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Mr. WIGGLESWORTH. Do you care to give us, either on or off the record, something about the ship tonnage situation ?
Admiral LAND. In the world?
Mr. WIGGLESWORTH. Are we holding our own, or are we making headway, or are we falling behind ?
(Discussion off the record.)
Mr. WIGGLESWORTH. Are you building any concrete ships?
Admiral LAND. I would not call them concrete ships. I object to the words concrete ships." We are building concrete barges. Most of them are non-self-propelled. But that is all in the table that I gave you for the record. For the calendar year 1943 I gave the complete history of our barge construction--concrete, wood, tugs, and selfpropelled or non-self-propelled, with particular reference to the oil situation.
Mr. WIGGLESWORTH. That is in the record now?
Mr. Kirsch. There is a special exhibit No. 1 in the justification that shows, by types of ships, those that have been completed to October 31, 1942, and those that were under construction as of that date.
Admiral LAND. I broke down the barge thing purposely, because I was sure you would be interested.
Mr. WIGGLESWORTH. Does that show the number of concrete ships that are being constructed, and where they are being constructed, and who is constructing them?
Mr. Kirsch. We did not go into quite that detail.
Mr. WIGGLESWORTH. Will you please put in a statement which will supply this information!
Mr. KIRSCH. Yes, sir.
Contracts for concrete vessels as of Dec. 31, 1942
Mr. WIGGLESWORTH. Has the Maritime Commission now come to the conclusion that concrete ships are successful?
Admiral LAND. They have not been thoroughly tried out yet, but the Navy is sufficiently interested now that they would like to have these
concrete oil barges, which is considerably different from the attitude when we went into the program. They are a customer for our concrete barges right now.
Mr. WIGGLESWORTH. Has not the British experience been pretty sad with them?
Admiral LAND. It has not been particularly good. I would not say it was bad. They have built a few. They are still building a few-not many.
The concrete construction, in my judgment, gentlemen, is nothing more than insurance. You will never get any enthusiasm out of me for concrete construction. We do it as a matter of insurance.
Mr. WIGGLESWORTH. I thought the Commission and the Navy were definitely opposed to that type of construction a little while ago.
Admiral LAND. That is true; but, as I say, we have done it as a matter of insurance for people that could do this but could not build steel ships. And there is quite a difference between building a barge and building a ship, because if you have no other use in the world fo these barges after the war is over, they are splendid portable storage tanks. I think the Government will get value received out of them if this war lasts another year. I have no doubt about that.
GUARANTEED LOANS ON WAR CONTRACTS
Mr. WIGGLESWORTH. Will you say something about any guaranties of loans to people with war contracts!
Admiral LAND. Do you mean what is known as the V loan?
Admiral LAND. We have a special statement on that that we could read or put in the record.
Mr. WIGGLESWORTH. Please put in the record the total amount that you guaranteed and the dates of the guaranties, and the losses, if any.
Admiral LAND. We have not had any losses yet.
Mr. WIGGLESWORTH. Will you also either furnish to the committee or, if it is not too voluminous, include in the record a copy of your form of agreement of guaranty?
Admiral LAND. Yes, sir. The following is the policy of the Maritime Commission.
POLICY OF THE MARITIME COMMISSION WITH RESPECT TO GUARANTEE OF LOANS
UNDER EXECUTIVE ORDER 9112 AND FEDERAL RESERVE SYSTEM REGULATION V
1. Regulation V loans, with partial guarantee by a Federal Reserve bank as agent for the Maritime Commission and other authorized agencies, were devised for the purpose of supplementing, but not of replacing, ordinary bank credit, in order to provide for the greatly increased demands upon working capital facilities resulting from war production. Consistently with this fact, it is the policy of the Maritime Commission to authorize the entering into of guarantee agreements only to the extent that regular banking credit is not properly available to the borrower.
2. Accordingly, if the borrower's available bank credit is sufficient for his requirements, a guarantee of any portion of the credit line of such borrower will not be approved.
3. Where the need for credit exceeds the available ordinary commercial bank credit, the extent of the guarantee should be governed thereby, so that full use of the commercial bank credit is made through the unguaranteed portion of the loan.
4. This policy obviously precludes the use of regulation V loans for the purpose of transferring, or in such manner as to transfer, the risk of an existing loan, in whole or in part, from a bank to the Government.
5. This policy, however, does not preclude consolidating existing bank loans into a single guaranteed loan, provided adequate participation of the banks is continued.
5. While the necessity is recognized of providing in the loan agreement for an equitable arrangement with respect to the guaranteed loan in the event of partial or total cancelation of a production contract, such provision is incidental only, it being intended that a guaranteed loan shall not be obtained by a contractor merely for the purpose of protecting his contracts against cancelation. Accordingly, where the guarantee of a loan is applied for principally because of the cancelation provisions, such guarantee being otherwise unnecessary, the guarantee will ordinarily be denied.
- 7. The use of guaranteed loans should be confined to working capital purposes, and careful provision should be made to avoid the deflection of any funds de rived from any such loans into plant or other fixed assets.
8. Every loan guaranteed by the Commission should be self-liquidating through the proceeds of the contracts which occasion the loan.
9. This self-liquidating feature involves obviously the requirment that maturity of the loan should not go beyond the period of the related contracts.
10. Whilo revolving fund loans are admissable, they must conform to the above requirements as to liquidity through the related contracts. This can be accomplished by provisions to the effect that there must, at all times, be a stated margin of money due or to become due through contracts over and above any outstanding balance of the loan.
11. The Commission expects the participating banks, to the extent that they can reasonably do so, to take the primary responsibility for policing the loan, and to that end will exrect the loaning banks to keep currently informed with respect to the oprrations of the borrower, and, in particular, to guard against the dissipation of working funds, whether such working funds are derived from the loan or not, through the payment of increased or excessive salaries, the payment of unjustified dividends, the investment of funds in fixed assets without making ample provision for taxes and other necessary calls upon working funds, having in mind at all times the effect of tax liability on the cash position, and, in general, to see to it that the operations of the borrower are such that the prime characteristic of the liquidity of the loan through the related contracts is not impaired.
12. While the Commission does not wish in any way to discourage a borrower from utilizing his productive facilities to the utmost extent physically possible, it expects the loaning banks to see to it that additional business is not taken on by the borrower without adequate financial provision therefor. This relates both to plant and working capital requirements.
13. In arranging for a regulation V loan, the loaning bank will be expected to see to it that at least the same degree of protection is provided for the loan as the bank would require if it were acting solely on its own behalf, and, in general, such protection should be the maximum obtainable, but consistent with maintenance of the credit of the borrower for the expediting of war production. Should further financing of a borrower become necessary subsequent to an executed regulation V loan, care should be taken to avoid any arrangements which will either impair or dilute the protection of the outstanding guaranteed loan.
14. The Commission expects the borrower to obtain, and the banks to provide for, the lowest interest rate which is compatible with the credit position of the borrower and the operations and practice of the bank.
Admiral LAND. I am also submitting a statement of guaranteed V loans as at November 30, 1942.
Statement of guaranteed loans under Executive Order 9112 as at Nov. 30, 1942
1 Revolving line of credit. 2 Loan paid Nov. 30, 1942.
Statement of guaranteed loans under Executive Order 9112 as at Nov. 30, 1942—Continued
Federal Reserve district and
Name of borrower
Actual conDate of Percent
Credit available tingent liability Amount of loan tingent liability guaran age of
of Maritime outstanding of Maritime ty--1942 guaranty
12-San Francisco, Calif.
San Francisco. Calif.
(Los Angeles branch).
Crawford & Doherty Foundry Co.