Evening star., 1935-04-09
SECURITIES CURBS
MISS U. S. ISSUES
Federal Bond Data Would
Not Pass Scrutiny Un-
der New Act.
BY DAVID LAWRENCE.

A1LQOuSn Tie beCuIltlcS 4Ct WhS
passed to protect the American in
vestor, it Is jlst being borne in on the
public that at present the largest Is
suers of securities are.not only exempt
from all the provisions Of the Federal
law, but that the issuing agencies are
not giving out all the information
needed.
Thus all securities issued by Fed
eral, State and city governments. as
well as all issues hoated by 1nde-
pendent agencies or governmental
corporations supervised by State and
local governments In America, do not
have to comply with the provisions Of
the securities law requiring explicit
information.
The public. on the other hand,
looks to the underwriters who put
their names on the circular. It Is
significant that the underwriters who
market securities for Government
agencies are penetrating more and
more into their fiscal affairs to ex-
| tract information of importance to
the investors.
Thus the issue of the Federal Land
Bank bonds of sl62 100000 fioated
this week has in its formal circular
more specific information and data
than it has been possible to obtain
| heretofore.
Government Connection. Vague.
The most material fact about the
Federal Land Bank bonds, for ex-
ample, is their relationship to the
Federal Government. The circular ac-
companying the issue says:
Although not Government obliga-
tons and not guaranteed by the Gov
ernment, the bonds Of the Federal
Land Banks are the secured obligations
Of banks operating under Federal
charter with governmental supervision
by the Farm Credit Administration"
The impression sought to be created
is that these bonds are morally the
offspring of the Government and
hence good investments.
There is q precedent Of sorts for
such an impression, for when the Fed
eral Home Owners Loan Corp. bonds
| were first issued and were guaranteed
only as to interest by the Federal
Government, they were regarded as
moral obligation. and later Congress
took over the guarantee Of both prin-
cipal and interest.
U. S. Holds Big Amount.
In other words, the Governments
own relationship becomes 50 strong
as to imply protection. Thus about
1885 ,000,0 900 of Federal Land Bank
bonds are held at present by the Fed
eral Government or its various agen-
cies in its own portfolios.
But nowhere in the bookkeeping OF
the Government are these Federal
Land Bank bonds carried even as o
contingent obligation. The investor
has only the faith that he gets from
reading the implications in statements
OF Government officials that perhaps
the Government will take care Of him
in case of default. Thus Gov.
Myers Of the Farm Credit Admins
tration says in public statement this
week in commenting on the $l62, ,000,-
600 issue:
"The Federal Land Banks form an
essential part of the banking system
of the Nation. They are established
under the laws of the United Safes
and operate under the close super
vision of the Farm Credit Admins
tration, which is permanent branch
Of the Government"
Permanency Matter Of Opinion.
The assurance that any agency in
the Government Is permanent" de-
pends upon how trustful one is con-
cerning the whims of Congress. No
Congress can bind o future Congress.
This fact was proved when the Gov
ernment itself issued bonds promising
payment In gold and another Con-
gress repealed the clause.
approximately $l,S44,000,000 Of Fed
eral Land Bank bonds are outstand-
ing The public is left to guess to
to be supported by the Federal Gov-
eminent. They are, Of course, tax
exempt and, since they pay 3A per
cent interest, are considered by in
vestment bankers . good thing to
offer to the public.
But these investment bankers have
nothing to say about the future man
agement of the Farm Credit Admin
istration and are not represented on
any board of directors Of the issuing
banks, and the public Is dependent
entirely upon assumption.
Exempted Glass In Large.
If q private corporation left such
pertinent questions up in the air the
security would not be registered by
the Securities Commission.
The exempted class-that is, the
securities which do not have to COM
ply with the securities act provisions
Is o large one. During 1884, for
instance, about $1,730, 10000 of Sc
curities Of State and city governments
alone were issued, as compared with
about a fifth Of that total fioated by
private corporations.
It is far easier nowadays to know
the details of the finances of the
government of Finland, for instance,
than it is to know about the finances
of the City of New York. The Sc
curities Commission has authority over
Finland's bonds sold in the United
States, but not over New York City's
issues.
Some day the howl that will 60 up
on defaulted bonds of municipalities
will be directed against the UNDER
writer's who sell them, and they in
turn will point to their own difi-