmal

Acceptance

Trust

Co. comparative

balance

-theet as of December

31

I
RESOURCES

Cash tmd due fiom b a n k s . . _
V. S. Government, State, and municipal bonds
Ijoans nnd discounts
.. Other bonds and securities . . .
..
__ _.
Federal Reserve bank stock
Accrued interest, e t c . . .
- . -•

$1,342,332.77

2. 035, 680 00
4, 570, 268. 48
2,562,581 53
30. 000. 00
63, 819. 07

$1,424,354 90
4, 263, 776. 88
3,745,573.07
2, 778, 441. 84
30,000 00
57, 920. 56

$3, 935, 427. 61
3, 247, 812. 50
10, 388, 990 00
1, 879, 535. 02
60, 000. 00
129, 162, 05

]0,(i04, 681.85 [ 12, 300,067. 25

19,641,927.18

500, 000. 00
500, 000. 00
500, 000. 00
500, 000. 00
190,007 40
53,000.00 |
9, 536, 775. 27 11,084,70" OS
25, 262. 19
14,906.58

1,000,000.00

1,1 ABILITIES

Capital
Surplus
Undivided profits
13eposits
._ .
Reserve for T a \ e s , etc




'

10, 604. 681.85

12.300,067,25

1, 000, 000. 00

445, 940. 48
17,118,607 13
77, 379. 67

19, 641, 927. 18

International

Acceptance Bank, (Inc.),

schedule of earnings and expenses, year ending December SI

1921
Earnings.. ...
Expenses
„-

. . . _
. .

_ ...

$642, 038
452, 453

1922
$1,571,718
500, 518

1923

1925

1924

1926

1927

1928

$1, 651, 030
683, 775

$2, 539, 320
759, 552

$3, 790, 019
907,883

$3, 293, 196
995, 193

$3,129, 387
1, 025, 569

' $3, 348, 201
1, 213, 248

967, 255

1, 779, 768

1, 882,136

2, 298, 003

2, 103, 818

2,134, 953

7, 585

183, 700

304, 119

837, 089

927,000
205,000

1, 310, 300
410,000

1, 042, 568
461, 250

798, 066
662, 387

82,000

887, 500

663,136

942, 679

750,136

577, 703

600,000

674, 500

89, 585

1

1, 071, 200

Does not include profit from sale of bank's real estate.

M

>

NOTE.—Figures shown for 1921 are for Apr. 1 to Dec. 31.

International

o

g

Acceptance Bank (Inc.),

comparative balance sheet as of December 31

1921

1923

1922

1924

1925

1926

1927

1928

o
y
A
o
*J

fed
RESOURCES

Stockholders' liability for uncalled subscriptions. . .
.
...

O
fed
$5, 000, 000

$5, 000, 000

$5, 000, 000

$5. 000, 000

$5, 000, 000

$5, 000, 000

$5, 000, 000

$5, 625, 000

%

Cash on h a n d a n d due from b a n k s

3, 501, 569
1,862, 869

7,154,615
2,115, 255

6, 253, 734
3, 623, 226

7, 582, 067
5, 092, 527
4, 810, 000

11, 076, 477
5, 751, 414
5, 214, 046

11,187,745
5, 208, 068
5, 399, 000

8, 098,397
6,108,214
5,175, 000

fed

U n i t e d States G o v e r n m e n t , State, a n d municipal b o n d s
_
._
.
Collateral l o a n s . - .
. . . . . ... ... . ..

10,369,631
4, 220, 568
4, 600, 000

8,531,170

10, 885, 686

2, 042, 464
2,119, 079

2, 693, 975
3,229,429

12, 456, 643
5, 359,234
8, 097,547
5, 475, 717

15,132, 074
5,991, 502
13,866,582
6,100, 456

11,678,309
4,517,320
6,374,851
5, 580, 205

11.495,726
5, 798, 549
5,946,461
7, 798, 650

15, 406, 228
3, 20t>, 022
7, 540, 098
8, 585, 414

12, 076,382
8, 683, 516
10,232,217
6,964,483

9,977, 936
3, 412, 679
125, 016

27, 045, 622
5,611,384
199,124

31,223,649
6, 775, 729
268, 855

37, 244,854
8,146, 520
260, 516

43,711,948
9, 082,844

44, 224,162
8, 0S2, 469

62, 663, 771
11,144,264

65, 218, 655
9, 9C0,268
308, 762

31, 572, 782

58,941,090

79, 534, 334

104,227,098

100,346,795

130,591,971

132, 765, 894

Other b o n d s a n d securities
....
C u s t o m e r s ' liability for acceptances Qess anticipations)..
„ . . . . . . „.
_
C u s t o m e r s ' liability u n d e r letters of credit




fed

K!

105,622, 080 1

fed

SI

International Acceptance Bank {Inc.), comparative balance sheet as of December SI—Continued.

to

00
00
1921

1922

1923

1924

1925

1926

1927

1928

LUBILITItS
C a p i t a l a n d surplus fully subscribed

15, 250, 000

15, 250, 000

15, 250, 000

15, 250, 000

15, 250, 000

15,250,000

15,250,000

17, 000, 000

C a p i t a l paid in
.
. ...
S u r p l u s paid i n .
... .
U n d i v i d e d profits . __
D u e to b a n k s a n d c u s t o m e r s . .
.
Acceptances o u t s t a n d i n g .
L e t t e r s of credit
... _ . ...
.. ...
Reserves for taxes, u n e a r n e d discount, etc
Keserve for d i v i d e n d p a y a b l e
.
...

10, 250, 000

10, 250, 000

10, 250, 000

82,000"
6, 704, 95(1
11,089,292
3, 412, 678
33, 856

969,520~
13, 074, 143
28, 833. 976
5, H I , 384
202, 067

1, 632, 565
28, 186, 825
32, 590, 356
6, 775, 729
98, 768

5, 250, 000
5,000, 000
2, 575, 279
44.460,169
38, 650,169
8, 146, 519
144, 962

5, 250, 000
5,000,000
3, 325,136
30, 896, 606
46, 527, 795
9, 082, 844
264, 414

5, 250,000
5,000,000
3, 902, 703
35, 876, 466
47,117,539
8, 082,469
290, 403
102, 500

5, 250, 000
5,000,000
4, 502, 968
38, 457, 986
65, 785, 598
11,144,263
297,406
153, 750

5, 750, 000
5,625, 000
5,177, 005
37, 694, 549
68,167, 359
9,900, 268
281,088
170,625

31,572,782

58, 941, 090

79, £34, 334

104, 227, 098

100, 346, 795

105,622,080

130,591,971

132, 765,894




o
>
o
o

o

K!

H
U

289

NOMINATION OF EUGENE MEYER
International

Acceptance Bank (Inc.)—Acceptance
statistics—Analysis
acceptances outstanding on December 31

of

1925
E x p o r t s from U n i t e d States
...
I m p o r t s to U n i t e d States .
_
. . . . . .
M o v e m e n t of m e r c h a n d i s e b e t w e e n foreign countries
M e r c h a n d i s e stored in warehouse
....
Dollar e x c h a n g e . . .
. . ...

$18,487,901 $19. 713, 688 $25, 924, 586
9,395, 979 10,220,300
15,440,874
10, 559. 141 11,842,906 18. 264, 720
4,356, 602 10,256,454
1,111,798
1,808,363
1, 119, 538
928, 080

$30, 804, 534
10,460,053
20, 660,813
4, 019, 590
2, 222, 368

65, 784, 598

68,167,358

46,527,794 I 47,117,538

Countries

and

major

commwdities
covered
December 31

by

acceptances

Countries Commodities

Countries Commodities
1921
1922
1923
1924

14
14
23
23

. . .
- . -- -

Daily arerage
1922
1923
1924
1925

21
22
29
29

25
37
35
38

1925
1926
1927
1928

of acceptances

$18, 764,000
24, 809, 200
30,600,000
39,100, 000

outstanding

33
32
33
35

outstanding

1926
1927
1928

$40, 259, 000
45, 306, 833
62, 635,198

[The New York Times, Saturday, March 9, 1929]
MB.

WARIIURC'S

PLAIN

WORDS

When speculation in stocks h a d lately reached a pitcli of exceptional violence, and the money m a r k e t appeared to be raising danger signals, it w a s
often asked why financiers of light and leading did not speak out and say
frankly w h a t was happening and w h a t its consequences were likely to be.
The absence of such declaration, w i t h the mild circumlocutions on the question
even in last October's b a n k e r s ' convention, were largely responsible for t h e
speculative m a r k e t ' s a t t i t u d e t o w a r d the F e d e r a l reserve. If the Reserve
Board's warnings actually reflected the belief of the great body of serious and
enlightened men of affairs, why did not those men come into t h e open a n d
lend their personal support to the Reserve B o a r d ' s contentions?
Under such circumstances, the plain talk of Mr. P a u l M. W a r b u r g to t h e
shareholders of the I n t e r n a t i o n a l Acceptance B a n k comes like a b r e a t h of
fresh air. He is among our highest practical authorities on finance. H i s
judgment is cool and his financial experience w i d e ; he w a s one of t h e high
officials who steered t h e F e d e r a l reserve through the perilous w a t e r of wartime finance. Probably he w a s as reluctant as any company m a n a g e r could
have been to u t t e r public w a r n i n g s which might indirectly m a k e more difficult
the path of enterprises with which he is himself identified. B u t he speaks
with candor and courage.
In the present phenomena of speculation Mr. W a r b u r g finds disquieting
reminders of 1919 and 1920. The parallel h a s been commonly overlooked because there has been no such rise in commodity prices as occurred in t h e
m a r k e t s of t h a t time. B u t this merely means t h a t t h e focus of speculation
has shifted from commodities to stocks. Mr. W a r b u r g does not deny t h a t
" c r a v i n g for the ownership of shares and for the satisfaction of new w a n t s "
is legitimate, but he shows t h a t another question must arise, " when t h e
savings of the masses a r e deposited as ' m a r g i n s ' for stock-exchange speculations, and when the e x t r a v a g a n t use of funds for speculative purposes absorbs
so much of the Nation's credit supply t h a t it t h r e a t e n s to cripple the country's
regular business."



290

NOMINATION OF EUGENE MEYEB

We learned 9 or 10 years ago, he proceeds, that creation of excessive
bank credit " without an equivalent production of assets spells inflation." But
to-day we have the picture of a stock market in which the aggregate valuation
of 90 typical shares has risen $15,500,000,000 in two years, or something like
88 per cent, " an accretion, in the majority of cases, quite unrelated to respective
increases in plant, property, or earning power." Moreover, the list of stocks
which shows this stupendous marking up of prices " does not include bank
stocks or some of the subtlest elements of inflation—incorporated stock pools,
called ' investment trusts.' " To those who argue that this increase in market
valuation is warranted by enhancement of intrinsic worth, Mr. Warburg replies
that the high price level is " sustained by a colossal volume of loans carrying
unabsorbed securities, of which $6,000,000,000 of brokers' loans form only
a part."
He expresses the positive judgment that reserve bank rates ought to have
been raised higher; that a 4% or 5 per cent rediscount rate is " impotent and
out of line " with commercial paper bringing 5% per cent and bankers' acceptances 5%. Under existing circumstances it is the stock-exchange operators " who
have now for many months governed the flow of money, not only in the United
States but in the principal marts of the world." If what Mr. Warburg frankly
describes as " the orgies of unrestrained speculation " are permitted to spread
too far. he considers that " the ultimate collapse is certain not only to affect
the speculators themselves, but also to bring about a general depression involving the entire country."
These are serious and weighty words. Coming from so eminently practical
and highly conservative a source, their account of the existing situation and of
its meaning can hardly fail to have some effect in clearing up the financial
mind.

Senator CAREY. YOU referred to these allied companies that Mr.
Meyer was connected with. How do you connect him with them?
On account of his being a stockholder of the company lie mentioned
the other day, the Allied Chemical Co. ?
Representative MGFADDEN. That is one; and on account of his
close associations of the past. I am going to cover that as I proceed.
Again I desire to emphasize that which I have previously stated.
that is, the manner by which the Federal reserve credit is utilized
by this particular group, which group controls the largest financial
institutions in the United States. Their controlled companies and
banks are the borrowers and lenders and now they want to make
sure that they absolutely control the Federal reserve system and its
operations. They were defeated in their attempt to put a man on
the Supreme Court by the United States Senate, and now these same
interests, always alert and this time " with a most willing subject,"
are trying to put a man on the Federal Reserve Board. I t is the
duty of your committee and the United States Senate to see to it
that this is not done.
This financial crowd—and I am referring to them in this manner
because sometimes they work together and sometimes separately—it
is my observation that they always have their key men in key positions in banks and industry and in the various departments here
that can and Avill carry out their bidding.
I n the twilight zone in this respect are Mr. S. Parker Gilbert, Mr.
Roscoe C. Leffingwell, and Mr. Paul Warburg. Messrs. Gilbert and
Leffingwell were the Undersecretaries of the Treasury during Mr.
Meyer's Government-bond operations in the W a r Finance Corporation, to which I have previously referred. Both of these men came
to the Treasury from, and when they left the Treasury returned to,
the firm of Cravath, Henderson, and so forth, attorneys for Kuhn,
Loeb & Co. They are now both members of the banking house of



NOMINATION OP EUGENE MEYER

291

J. P . Morgan & Co. At or about the time when they were Undersecretaries of the Treasury, Mr. Paul Warburg was a member of
the Federal Reserve Board. He resigned May 12, 1918.
I am quoting from the New York Times of that date, which said:
In his resignation to die President. Paid W a r b u r g tenders Ids resignation on
grounds of kinship with two brothers, one with German I n t e r n a t i o n a l B a n k
and one in Switzerland, supposed to be in secret ser\ ice.

Paul Warburg has always been a unique influence in Federal
reserve circles. I invite you Senators to read the two books he
has recently published on the Federal reserve system. These books
will open your eyes. It is plain from Warburg's public criticism of
the Federal Reserve Board's policies, and his views and recommendations, that there should be bank representation on the board, and
so forth, that lie is the person who wishes to dominate the Federal
reserve system. I believe that he would prefer it to be a central
bank in the European sense, with reserve districts consolidated to
increase concentration of reserve funds- This would be fatal.
I read with a great deal of interest yesterday the statement that
was made by Owen D. Young. Mr. Young is certainly an outstanding man in this particular group. He suggests that all banks of
the United States should be made members of the Federal reserve
system.
Senator BROOKHAKT. I have been reading AVarburg's books.
Representative M c F \DDEX. I do not care to comment further on
it, but it has a bearing upon the centralization of the finances of
this country within the control of this particular group.
Senator BROOKHAKT. That was the idea, no doubt.
Representative MCFADDEN. I t seems to me there is coming to be
altogether too much concentration. If concentration is increased,
access to the reserve funds will be made easier for banks and individuals who wish to use the system as a whole; that is, as a central
bank, a super-government.
Now, to show the activity of Mr. Warburg in regard to these various companies during the period of Mr. Meyer's activities here in
the War Finance Corporation which led up to that period which
Mr. Meyer described to you the other day, the period of 1920, when
he retired from the Federal Reserve Board because of differences
with the Secretary of the Treasury and the Governor of the Federal
Reserve Board
Senator BROOKHAKT. YOU mean, the W a r Finance Corporation?
Representative MCFADDEN. Yes; I said W a r Finance Corporation—the New York Times of December 5, 1919, said: " P . M. Warburg opposes money plan, New York Stock Exchange."
New York Times, November 5, 1919: " P . M. Warburg returns
from Europe."
New York Times, September 27, 1920: " P . M. Warburg returns
to New York on board the Rotterdam."
May 1, 1920: " P . M. Warburg at meeting of Academy of Political
Science pleads for sound banking principles."
April 15, 1917: '' P . M. Warburg suggests allowing savings banks
to join Federal reserve system."
New York Times, February 7, 1919: " P. M. Warburg, chamber of
commerce speech, favors Government control of railroads."



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NOMINATION OF EUGENE MEYER

New York Times, March 14, 1919: " P . M. Warburg heads American Acceptance Council."
The various amendments in the organization incident to the financing of acceptances were a most interesting part of this whole situation. I will deal with certain phases of that a little bit later on.
The New York Times reports on April 3, 1919, that Mr. Warburg
addresses Council of Foreign Relations at Metropolis Club, New
York.
May 24, 1919, discussed problems of railroads before Bar Club,
New York.
June 10, 1919, Senators call J. P. Morgan, J. H. Schiff, P. M. Warburg, and Thomas Lamont.
New York Times, April 19,1917: "At the suggestion of P. M. Warburg, move is made by Federal Reserve Board to take over financial
direction of New York Stock Exchange."
I mention that to show the activities of Mr. Warburg. He has
written and published many speeches and volumes of books, and
recently the two new books which he has published are of particular
importance and show his continuing interest in Federal reserve
operations.
To show the foreign relationship of this group, it is interesting to
note
Senator BROOKHART. In a recent book of his he quotes somebody as
saying that Congress has no more to do with making the laws than a
bookbinder has to do with making a book; it is outside influences
altogether that make our lawi. That is one of Mr. Warburg's
philosophies.
Representative M C F ^ D D E X . It is interesting to note an article in
the New York Herald. Julv 15, 1921. entitled "Foreign Relations
Council Launched." Amonjr the incorporators we find the following
names listed: George W. Wickershani and Paul M. Warburg. This
article tells of the incorporation of this council, and among the petitioners' names mentioned arc Paul I). Cravath. O-car S. Strauss,
Hamilton Holt, Mortimer L. Schiff, Otto II. Kahn, Henry L.
Stimson.
The day before. July 14, in the same paper appears an item: German Credit Is Plan of Banker*. From this article we learn of negotiations for $49,000,000 to cover purchase of grain, and so forth. The
American negotiators of this loan are given as International Acceptance Bank, Paul M. Warburg, chairman, and the First National Bank
of Boston, which is closely affiliated with the International Ac eptance Bank. Among other interesting note-, of this article we read:
A recent K e s e n e Board ruliim permits (he purchase b,\ reserve banks of six
m o n t h s ' paper required In overseas usages.

That connects up with this particular situation -which Mr. Meyer
has related to you in the beginning of these hearings, incident to his
resignation in 1920.
The New York Herald of July 22, 1921. tells of another financial
syndicate operation in which the International Acceptance Bank,
First National Bank of Boston. a n d N . M.Rothchild& Sons, London,
participated.




NOMINATION OP EUGENE MEYEE

293

Here is a quotation from the report to the stockholders of the
International Acceptance Bank dated March 7, 1929:
The activities of t h e hunk in the issuing of securities have f u r t h e r developed
during the past year, exceeding by a very satisfactory m a r g i n the volume of
such business undertaken in 1926 and 1927. In 1928 t h e bank participated in
the public offering of 22 issues, totaling approximately $300,000,000, and
originating in the following c o u n t r i e s : 11 in Germany, 3 in Scandinavia, 3 in
South America, 1 in J a p a n , and 4 in the United States. * ~ * I n addition
to the issues in which the bank appeared publicly d u r i n g 1928, t h e r e were also
a large number of syndicates in which the bank had a silent interest.

The history of the International Acceptance Bank is a most interesting one. Some years ago the American Bankers Association,
after having made a careful study of international trade relationships, concluded that it would be helpful to have an international
acceptance company owned and operated by the larger banks of the
association who located in the principal cities of the country with
$100,000,000 capital, and they started to organize such an institution. ISTotwithstanding this fact, the organization was delayed, and
finally the plan was headed off and the plan died what was supposed
to have been a natural death. I have been reliably informed that
this project was headed off deliberately by Mr. Paul Warburg, and
shortly thereafter he established his own company under the title
''International Acceptance Bank," which institution now is one of
the most important international acceptance banks in the world, and
is a part of the Manhattan group which is controlled by Mr. Warburg and his brother, Mr. Felix Warburg, and those associated with
him. Acceptances of this institution were a long time ago made
eligible for rediscount directly with the Federal reserve banks. An
interesting connection of the New York Warburgs is their partnership in Warburg Bros., a German banking house of many year^'
standing, belonging to the Warburg family.
Now, I want to enumerate, as I have just enumerated to you Mr.
Warburg's activities, the activities of Mr. Meyer during this same
particular period of his operations, which will give you a bearing
on the kind of activities with which Mr. Meyer has been associated,
and which have a direct bearing on his fitness to be a member of the
Federal Reserve Board and its governor.
The New York World, under date of December 3, 1910, page 11,
column 2, had this heading:
Market demoralized b.\ heavy liquidation; bear a t t a c k s upon Steel common,
Union Pacific, and Reading accompany it.

The the article proceeds:
Heavy l i q u i d a t i o n and an a t t a c k on United States Steel, Union Pacific,
and Heading, the pool specialities, demoralized the stock market j e s t e r d a y .
Steel broke to 72%, the lowest point since October; Union Pacific declined to
168% ; and Reading to 144%. Over 256.000 shares of steel were dealt in. There
was a widespread report t h a t the pool was liquidating.
Near the close
bankers steadied the market with buying orders. T h e break w a s purely
speculative.
Whether the so-called steel syndicate has made losses in its campaign is
a m a t t e r of conjecture. The men credited with being the syndicate deny
that there is one. The ieport for nearly six weeks has been the Eugene Meyer,
jr., George Blumenthal. and B e r n a r d M. Baruch. with a French syndicate,
bought an enormous block of Steel below 70, with a dcterminatiton to p u t



294

NOMINATION OP EUGENE MEYER

the price to par. This alleged pool carried about 000,000 .shares, and about
t h e time its speculations begaii a bet of $20,000 w a s said to have been made t h a t
steel common would sell a t p a r before J a n u a r y 10 next.

Senator BROOKHART. What date was this?
Representative MCFADDEN. December 3, 1910.
Senator GOLDSBOROTJGII. Who made the bet?
Representative MCFADDEN. I t does not say. Did you want to
cover it?
Senator GOLDSBOROUGH. You would not expect a Senator to cover
it, would you ? I t takes international bankers to do that.
Representative MCFADDEN (reading further) :
Among those credited in Wall Street rumors with being active in the pool
is George W. Perkins, of J. P. Morgan & Co.. but this is not generally believed.
W a l l Street w a s filled with gloom yesterday, and all hope of a big Christmas
m a r k e t seemed to have been dissipated for the time being, at least.

On September 14, 1910, Meyer gave a dinner for leading copper
men of the United States and J. P . Morgan for the purpose of planning a copper consolidation similar to the United States Steel Corporation.
The New York Times, February 28, 1919, stated that Meyer
started advocating a policy of unloading Europe's troubles on the
United States; explains the need of a section of foreign trade in
the Victory loan bill. December 14, he proposes alien loan markets
for foreign investment in the United States. On January 4, 1920,
he urges a 'world market for foreign bonds. On October 9, 1920,
he said excess-profits tax was unfair. That was said at a Senate
hearing.
The New York World, May 28, 1911, said:
George W. Perkins, who retired l a s t J a n u a r y from the firm of J. P. Morgan
& Co., is credited In Wall Street gossip with having reorganized the steel
pool which p u t t h e stock up two years ago from 41 to the neighborhood of 95.
Among the other members of the pool are said to be F r a n k A. Munsey, who
m a d e millions out of the last big rise in steel, and Eugene Meyer, jr. T h e
new syndicate is said to be closely allied with a French banking interest, and
t h e r e is renewed t a l k of an a t t e m p t to list the stock on the P a r i s Bourse. I n
view of t h e great prostration in the steel industry, many Wall Street men
a r e skeptical of t h e pool's ability to induce public support to a bull campaign
in steel common. The last movement did distribute a verj large amount of
t h e stock among the public. A l t e r the campaign was over it transpired
t h a t W a l l Street brokerage houses o\\ nod about one-third of 1 he entire outstanding common stock of the United States Steel Corporation. There h a s
been very little opportunity during the last two \ e a r s for these firms to
decrease their commitments in t h e stock.

Mr. Meyer was a member of the New York Stock Exchange from
1901; also a member of the New York Cotton Exchange. The Boston
Stock Exchange firm of Eugene Meyer & Co.. was organized in
May, 1912. His partner was Charles I. Thurnauer, a French citizen.
On February 18, 1920, he resigned as a director of National
Aniline & Dye Co. This is one of the companies taken over by
Allied Chemical Co.
I n 1918 he Avas a director of Consolidated & Utah Copper Co.
On J a n u a r y 30, 1919 he was made managing director of the W a r
Finance Corporation.
The New York World, August 24, 1917, page 4, column 6, carried
this heading:
B a r u c h sells his seat on e x c h a n g e ; well-known operator may be made F e d e r a l
Digitized foruFRASER agent, so quits t r a d i n g .
p rchasing


NOMINATION OF EUGENE MEYER

295

I mention this because Mr. Baruch was closely associated with
Mr. Meyer during his activities in the New York market. The
article then proceeds:
Bernard M. Baruch has sold his seat on the stock exchange to Francis W.
Welch for $58,000 and will retire from Wall Street activities, at least during
the war. Mr. Baruch will devote himself entirely to the duties of his position
on the buying committee of the War Industries Board and then may become
the purchasing agent of the Federal Government, if such a position is created.
It is expected that Eugene Meyer, jr., who was a big operator on the
exchange and close associate of Mr. Baruch in his speculation, will become
assistant purchasing agent of the Government. My Meyer recently retired
with a big fortune.

New York Times, December 10, 1919:
Mr. Eugene Meyer, jr., advocates history of foreign international loans
in American markets.

New York Times, December 14, 1919:
Eugene Me,\er. jr.. would make foreign investments easy here as means
of stabilizing international commerce and finance.

New York Times, May 25, 1920:
Eugene Meyer, jr., resigns over differences with Secretary of Treasury on
account of foreign financing.

New York Times, March 27, 1920:
E. Meyer, jr., wants action to fix policy on German trade by political parties.
Sees great opportunities.
S e n a t o r BROOKHAHT. W h o was t h e S e c r e t a r y of t h e T r e a s u r y a t

that time ?
Representative MCFADDEN. March, 1920? Mr. Mellon.
Senator BROOKIIAKT. NO ; he went in in 1921.
Representative MCFADDEN. That is right. Carter Glass was Secretary of the Treasury then.
Senator BROOKHART. When did Houston go in?
Senator CAREY. I t must have been Houston at that time.
Representative MCFADDEN. I t was either Houston or Glass. I
do not recall which one.
I stated when I was before the committee the other day that Mr.
Meyer was a professional office seeker. I call your attention to the
fact that Mr. Meyer contributed $25,000 to the Republican National
Committee in 1928, in the Hoover campaign, $5,000 as a resident of
Washington and $20,000 as of 14 Wall Street, where his offices had
been located for many years
Senator BROOKHART. I have a list showing most of these other
Wall Streeteis contributed a great deal to the Republican campaign
fund.
Representative MCFADDEN. Here is a quotation from the New
York World of April 28, 1918, page 12, column 6, headed Ticker
Talk:
In connection with the purchase of the remainder of the treasury bonds of
the Chile Copper Co.

Senator GOLDSBOROUGH. Bernard Baruch did not give anything to
that fund, did he ?
Senator BROOKHART. I do not know whether he contributed to both
of them or not. Most of them do, to get in on both sides.



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NOMINATION OF EUGENE MEYER

Representative MCFADDEN. This article in the New York World of
April 28 is of particular interest. I t says:
In connection with t h e p u r c h a s e of the remainder of the treasury bonds of
the Chile Copper Co., amounting to $1,500,000 of the p a r valw> of the bonds,
Eugene Meyer, jr., & Co. and B. M. Baruch h a v e purchased from Daniel Guggenheim and associates 150,000 shares of Chile Copper Co. stock, all of which
h a s already been placed.

Mr. Meyer at one time, I am told, had joint offices in New York
with Mr. Baruch. Mr. Meyer still has, I understand—at least, he
did have two years ago—offices at 14 Wall Street, New York, where
he carried on in his own personal name the Government bond operations for the United States Treasury, with the name of the War
Finance Corporation on the door.
Why, Senators, how long would you permit the present able Secretary of the Treasury to carry on the purchase and sale of Government bonds for the bond purchase and sinking-fund operations of
the United States Treasury in his private office in Wall Street, in his
own personal name, even though he did donate the rent and have
the name " Treasury Department " on the door ? I venture to say
to you, he would not do such a thing, nor would you permit it.
As disclosing further operations of Mr. Meyer during this particular period of his activities in the stock market in New York, the
New York World of November 24, 1904, discloses:
No city bonds for small b i d d e r s ; issue of $25,000,000 goes to syndicates a t
premium of 102.4.
When the bids for $25,000,000 of 3 % per cent New York City bonds were
opened yesterday by Comptroller Grout it was found t h a t banks and syndicates had offered a price beyond the bids of the citizens who had been invited
to invest in $10 lots. T h e loan w a s oversubscribed eight times, a t an average
price of 102.4.
Exactly eight private citizens got small lots of the bonds. Nearly $24,000,000
w a s a w a r d e d to William Salomon & Co. and Lazard Preres, conjointlv a t
102.401, and $750,000 went to Eugene Meyer & Co. There were 107 bidder-,
and t h e issue w a s divided among 18 of them.

Among this list of bidders I notice that the Meyer name appears;
also William Salomon & Co. and Lazard Freres, $23,837,750.
I t w a s said in Wall Street after the sale t h a t Kuhn, Loeb & Co. and the
N a t i o n a l City B a n k bad a r r a n g e d with L a z a r d F r e r e s to take over the
$23,800,000 allotment and divide it between them.

Now, to point out to you some of the further activities of Mr.
Warburg, I want to mention the American I. G.
This is the so-called American branch of the great German chemical trust, otherwise known as the Farben Industrie and commonly
called the I . G.
The American I. G. came into being in 1929. Bonds to the amount
of $30,000,000 were distributed for this company late in the spring
of 1929. These bonds were unsecured by mortgage. At that time, so
far as we know, the company had no real estate in this country. The
purpose of the issue was to buy up American companies, dealing in
chemical and allied lines, including medicines, and to foster and
finance, and so forth. A queer purpose.
The placing of these bonds on the New York Stock Exchange was
denounced and charges were made to the authorities, but so far nothing has come of the complaint. Joseph Choate, attorney for the



297

NOMINATION OF EUGENE MEYER

American Chemical Foundation, has the facts at his command and
will tell you about it. See New York Times J a n u a r y 29, 1930.
Paul M. Warburg is a director of this company. I believe he is
one of the incorporators, and that he participated in the distribution
of the bonds.
I will place in the record some further statements with regard to
this company, including the quotations for its stock.
(Tlie matter referred to is as follows:)
Till

(ilRJI\N

ClIIVIHAL
TRUSTS

TlilSI,

COIUIOM.V

CR1 ATI I) TO S H E

KNOWN

AS

THE

1.

G.

I N D U S l'RV

Applied individually by various separate m a n u f a c t u r i n g enterprises, however,
even these radical reforms pioved insufficient to meet tlie stern r e q u i r e m e n t s
of the financial situation. The industrial overlords, under their b a n k e r s '
lash, soon saw that, to escape the catastrophe t h a t had beta lien Hugo Stinnes's
sons and heirs, the.v would have to get together and regulate both production and prices.
Thus there came into being such mighty conglomerations of industrial productivity as Vereinigte Stahlwerke A. G.. commonly called t h e K n u r Steel
T r u s t ; I. G. F a r b e n i n d u s t r i e , its equivalent in the lield of dyes and other
synthetic chemical p r o d u c t s ; am! t h e I'otash syndicate, a sales organization
embracing all German potash mines. In the electrical industry the A. G. K.
(General Klectric Co.) and S emeus & Halske, both of which had working
arrangements with American inteiests—the former with the American General Electric Co. and the latter with the Westinghouse Co.—viitually formed
an electrical trust.
In the machinery, textile, and other lesser industries similar amalgamations of capital took place. Official estimates pi :ce,l the total number of
German cartels in 1925 at some 3.000 of which 2,5 0 were industrial and t h e
lemainder commercial.
From the infernalional standpoint. Vere.nigte Siahlvveike (United Steel
W o r k s ) , with a capital of more t h a n 1.000.000,000 m a r k s , w a s the most important a t the start, for ts creation paved t h e vva.v for the coining of t h e Euro) ean
Steel and Iron Carl el t h a t esablished a rational pal tnership between Lorraine ore beds and R u h r collieries.
F r a m e d after the model of the Un ted States Steel Corporation, this huge
concern was founded in J a n u a r y , 1926. It comprised seven of t h e most important steel companies in the I t u h r and Khineland, including the powerful
beutseh-Luxeniburg, Thyssen, and P h o e i r x groups. In its first year A'ereinigte
Stahlwerke produced 7.400,000 tons out of the total of 15,800.000 tons of r a w
steel produced in Germany, or 40.8 per cent of t h a t total. I t also mined
22 per cent of t h e total coal production and close to one-half of the iron
production.
The influence of the R u h r trust on international steel relations h a s been
far reaching. It is through its efforts chiefly that the steel and iron production of most of the Continent has been aligned on a common front osteus'bly
directed against nobody in particular, but obviously t h e r a t e n i n g to the Hritisli
and American steel industries.
I N T E R N A T I O N A L STEEL C O M B I N E A S S E S S E S P E N A L T I E S FOR OVERPRODUCTION

Germany, with her Vereinigte Stahlwerke, provides the lion's share of t h e
European steel cartel's a n n u a l output, 43 per cent. T h e G e r m a n s were most
active in organizing this cartel, which came into existence in September, 1926,
with France, Belgium, and Luxemburg as its other members. P r i m a r i l y it is
an organization for the international control of steel production. Representatives of the member States, which now also include Czechoslovakia, Austria,
and Hungary, and which may shortly be joined by Poland, meet every t h r e e
mouths to fix the total production for the ensuing three months.
Originally the first productive quotas were fixed OM tiie basis of each member
State's in the first q u a r t e r of 1920. T h e national i n d u s t r y of each member
State obligates itself to limit its output to the quota assigned it. Each nation



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NOMINATION" OF EUGENE MEYER

whose product exceeded its quota originally contributed $4 to the cartel's common fund for every excess ton of steel produced. Any nation whose production fell below its quota received from this fund $2 a ton. This scale is
modified from time to time. The cartel's quarterly output now aggregates
about 30,000,000 tons.
It is interesting to note that Germany thus far has consistently produced
more steel than the quota assigned to her by the cartel.
The cartel exercises no control over prices, either domestic or foreign.
Thus competition in the export market exists normally among its member
nations.
MOBH T H A N

20

TRUSTS

NOW

OPERATING

INTERNATIONALLY

The other mutual benefit organizations internationally uniting the European
industry in general follow the principles of the steel cartel. There are more
than 20 such trusts in official existence to-day.
They cover the following trades: Raw steel, steel rails, tubes, roll wire,
rayon (artificial silk), chemicals, potash, linoleum, borax. YNhite lead, quinine,
calcium carbonate, zinc, ferromanganese, tanning extracts, activated carbon,
aluminum, enameled wares, glue, plate glass, bottles, superphosphate, incandescent lamps, and copper. Germany belongs to all of them with the exception
of plate glass and copper trusts. Incidentally, the former and the bottle
cartel are the only ones that were founded before the war.
France is a member of most of them, but Great Britain of only seven of
the lesser ones. The United States thus far has joined only the copper and
incandescent-lamp organizations.
Like the British, American industry has held aloof from the more powerful
cartels such as steel and chemicals. The former of these two offers the most
direct competitive danger both to Britain and to America.
As regards the chemical cartel, the backbone of which is the formidable
I. G. Farbenindustrie, or German Dye Trust, there have been numerous negotiations between the Germans and Imperial Chemical Industries (Ltd.), the
foremost British concern in that trade; but thus far they have been inconclush e.
GERMAN AND F R E N C H C H E M I C A L I N D U S 1T.IES COMBINE

American policy, at least as interpreted by European observers, appears to
consist of establishing contacts with individual members of the cartels while
holding aloof from membership in them.
Prior to the war Germany was in virtual control of the world's dyestuff
markets. But during the war dye industries were built up by other great
powers, including the United States and Great Britain. The consequence of
this was that Germany's exports of this product dwindled dangerously. The
total export of aniline dyes, for instance, dropped from 64,000 tons in 1913
to 17,000 in 1925.
In that year German dje manufacturers saw the rocks looming ahead. They
lost no time in organizing a united national defense against the economic
catastrophe confronting them.
Under the leadership of the former Badische Anilin-und-Soda-Fabrik, whose
poison-gas plant at Ludwigshafen was the objective of so many Allied air
raids in the World War, and of the equally prominent Friedrich Bayer Co.,
international known as the maker of aspirin, a merger of the eight foremost
chemical concerns was carired through and the German Dye Trust, capitalized
at 1,000,000 marks, came into being.
In the year after its formation Germany exported 21,000 tons of aniline
dyes, and in the first 11 months of 1927 20,000 tons. During the latter year
negotiations were begun in Paris for the organization of the International
Chemicals Cartel.
In 1927, the signing of a Franco-Germany dyestuffs entente as the basis of
a billion-dollar European cartel was reported.
Since the value of American chemical exports is almost $200,000,000 per
annum, the menace of a pan-European combine can readily be perceived.




NOMINATION OF EUGENE MEYER

299

[The Saturday Evening Post, November 1, 1930]
T H E GKRMAX CHEMICAL TRUST

The limitation-; of space prevent any detailed account of German industry.
One significant advance this year must be emphasized, however. It is the working partnership between the North German Lloyd and the Hamburg-American
lines. The pact, which at the start is a comprehensive pooling agreement, is
on a strict parity basis and runs for 50 years. Each concern gets half of the
profits. The arrangement will end the costly rivalry between the two leading
German shipping companies and will make for reduction of overhead in the
shape of single offices everywhere.
Two final details have a distinct bearing on American exports. The first
grows out of the continued expansion of the German Dye Trust, the vast corporation called " I. G." for short, whose production in 1929 amounted to the
equivalent of $1,000,000,000. No phase of its work is more significant than the
progress made in the manufacture of synthetic gasoline. From 100 tons a day
the output has grown to more than 300 tons. The process has long since
reached the commercial stage. You can see tank wagons hauling the synthetic
gasoline on the streets of Berlin and other cities. Though the price is not yet
lower than that of gasoline made from real crude petroleum, it is giving
Germany an increasing independence of American juice.
Xow, S e n a t o r s . I want yon to recall M r . Meyer's s t a t e m e n t t o y o u
last week c o n c e r n i n g his r e s i g n a t i o n f r o m t h e W a r F i n a n c e C o r p o ration on M a y 3 1 , 1920.
I t will be remembered t h a t t h e V i c t o r y L o a n was b e i n g r a i s e d in
the last m o n t h s of t h e w a r . T h e armistice came s o m e w h a t u n e x pectedly, and the billions raised in t h e V i c t o r y L o a n were u t i l i z e d
as a postarmistice loan t o t h e Allies, s u p p l e m e n t i n g t h e w a r l o a n s
previously m a d e to t h e m . T h i s v a s t p o s t a r m i s t i c e c r e d i t t e m p o r a r i l y s u p p o r t e d t h e i r financial s t r u c t u r e s , a n d t h e i r e x c h a n g e s d i d
not begin to fall u n t i l t h e l a t t e r p a r t of 1919. T h e i r c r e d i t s f r o m
A m e r i c a t h e n became e x h a u s t e d , a n d t h e i r g r o w i n g a d v e r s e t r a d e
balance w o u l d h a v e to be settled i n t h e n o r m a l w a y b y t h e s h i p ment of gold unless new credits were received f r o m A m e r i c a .
S u c h new credits were not m a d e . T h e A l l i e d G o v e r n m e n t s cont i n u e d to m a i n t a i n e m b a r g o e s on t h e e x p o r t a t i o n of gold. T h e r e fore, t h r o u g h most of 1920, t h e adverse t r a d e b a l a n c e r e s u l t i n g f r o m
t h e i r i m p o r t a t i o n s from the U n i t e d S t a t e s g r e w b y leaps a n d
b o u n d s a n d by t h e m i d d l e of 1920 n e a r l y r e a c h e d t h e e n o r m o u s
figure of $5,000,000,000. A m e r i c a n e x p o r t e r s a n d m a n u f a c t u r e r s
could not h a v e c o n t i n u e d t h e i r e x p o r t a t i o n s w i t h o u t b a n k c r e d i t
here. The b a n k s continued t o e x t e n d more a n d m o r e c r e d i t a n d
the G o v e r n m e n t increased the inflation t h r o u g h t h e o p e r a t i o n s ofthe W a r F i n a n c e C o r p o r a t i o n . I n 1920 we were on t h e h i g h r o a d
to national r u i n if t h e $.">,000,000,000 t r a d e b a l a n c e were n o t settled
in gold.
T h e r e is no reason w h y in 1920, or even i n 1919, h i g h G o v e r n m e n t
officials should h a v e been misled about the s i t u a t i o n . W e possessed,
in the m i d d l e of 1920, less t h a n $2,000,000,000 in gold. _ T h e T r e a s u r y
knew t h a t the w o r l d ' s gold stock was seven or e i g h t billion d o l l a r s a t
least. E u r o p e owed b u t little gold to S o u t h A m e r i c a or A s i a , because its p r e - w a r credits t h e r e were m o r e t h a n sufficient to meet these
debts. No gold s h i p m e n t s f r o m E u r o p e h a d been m a d e d u r i n g t h e
w a r . T h e Allied S t a t e s , after the a r m i s t i c e , acquired the g o l d stocks




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NOMINATION OP EUGENE MEYER

of the Central Empires. They were amply able to pay their postwar trade balance to America in gold. I t was imperative, if the
American people were not to be ruined, that this gold be shipped.
But those who dominated financial policies in the United States
denied all these facts and were able to influence Government policy
throughout 1919 to enter upon the unlimited and ruinous extensions
of credit to finance exports to Europe regardless of its effect upon our
credit structure. I n the same breath in which they advocated continued inflation of American credit, they declared that Europe could
not pay in gold.
I n a speech which Mr. Meyer delivered he said that Europe could
not pay in gold, and he advocated that we take notes and extend
further credits to Germany. That is the basis of his resignation
which he stated to you the other day.
Yet it is obvious that if in 1920 the policy of credit inflation were
to be continued with no expectation of settlement of the foreign
trade debts in gold, the gold value of the American dollar would be
wholly destroyed. The unit of measurement for determining the
amount of foreign debts to the United States would no longer exist.
European indebtedness to the United States could virtually be wiped
out.
There probably has never been a period in history in which confusion of thought was so complete as in the two years following the
armistice. This was due to the rapidity and magnitude of the happenings and was enormously increased by the misrepresentation of
facts by those who were responsible for the treaty of Versailles.
This misrepresentation of facts completely deceived public opinion
in America, but there is no reason why it should have deceived the
responsible officials of Government. They were deceived throughout 1919 but awoke in the nick of time in 1920.
The financial fallacies which were preached throughout 1919
stampeded the American business world into a strenuous campaign
of production for export. Everybody who was producing for export
expected to be paid in due course.
The vague optimism of the financial leadership which marshaled
the industrial forces of the country into action at the beginning of
1919 can not be better illustrated than in the address which Mr.
Eugene Meyer, jr., made to the National Council of Foreign Trade
at Chicago on April 24, 1919.
The substance of this address was as follows:
If the w a r h a s taught us any thing, it is the conviction t h a t our country's
welfare Is inextricably bound up with the welfare of the last and least of the
other peoples; t h a t both politically and economically we a r e no longer the detached unit we formerly thought ourselves, but an important power in the
constantly interacting forces, of t h e life of the nations.
I urge economic liberalism not from the sentimental point of view but, from
t h e point of view of self-interest.
America as the world creditor, instead of t i e debtor Nation of before the
war. must till a new and broader role in future economic developments.
Kvents have t h r u s t leadership upon us. W > must meet out- enlarged responsibilities t o w a r d our fellow nations and toward ourselves.
England is depleted and stagnant, as are tli" other continental nations.
What, then, a r e the methods of resuming t r a d e relations They can not exchange goods and services. Our former international business associates have
used their resource-; so freely d u r i n g the long struggle that they now temporarily
lack the means to pay in the ordinary way. W i t h their tremendous obligations,
and with their depleted reserves, they can spare no gold in exchange for goods
which we might sell.



NOMINATION OF EUGENE MEYER

301

That is the basis of the reasons for the resignation of Mr. Meyer
in 1920.
Senator GOLDSBOBOUGH. May I ask a question? Did I understand
you to sav that the article written in the Yale Review by Mr. Meyer
was in 1909 ?
Mr. MCFADDEN. Yes.
Senator GOLDSBOKOUGH.

He spoke of the panic of 1907, but the
article was written in 1909.
Mr. MCFADDEN. Yes; about the same distance away from that
panic as we are at this time from the 1929 panic. To quota him
further:
The indebtedness they held against us in 1914 h a s been liquidated by the
sale of their holdings of our securities as p a r t of the purchase price for the
munitions and materials we supplied before we came into t h e war. Great
debts h a \ e been piled up witli our Government by England. France, and Italy.
Their industries a r e still very far from being restoi ed to the pre-war condition
of pi eduction lhat would enable them to pay us in goods.
I t is to our advantage promptly to restore our export t r a d e in t h e lines of
war materials and m a n u t a c t u r e d goods. I believe it is to their a d v a n t a g e to
acquire these materials except such as ma\ be classed strictly as luxuries, so
that thej may restore tlieir plants, equip their t r a n s p o r t a t i o n systems, and
obtain our r a w imperials which tlieir industries need for domestic consumption
and for export.
Mutual interest determines the right policy. F r o m our point of view it is in
our interest to m a r k e t our products and to restore t h e commercial standing and
prosperity of our customers. It is in their interest to restore their normal
economic operations and their employment of labor.

I wonder what position Ave would be in at this time if we had
followed Mr. Meyer's advice and shipped eight or ten billion dollars'
worth of goods over there. They have not paid us anything on that
old debt, except that which they have borrowed from us, and they
have borrowed in excess of what they have paid.
I will not bother you Senators to read the balance of this, but it is
all very interesting, and I direct vour attention to the balance
of it.
(The balance of the matter referred to is as follows:)
Obviously, it is in our interest to sell and theirs to buy, and if they a i e
unable to pay in the ordinary way. unusual and e x t r a o r d i n a r y methods must
be de\isod to suit the emergency.
With this in mind the T r e a s u r y Department asked and Congress passed an
amendment to the W a r Finance Corporation act whereby the Corporation is
authorized to lend XI,000.000.000 to American exporters to enable them to sell
American goods abroad on long-term creel ts or to bankers financing such
exporters.
The possible application of the funds can easilj be seen to lie along a iew
well-defined lines, large enough credits to give the foreign nations time to
restore their productive organization and to renew their normal selling connections. This may take one j e a r or it may t a k e several * * *
Obviouslj the goods which can be purchased and paid for in t h e o r d i n a r y
way within a j e a r will he small compared with the needs of the situation.
L a t e r on there will be the transfer of large holdings of securities to our
investment market.
These transfers of securities may he either in the form of E u r o p e a n holdings
of investments in neutral countries or in t h e flotation on our investment m a r k e t
of large foreign industrial issues or national loans. The old-established and
well-known financial trust of England and Scotland is a form of organization
that may prove useful in marketing securities. * * *
The power to loan to promote t r a d e has not j e t been used to any extent.
At first the European countr'es felt t h a t rigid economy r a t h e r t h a n borrowing
should be tlieir principle, but later they a r e beginning to t a k e a different
3S819—31
20



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NOMINATION' OF EUGENE MEYER

view, and I believe the necessary mechanism will be devised to make operative this governmental aid. * '•' *
T h e a m e n d m e n t by Congress has s e n e d to stimulate the consideration of
t h e necessary credit mechanism on (lie p a r t of private interests. It will stimulate our m e r c h a n t s and bankers to greater courage and prompter action
in offering credits to foreigners. * * *
I hope t h a t every facility t h a t has been proved suited to the conditions may
be provided by p r i v a t e enterprise, but if these methods can not be made effective the "War Finance Corporation stands ready to support any plan t h a t it
considers sound and within the provisions of the act. * * *
Specially t r a i n e d men a r e needed. * * * We must create specially
t r a i n e d organizations which look t o the l u t u r e . T h e great trading countries
of Europe h a d institutions and had people with a record of years of gradual
development and training to equip them for their tasks. Our problems have
been t h r u s t upon us in an instant. Willi a few exceptions our bankers may be
described as national and not international. The foreign languages are known
to only a few. Knowledge of the various countries, of their met hods of indust r y a n d finance, is now necessary for the direction of our industry and finance,
but a t present our knowledge is theoretical r a t h e r t h a n practical when it exists
a t all. It behooves .us (hen to give immediate attention to the training oi men
who will be able to c a r r j on this economic leadership. Wo must study the
economic s t r u c t u r e and social conditions of other countries. Without such
knowledge we shall not be able to act effectively.
T h e present crisis finds us with an economic organization in which the highest r a n k is " captain of industry," and we need promptly to proceed to the
t r a i n i n g of majors, colonels, and generals of industry and finance, and a general
staff capable of conceiving large policies and directing great operations in the
spirit of world economics.

Senator BKOOKTIAKT. T do not understand yet why that became
the basis of his resignation.
Mr. MCFADDEX. I will make that cleat- to yon in a moment.
This estimate of international relationships dominated policy
throughout 1919. The inevitable crisis culminated in ISM). Stagnation set in in the United States, and the banking and currency
structure was tottering. The Government reversed its policy and
began restricting credit.
When exportation to Europe suddenly censed, the unsatiated demand of the European population for American goods was so great
that the European Governments were forced to consent to the export
of gold in payment in order that importations might begin again.
I want to say here that great credit is due Senator Carter Glass.
Senator Carter Glass was in opposition to the views of Mr. Meyer
at that time, and he went as far as he could go to notify Europe
that they had got to begin to pay, and it was as a result of his edict
conveyed to them that $•2,000,000,000 worth of gold came into this
country. I think that answers your question.
Mr. MEYEH. I would like to correct the chairman of the committee on that. It was Secretary Houston who was Secretary of
the Treasury, and not Smator Glass.
Mr. MCFADDKX. Secretary Houston will be given the credit, then.
Mr. MEYER. Senator Glass resigned early in 1920.
Mr. MCFADDKX. The gold importations into the United States
during the next two years saved the American banking .structure
and the integrity of the American dollar and permitted industrial
recovery.
When the Government adopted the new policy in 1920, Mr. Meyer
was director of the War Finance Corporation. He strenuously opposed any change from the policy of 1919. So determined was his



DOMINATION OF EUGENE MEYER

303

opposition that he refused to cooperate in the new policy, and, as
I have said, resigned.
Senator BROOKHART. That is different from the reason he gave us
for his resignation.
Mr. MCFADDEN. Mr. Meyer, in his testimony, I will say to you,
Senator, has opened up a line of questioning which is well worth
following up. I t is connected with these statements which he made
then before your committee.
He said that differences with the Wilson administration over the
policy of stimulating European credit led to his resignation as managing director of the W a r Finance Corporation in 1920.
He said that he had wished to continue the practice of making
loans to American bankers and exporters in order to give credit to
foreign interests, because he feared a collapse of prices, due to a
drop in foreign exchange, and that the Treasury disagreed.
" Most people on Capitol Hill," he said, '' thought the danger wa»
inflation, but I thought the danger was a fall in prices as a result
of the drop in European buying, and I resigned. I n the autumn
the fears I had of a collapse were rapidly realized. Foreign exchange dropped."
When Congress attempted to check the inflationary tendency in
1920, he disagreed because he had " a profound conviction that we
were facing a collapse in prices and that inflation was short lived."
As stated here, there was no reason why men in a position to know
the facts, as Mr. Meyer was, should have been deceived about the
conditions and about the forces that were at work. I n the continuation of the policy of 1919 the United States was facing the destruction of its entire monetary wealth. The above statement shows that
Mr. Meyer was wholly and completely identified with this policy
in 1920.'
The significance of the fact should not be overlooked that since
1920 Mr. Meyer has not changed his views. Although 10 years have
passed, a period of time permitting ample reflection, his testimony
on January 28, 1931, indicates the same state of mind to-day.
Just at this period of 1920, about which he was talking to you.
many people were beginning to wonder why the international financiers were urging, and stimulating others to urge, America financial
and economic unity with bankrupt Europe. The answer to this in
the language of that day, which still holds good, was that financial
and economic unity meant America's absolute partnership, with all
she had and all she was, with bankrupt Europe. I t involved the
pooling, not merely of America's credit but of all America's land,
food, wares, and merchandise, with bankrupt Europe. And this
pooling, or financial and economic; communism, wib to be under
bankrupt Europe's and Asia's majority control. Suppose all the
war bonds of bankrupt Europe had been canceled, the debt they
represented would remain, and America would be severally liable for
that just as she would have been severally liable for all of the European legal tender war paper money, all of which the United States
would have been bound to have stabilized had she gone into partnership with bankrupt Europe. This is the situation that Mr. Meyer
told you the other day is the reason why he differed with the policy




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NOMINATION OF EUGENE MEYER

of the Secretary of the Treasury who by an order forbade further
loans to Europe, directly or indirectly, and issued the ultimatum
that Europe should pay their trade balances to the United States.
I t is interesting to note also the comments of Mr. Paul Warburg
on this situation.
Mr. Paul W a r b u r g and other international financiers were entirely
in accord with Mr. Meyer's views at that time. I t is interesting to
note, however, that he succumbed to the inevitable, which is indicated by the comment he made in December, 1920, upon the action
of the Government which he then indorsed. Mr. Warburg said in
an article in the Political Science Quarterly, in 1920:
We all know the cruel sufferings and the social unrest that follow in the wake
of a prolonged, unreasonable, and unhealthy increase of prices. For six years
the consumer has been trying in vain to catch up with the rising cost of living,
while the producer and trader have had their innings.
We have now entered upon a period when the producer and trader will have
to try to catch up with falling prices, and when the consumer, particularly
the per.son with small tixed income, will come back more nearly into his own.
As the rise was painful, so must be the fall. To have been the fir.-t to arrest
this crazy and destructive rise in prices before it took slill graver forms was
a real contribution on the part of the United States, for which the world owe>
us a debt of gratitude, even though our farmers and product rs may find it hard
to reconcile themselves to that view.
I think we are most fortunate at this time in having a Secretary of the
Treasury and a governor of the Federal Reserve Board who are courageous
and conscientious enough to disregard the political point of \iew and to hold
to the course that clearly is best for the country, even though it maj he unpopular and subject them to bitter and unfair attacks.
AVhile M r . M e y e r Avent q u i t e into detail i n h i s v o l u n t a r y statement
t o t h e committee as r e g a r d s his a t t i t u d e of m i n d in t h i s p a r t i c u l a r
s i t u a t i o n , e x p l a i n i n g h o w he differed w i t h t h e T r e a s u r y policy t o t h e
e x t e n t t h a t he r e s i g n e d , his m e m o r y , d a y before y e s t e r d a y , when he
w a s asked p e r t i n e n t questions, t h e correct answers of which would
h a v e been a t v a r i a n c e w i t h h i s s t a t e m e n t , h e w a s evasive. I refer t o
S e n a t o r B r o o k h a r t ' s question, as f o l l o w s :
Senator BROOKHAET. There are a few general questions on international
matters, before I take up the matter of the remedy of this situation.
How much money did Europe owe the United States on trade balances in
1920?
Mr. MEYER. Senator, you do not want me to walk around with those figures
in my head, do you?
Senator BEOOKHART. I thought probably you would know that big figure.
Mr. MEYER, JI could not tell you offhand how much it was. How much did
they owe on trade balances?
Senator BROOHAET. You kept track of the trade balances, did you not. all
the time?
Mr. MEYER. I used to, and whenever I want to know. I look it u p : but I
can not give you the balance of trade for years back. I feel very highly flattered at your asking me.
Senator BROOKHAKT. I did not mean to hold >ou to any absolutely accurate
statement.
Mr. MEYEE. I have no idea what it was, Senator, in 1920.
Senator BKOOKHVRT. Was Europe in a position to pay that?
Mr. MEYER. The Bureau of Foreign and Domestic Commerce publishes figures on that point. Of course, there are many other items in the balance
besides the merchandise trade balance.
Senator BEOOKHART. Was Europe in position to pay this balance in gold''
Mr. MEYEE. In 1920?
Senator BKOOKIIAR'I . Yes.

Mr. MLYHB. I do not know what the balance was, so I can not discuss it.



NOMINATION OF EUGENE MEYEE

305

Senator ISKOOKIIARI-. YOU know the general situation with reference to gold,
do you not?
Mr. METER. Yes ; but I can not talk about t h e ability to pay an amount t h a t
I do not know.
Senator I.KOOKH \RT. Should it have been the policy of the Government to
demand t h a t this t r a d e balance be settled in gold?
Mr. MEYJ'R. Our Government does no( settle t r a d e balances in gold. T h e
Gc\ eminent does not control the settlement of t r a d e balances. I will put it
that way.
Senator I'ISOOKII \nr. So they should say nothing about it?
Mr. MEYER. They can not do very much about something t h a t the\ do not
have an,\ control o\ er.
Senator BBOOKH \RT. T h e F e d e r a l reserve system h a s something to do with
that. W h a t about it?
Mr. MEYEK. T h e Federal reserve system settles merchandise t r a d e balances?
Senator BROOKHART. It might. Doesn't it handle some of those things?
Should it require the payment in gold?
Mr. MEYER. Everybody who owes money to t h e United S t a t e s — I mean by
that, the merchants and business men and farmers, indirectly—has to pay in
United States money ultimately, and t h a t is t h e equivalent of gold. Would
Jon want a cotton farmer to t a k e his money in m a r k s or lira? W h a t would
lie do with if? l i e would have to sell it and t u r n it into dollars.

I do not think that kind of testimony before your committee, on a
pertinent question like that, needs any further reference by me when
taken into consideration with the statement of the reasons heretofore set forth by Mr. Meyer to your committee. I t is absolutely
evasive.
What policies will Mr. Meyer put into operation if he is confirmed
as governor of the Federal Reserve Board in 1931 ?
If attention be given to what was happening both in the United
States and in Europe in 1920, it will be seen that Mr. Meyer was
advocating a policy which would have been permanently ruinous
for the United States. He wished to continue the practice of making
loans to American bankers and exporters in order to give credit to
foreign interests. He would have taken this means to prevent a
drop in the foreign exchanges.
But in 1920 the only salvation for the United States was a drop
in the European exchanges resulting from a settlement of their
adverse trade balance to us. The enormous industrial activity in the
United States in 1919 and the first part of 1920 went into the production of goods and commodities for export to Europe. The unpaid trade balance in the middle of 1920 was nearly $5,000,000,000.
During that year and a half, nothing had been paid for. Our entire
banking structure, if it were to continue to be related to gold, was
hopelessly ruined unless that trade balance were paid.
An important incident like that must have been known to Mr.
Meyer, and certainly, if he remembered all the details of these other
things, he should have been able to tell Mr. Brookhart what that
trade balance was at that time.
The United States Treasury and the Federal Reserve Board
acted in time. They began withholding credit from industries exporting to Europe. The public speeches of Governor H a r d i n g of
the Federal Reserve Board at that time will show this.
He made a statement before our committee in the House, reaffirming his position at that time. Probably no statement Governor
Harding has made has had so many favorable and unfavorable comments and criticisms as that particular speech.



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NOMINATION OF EUGENE MEYER

The evidence all indicates that the United States Government
had for months been urging the European governments to lift
their embargoes on the shipment of gold and that they had refused.
I t was widely stated that they did not have the gold to ship. A
financial congress was called to meet at Brussels in September, 1920,
at which the presence of the United States was urged, to effect some
means of settlement of international debts without the shipment of
gold.
I t was at this point that the then Secretary of the Treasury acted,
and acted very wisely.
The United States Government refused to attend. Roland W.
Boyden in a roundabout way was directed to inform that congress
at Brussels that if Europe wanted more goods from America, Europe
would have to settle its trade balance in gold.
As a result of Government policy, exportation to Europe on credit
was brought to a sudden end in 1920. The European populations
felt a compelling necessity for more importations from America,
and in order to have exportation from America resumed, the governments had to lift their embargoes on gold exportation.
Europe did have the gold. Beginning with the autumn of 1920,
it poured into the United States in an unprecedented continuous
flow for two years. I t came just in time to save the American people from ruin. The hard times lasted only through 1921. The receipt of two billions in gold saved the Federal reserve system and
the banks of the country, and brought the postwar wealth which the
country enjoys to-day.
This is a statement of economic phenomena only. It is only a
part of the picture of 1920. Economic forces were being artificially
controlled by political forces. The political settlements of the war
had been made in the treaty of Versailles which had created a financial obligation on the part of Germany to pav the Allies $33,000,000.000. It was out of this asset of 33,000,000,000 imaginary dollars that
they contemplated paying their obligations to America, including
their unpaid postwar trade balance.
If European politics could have been staved off the American demand in 1920 that the unpaid trade balance be settled in gold until
financial collapse had come to the American banking system, they
might then have succeeded in forcing the war settlement upon
America which the treaty of Versailles contemplated, and could have
permanently retained the $2,000,000,000 and more of gold which remained in Europe after the war.
Mr. Meyer has testified that in 1920 he differed so radically from
the policy of the United States Treasury and the Federal reserve
system that he resigned his position. If the Government had followed his leadership at that time, the European policies in their fullness would have prevailed and the United States would never ha\e
attained the economic power which it now possesses.
Mr. Meyer also stated to your committee the other day that he'
had no opinion on the subject of branch banking. He did not hesitate to express his favorable opinion of branch banking a few years
ago when he appeared before the House Committee on Banking and
Currency over which I presided as chairman, at which time he offered
as a solution of the stressed banking situation in the Southern,
Middle, and Western States, branch banking in county-wide form..




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suggested that the county seat bank should be a member of the
Federal reserve system and it didn't matter whether the other banks
of the county were members or not—they would have access to the
Federal reserve system through the county seat bank.
This is somewhat along the line of the plan that is now advocated
by the Comptroller of the Currency Pole, in his proposal of tradearea banking.
This was clearly an indication that Mr. Meyer was in favor of a
centralized banking system. His opinion and his future action on
the subject of centralized, unit, or branch banking are now of the
greatest importance.
Banking in the United States at the present time is in an undetermined situation. We are in the midst of a conflict, the basic elements
of which are whether we shall have a centralized banking system
dominated and controlled by one or two groups in the city of New
York, or whether we shall have an independent banking system.
Both banking committees of the House and Senate are engaged
now in a study of this situation. The factions are at the present
time glaring at each other and struggling for a determination.
The larger city banks, principally in New York, have their
friendly contacts with, if not control of, many of the larger banks
in the larger cities, and we are witnessing now the building up of
trade-area groups of banks in which we are beginning to notice a
stockholding ownership by some of these larger groups in New York
which will eventually mean beyond all question of a doubt that
these trade-area groups will be controlled from one or two sources
in New York.
I n confirmation of that, I again invite your attention to the fact
that the Marine-Midland group is just one of those groups. That
is trade-area banking. I t has its main office in Buffalo, N. Y., and
its territory comprises the seven northwestern counties of Pennsylvania and the State of New York. In taking over the Fidelity Trust
Co. in the city of New York, they have a clearing house member
bank, and it presents in this respect a little different situation than
probably any of the other groups.
I might cite also that the organization of the Mcll-Bank Corporation in Pittsburgh is another' establishment of trade-are