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19, say, 25 onward, men were led to buy homes at prices that had no relation to true value in normal times, and they have encumbered themselves with these houses, sometimes with first, second and sometimes third mortgages upon them. The man now being out of a job finds it simply impossible to maintain his payments on these encumbrances. How you are going to relieve such a man by this sort of a device, while you incidentally involve the United States Government in very dubious liabilities, I cannot see. I cannot see how you can help him in the slightest degree.
Senator TOWNSEND. Have you any suggestions to offer as to what the Government might do by legislation to help the situation ?
Mr. HENNESSY. Not by any legislation, Senator, that has direct relation to the home-ownership problem. In my opinion, the conferences that are soon to be held in this city that relate to international questions, to the questions of international debts, to the questions of tariff barriers that prevent trade, to the questions of how to avert future wars, will relate directly, or rather I might say indirectly, to that very problem. As I understand, the statesmen of the world are going to come together to see if we cannot reestablish a peaceful world again, and if business cannot be resumed again under normal circumstances. If that could be done, it seems to me that capital would flow out of our banks into industry, because our banks are loaded with idle capital in New York City today. It would flow into productive enterprises. Men would be called back to work, and when men get back to work honest men will pay their debts, and the mortgage problem, which is only one phase of the great economic depression in this country, will soon solve itself.
Senator TOWNSEND. Then you have no suggestion of legislation that we might enact as the Congress to help the situation?
Mr. HENNESSY. It is my opinion, sir, that the present bill would be an absolute futility.
Senator COUZENS. Let me ask you this specific question: You spoke about a man that bought a high-valued house in 1925 to 1929 with a possible first, second, and third mortgage on it, and now he is distressed or he is out of a job. What is there to suggest that he will continue to try to pay out those if he can buy another house that has been vacant or foreclosed at half the price ?
Mr. HENNESSY. There is nothing to suggest it.
Senator Couzens. I mean a man who even does that, he perhaps would be filling a moral obligation, but it would not be considered good business.
Mr. HENNESSY. There is simply nothing to be done about such a case, any more than there is to be done about those who bought copper stocks and other stocks in the market during the boom period and lost their accumulated savings in doing it.
Senator COUZENS. Even under this bill, unless it was taken entirely away from the owner of the mortgage at the present time it would not help the home owner, would it?
Mr. HENNESSY. It is my opinion, Senator, that the holders of mortgages, whether they be savings banks, building and loan associations or insurance companies, today which hold the great bulk of mortgages, are extending every consideration to their mortgage borrowers, partly out of humane reasons, partly out of intelligent, enlightened self-interest.
May I say one more word, Senator: I feel that I have taxed your patience, but there is another section of this bill which has nothing to do with the problem at all, which seems to me to be very bad indeed. I refer to those sections of the bill beginning with section 5, which proposes to authorize this Federal Home Loan Bank Board to issue charters in their discretion for the organization of Federal savings and loan associations anywhere in the country. These associations are by this act to be made exempt from all kinds of taxation, and the Board, if you grant them this power, will have it in their power to do what they are unable to do now, to force institutions into this system. They will be able to compel institutions to join this system under this act.
I wish that the committee would give serious consideration to section 5 and the following sections, which incidentally appropriate a considerable sum of money out of public treasury to start these Federal savings and loan institutions. The Board is to call upon the Secretary of the Treasury to put up $100,000 for the preferred shares of each of these institutions as organized, every time the Home Loan Board calls on him to do it. I think it is difficult to characterize that particular provision of this bill moderately.
Senator BULKLEY. Mr. Hennessy, assuming that we could find a constitutional way to do it, do you think we ought to provide a moratorium for the home owner?
Mr. HENNESSY. No, sir.
Mr. HENNESSY. My feeling is, Mr. Chairman, that every expedient, such as is being enacted by certain of the States today in the shape of moratoria, in the shape of restrictions that affect the mortgage lender, must in the last analysis tend to dry up the spring of funds that must ultimately be available for future construction in this country, and that anything that you do to discredit the mortgage as a source of invesment for capital, whether it be the capital of banks, of the building and loan associations or private lenders, is an unwise expedient at this time.
Senator BULKLEY. Now, suppose we could provide either a grant or an advancement so that the home owner could be tided over without detriment to the mortgagee. Would you favor that!
Mr. HENNESSY. You mean a direct advance out of a public treasury to the home owner?
Senator BULKLEY. I did not mean to raise the question of how we should raise the money. I was asking whether you thought it would be desirable to try.
Mr. HENNESSY. It is a very difficult thing, Senator, to say that it should be done for all distressed home owners. There may be some home owners whose distress is really worthy, that might be relieved out of public funds. That is being done in most of the States of the Union today. It is being done in New York I know. They are being relieved out of public funds. Their families are being supported to some extent by public funds.
Senator COUZENS. Isn't this a fact, Mr. Hennessy, that the more agitation there is about these moratoria the more disposition there is to default payment?
Mr. HENNESSY. Absolutely. I am very glad you mentioned that.
Senator COUZENS. And it has a tendency to defer payment even from those who can afford to pay?
Mr. HENNESSY. In my opinion, Senator, you must in your disposition of this problem think of the money lender as well as the money borrower, and the money lenders are usually institutions who represent vast numbers of the population and the home owners of this country, either as holders of life insurance policies or as savers who have accumulated by processes of thrift and frugality the savings which are invested in these securities.
Senator BULKLEY. Now, Mr. Hennessy, of course you understand that by reason of asking questions I am not intending to express any opinion. Mr. HENNESSY. Yes, sir.
Senator BULKLEY. I am trying to clear up the situation. The last question that I asked you certainly does not imply any detriment to the lender of the money. On the contrary, it would be a convenience to him. As I understand your answer, it is that it is not a subject matter of the Federal Government, but rather of the State. Am I right about that?
Mr. HENNESSY. I would say in a broad sense—I am not a lawyer, but I would say that I am in accord with the idea that the Federal Government is interfering with private business to a greater extent than is necessary or expedient for the prosperity of this country. I think wherever matters can be properly left to the State governments they ought to be so left.
Senator BULKLEY. I assume your acquaintance with this subject is so close that your opinion would be valuable as to whether this is one that will be adequately taken care of by the States.
Mr. HENNESSY. I think it could be, but the fundamental difficulty is the economic prostration of the country today, which affects men in every walk of life.
Senator BULKLEY. Yes; of course. If we can restore prosperity, that is the real answer. But assuming that we cannot do that immediately, what are we going to do to carry over?
Mr. HENNESSY. I am not prepared, sir, to offer any answer to that question that I would feel is sufficiently reflected upon before offering it to a committee of this importance.
Senator BULKLEY. I meant to make the question so simple as this: Merely do you think that the Federal Government ought to concern itself at all with the question of tiding over the home owner?
Mr. HENNESSY. May I tell you what has happened in England, where I go very frequently! At the end of the war they undertook to settle the housing problem, because there was a real housing scarcity in Great Britain, as there was in this country, after the
Parliament adopted various systems of subsidy to people who would build houses. And, incidentally, one of the arguments made for adopting this as a public policy was that it would abolish the slums and make England “a country fit for heroes to live in " which was a bouquet to the returned soldiers.
It was recently stated in Parliament that the cost of that experiment in state socialism—that is what it amounts to—was a prodigious one, thousands of millions of dollars—I cannot give exact figures. That is to say, the loss to the public treasury and the loss to the local treasuries, because part of the burden was laid upon the localities, the municipalities, has been tremendous, and yet not a single slum has been abolished.' The subsidies at the expense of the taxpayers proved futile. Poverty is greater in England today than it was after the war. The slums are still there. The statement of the cost of this experiment was made by the Minister of Health in Parliament, I think, less than 6 months ago.
Senator COUZENS. Let me ask you this: Would a revaluation of the gold proposed in the pending legislation help the home owner who is in distress?
Mr. HENNESSY. I think if there is such a thing possibly as what is called controlled inflation, and I assume that
Senator TOWNSEND (interposing). Do you think it is possible? Mr. HENNESSY. I would answer in the language of the gentleman who preceded me, who said that his knowledge of economics on that subject did not justify him in offering an opinion, but I have grave doubts about it. But to the extent that inflation can be controlled, to that extent it will undoubtedly raise prices, and one of the first prices that will be raised will be the price of real estate.
Senator BULKLEY. One of the first prices!
Mr. HENNESSY. That is to say, it will be reflected in increasing land values.
Senator COUZENS. The other witness testified the other way.
Senator BULKLEY. Yes. Mr. Schmidt said it would be one of the last.
Mr. HENNESSY. I think he is in error about it. I think it will be reflected immediately. I heard a prominent man in New York City say at the dinner table not long ago that if inflation is coming he is going out to buy real estate.
Senator TOWNSEND. And common stocks.
Mr. HENNESSY. Yes; and common stocks. It is already reflected in the increase of copper prices, copper stock prices, because in the last analysis they rest upon real estate.
Senator COUZENS. Entirely outside of that, no one buys on a falling market, and if the market is rising everybody wants to buy.
Mr. HENNESSY. Yes.
Senator COUZENS. It does not make any difference whether it is stocks or whether it is real estate or what not.
Mr. HENNESSY. But I do say that there will be relief come, it seems to me, if there is controlled inflation. If it tends, as economists generally agree that it will tend to increase the values of all commodities, it will be reflected at once, in my opinion, in the price of real estate, especially in the price of vacant land. And one of the evil effects of that, by the way, will be that it will tend to check the very splendid movement that is quietly taking place in this country today from the cities back to the farms.
Senator BULKLEY. You are through, are you, Mr. Hennessy?
Mr. SCHMIDT. Mr. Chairman, I would just like to state that I quite agree that the value of vacant land will immediately rise under inflation, as Mr. Hennessy stated, but that values in buildings will respond 'more slowly. There is consequently no difference between Mr. Hennessy and myself. In practically every country where there has been inflation rents have been quickly controlled by rent legislation, by law or administration. England and Germany are concrete examples. Such control tends to stop value rise, even in homes.
Senator BULKLEY. I believe we will have just about time for a short statement by Mr. Woodhouse, if he desires to make a statement
STATEMENT OF HENRY WOODHOUSE, ECONOMIST, NEW YORK
Senator BULKLEY. Will you please state your name and address for the record ?
Mr. WOODHOUSE. Henry Woodhouse, 280 Madison Avenue, New York, and Willard Hotel, Washington. Editor of Scientific Age, Scientific Economist, former delegate of the State of New York to the City Planning Conference, and author of a number of works on economics. I may add, owner of a collection of 100,000 historic economic records.
The purpose of this bill is a noble one, no doubt. As stated in President Roosevelt's message, dated April 13, 1933, it is a very important measure, as it aims to protect small home owners from foreclosure", and to carry into effect the national policy, expressed by the President as being “that the broad interests of the Nation require that special safeguards should be thrown around home ownership, as a guaranty of social and economic stability, and that to protect home owners from " inequitable enforced liquidation, in a time of general distress, is a proper concern of the Government." That is a noble and broad policy, and I have studied this bill with that in view.
Gentlemen, I may state I own thousands of acres of land in different places, different parts of the United States. I have many tenants. They are not paying their rents, of course. They cannot pay any at the present time. The distress throughout the country is appalling—far beyond the relief provided by this bill.
I will try to give you the broad results of a visit to 49 different cities and practically all of the States, as well as of correspondence, done partly through a patriotic council of which I am chairman, called the National Recovery Council", a patriotic organization, and partly through publications in which I am interested either as an editor or owner or contributor.
The problem, briefly, is this: We have close to 123,000,000 persons in the United States, and there are 30,000,000 homes, roughly. In the highest period of prosperity, 1929, there were 48,000,000 gainfully employed. About one half were employed in producing commodities the market for which has been greatly reduced.
We have just heard the figures from Mr. Russell, the counsel of the Home Loan Bank Board, to the effect that out of the population of the United States, out of the 30,000,000 homes, there are something like 10,000,000 and some homes individually owned, I believe,