FINAL REPORT on the Reconstruction Finance Corporation Pursuant to Section 6(c) Reorganization Plan No. 1 of 1957 SECRETARY OF THE TREASURY UNITED STATES GOVERNMENT FKttJTING OFFICE WASHINGTON 1959 For ale by the Superintendent ef Decutacnti, U-S.GovcnracQt Printing Office Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis THC SECRETARY OF THE TREASURY WASHINGTON May 6, 1959 Sirs: I have the honor to submit herewith the final report on the Reconstruction Finance Corporation which is required under Section 6 (c) of Reorganization Plan No* 1 of 1957. The report was prepared under the direction of Mr* Laurence B. Robbing, who presently is serving in the capacity of Assistant Secretary of the Treasury. Prior to confirmation in his present position, Mr. Robbins served both as Deputy Administrator and Administrator of the Reconstruction Finance Corporation and directed the liquidation of that Corporation's affairs. Secretary of the Treasury To the President of the Senate To the-Speaker of the House of Representatives iii Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis FOREWORD The Reconstruction Finance Corporation was among the largest and undoubtedly was the most complex of all Federal lending agen- cies. In its operations it disbursed more than $40 billion, and was conditionally committed to disburse many billions more under guar- anties of loans and investments made by private financial institutions. Organized during a severe economic depression, the RFC passed through periods of recovery, preparedness, war, reconversion, eco- nomic expansion, another war and, finally, stability and prosperity. During all these different periods RFC played an active and very important role. Being a corporation, with unlimited authority to borrow funds from the U.S. Treasury, the RFC had more flexibility than agencies operating under traditional Government appropriation procedures. Besides making loans of many types, the RFC subscribed for, pur- chased, and traded in the securities of private business enterprises, State and local government agencies and other agencies of the Federal Government. Advances and allocations were made to other Govern- ment agencies. Mortgages, on both residential and income-producing properties, were purchased and sold by RFC subsidiaries. RFC also served as liquidating agent for discontinued Government agencies and programs. Beginning in 1940, RFC organized a group of subsidiaries to handle national defense and war programs. The operations of these sub- sidiaries were of types far removed from those usually associated with financial institutions. These subsidiaries developed sources for, manufactured, procured, stockpiled, and sold a long list of strategic materials and commodities. Industrial facilities for war production were built and operated. There were programs to collect and salvage scrap materials. Preclusive buying operations were conducted abroad, designed to handicap enemy powers. Subsidy payments were made to domestic producers and transporters of essential materials, not only to encourage production but to help control prices. There was a program to provide insurance against loss due to enemy action. And, finally, for a short period after World War II, an RFC sub- sidiary undertook to dispose of surplus war property. An overwhelming volume of materials has accumulated on the op- erations of RFC and its subsidiaries. For one example, the minutes of the meetings of RFC's Board of Directors alone occupy about 250 cubic feet Including records of the subsidiaries, the total volume Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis FINAL REPORT ON THE RECONSTRUCTION FINANCE CORPORATION of RFC material accepted by the National Archives was about 3,250 cubic feet The records of testimony before committees of the Con- gress in hearings on matters related to RFC fill many dozens of closely printed volumes. Also, there are in the various Government record centers countless thousands of documents and pieces of correspond- ence related to RFC's individual loans and other transactions. To sift and collate this mass of material, to note policy changes and the shifting emphases of operations, and then to put together a com- prehensive, documented exposition of RFC's manifold activities would require many years of research. Under the provisions of Reorganization Plan No. 1 of 1957, the Secretary of the Treasury is required to submit a final report on the Reconstruction Finance Corporation on or before June 30,1959. After careful consideration of the vast amount of material available, it was decided that the most practicable and useful form of report would be an outline of the various programs which RFC was authorized or directed by law to undertake, and a summary of the things which RFC did or did not do under those authorities. This plan has been followed. Subjective interpretations and critical analyses of RFC's operations have been avoided. It is hoped and intended that this report will serve as a source and reference book for legislators, Gov- ernment officials, and students and researchers in the fields of eco- nomics, finance, and political science. With this in mind, there has been incorporated in the report a considerable volume of statistical material on RFC lending and investment functions, much of which heretofore has been unavailable in organized form. One question frequently raised relates to whether the RFC "made a profit." Nowhere in the basic RFC legislation are there any indi- cations that RFC was established for the purpose of making a profit. The stated purposes for RFC's existence were to deal with emergency situations and to aid in attaining broad economic goals. To judge whether or not these purposes were accomplished requires something more than measurement against a dollar yardstick. Asking whether RFC "made a profit" implies that the Corporation was regarded as a business enterprise. In its most publicized activities, the Corporation did operate as a business, but there were many RFC activities in which funds were disbursed with no expectation that any recoveries could be made. Chief among these were the grants and allocations made by RFC to other Government agencies and to States for relief and related programs during the 1930's, and, beginning in 1940, the subsidies paid and the unusual expenditures made in furtherance of the war effort. In such instances, the Congress recognized the unbusinesslike nature of these expenditures and canceled the notes which RFC had issued to the Secretary of the Treasury to obtain the funds so used. vi Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis FOREWORD In the Corporation's lending activities, loans and investments were made under the requirement that there be reasonable assurance of repayment Taken as a whole, the accounting records of the lending programs show that interest income and other revenues exceeded losses and expenses. It should be noted, however, that this did not hold true for each and every program. For example, the Corporation charged off as losses more than one-fourth of all amounts disbursed on loans to mining enterprises. Also, the administrative costs and other expenses incurred in connection with disaster loans and the smaller loans and investments of other programs were not covered by the income received from them. In most instances RFC's multimillion dollar loans and investments worked out to the Corporation's advan- tage, and much of the expense incurred in administering the smaller loans was absorbed in the income received from large loans and invest- ments. In realizing upon its loans and investments the RFC benefitted from the general long-term trend of economic expansion which began shortly after the Corporation was organized. This was particularly noticeable beginning in 1940, when the economic activity generated by defense and war programs accelerated realizations upon outstanding loans and investments. The responsibility for the necessary extensive research and the prep- aration of this report was assigned to Douglas S. Wilson and Thomas H. Graham, with editorial and stenographic assistance provided by Louise B. Lord and Jean H. Dougherty* All of these individuals had the benefit of many years of experience as RFC employees. Their efforts, and the assistance rendered by other former officers and employees of the Reconstruction Finance Corporation, are gratefully acknowledged. LAUBENCE B. ROBBINS, Assistant Secretary of the Treasury. vii Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE OF CONTENTS Page Foreword _ v Origin and succession of RFC 1 Legislative authorities . _ _ - 3 Management and organization _ _ 25 Financing of RFC _ _ _ 33 Lending and investment functions: Summary > _ _ _ 45 Financial institutions _ 51 Business enterprises _ _ 65 Agricultural financing institutions _ 87 Mortgages 93 Railroads 97 Political subdivisions of States and Territories 99 U.S. Government agencies 105 Foreign governments _ _ 109 Disaster victims.. _ Ill Civil defense _ _ _. 119 Minor lending functions _ 121 World War II subsidiaries... _ __ 123 Purchases of securities from Public Works Administration