1944

War Contract Settlement Signed, Effective July 21

July 3 — The long-deferred legislation by Congress to provide for settlement of war contract terminations will become effective July 21, 20 days from the date when it was signed by President Roosevelt on July 1.

This important measure provides the basis for settlement of many billions of dollars in contracts now or to be outstanding, and is intended to facilitate prompt action by the Government contracting agencies. It is of great importance to banks, since it protects their loans and enables the contractors to protect their working capital through the interim period between the cancellations of their contracts and full and final settlements of their claims against the Government agencies.

The Act signed by the President is entitled the "Contract Settlement Act of 1944," and was Senate Bill No. 1718, with such amendments as were approved in compromise between the two Houses of Congress.

Director to Head Settlement Board

Major features of the Act include these:

Creation of a Contract Settlement Board headed by a Director to be appointed by the President and confirmed by the Senate to serve for two years at a salary of $12,000, the Director to have authority to appoint an assistant if necessary.

Agreements between the war contractors and the contracting agencies shall be final, but, if the contractors are aggrieved, they can appeal to an appeals board or, as an alternative, bring suit against the Government in the Court of Claims or any United States District Court.

Contract settlements are made independent of the Office of Comptroller-General except in cases in which he believes fraud is involved.

Direct payments by the Government to subcontractors are authorized.

Payments are to be made to war contractors within 30 days after they file termination applications, and on the basis of 100% of the value of completed products, and 90% of the estimated value of inventories and costs incurred.

Government property to be removed from war production plants within 90 days.

War Contracts Clears Way For New "T" Type of Loans

The Act also is construed as clearing the way for the issuance of regulations for a new "T" loan to assure that funds are made available to contractors whose contracts have been completely terminated. This regulation is reported to have been substantially prepared by the Government contracting agencies.

1929

Stock Crash Is Blamed on Gullible Public

Oct. 30 — The violent reactions in stock prices constituted the outstanding financial development of the present month, and marked the culmination of a period of acute weakness which began in the latter part of September, according to the Guaranty Survey, published by the Guaranty Trust Co.

"But violent as it was," the Survey says, "the recession in stock prices was not so directly related to changes in the general business outlook as might be supposed. As a matter of fact, the security markets for some time have moved almost independently of trade developments.

"Over a long period, of course, prices of stocks and bonds are necessarily related to the prospects of the concerns they represent; and, in so far as other factors have carried values out of proportion to their intrinsic worth, the recent movement must be regarded as a readjustment toward normal levels. But to suppose that the selling wave of the last few weeks was due to adverse developments of corresponding importance in the general business situation would be a fundamental error.

Factors in Stock Trend Upward

"A number of factors combined to produce the unprecedented appreciation in stock prices that brought about the corrective action of the market in recent weeks. One, of course, was the truly fine progress of the nation's leading business concerns, which fully justified a strong upward trend in stock values. But this perfectly normal movement was immensely exaggerated by the changed character of the investing public. To borrow a popular phrase of the day, it may be said that the American people have become 'investment-minded,' partly as a result of the wide buying of Government securities during the war and partly by reason of the wide diffusion of income in the last decade, which has enabled vast numbers of people to enter the investment field on their own account for the first time.

"Thus, the public that has to a considerable extent determined the course of the stock market in the last few years, is a public uninformed as to intelligent procedure in buying and selling securities. It was easily subjected to psychological reactions of an exaggerated sort, buying and selling en masse without any clear understanding of the reasons for doing so. Although there has always been an element of mob psychology in the actions of the investing public, this element has been increased many-fold by the changes of recent years.

Victim of Imagination

"The small investor is, then, to a large extent the victim of his own imagination. His attitude toward the market seems to have been based on the view that there was no limit to the process of increasing earnings, re-investing the funds, and thus, still further increasing earnings. But the country's business concerns obviously cannot go on indefinitely fulfilling the demands of the public imagination. 'Plowing back' earnings is a perfectly sound policy within limits, but business expansion must be kept in relationship to the market for consumers' goods.

"When the realization finally came that prices of many securities were out of all proportion to present and prospective earning power, the reaction was similarly exaggerated, partly for psychological and partly for financial reasons. Not only did the fear of loss impel a rush of liquidation, but the disorder was increased by the fact that innumerable small speculators, unable to supplement their impaired margins, were precipitated into the market as sellers against their own will. Just as the efforts of the public to make the most of the rising prices result in a buying wave that pushes values too high, so the fear of loss forges a reaction that inevitably depresses the prices of stocks below their true worth.

"The question naturally arises as to what effect the market break will have on business. Here, again, an exaggerated reaction is usually witnessed. Both by curtailing purchasing power and by impairing the confidence of consumers and business men alike, a severe reaction in stock prices has an unfavorable influence on general trade. This influence acts first on the market for luxuries; then, if the effects are sufficiently marked, business in other commodities is also restricted.

"It is to be expected, therefore, that industrial and commercial activities will be affected to some extent by the decline in stock prices, and that the effect will be more pronounced than is warranted by the cause. But the experience of recent years justifies the hope that any recession resulting from the action of the stock market will not be violent or of long duration."

1923

Taxing Beauty

Jan. 8 — The Baltimore girl who was one of the prize beauties at a recent fashion show has unwittingly opened up a new field of income-tax exploitation. In addition to a check for $500 she was the recipient of a gown valued at $1,000 given by a department store, and the local Collector of Internal Revenue has notified her to pay an income tax on the prize money and the dress as constituting earnings from beauty capitalized. On her appeal from the assessment the case was sent to the department at Washington for an opinion.

There is always more zest to the revenue collector in discovering a new source of taxable income than in fishing in the old streams. But if the principle if established of classifying prizes won by pretty girls as the earnings of capitalized beauty, shall we not logically have personal charm and popularity, athletic skill and even gold efficiency in winning amateur cups capitalized for the same purposes of taxation? Must the engaged girl declare her diamond ring as earnings and the street beggar his receipts? Are the golfers' sweepstakes to be exempt?

There will be a lot for the revenue collectors to do in following out these new lines of inquiry, but it will be congenial work as exemplifying the finer subtleties of income-tax interpretation. - New York World