standing at any one time in the year 1929 was $157,450,000, and that the total number of loans made was 517.

The CHAIRMAN. Let it be admitted.

(The answer by the Bethlehem Steel Corporation to the committee's questionnaire was marked "Committee Exhibit No. 96, Feb. 23, 1934", and will be found at the end of the day's proceedings.)

Mr. PECORA. The next one is the return to our questionnaire made in behalf of the Chrysler Corporation, showing that the loans were made through three banks, and that the largest amount made through the first bank was on September 26, when there were 114 loans amounting to $60,150,000; the largest amount through the second bank was on October 9, when there were 26 loans amounting to $15,000,000; and the largest amount through the third bank was on October 28, when there were 33 loans, amounting to $15,400,000. The CHAIRMAN. Let it be admitted.

(The answer by the Chrysler Corporation to the committee's questionnaire was marked "Committee Exhibit No. 97, Feb. 23, 1934 ”, and will be found at the end of the day's proceedings.)

Mr. PECORA. The next one is the return to our questionnaire made in behalf of the General Foods Corporation, which states that the loans were all made through banks, and that the total number was 187; that the total amount of Street loans made by the corporation in the call-money market of New York in 1929 was $36,000,000. The CHAIRMAN. Let it be admitted.

(The answer of the General Foods Corporation to the committee's questionnaire was marked "Committee Exhibit No. 98, Feb. 23, 1934 ", and will be found at the end of the day's proceedings.)

Mr. PECORA. The next one is the return made in behalf of General Motors Corporation and subsidiaries, in the year 1929, and shows a total of $103,700,000, and the General Motors Truck Corporation made four loans for a total of $2,000,000.

The CHAIRMAN. Let it be admitted.

(The answer of the General Motors Corporation and subsidiaries to the committee's questionnaire was marked "Committee Exhibit No. 99, Feb. 23, 1934 ", and will be found at the end of the day's proceedings.)

Mr. PECORA. The next one is the return to the questionnaire made in behalf of the International Nickel Co. of Canada, Ltd., and shows for the year 1929 they made 14 Street loans in the call-money market of New York City for a total of $3,000,000.

The CHAIRMAN. Let it be admitted.

(The return made by the International Nickel Co. of Canada, Ltd., to the committee's questionnaire was marked "Committee Exhibit No. 100, Feb. 23, 1934 ", and will be found at the end of the day's proceedings.)

Mr. PECORA. The next one is the return to the questionnaire made. in behalf of the Pan American Petroleum & Transport Co., which shows a total of $9,500,000.

The CHAIRMAN. Let it be admitted.

(The return made by the Pan American Petroleum & Transport Co. to the committee's questionnaire was marked "Committee Exhibit No. 101, Feb. 23, 1934 ", and will be found at the end of the day's proceedings.)

175541-34—PT 14- -12

Mr. PECORA. The next one is the return made in behalf of the Radio Corporation of America and subsidiaries, and shows that loans were made through three banks in New York City for a total of $18,600,000.

The CHAIRMAN. Let it be admitted.

(Return made by the Radio Corporation of America to the committee's questionnaire was marked "Committee Exhibit No. 102, Feb. 23, 1934 ", and will be found at the end of the day's proceedings.)

Mr. PECORA. The next one is the return made in behalf of the Radio-Keith-Orpheum Corporation, and states that the largest amount invested in the call-money market by that corporation and its subsidiaries and affiliates was in March of 1929, when $8,000,000 was so invested.

The CHAIRMAN. Let it be admitted.

(The answer submitted by the Radio-Keith-Orpheum Corporation to the committee's questionnaire was marked "Committee's Exhibit No. 103, Feb. 23, 1934 ", and will be found at the end of the day's proceedings.)

Mr. PECORA. The next one is the return made in behalf of the TriContinental Corporation showing an aggregate of call loans made $86,525,000.

The CHAIRMAN. Let it be admitted.

(The return made by the Tri-Continental Corporation to the committee's questionnaire was marked "Committee's Exhibit No. 104, Feb. 23, 1934 ", and will be found at the end of the day's proceedings.)

Mr. PECORA. The next one is the return made in behalf of the United Corporation, which states that it did not make directly any Street loans in the call-money market of New York City during the year 1929, but that on January 25, 1929, the United Corporation obtained an interest through J. P. Morgan & Co. to the extent of $7,400,000 in six such loans.

The CHAIRMAN. Let it be admitted.

(The answer made by the United Corporation to the committee's questionnaire was marked "Committee Exhibit No. 105, Feb. 23, 1934", and will be found at the end of the day's proceedings.)

Mr. PECORA. The next one is the return made by the United Gas Improvement Co. and subsidiaries, and states that the maximum amount loaned by way of Street loans at any one time was $3,600,000. The CHAIRMAN. Let it be admitted.

(The answer made by the United Gas Improvement Co. to the committee's questionnaire was marked "Committee Exhibit No. 106, Feb. 23, 1934", and will be found at the end of the day's proceedings.)

The CHAIRMAN. May I ask you, Mr. Pecora, if those are what are known as "bootleg " loans, or if they represent what are called "bootleg" loans.

Mr. PECORA. Mr. Chairman, they have often been called "bootleg loans, not only in the parlance of the Street, but I think some textbook writers have referred to brokers' loans as "bootleg " loans as distinguished from loans made by banks.

I have in mind in that respect a reference to such loans as "bootleg" loans, which will be found in a book called "Brokers' Loans written by Profs. Louis H. Haney, Lyman S. Logan, and Henry S. Gavens, of New York University. And some observations with regard to these so-called "bootleg" loans made by these authors in that book, might not be out of place at this time, Mr. Chairman, and if you wish I will read a few statements culled from that book. The CHAIRMAN. All right. I think they might be in order now so as to give us a clearer idea of that.

Mr. PECORA. Quoting from this book I will read as follows:

The so-called "bootleg" loans.

One of the most important problems connected with brokers' loans is found in that part of such loans which comes from the nonbanking lenders or "others." Such loans have been a disturbing factor and in 1929 developed to extraordinary proportions. It is estimated that at times they constitute a large part of the loans made for the account of out-of-town banks and were probably over one half of the out-of-town bank loans in the fall of 1929. Loans by "others" swell to enormous proportions in periods of speculative mania. They are drawn largely from the surplus funds of corporations built up out of past earnings or sales of securities; from funds secured by new investors through far-sighted liquidation of securities; and from foreign

Sources.

But probably considerable Reserve bank credit is diverted into brokers' loans reported as being made by "others", as a result of the inability of the authorities to control the use of credit extended through the rediscount privilege.

When large corporation surpluses exist as in 1928 and 1929, and low yields on securities both invite the sale of stock and retard investment in plant and equipment, the existence of high cail loan rates is bound to cause a strong trend toward a large volume of brokers' loans by "others."

These loans, having been subject to little control were long a source of great danger. Not only did they deprive industry and trade of funds at reasonable rates, but they threw fuel on the speculative fire. There comes a time when, the private lenders not having the responsibility of banks, are apt to become panicky and withdraw loans suddenly, thus precipitating a crisis. The experience of 1929 but repeats that of 1907 and other similar periods. The essence of the situation in this respect is inflation. The higher stocks go and the larger the volume of trading by speculators, the greater the demand for brokers' loans and the higher money rates. There is no limit to the speculative appetite. To argue that loans by "others" relieve the situation by furnishing credit which the banks would otherwise have to supply seems fut.le. It assumes that such credit should be furnished-that it is desirable and connected with a sound condition. This begs the question. It is not a service to throw fuel on a dangerous fire.

Nor do such loans by "others" represent a mere shifting of credit without any disturbance of the relation between deposits and loans. We find in 1928-29 declining deposits and an abnormal volume of loans, largely brokers' loans made for the account of "others."

As to the argument that these loans by "others " are part of a means which enables corporations to raise capital, it hardly seems that a refutation is needed since our experience in 1929-30. They have been proved to have become but a link in an endless chain of inflation whereby funds were raised which were used not for investment, but to allow speculative purchases of stocks, and were then re-lent to allow speculative purchases of more stock.

The fact is that when speculative funds become relatively so scarce that money rates are bid up to 6, 8, 10, 12, or even 15 percent, the funds supplied by "others" become a causal factor in promoting excessive speculation and preventing effective credit control by the central banking system.

Desirability of control.

Loans by nonbanking lenders on a large scale were a new phenomenon in 1928-29. They were called "bootleg loans" and were widely attacked because they were feared and their economic significance not understood.

It was

argued that they had an unfavorable effect upon our economic structure because:

1. They took away money from " legitimate business."

2. They brought on the inflation in stocks.

3. If the lenders became frightened by some economic disturbance and withdrew them, a grave panic would follow.

4. They were a liability on the banking system, for banks must be prepared to supplant them in case they should be withdrawn suddenly.

5. They were dangerous because the lenders were not generally competent to function in this field.

6. They were not controlled by banks and were usurping a field not properly belonging to them.

On the other hand, there were many economists who defended every aspect of brokers' loans and denied that they had any unfavorable effect on our economic structure.

Although it is fair to point out that originally such loans were a result of the speculative situation, and that in some cases the lenders had no other equally good outlet for their funds, it is our conclusion that they did become part of a vicious circle in stock-market inflation, and that subsequent events justified much of the fear concerning the rapid withdrawal of funds supplied by irresponsible lenders, with a resulting great burden thrown upon the banks. The chief point, however, is to prevent the development of the excessive speculation and the runaway stock and money markets which make the occasion for a large volume of loans to brokers by nonbanking lenders.

In late 1929, when the market declined, nonbanking and out-of-town lenders hastily withdrew their funds, forcing the New York banks to expand their loans to brokers in order to prevent an utter credit debacle.

It is to be remembered, however, that even if the loans others called were placed on deposit in New York City as was true only in part, their withdrawal from brokers tending to aggravate the situation, in that for every $100,000 which a nonbanking lender called, the banks could return only $87,000, since they have to keep about 13 percent of their deposits as a reserve. However, it does seem that when corporations withhold accumulated surplus funds instead of paying them out as dividends, or sell new stock in order to make loans in the call-money market and thereby to some extent make it possible for speculators to carry that very stock, they tend to overstep the boundaries of normality.

I think, Mr. Chairman, those statements are very pertinent and are supported very largely by testimony that has been presented here today with regard to these call loans.

Senator KEAN. Where did those statements come from?

Mr. PECORA. A book written by professors of New York University, Professors Haney, Logan, and Gavens, a book called "Brokers' Loans."

Among the returns I want to offer in evidence are two of them made on behalf of the American Founders Corporation, the first one dated November 6, 1933, and the second one dated February 21,

1934.

The CHAIRMAN. Let them be admitted.

(Return to questionnaire, dated Nov. 6, 1933, from L. H. Seagrave, president American Founders Corporation, to Ferdinand Pecora, counsel, Committee on Banking and Currency, and supplemental return from L. H. Seagrave to Ferdinand Pecora, dated Feb. 21, 1934, were marked as one exhibit "Committee Exhibit No. 107, Feb. 23, 1934", and they appear in full in the record at the end of today's proceedings.)

Mr. PECORA. İs Mr. George U. Harris here?

TESTIMONY OF GEORGE U. HARRIS, MEMBER BROKERAGE FIRM HARRIS, UPHAM & CO., AND MEMBER PUBLICITY COMMITTEE NEW YORK STOCK EXCHANGE

The CHAIRMAN. You may come forward, Mr. Harris, and be You do solemnly swear that the testimony you are about to give in regard to the matters now under investigation by this committee will be the truth, the whole truth, and nothing but the truth. So help you, God.

Mr. HARRIS. I do.

Mr. PECORA. Will you give your full name, Mr. Harris, and your address and business?

Mr. HARRIS. George U. Harris, 11 Wall Street.

Mr. PECORA. And what is your business?

Mr. HARRIS. I am a member of the New York Stock Exchange, brokerage business.

Mr. PECORA. Are you connected with any firms?

Mr. HARRIS. Connected with the firm of Harris, Upham & Co. Mr. PECORA. And how long have you been connected with that firm, Mr. Harris?

Mr. HARRIS. Seven years.

Mr. PECORA. And how long have you been a member of the New York Stock Exchange?

Mr. HARRIS. Seven years.

Mr. PECORA. Are you an officer of that exchange at the present time?

Mr. HARRIS. No, sir; I am not an officer.

Mr. PECORA. Are you a member of the board of governors of that exchange?

Mr. HARRIS. I am.

Mr. PECORA. How long have you been a member of its board of governors?

Mr. HARRIS. Approximately 5 years.

Mr. PECORA. Are you a member of any of the committees of the exchange, any of its standing or special committees?

Mr. HARRIS. Yes, sir; I am.

Mr. PECORA. Of what committee or committees are you a member? Mr. HARRIS. Business conduct committee, the committee on publicity.

Mr. PECORA. How long have you been a member of the committee on business conduct?

Mr. HARRIS. Approximately 4 years.

Mr. PECORA. And how long have you been a member of its committee on publicity?

Mr. HARRIS. Approximately 4 years.

Mr. PECORA. Are you the chairman of the last named committee?

Mr. HARRIS. No, sir; I am not.

Mr. PECORA. Who is the chairman of that committee?

Mr. HARRIS. Mr. James Auchincloss.

The CHAIRMAN. What is your age, Mr. Harris?

Mr. HARRIS. Thirty-six.

Mr. PECORA. What are the functions of the committee on publicity of the New York Stock Exchange, Mr. Harris?