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Senator SHIPSTEAD. On borrowing, on credit.

Mr. ELBERT. Yes.

Senator SHIPSTEAD. There are two factors necessary here for that theory or that practice to operate. You have to have lenders and borrowers.

Mr. ELBERT. Yes.

Senator SHIPSTEAD. The only way you can get borrowers is to have people who think they can make some money out of it. Mr. ELBERT. Certainly.

Senator SHIPSTEAD. Under this system of operation of the Federal Reserve Board now again, buying Government bonds putting cash into the banks, do you think that is going to force lending by banks to borrowers?

Mr. ELBERT. I think it will pile up so that the banks will be forced to. The unfortunate thing of this situation, as I see it at the moment-and that is the point you are coming to-is that to-day the member banks have been decreasing loans, refusing to renew loans, and have been kicking people who have securities on what you might term so-called margin or who put them up to borrow money. Senator SHIPSTEAD. Yes.

Mr. ELBERT. They have been doing that up to date. I believe that will soon change, too. I think New York is changing now. And that will go through the whole system.

Senator SHIPSTEAD. Has not that been to a large extent due to the fact that prices are going down and collateral is being wiped out? Mr. ELBERT. That is what is causing it.

Senator SHIPSTEAD. And that causes lack of confidence, and that again makes it necessary for the banker who is handling other people's money to keep his bank as liquid as possible, because the depositors may come and demand their money; aren't there two sides to that?

Mr. ELBERT. And the depositors will do that if the bankers do not undertake to show some real courage and go ahead now and use the credit that the Federal reserve banks have given them or are giving them. And even more yet, they ought to reduce the discounts below five hundred million, and when that happens, you will find, I think, that the bankers will begin then to ease up on this freezing people

out.

Senator SHIPSTEAD. But is it not true also that the banks who have shown courage have had to close their doors?

Mr. ELBERT. Who have what?

Senator SHIPSTEAD. Who have shown courage, as you put it.
Mr. ELBERT. No; I would not say that.

Senator SHIPSTEAD. Don't you think that that is true?

Mr. ELBERT. No, sir. I do not know of so many banks that have shown very much courage. I am not borrowing, so I have no brief to hold with them at all. I am not borrowing a cent from anybody. I am in a cash position.

Senator SHIPSTEAD. If the banks should, with this descending price level, start to loan money, would you as a borrower borrow money and buy anything under a descending price level?

Mr. ELBERT. May I answer your question in my way, Senator?

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Senator SHIPSTEAD. Yes.

Mr. ELBERT. Just a little different.

Senator SHIPSTEAD. Certainly.

Mr. ELBERT. In 1930 and 1931, on the prices of good securities and good bonds, good companies, the banks were loaning 70 to 80 to 90 per cent.

Senator SHIPSTEAD. Yes.

Mr. ELBERT. They have reduced that. Now, the prices are at ridiculous amounts. American goods and American things in this great country to-day are being sold at junk prices. It is silly. It is beyond any sense. What are the banks doing? They have reduced what they have loaned, the amounts that they have loaned, down to 40 per cent on good stocks, and there are lots of stock exchange houses that only loan them 20 per cent on price. For instance, you take some standard stock, American Telephone & Telegraph, for example; you all know that. Out in your section the people possibly own more of that than anything else.

Senator BROOKHART. But they are charging us the highest rates and taking more of our money out than any other one institution. Mr. ELBERT. I know.

Senator BROOKHART. They had the biggest earnings in 1931 they ever had, and yet they discharged thousands of men to protect those earnings.

Mr. ELBERT. May I make this point, please, along that line, Senator Shipstead?

Senator SHIPSTEAD. Certainly.

Mr. ELBERT. Brokers tell me they only loan 20 per cent on that stock at the price at which it is selling, after it is down 200 points. Now, if the banks wanted to change the sentiment, or if I were the head of a big bank and had, like the most of them in these big cities have now, anywhere from 80 to 105 or 106 or 107 per cent liquid position, I would endeavor to get the banks together and say that we believe these prices have gone to such a ridiculous extent that we are willing to loan up to 90 per cent on the market value of these securities. What would happen on the stock exchange and percolate right through the whole thing?

Senator BROOKHART. What would you do on 3-cent hogs?

Mr. ELBERT. It would come right back. One of the troubles with America is this. I don't say it is a good or bad thing. Personally, I think it is unfortunate. But, as a Nation, we seem to be stockminded. We seem to look at the New York Stock Exchange, and we are always taking the paper and seeing what they are doing there in New York. It is foolish.

Senator BROOKHART. Suppose Congress would prohibit the banks from taking part in speculation on the New York Stock Exchange; then they would have to lend their money out to farmers and business houses.

Mr. ELBERT. No, sir; they would not.

Senator BROOKHART. They would have nothing else to do.

Mr. ELBERT. Do you think I would do it with my money? You wouldn't catch me doing it with my money.

Senator BROOKHART. Why wouldn't you do it?

Mr. ELBERT. I would try to get my money into gold and I would keep it.

Senator BROOKHART. What would you do with the gold? You couldn't eat that.

Mr. ELBERT. I would set it aside and wait until the crisis was over. Senator SHIPSTEAD. You do not think then that the credit system is paralyzed for lack of borrowers?

Mr. ELBERT. No, sir.

Senator SHIPSTEAD. Provided the banks would lend the money. Mr. ELBERT. That is right.

Senator SHIPSTEAD. Would you believe the fact that seventy billions of new stocks and bonds were issued and sold from 1920 to 1930?

Mr. ELBERT. I would not be surprised.

Senator SHIPSTEAD. That is the record from the Department of Commerce.

Mr. ELBERT. Yes.

Senator SHIPSTEAD. Doesn't it look as though we kept the printing presses busy night and day to print little pieces of paper with little stampings of gold on them, and sold them to the public, that never materialized to a solid foundation, and that that to a large extent increased the purchasing ability, and that that caused the credit expansion of the country?

Mr. ELBERT. Yes. I think 1926 is what we ought to shoot for, with about 1 or 2 per cent increase on that per annum.

Senator SHIPSTEAD. Yes.

Mr. ELBERT. That gives everybody a chance.

Senator SHIPSTEAD. If this process that you blame the banks for continues, can you see anything but bankruptcy and receivership for railroads and corporations and the shaking out of the stockholders and the bondholders and the sale of the properties by receivers?

Mr. ELBERT. If the member banks or commercial banks refuse to pass these loans on, and extend credit, I see a terrible condition facing us.

Senator SHIPSTEAD. In several countries in Europe this summer I talked to industrialists and commercial people, and there seemed to be the almost universal opinion that there was a conspiracy of the central banks of the world to do just that. Do you think there is a possibility of that, in your opinion?

Mr. ELBERT. May I answer your question in my own way, Senator? Senator SHIPSTEAD. Yes.

Mr. ELBERT. Let us take a little proposition here. Suppose we take some concern that everybody knows, for example, the General Electric; and you invent something, say it is a washing machine. You come to me with your patent on your washing machine and I say to you, "Senator, why don't you go to the General Electric? That is a fine thing. They are in that business." You say, "Well, I have been there, but the trouble is with the General Electric, they have spent about $5,000,000 advertising their washing machine to the public and they are not going to take something new and bring that out and have to spend a lot more money introducing it." Naturally. So we get a lot of washing machines by everybody who is making washing machines and we go and look at them, and I see that your washing machine is a thousand times better than anything I have So I say to you, "All right, how much money do you need?" You say, "Well, about ten or twelve thousand dollars is sufficient

seen.

for us to start." Suppose we start making these washing machines. What do we do? You and I work like the dickens. We work night and day. Every cent we get we put back into this thing, and as fast as we can make these washing machines they are being sold.

We will say we are in 1922. Let us start from then. Congress has raised income taxes and they have increased taxation. The General Electric is going along at that time and plowing back everything that they make right into the business.

Now, we go along and we get the bright idea that maybe it would be a good idea for us to go to the bank and borrow some money, because we are selling these machines faster than we can make them by the use of our own funds. So we go to the bank and borrow $10,000, and we keep selling those things. We are cutting into the General Electric's business. We are little fellows. We go ahead on that basis.

Then we come along in 1924, 1925, or 1926, somewhere in there, when there are about a thousand little fellows like us. Then General Electric begins to show earnings. Why? Because in the meantime you gentlemen down here have cut down income taxes and you cut down corporation taxes. In the meantime we keep on selling and we keep getting in debt. You and I have got a couple of automobiles now and we are having a good time. We have bought ourselves nice little homes and we are going along fine.

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Then, the next thing, General Electric, in 1927 and 1926, begins to give rights to subscribe to stock, and they begin to sell those stocks over the country. And the banks have got high pressure salesmen, too. Banks should not have salesmen. They should attend to banking. That is their business. Their business is not the security business. They soon get all of the group that is in on it, the banking group and the fellows back of them, to get in on it. In the meantime, the Federal reserve bank has been restricting credit on open market operations and restricting the discount rate. You and I on paper look as though we are worth two or three million dollars and we think we are great fellows.

All of a sudden something happens. We go to the bank and the banker says to us, "I wish you would take up all of this loan, or at least part of it." We can not take it up. We take up as much as we can. Maybe we have to scout around. Maybe we have to go and get a mortgage on our house. The first thing you know-bang! Everything cracks. Why? They have monkeyed with this dollar and shot the buying power of that dollar up, through their open market operations, raising the rediscount rates, and consequently time money goes to 9 per cent. So we have 1929.

What do they do? Do they want us out of the depression? No. By 1932 they have got our business and our homes, and everything else, and we are starting all over again. But the General Electric is starting out with a clean slate. I don't say necessarily it is the General Electric, but you can take any big company. They have got no competition now. They have got our little businesses out of the way.

Senator SHIPSTEAD. And they have got the farmer's farm, too.

Mr. ELBERT. Certainly. They have got him in with the rest, the whole crowd of us; that is where we are to-day. And that is why the member banks will begin from now on to show a little lenient

attitude in loans, because we have pretty nearly gotten to the end. In the meantime, you fellows down here will go on playing your game. You play right along with them. You are going to raise taxes. You are going to raise my income taxes. You take it out of my pocket when I am making money, and then go along and keep me down when I am not, and keep me from borrowing, and then you are going to take that money and put it away in a lot of fool bureaus and things like that, and create a machine down here, and then in 1934 you are going to cut income taxes again. You are going to do the same old thing. You just play right along with them.

Senator BROOK HART. One of the things we are trying to do is to take back what you have taken from the other people.

Mr. ELBERT. Listen, Senator; I started out as a poor boy and I have made what I made. How can you do that? Let me give you a million dollars and inquire of you what you are going to do with it. Senator BROOKHART. I don't know what I would do with a million dollars.

Mr. ELBERT. Now, just theoretically, come on. The first thing you are going to do is buy an automobile, is it not?

Senator BROOKHART. I have got a Ford now.

Mr. ELBERT. And you are going to cause employment by the use of that money. So that goes through the whole economic structure. You can not eat it.

Senator BROOKHART. How does it happen then that the Telephone & Telegraph Co., with the biggest earnings it ever had, discharged thousands of men last year, if that is going to cause employment to return?

Mr. ELBERT. Of course, they all do it. What would you do if you had that company? Wouldn't you do it? I have been forced to lay off men.

Senator BROOKHART. What I would do would be to tax them so they couldn't use that.

Mr. ELBERT. Go ahead and tax us and see where the money goes. I will take most of mine out of the United States, out of the country. I am no different from anybody else. I am not going to let you get any more than I can help.

Senator BROOKHART. We can tax you as you go out of the country, too. We can get that.

Mr. ELBERT. I can hide the money. Do you know what you are trying to do? You are leaving it open at the top and also leaving it open at the bottom.

Senator THOMAS of Oklahoma (presiding). Mr. Elbert, there is one question that Senator Bankhead wants to ask before we take a

recess.

Mr. ELBERT. I am sorry, sir, to have taken up so much time.

Senator BANKHEAD. I just wanted to get your opinion as to how much you thought it would be necessary for the Federal reserve to increase the credit structure in order to put the price level back to 1926.

Mr. ELBERT. Senator, I don't care how much it costs.

Senator BANKHEAD. I didn't ask you that. I asked you how much you thought it would be necessary for the Federal reserve to increase the credit structure in order to put the price level back to 1926. Mr. ELBERT. I would say about a billion dollars.

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