Swing Session

The Temporary National Economic (Monopoly) Committee functions much like a group of expert Big Apple dancers. After a spell of general activity, the bulk of the committee clears the floor, applauds politely while one of its members cuts a particularly fancy caper.

Solo exhibitions began last December with a conservative Suzy-Q by Economists

Leon Henderson, Isador Lubin and Willard Thorp (TIME, Dec. 12). Shortly thereafter Thurman Arnold's Department of Justice trucked across the floor waggling a finger at patent monopoly in the glass container industries (TIME, Dec. 26). Last week it was the turn of SEC Chairman William O. Douglas. As everyone knows, Bill Douglas is a very agile fellow and when he revealed that his dancing partner would be the insurance business--far too dignified for Big Appling--everyone knew it would be fun watching.

Last time anyone danced with the insurance business was in the 1905-06 Arm strong Life Insurance Commission Investigation, which started Charles Evans Hughes on his career. Exposing all sorts of shenanigans by insurance executives, Investigator Hughes cleaned up most old-time insurance evils, was responsible for revising New York's insurance code (soon copied by most other States).

Although the Armstrong Investigation viewed with alarm the steady mushrooming of the biggest insurance companies, no effective legal brakes were applied. At that time there were 138 legal reserve companies with aggregate assets of $2,924,253,848. Last week Bill Douglas declared that at the end of 1937 there were 308 legal reserve companies with aggregate assets of $26,249,049,219. The biggest three companies in 1906 had some half billion dollars in assets apiece then; now they have more than a billion apiece. And Metropolitan Life Insurance Co., which in 1906 had only $176,000,000, today has the fabulous total of $4,700,000,000, making it, next to American Telephone & Telegraph, the biggest company in the world. Said Bill Douglas: "This tremendous growth is itself cause for inquiry."

But before leading Metropolitan's self-made Chairman Frederick H. Ecker onto the floor, Bill Douglas reassured the 64,000,000 people in the U. S. with life insurance policies (45% of them with Metropolitan). Said he: "No policyholder need have any concern that any fact brought out in this inquiry will in any way jeopardize the protection which he counts upon. . . ."

Thereupon last week's look-see into insurance began to diverge from the Armstrong pattern of 33 years ago. The Armstrong Commission was primarily interested in insurance by itself; the Monopoly Committee is out to survey "the economic power inherent in the vast investment funds controlled by insurance companies. . . ." Today the largest 49 legal reserve companies hold 11% of the U. S. debt, 9.9% of all outstanding municipal bonds, 22.9% of all railroad bonds, 22% of the public utility debt, 15% of the industrial debt, 14.5% of urban mortgages. The Metropolitan alone now invests $2,000,000 a day.

Frederick Ecker saw nothing but good in this vastness. Slight, white-haired and precise at 71, he appeared in a natty pin-stripe suit, only a slight trembling in his hands showing his nervousness. When he went to work as a Metropolitan office-boy at $4 a week in 1883, a single investment of $10,000 was big stuff. In his grating voice, Witness Ecker remarked: "I have seen that grow to where ten million is only in the same proportion that the $10,000 was. . . . I haven't fixed in my mind any place at which it would be unsafe to continue. . . . I believe that our policyholders are better protected now. . . . We have 100,000 separate investments. . . . The wider your diversification, the more protection you have."

There were only two ways, Mr. Ecker admitted, that Metropolitan could stop its growth--not writing any more policies, which would be "utterly destructive to the business," or not adding to its surplus, which would be "dangerous" if mortality rates suddenly rose in an epidemic.

At one point Witness Ecker remarked that "the agent in his canvassing--he is resourceful. . . ." One aspect of Metropolitan agents' resourcefulness was considered next day. The Metropolitan is a mutual company, its policyholders being its shareholders and theoretically therefore electors of the management. Bill Douglas set out to show that this was only theoretical, that mutual management was actually self-perpetuating--just as the Armstrong Investigation concluded over 30 years ago. Noting that in the 23 years since Metropolitan shifted to mutual status the management slate has never been opposed, Bill Douglas further noted that at election time it is customary for branch offices to instruct their agents to ask policyholders to sign election ballots. Last week more than a dozen Met agents claimed that it was general practice for them to sign the ballot themselves "in a more or less kidding spirit."

This headline-making distraction brought a hot retort from Metropolitan President Leroy Lincoln, who interrupted to snort: "I never heard of this being done and I am sure that no responsible officer of the company ever knew of or countenanced any such practice!" It also brought protests from other Metropolitan agents.

Further treading on the industry's toes, Dancer Douglas politely explained that the Met was "not singled out as a culprit," that other mutual companies employ the same "election machinery." The swing session was then adjourned until this week, and Bill Douglas journeyed to Manhattan to speak before the annual dinner of Fordham University alumni, there cut some verbal capers of his own: "The convenient and impersonalized use of the corporate device has unquestionably contributed to moral decadence. This has especially been true with the growth of bigness. . . . Individual responsibility before God has no counterpart in the corporate system."

Last week the U. S. Government also did the following to and for U. S. Business:

P: Continued its catch-as-catch-can bout with potent Transamerica Corp. Going into its fifth week, SEC's investigation of A. P. Giannini's big bank holding company, on charges of false stock registration (TIME, Dec. 12), was still in the legal fencing stage.

P: Pursued its encirclement of investment trusts. As part of its pending regulatory program, SEC submitted a new report to Congress. Sample findings: From 1927 through 1935 investment trusts raised about $7,000,000,000 through sale of their own securities; the buyers got an average of less than 3% on their money; by 1935 their securities had declined 37% in value.

P: Cracked down on the Fashion Originators Guild of America, Inc. The Federal Trade Commission found that the guild, a trade organization of 225 manufacturers of textiles and women's garments, was organized to prevent design piracy but had expanded its program until it was unlawfully boycotting and restraining trade. In 1936 in the wholesale price range of $10.75 and up, for example, its members' sales constituted 83.9% of total sales of women's garments, a persuasive argument for retailers doing the guild's bidding. FTC ordered the guild to cease and desist; the guild angrily announced an immediate court appeal.

P: Gave a hand to pea canners staggering under a record crop. To assist orderly marketing, RFC lent the industry $7,500,000 through Canned Foods Finance Corp., an organization set up by the Canned Pea Marketing Cooperative.

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