Mr. FRIEDLANDER. There are about four savers in a building and loan association to one borrower, and the association is a cooperative institution, and the men who save the money furnish the funds which the other one-fourth borrow, and they divide the profits. Mr. WILLIAMS. Of course, the building and loan associations are put to a strain sometimes to pay off these certificates and stocks. I am not familiar enough to know just what you call them, the obligations. Mr. FRIEDLANDER. The stock certificates. Mr. WILLIAMS. The stock certificates that are held by the purchasers, whoever they are. Mr. FRIEDLANDER. Yes, sir. Mr. WILLIAMS. And that is one of the purposes, of course, of this legislation. Mr. FRIEDLANDER. That is one of the needs of the legislation; yes, sir. A man having saved his money in a building and loan association, making his investment there, of which there are approximately 10,000,000 in the United States, under the present conditions finds himself faced with the necessity and need of recapturing some of those savings at a time when the association, having a pile of mortgage notes in its vault, can not do a thing in the world with them. Mr. WILLIAMS. In other words, if he called on them now for it. the building and loan associations could not need it, just like the small banks, and it is to meet that emergency that you are asking this legislation. us. Mr. FRIEDLANDER. That is one of the emergencies that confronts Mr. WILLIAMS. Is not that the main one? Mr. FRIEDLANDER. That is the acute emergency at this time, and that faces not particularly the building and loans. It is the building and loan customer, the community. As an illustration of that, I saw an editorial in the El Paso Times several days ago, just before I came up here, in which the citizens' committee, one of these community committees, appealing through the El Paso Times to the people who Mr. Luce described this morning as those who may want their money to hoard it or do not need their money for living purposes, to not take their money out of the building and loan associations, so that the building and loan associations could go out and lend more of that money to people who wanted to improve their property and to lend money to people who wanted the money to live by. Now, then, there is a community situation there! The demands upon those institutions are so great, and you understand when those demands are upon them, they can not make loansall they can do is take every dollar that comes in there and pay it to these people as fast as they can give to to them. Some of them have been waiting 4, 6, or 12 months to get their money. You can not force the borrower to pay back the money any faster than his contract calls for, and the building and loan association can not use his mortgage for credit because there is no place to-day where they can turn to and get credit. Mr. WILLIAMS. Do you recognize an overbuilt situation now, at least in some parts of the United States? Mr. FRIEDLANDER. Yes, sir. I will say this, that I do not think the overbuilding condition is there as to the extent that is claimed. by the opponents of this bill. Frequently overbuilt condition is due to the huddle condition, as pointed out by the President to the home ownership conference. The son-in-law to-day is living with his father, and you have two or three families huddled together, and there is an apparent overbuilding that does not really exist. Mr. WILLIAMS. There would be very little chance for that kind of a fellow, with all due respect to him, to go out and build a home. Mr. FRIEDLANDER. Absolutely, and you will not find the responsible lending home financing institutions of the United States claiming that they are going to misuse this bill for the purpose of building any new homes where the necessity is not there. There is no advantage at this time in doing that. Mr. WILLIAMS. That is not even one of the primary purposes of it. Mr. FRIEDLANDER. No, sir; it has been the bugaboo that has been brought out for the purpose of attempting to defeat this bill. Mr. WILLIAMS. Let me ask you this question, and perhaps I will quit for a while, at least. What is your suggestion with reference to the building and loan associations in States whose law does not permit them to subscribe to this stock, or to put up their securities to obtain the loans? Mr. FRIEDLANDER. Well, the bill attempts to take care of the situation with refrence to the associations that are unable to subscribe to stock. Mr. WILLIAMS. By putting up the money, of course, I understand. Mr. FRIEDLANDER. By putting up the money equivalent to the amount of stock, or Government bonds. Mr. WILLIAMS. After all, there is no difference between that and stock, is there? Mr. FRIEDLANDER. Yes, there is. Mr. WILLIAMS. I wish you would explain that. I can not see that difference. Mr. FRIEDLANDER. Well, the difference, as I see it, is this, that if you have a law a building and loan association-and we have that in Texas as well as in Missouri, that does not permit a building and loan association to invest its money in the stock of another enterprise, there is nothing in the law that prevents us from making a deposit in bank. Now, this is a bank. Mr. WILLIAMS. I understand that situation, but in effect they are simply putting up the money, are they not, whether they get the stock or a receipt for it? Mr. FRIEDLANDER. They are certainly making a deposit. Mr. FRIEDLANDER. Yes. Mr. WILLIAMS. I do not see it yet, I confess, in practical operation. Mr. FRIEDLANDER. I think there is a big difference. However, the broad answer to that is this Mr. WILLIAMS. Pardon me. That is not really the point I have in mind. It is the other. Mr. FRIEDLANDER. The borrowing? Mr. WILLIAMS. Yes. I see no difference in that, as far as that is concerned. Mr. FRIEDLANDER. Well, probably not. Maybe that is only a technicality that will permit it. We will get to the other. As I understand it, in some of the States there is a provision in the law that expressly forbids building and loan associations to pledge their collateral as security for a loan. I understand that there has been an amendment suggested to the Senate Committee. If not, there will be. They are, I think, taking amendments now in consideration of that matter. They will meet that condition. However, my personal opinion is that that condition should be met in the States where it arises. This Congress is asked to legislate for the entire United States. Now, after the passage of the Federal reserve bank act, which permitted the affiliation of State banks, it became necessary in many States to amend the State banking laws which permitted banks to affiliate with the Federal reserve system. It Now, if the building and loan associations in Texas or in Missouri or Arkansas or any other State feel that there is an advantage in belonging to this institution, then they certainly should not object to amending the laws of that State to enable them to come into this institution and make the institution a sound one for this reason. is not fair, and it is not workable, to ask my institution in Texas to invest $100,000 in the stock of this corporation which is going to lend money, and leave me up in the air as to where they are going to get security for that money. In other words, I do not think it is fair to the affiliating corporations to expect some of them in some States to put up security and not expect or demand of those in every other State to do the same thing. And I say this, that the most far-reaching objection to it is that I do not believe you can sell your bonds if your prospective bondholders understand that in some States you are going to waive the requirement to put up security, because the building and loan associations or the banks or insurance companies of that State object to giving security. Mr. LUCE. May I inject a statement on this point? In my opinion, in passing judgment upon the details of the bill, that consideration was uppermost, and it seemed to me of paramount importance that we should safeguard the institution in order that the bonds might be sold. Mr. WILLIAMS. Let me suggest this. As I understand it, my State is one of those. Mr. FRIEDLANDER. I think so; yes. Mr. WILLIAMS. All building and loan securities or obligations rather are nonnegotiable. I will leave it as it was there-securities. You are, no doubt, more familiar with that than I am. They are nonnegotiable. I understand that the legislature of our State, after a very thorough consideration, decided that was one of the best safeguards that could be applied. I understand also that there are a number of States in the same condition. Do you think it is a wise public policy on the part of this Government to say to them that they must amend and change their laws notwithstanding the fact that it is not their judgment about it, in order to conform to a law passed by us here? Mr. FRIEDLANDER. No. We, as I understand it, are not saying that to the building and loan associations of your State. Mr. WILLIAMS. Either that or stay out. Mr. FRIEDLANDER. Well, that is true. Mr. WILLIAMS. Well, I would say that would be a rather unfair attitude. Let us get into the reason for that. Mr. FRIEDLANDER. The building and loan association operating in a State that has a law of that kind, the reason behind it is that the shareholders of the association will have no preferred borrowings ahead of them. In other words, that all of the assets of that company will be there intact to pay the stockholders. Now, you must make up your mind in Missouri, and in any other place, that either that is going to be your policy, or that you are perfectly willing, if you borrow money, to put up collateral, because I do not see that there is any difference. If you borrow money in Missouri, what difference does it make whether you physically assign the security protecting it, or whether you do not. After all, you have to pay the obligation, and the assets are standing back of it, and after all is it not just a matter of whether you want to change your laws or not. Mr. WILLIAMS. There is a difference in principle in it, I think, that I can see. Mr. FRIEDLANDER. All right. Mr. WILLIAMS. There is more or less of a trustee relationship in the building and loan association, and they have considered it a wise policy, as you say, to keep all those assets available for the payment of those people for whom they hold it in trust. Mr. FRIEDLANDER. Yes. Mr. WILLIAMS. Rather than to invest it in a fund where they would be compelled to come in on a level with the others. Mr. FRIEDLANDER. That is an argument against their coming into the system at all. Mr. WILLIAMS. Yes. Mr. FRIEDLANDER. As I understood it, your argument was against their putting up collateral. It would seem to me that as long as they are borrowing money, if they are permitted to borrow money, it does not make any material difference whether they are required to put up collateral or not, so far as your associations and your State is concerned. Mr. WILLIAMS. Are building and loan associations borrowers in Missouri? Mr. FRIEDLANDER. Yes. Mr. WILLIAMS. What security do they give? Mr. FRIEDLANDER. They give their own notes. Mr. CAMPBELL. What is back of that? Mr. FRIEDLANDER. All the assets of the company. I think this can be safeguarded, though; I think I can see a reason for an amendment to your State law permitting the assignment of securities for collateral to either a State or the Federal reserve system, and then all the balance of your securities can remain nonnegotiable. Mr. WILLIAMS. To what extent does that condition exist throughout the country? Mr. FRIFDLANDER. I think the State of Nebraska is one State where they can not assign the securities. My personal opinion is that practically all States that have sessions of the legislature are going to change that in order that the building and loan associations may participate in the Reconstruction Finance Corporation act. I understand they are demanding securities before they make any loans, and if they expect to get any of that money, I think they will change the law. Mr. WILLIAMS. It exists to a wider extent than just two States, does it not? Mr. FRIEDLANDER. I think Nebraska and I think Missouri, and there is some question about Pennsylvania. We had some discussion about it to-day, at noon. I do not know. There may be some other States, but it is not as general as probably you might believe. I think most of the States permit it. I think that it has been held that they are permitted, where the law does not expressly prohibit it. If an association is permitted to borrow money, and nothing is said about collateral, it naturally follows that they would be permitted to put up collateral. Mr. WILLIAMS. You would not take the position that they could put up collateral if the collateral on the face of it were nonnegotiable? Mr. FRIEDLANDER. Of course, there is a difference between being nonnegotiable and being assignable. There are many building and loan notes which, upon their face, are not negotiable, because of the indefinite maturity date of those notes. In other words, they depend upon the maturing of the stock, and yet, at the same time, the courts have held that those notes are assignable. Mr. WILLIAMS. If they are made payable directly to some individual or institution, of course, they would be nonnegotiable, and not to the order. Mr. FRIEDLANDER. Well, there is some question about that in my mind. Mr. WILLIAMS. There is no question about that in my mind, as a legal proposition, if they are made payable to the order. Mr. FRIEDLANDER. That they could not be assigned? Mr. WILLIAMS. They are then negotiable. Mr. FRIEDLANDER. Yes. Mr. WILLIAMS. If they are payable to John Jones, they are not negotiable. Mr. FRIEDLANDER. Well, of course, that is getting into a legal question on this matter that I can not settle. It would seem to me that you would have to formulate a national policy. It seems to me that after all this system has got to be set up on a basis whereby when you seek to borrow the money for the purposes of the system, that the bonds which you offer are going to be salable. It seems to me that to be salable, they necessarily must have collateral back of them, and that those associations, whether they be in Texas or Missouri or New York or any other State, that except to avail themselves of the credit facilities of the institution, will have to amend their laws to do it. Now, then, if they do not do it, they are no worse off after the system than they are now without it. They still can borrow money from their local banks. The CHAIRMAN. Are there any other objections you want to answer, Mr. Friedlander? Mr. FRIEDLANDER. I think that just about covers it. The CHAIRMAN. Mr. Hancock. Mr. HANCOCK. Mr. Friedlander, I started to ask you just now a question applicable to subsection (d) of section 8 on page 17. The thought behind all of my questions this afternoon has been that I might bring out certain suggestions that would make this bill more |