Debtor Relief

A President on the way out, especially if he has been beaten by the biggest vote in history, has small authority over a "lame duck" Congress. Yet last week President Hoover sent Congress a special message on debtor relief which touched off sudden springs of electric action on Capitol Hill.

Throughout the nation the poignant wail of the debtor beats relentlessly upon political ears. At Logan, Iowa, last week 400 farmers forcibly halted another mortgage foreclosure sale. At Sidney, Neb. farm leaders prepared to march 200,000 irate debtors to the State Capitol at Lincoln and "tear it down" unless they got relief. In Wisconsin, Democratic Governor Schmedeman, after receiving a delegation of farm strikers, issued a proclamation calling upon circuit judges to hold all mortgage foreclosures in abeyance until the Legislature could declare a moratorium. Some judges promised to comply; others claimed they were legally powerless to obey the proclamation. At Grand Meadow, Minn. a cousin of President Hoover luckily got out of debt by giving his farm to the bank. Two great railroads in the East were reported close to receivership. In a decade Federal bankruptcies had jumped from 23,000 to 65,000 per year, with a rise in creditor losses from $144,000,000 to $911,000,000. By no stretch of ordinary economics could a 70-c- dollar in goods or service pay off a dollar debt at 130-c-.

Such a situation churned Congress to fresh confusion. All last week the Senate was deadlocked by a filibuster, the mainspring of which was debt relief through currency expansion (see p. 12). Idaho's Borah had a plan to "cheapen the dollar." Oklahoma's Thomas called for "reflation--or revolution." Into the hopper poured bill after bill proposing a widening of R. F. C. relief to debtors, even to the point of paying their back taxes. In the House 30 Representatives put themselves behind a bill by Mississippi's Busby to issue $3,000,000,000 in new bonds and inflate the currency by that amount in the desperate hope of upping commodity prices. Louder & louder grew the cry to remonetize silver. All that held the inflationists back was a lack of unanimity as to which plan to follow.

Aware of the growing seriousness of the debt situation, President Hoover, no inflationist, struck at it from the rear end--the bankruptcy laws. Rather than up currency, he proposed to cut debts. Said he in his special message:

"The process of forced liquidation through foreclosure and bankruptcy sale of the assets of individual and corporate debtors who, through no fault of their own, are unable in the present emergency to provide for the payment of their debts is utterly destructive of the interests of debtor and creditor alike and if this process is allowed to take its usual course misery will be suffered by thousands without substantial gain to their creditors. . . ."

What the President proposed and what the Democratic leadership of the House was ready to give was a revision of the bankruptcy laws whereby an individual debtor could go into Federal court not as a bankrupt but as a citizen ready to settle his obligations to the limit of his financial ability. Listing his assets and liabilities he would propose an extension of time for repayment or a scaling down of his total indebtedness to his capacity to pay. If a majority of his creditors approved his plan, the court would sanction it as a settlement without foreclosure, thus forcing minority creditors into line. In the case of corporations, especially railroads, reorganizations would be made easier and outright bankruptcy and forced sales avoided.

House bills to carry out the Hoover plan were offered by New York's La Guardia and Oklahoma's McKeown. Hearings were promptly started before the Judiciary Committee. Solicitor General Thacher, one of the ablest of Hoover officials, had given the bankruptcy laws long study. He appeared to help with legislative details. For once a "lame duck" Congress seemed ready to move at the command of a President-reject.

Only from outright currency inflationists came opposition to bankruptcy revision. In the Hoover proposal they saw an adroit move to scale down debts and thus cut the ground from the argument that what this country needs is more cash. Texas' Patman, bonus inflationist, ranted: "A proposal merely to put the people . . . into bankruptcy immediately and distribute their assets. . . . The people don't want bankruptcy. They want an opportunity to pay their debts."

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