Overhead should be paid by appropriations. This should be minimal if redtape is reduced and the burden of managing the property is left with the servicer.

As another alternative, it has also been suggested that private capital looking for a cash flow and the tax advantage of depreciation might be attracted to section 235-236 programs through equity investment. If, for example, 50 percent of the value of the property, home or apartment, were provided as an equity investment by private investors, the amount borrowed by the low-income family and its monthly payments would be materially reduced. When the 50-percent mortgage is repaid, it would be renewed by FHA after an FHA appraisal. The equity investor would be repaid and would share equally in any change in the value of the property.

This suggestion would bring the carrying problems within reach of a larger range of low-income families and might still permit a reduction in the interest subsidy, but it would not provide the needed flexibility.

It is tempting to suggest that it would be most attractive to private investors if current depreciation and recapture rules were designed to provide the necessary inventive, but this seems an unlikely possibility when the Joint Committee on Internal Revenue Taxation reports that in the long run nearly 30 percent of the net revenue gain anticipated from the recent tax legislation will come from the reduction of tax incentives to invest in real estate.

Thank you, Mr. Chairman.

Chairman PATMAN. Thank you, Mr. Jones.

Mr. Jones, on page 5 of your testimony you raise the question about whether the economically capable home buyer should be subsidized by payments in what you call a futile attempt to provide him with a lower interest rate.

Do you mean to say there that nothing can or should be done for the 28 million moderate-income families who are priced out of housing markets?

Mr. JONES. Mr. Chairman, those families are priced out of the housing market today in a period of credit restraint. I would certainly not say that nothing should be done for them. What I am suggesting is that the Federal Government, both the Congress and the administration, should recognize the fact that management of monetary and fiscal policies has created the inflation and the necessity of monetary restraint. And this is the area to tackle.

Beyond that, I am also suggesting that the administration should shake loose the authority already given to them to permit the issuance of GNMA bonds which would greatly facilitate moderate income families' ability to compete in the capital markets during periods of credit restraint.

Chairman PATMAN. What rate of interest would you suggest would be desirable?

Mr. JONES. For the mortgage or the bond?

Chairman PATMAN. The mortgages and the bonds.

Mr. JONES. Well, Mr. Chairman, I would not be able to respond to the desirability of an interest rate. I think the desirable interest rate is the one that produces the money we need.

Chairman PATMAN. How can you get mortgage money even at 8, or 8.5 or 9 percent when the corporations, big corporations have lots of money? They furnish money, you know, at 10, 15, or 20 percent interest. They are not confined to any low rate. And as long as people can get 15, or 20 percent interest for their money, why would they furnish mortgage money for 8.5 or 9 percent?

Mr. JONES. If you consider the economy approaching a period when monetary restraint is necessary, and what you say is reasonably true as far as corporations are concerned-if they need the money, they will pay the necessary interest rate-there is an economic limit to that rate, and at some point they have to back off. The other competitor in this market, and the competitor certainly in 1966 and 1967, is the U.S. Treasury, and they do not seem to have an economic limit to the rate they are willing to pay. In present circumstances, we come into these periods when adjustment is demanded and the mortgage rate is limited, the mortgage borrower cannot compete in the securities market to raise funds, and he is cut off.

As a result the interest rate to the corporate borrower which you express a concern about, rises more slowly and the adjustment process that the Federal Reserve is trying to effect takes longer because corporations draw the funds out of the mortgage market by their ability to pay a higher rate. If we have the GNMA bond and we are able to pay the rate to compete with them, they would reach an interest rate level where they would be forced to readjust or curtail their plans, which they are doing right now, much sooner. The period when this moderateincome buyer might have to wait, reconsider, or pay a higher rate would be much shorter.

Chairman PATMAN. Mr. Mayor, I would like to comment on your testimony. I think it is real fine. I don't know of a mayor of a big city, major city in the United States who has had more problems, including housing, than you have. You have worked on them and you have solved some of them, and we appreciate your interest in giving us the benefit of your views on the housing problem in particular.

You know, we have estimated about half of the people of this country are priced out of the housing market. Right now, just priced out. Even a person with a $13,000 gross annual income is priced out of the FHA market. He can't get an FHA loan. We are in a desperate situation. You mentioned one thing here. Last October the city planning commission began turning down housing proposals whenever that housing might overtax existing public facilities. That includes, I assume, gas, water, electricity and things like that, as well as recreation and parks?

Mayor D'ALESANDRO. That is right, but the overriding consideration primarily was education.

Chairman PATMAN. Now, of course, you have considered that high interest will prevent construction of much of what is needed. Even the utilities are getting ready for a drive for higher rates, gas rates, electric rates, higher rates of all kinds. So this high interest rate has upset everybody's budget in the United States of America from the housewife to the Federal Government.

The Federal Government is paying $20 billion this year for interest on the national debt alone. The national debt has gone up less in pro

portion than the debts of the States and the cities. But the amount that the Federal Government must pay has been going up tremendously.

Now, there was a 14-year period in our economy during which we had low-interest rates. If there is a benefit to a high national debtyou can hardly conceive of a benefit, but there is one. It enables the Government, if it will do it, to set a rate that is low and that will be respected in the marketplace because the Federal debt is so much greater than all other debts. So we have an advantage in a high national debt if we use it. We used it from 1939 to 1953. The rate never exceeded 2.5 percent on long-term Government bonds.

Now, that was during a time of the great depression, 10 million unemployed at one time. Another time we were in war and we were in inflation. We were in inflation and depression during those years and it was the worst time of our Nation's history; World War II and the Korean war. Yet, our monetary authorities kept those rates exactly at 2.5 percent and less, and most of the bonds during that time were selling at a premium.

Now, don't you think that if we could do this with proper money management during those 14 years, the roughest in the Nation's history, don't think we could do it now if we tried?

you

Mayor D'ALESANDRO. I would hope so.

Chairman PATMAN. Yes, sir. Well, we could do it but interest rates are going higher and higher, which is helping the people who have charge of other people's money, helping them tremendously, but it is not helping the poor people. It is grinding the poor people in the dust, and I don't see how we can get over it unless we get over these high interest rates. It means too much to our economy.

Anyway, your statement I think is an excellent one. We are going to pay a lot of attention to it.

Mayor D'ALESANDRO. Thank you.

Chairman PATMAN. Now, Mr. Keenan, I want to congratulate you, not only on a fine statement but on the tremendous work that you have done in the public interest of the people of this Nation. You know it is awfully hard to find many people that will go out and do things just to help the public generally. By helping the public generally, you help everybody, of course. And the way you have administered your funds, your pension funds, I think is certainly worthy of commendation. If every trust fund and pension fund had done just one-half as much as you have done, we wouldn't have any housing shortage in this country. There wouldn't be any shortage of money. There wouldn't be a small number of housing starts. We could take care of our entire housing goals if the other trust funds and pension funds would cooperate just one-half as much as you have cooperated without any coercion or persuasion from anybody. You just went ahead and did it. Mr. BLACKBURN. Mr. Chairman, I have a question I would like to ask. Are we going to cease at noon today? Your last question required 10 minutes. I don't know what the answer is going to take, but if any of the rest of us expect to ask questions we should take account of the time we are going to go.

Chairman PATMAN. Well, the way we have been doing it, you know the chairman is entitled to at least set the pitch a little bit to keep us on the track of what we are doing.

Mr. BLACKBURN. Mr. Chairman, I recognize that.

Chairman PATMAN. And it requires usually a little bit more time, and in order to offset that I have always given Mr. Widnall the amount of time that I use. That is the majority and the minority. Then we give 5 minutes each. And if you want more time, if you stay here, you get to come back on another round and get as much time as you want. Mr. WIDNALL. Mr. Chairman, will you yield? Chairman PATMAN. Yes, sir; I will yield.

Mr. WIDNALL. I have never asked you for equal time. I would like to get the question resolved by giving equal time to the other members of the committee, because unfortunately we reach the point many times when members on the lower row on both sides never have an opportunity to ask a question.

Chairman PATMAN. Well, I doubt there has been many times like that, Mr. Widnall. Now, I am proud of the fact that we have had members come here the first day they were ever on the committee and ask questions of the Secretary of the Treasury and other people. That doesn't happen in any other committee of the Congress.

Mr. BLACKBURN. Mr. Chairman, I recognize that.

Chairman PATMAN. I have made sure that every member had on opportunity.

Mr. BLACKBURN. Mr. Chairman, let me make this observation.
Chairman PATMAN. Yes, sir.

Mr. BLACKBURN. The 500,000 people that I represent have just such right to have their Congressman make a speech and ask questions as the half million people that you represent, and I recognize your seniority and your superior experience in the field, but I don't recognize that you have an exclusive insight into the economic problems of this country. And I think my 500,000 people have a right to have their Congressman ask questions just as much as your 500,000 people. Chairman PATMAN. Well, there is another side to that. Mr. BLACKBURN. Well, I don't

Chairman PATMAN. You know, members who have been here a long time and have worked hard-I have worked like a beaver since I have been here. I worked here 41 years, but it doesn't seem like 7 because I have been active and I have been working a lot of billsbills that have done a lot for this country, I believe, and regarding this particular hearing, bills that are being considered. If I were to restrict myself to 5 minutes on these three bills. I would not get anything out. I have a feeling that I ought to at least scan the surface and get the points out that should be considered. I assure you though that I will give Mr. Widnall equal time. If he wants to yield it to you, it will be perfectly all right with me.

Mr. BLACKBURN. I will submit my request.

Chairman PATMAN. All right; fine.

Now, then, the increased interest rates will cost the home buyer $5,000 over the period of the mortgage. That is Mr. Keenan's testimony. Now, when the New York banker came out one morning and on the steps of the bank in New York-and the prime rates, with two exceptions, has always been raised in the last 10 years by a New York bankand he came out on June 9, 1969, and he said hereafter the prime rate is going to be 8.5 percent instead of 7.5. That was a 1-percent raise.

41-658-70- -15

And, of course, the big banks say they are obligated to go right along with it to make it effective. I asked the Attorney General of the United States to look into that to see if there was a conspiracy. I haven't received a reply yet, but I still insist that anybody who can track an elephant in the snow can track these bankers on a conspiracy like that. Anyway, the rate was raised 1 percent. That 1 percent, as you pointed out here, amounts to $15 billion additional interest charged each year hereafter to the people. Every family in America will have to pay several hundred dollars extra this year and in all subsequent years to make up for that 1 percent.

That is a tremendous burden. It just goes to show how high interest rates can almost destroy the country.

Now, you said something about market price. It occurs to me, Mr. Keenan, that we should have a difference in the price that a homeowner has to pay for interest and the price that is fixed in the marketplace. I would like to know your opinion on this.

In the marketplace there are big speculators, the big bankers, who are not restricted too much on the amount of money that they can pay for interest or impose in the way of interest. There are the gamblers, including the speculators, and there are people who are willing to pay high interest because they can lend their money at higher rates of interest, and you have got all these different groups in the free market. How can a little fellow who is operating on a shoestring-rearing a family-how can he possibly compete in interest rates with groups of that kind? What do you think about that, Mr. Keenan? Don't you think we should have a different interest rate for the most worthy projects having priorities?

Mr. KEENAN. Well, I have always felt that we should have an interest rate fixed at a level the average home buyer can afford. I think a fellow who buys a house and pays the going tariff will not only take care of his personal obligations, but will fulfill his role as a responsible citizen by paying taxes. I believe, in order to stimulate this market, we should establish a 6-percent rate and then, if the market interest rates go higher, the average guy who pays his way should receive a subsidy to make up the difference. Either you do this, or you price them out of the market.

Chairman PATMAN. Yes; we have an example right now in the United States on interest rates, and I know Mrs. Sullivan is acquainted with this because she has followed it. In one State the people initiated a petition to leave it to a vote of the people as to what interest rates should be, and they voted overwhelmingly for an interest rate not exceeding 12 percent on revolving credit. That was Washington State.

We were told that the big establishments operating in that State would leave the State because they could not afford to operate on 12 percent. But the information I receive is that not one has left that State. So the point is, if they can do business in that State not exceed ing 12 percent revolving credit, why can't you do business in the District of Columbia or any other place at the same rate?

The statement you made, Mr. Keenan, is so good I hope it is given wide distribution, and the statement of these other gentlemen as well. I am going to see that they are. They will all be printed, and I want the people to have an opportunity to study these statements you have