I concede that there are any number of large banks in possession of a surplus of rediscountable paper, and consequently not in need of any aid. But these are not the institutions about whose aid or relief I am concerned. I am interested, yes, vitally so, in relieving not only the several thousand banks whose rediscountable paper has been depleted and the thousands upon thousands of their depositors, but also in arresting the ever-increasing number of failures.

At the time I made the following statement of the House, clearly demonstrating that I have done all in my power to secure some favorable action to relieve the crisis:

Mr. SABATH. Mr. Speaker, ladies, and gentlemen. I recognize the conditions which exist and the need for employment. I am ready and willing to cooperate in every way possible to provide employment for the unfortunate out of work. In this bill we are doing it, but at a great sacrifice, as we are eliminating the safeguards which we have always tried to put around the appropriations we make.

We have been appropriating large sums of money and no doubt will be obliged, due to conditions which exist, to appropriate many and many more millions. But I doubt very much, even if we should appropriate $500,000,000 more for construction, whether that would to any great extent relieve the unfortunate situation existing in our Nation. The Government itself can not create enough employment to provide work for the 6,000,000 out of work. A plan and policy should be established whereby the business of the country, which has suffered so much, might be aided and assisted in reestablishing itself. So far nothing has been done by this Congress or by this administration, with the exception of appropriating large sums of money. I feel it is high time that the administration-and if the administration continues to refuse, Congress should-adopt a constructive plan that would aid in the reestablishment of confidence and the resumption of business.

I feel that the hastening of this construction will not prevent the daily closing of banks in every section of our country. Some weeks ago I called attention to a proposal which I believed would be helpful and would be beneficial and which would relieve the financial situation of the country.

I advised that the Federal Reserve Board extend its rule as to rediscount paper such as a finance corporation paper and municipal bond--whereby securities that are absolutely sound may be rediscounted and the banks, business, and manufacturers of the country aided and relieved.

I believe if this were done we could start reconstruction not only by the Government of the United States but by thousands and thousands of plants and factories and businesses that have been obliged to close down. For this reason I communicated with the Federal Reserve Board and asked for this relief for the Nation; but, unfortunately, the director has answered me by stating that the Federal Reserve Board is without such power. I have examined the law and I am satisfied that the Federal Reserve Board has the power to extend its rediscount activities, and should act, in these distressing and alarming days; and have so answered his communication.

I am sincere in this matter, and I believe that by the extension of rediscount a great deal could be done to relieve the present existing conditions.

I insist that it is within the power of the Federal Reserve Board to relieve the financial and commercial distress.

The SPEAKER. The time of the gentlemen from Illinois has expired.

Mr. SABATH. Mr. Speaker, I ask unanimous consent that I may embody in my remarks the letter I write to the Federal Reserve Board, the reply of the Federal Reserve Board, and my answer thereto.

The SPEAKER. The gentleman from Illinois asks unanimous consent to extend his remarks in the manner indicated. Is there objection?

There was no objection.

The matter referred to follows:

Hon. EUGENE MEYER,

DECEMBER 12, 1930.

Governor Federal Reserve Board,

Treasury Building, Washington, D. C.

DEAR MR. MEYER: Without going into the other causes responsible for the present alarming situation, I feel that the terrific stock inflation, and the unloading during the past two years of millions and millions of shares of such inflated, and in many instances, worthless stocks, upon the masses by means of

high-power methods, has contributed more than any other cause, and is responsible to a greater degree for the increasingly desperate condition of our country to-day. Such inflation has drained the working capital required for legitimate business and has resulted in a tremendous stagnation of the commerce of the Nation, which in turn has led to nation-wide unemployment, thereby creating not only want and misery but alarming discontent.

I believe that it is within the power of the Federal Reserve Board to accept for rediscount purposes-in addition to notes, drafts, bills of exchange, and Government bonds-the paper of finance corporations secured by automobiles, radios, refrigerators, and other like commodities. But in addition thereto, because of existing conditions, I feel that the Federal Reserve Board should be authorized to accept for rediscount municipal, public utility, and railroad bonds, as well as real-estate securities-but only under safe and sane regulations and propose to offer a bill that will grant such additional power.

I feel that you will agree with me when I say that, with the exception of the few extremely large banking institutions, the major portion of our banks are to-day greatly handicapped, and for no other reason than the fact that they have on hand a very large amount of good but unliquid assets. Already this has caused the closing of a dangerously large number of banks and threatens to close an even still greater number.

Since the Federal reserve system was created for the purpose of aiding our business, industry, and agriculture, its powers should be expanded so that it may successfully cope with the situation confronting us to-day.

Although I know you to be familiar with the basic causes of the conditions existent to-day, nevertheless, I now take the liberty of submitting to you certain important facts in this matter, derived from careful investigation and survey.

It is a fact, that billions upon billions of dollars of worthless stock, in 1928 and 1929, were unloaded upon people in every walk of life, who, as I said on the floor of the House in 1929 and again just the other day, were inveigled by the alluring pictures painted by some of our most prominent financiers and industrial leaders. Then came the inevitable crash, and in order to comply with the demands of the banks for additional securities or for a reduction and payment of their loans, these small investors were obliged to heavily withdraw from their business the very capital necessary for the successful conduct of said business. In addition, many were unable to meet the demands of the banks, and a large number of these, in order to aid the small business man, have been and still are carrying on these very loans, secured by collateral which, though good, can not be disposed of without great loss.

Therefore it is my firm belief that if at least some of such collateral held by these banks could be utilized for rediscount they would be tremendously relieved. This in turn would enable them to extend to our businesses and industries much-needed aid, and business would thus be permitted to resume its uncurtailed activities, which would bring about a resumption of employment. I well recognize that a few powerful financiers will object to my plan on the ground that it will result in inflation. Yet it must be conceded that expansion will not now be detrimental but, on the contrary, will be very helpful. For example, you know that brokers' loans have been reduced from above $6,000,000,000 to $2,000,000,000, and these loans were on collateral securities not as safe as contemplated in my plan.

That money is plentiful can not be denied. Thus, for example, money can to-day be obtained in New York for gambling purposes at rates as low as 1% and 2 per cent. Why not make at least some of it available to the smaller borrowers in need of money for legitimate purposes? I am aware that the few powerful financial institutions have in their vaults approximately $7,000,000.000 worth of securities available for rediscount purposes. Our aim, however, should be to give aid to the banks which, through no fault of theirs, are not so happily situated.

Such extension can do no possible harm but may, and in all likelihood will, revive business activities, which will result in employment for at least some of the 7,000,000 of men and women now unemployed.

Knowing your splendid record and your ability as a financier and man of vast experience, I have here humbly set forth my plan and do hope to hear from you to obtain your views.

Very sincerely yours,

A. J. SABATH.

Having that in mind, in addition, I would say that in September, 1929, I started a crusade against these destructive forces which were destroying values of commodities, stocks, and bonds, and sent the following telegram to the President, and continued to attack the stock exchange, and have introduced several bills to prohibit the short selling and bear raiding, and have now three different bills and resolutions pending to put an end to that infamous practice.

And I have right here another letter which I have written to the President, on October 16, 1930, nearly a year and a half ago; and although I believe I have won over the President on that proposition, I greatly regret that in the last few months, after conference. with the representatives of the stock exchange, he again has changed his mind and has not seen fit to recommend stopping the bear raiding and short selling, which, to my mind, is responsible for the terrific deflation in bonds and securities, as well as in all commodities in the United States:

His Excellency HERBERT HOOVER,

HOUSE OF REPRESENTATIVES, Washington, D. C., October 16, 1930.

President of the United States, Washington, D. C.

DEAR MR. PRESIDENT: A year ago, before the crash, I called your attention to the approaching alarming conditions and advocated and pleaded for a cessation of the disastrous pool short-selling practice.

Therefore, I read with some satisfaction in to-day's press of a conference you held with the New York Stock Exchange officials regarding short selling and the investigation of stock-exchange transactions by the Department of Justice. The report indicates that they question the Government's power to to stop this prosperity-destroying practice.

No one can to-day successfully deny that the stock crash to which you alluded in your December message was responsible for and aggravated the conditions that have brought about the wrecking of hundreds of banks and financial institutions, the closing of thousands upon thousands of businesses, the destruction of thousands of factories and plants, thereby forcing out of employment millions of our citizens and causing untold want and misery.

It is known to be a fact that the New York Stock Exchange can curb short selling by the issuance of an order that all loanings and borrowings of stocks cease. This will bring short selling to a minimum. If the stock exchanges have any interest in the welfare of the Nation and in the reestablishment of confidence, they will, if not for the country's sake, then for their own sake, issue immediately such an order without questioning the power of the Government to stop this nefarious practice.

This in a great measure will eliminate uncertainty and will have a tendency to reestablish confidence which is so sadly needed for the resumption of the legitimate business of the country. Please be assured that my activity against these destructive shorts is prompted only by a sincere desire to improve the deplorable conditions of the Nation.

Permit me to remain,

Respectfully,

A. J. SABATH, Member of Congress.

Mr. Chairman and gentlemen, I thank you for the time you have given me. I greatly regret that my bill which I introduced yesterday is not before you, but I hope it will reach you in time for consideration.

The CHAIRMAN. We will get that here in time for consideration. Mr. SABATH. And again I want to apologize for stating anything I should not have said, and if I was a little rude, if I had your ability, I would have been a little more diplomatic.

The CHAIRMAN. Without objection, we will recess until 3 o'clock this afternoon.

(Thereupon, at 12.07 o'clock the committee recessed until 3 o'clock this afternoon.)

AFTER RECESS

The committee reconvened at 3 o'clock p. m., at the expiration of the recess.

The CHAIRMAN. Gentlemen, if you will come to order, we will do a little work.

Gentlemen, Mr. Cass, who is attorney for the Electric Railways Association, desires to make a brief statement. I want to introduce him to the committee now.

Mr. HANCOCK. What is the name, Mr. Chairman?
The CHAIRMAN. What are your initials, Mr. Cass?
Mr. CASS. C. D. Cass.

STATEMENT OF C. D. CASS

Mr. CASS. Mr. Chairman and gentlemen of the committee, I am counsel for the American Electric Railway Association. That is an organization comprised substantially of all of the electric railway mileage in the United States.

There are, in this country, about 40,000 miles of electric railroad, with a property investment of about $5,000,000,000. There are reporting to the Interstate Commerce Commission, the same as the steam railroads, about 9,000 miles of electric railroad, with a property investment of around $1,000,000,000.

There was some discussion yesterday with respect to the present language of the bill as applied to steam railroads engaged in interstate commerce. Obviously, that language excluded the electric railroads engaged in interstate commerce. We do not think that the discrimination contained in this bill is either warranted or justified. It is almost an affirmative announcement that the electric railroad industry is not worthy of the attention of the Government; that you must be a steam railroad in order to have the administration and the Government's attention directed to you.

There are many electric railroads in this country that are operating practically the same as steam railroads. I could cite you to electric railroads all over the United States of the same general character as steam railroads, and they do exactly and identically the same kind of business.

Congresssman Stevenson mentioned in yesterday's discussion, for example, the Piedmont & Northern. Now, the Piedmont & Northern is an electric railroad, and it reports to the Interstate Commerce Commission the same as the Southern Railway or the Seaboard Air Line, or any other steam road; and yet, under the language of this bill as drawn, the Piedmont & Northern is an orphan on the doorstep; and not only that, but the affirmative limitation would probably reach forward to the banks and financial institutions and might do the Piedmont & Northern a vast amount of harm. I can cite many other electric railroads of the same kind. In Kansas, for example, the Arkansas Valley Electric Railroad is doing exactly the same kind of business that the Santa Fe Rail

road does in Kansas, and it reports to the commission just the same as the Sante Fe Railroad does.

Oklahoma has many electric railroads reporting to the commission the same as steam roads; and so on, through the whole country.

As a matter of fact, there are nearly 200 electric railroads reporting to the Interstate Commerce Commission.

I have not been able to learn the purpose of the affirmative exclusion of the electric railroads from the benefits of this bill.

Mr. GOLDSBOROUGH. You say you have not?

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Mr. CASS. I have not been able to learn why the language was used, steam railroads engaged in interstate commerce." That is a distinct hardship, so far as we are concerned, in the indirect reflection there may be on our outstanding securities; and, of course, that very definitely leaves us outside of any possible help directly from this corporation, and I think, perhaps, as a legal proposition, the banks might be warranted in saying that Congress has said that electric railroads are not worthy of help.

I might expand that argument, gentlemen, to a very great degree, but I think I have stated it as succinctly as possible, as it appeals

to us.

Mr. MCFADDEN. Mr. Cass, do you want to be included in this provision of this bill?

Mr. CASS. I am making this suggestion, Mr. Congressman, that you strike the word "steam" out of the bill-we make that suggestion. Mr. MCFADDEN. That would let you

Mr. CASS. That would make the language read, "the temporary financing of railroads engaged in interstate commerce."

The CHAIRMAN. Mr. Cass, the suggestion was made yesterday in that discussion, in the discussion upon that point, by Mr. Stevenson, who is a very able lawyer, that the courts have held that steam railroads embrace electric railways, as a matter of legal parlance and interpretation.

I suggested to the committee at that time that, if it was desired to embrace electric railways, that we should clarify that language beyond the possibility or reason for a court interpretation, for the reason that, as a practical poposition, this legislation is to be passed on by this board; and so far as any particular benefits to be derived are concerned, the decision of the board would determine whatever value is to be gained by those for whom this aid is sought.

So that, I think the committee would unhesitatingly be glad to clarify that language to meet that situation, if it is desired to include elecric railways in this legislation. I think the committee would be glad, however, to hear you further with reference to the necessity for that action.

Mr. CASS. Well, I am

The CHAIRMAN. And I think before you conclude your hearings, or when you conclude your hearings, it would be well for you to submit whatever data you may have and enlarge upon your statement here, so that we may have a picture of the electric railways. here of the railroad proposition.

Mr. BRAND. Mr. Chairman, just at that point, as I understood, it was not the Supreme Court of the United States, but a circuit court or a district court.