Amputating Tails

At press conference one morning last week, Franklin Roosevelt sprang one of those dramatic surprises which take away the breath even of those who see him frequently. Having just disposed of a question about the international difficulties of preserving the scenic beauty of Niagara Falls, the President blandly announced that he had found a memorandum on utilities left with him last November by Commonwealth & Southern's Wendell Willkie (TIME, Dec. 6). At that time Mr. Willkie had a long talk with the President, leaving him with a brief, specific plan for composing their difficulties.

Taking up where he left off with Mr. Willkie two months earlier, the President ran through the memorandum point by point, challenging Powerman Willkie at almost every step. Head bent over the paper, on his desk, he was asked to raise his voice. Finally he hit the Willkie request for modification of the holding company "death sentence." That, said the President, was the heart of it.

Reverting to the simile of his Jackson Dry speech--that $600,000,000 of holding company money controlling $13,000,000,000 of utilities is like a four-inch tail wagging a a6-in. dog--Franklin Roosevelt summed it up for the reporters: Mr. Willkie simply wished to legalize the four-inch tail for all eternity. The President would never agree to that.

Finding him in so communicative a mood, reporters plied him with questions. Would he eliminate holding companies? Yes. Would he eliminate first-degree holding companies--those directly over operating companies? Yes, he would. Would he apply that philosophy to all industries? Yes, why have any holding companies at all? Take banks. There are good illustrations of holding companies in the financial field. Why can't a bank run itself?

From Paul Leach of the Chicago Daily News came a muffled crack: "He's cutting off the tail right behind the ears." The President did not hear it. In high good humor he concluded the conference, turned to his next important appointment of the day: a meeting with Business bigwigs to discuss co-operation between Government and Business (see col. 3). After hearing such an effusion of Presidential sentiments, the reporters retired amazed and mystified. Even the "death sentence" of the Holding Company Act permits first degree holding companies under certain conditions. Abolition of all holding companies would break up most of the nation's railroads, and seriously affect three-fourths of all industrial corporations listed on the

New York Stock Exchange. For the holding company, although often used as a slick device for controlling other people's money, is a practical solution to the problem of carrying on interstate commerce under 48 varieties of law.

Biggest mystery of all was why the President chose to toss a monkey wrench into his peace conference with Business. There was no political capital to make out of it, as there was with the Jackson Day blast at concentrated wealth. Scripps-Howard Columnist Raymond Clapper wrote: "Some say Mr. Roosevelt just got wound up and couldn't stop, that it was all casual, offhand, and that he hasn't the faintest idea what he intends to do about holding companies. Others think he was giving warning of legislation to come. I was chiefly reminded of the Mad Hatter's tea party."

A few observers even held that the President was so alarmed at what he had done that he decided to release the appointment of Stanley Reed to the Supreme Court immediately (see p. 11). At any rate the reaction on Wendell Willkie was swift and dramatic. Within 36 hours the powerman offered to sell the President all the Southern operating companies of his system, a $600,000,000 collection located in the heart of TVA land, and comprising 60% of Commonwealth & Southern's properties. The rest are in the North. His proposition was that the Government take the Southern properties with personnel intact at a price to be set by a three-man tribunal, one appointed by the President, one by Mr. Willkie and one by the Supreme Court. Said Mr. Willkie: "I make this suggestion as a last resort in a desperate situation."

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