Mr. BROOKS. No, sir; we are willing to take the risk of the result, or whatever you may call it; we are willing to take what follows and we are willing to be at the picnic that the gentleman referred to yesterday, and furnish half the music and half the dancing.

Mr. MCLAUGHLIN. Do you agree with Mr. Parker in what he said, to the effect that these exchanges should be permitted to continue to do business and change some of its rules so as to play this game fairly?

Mr. BROOKS. Well, Mr. Chairman, that is rather a difficult question to answer with a yes or no, because this Congress can not regulate the rules of any exchange; if they have grown up and all these years have followed the rules they can continue under those rules unless they are prohibited to use interstate connections or by some other method, and to ask if they should change their rules would it be all right is almost like the problem: If 5 and 6 are 15 what would 7 and 9 be? It seems to me to be hardly a practical question, because we are not looking for anything of that sort to be done.

Mr. LEVER. Mr. Parker was not looking for that either, was he? Mr. BROOKS. No; I do not think he was.

Mr. LEVER. I would like to ask, Mr. Brooks, on the matter of hedging, if you regard hedging as any different in its results from the ordinary gambling transactions on the exchange?

Mr. BROOKS. No, sir; they are exactly the same, as far as I see; the processes are identical; the only difference is that the hedger handles spot cotton while he is hedging, while the gambler does not.

Mr. LEVER. You are, then, as much opposed to hedging transactions as you are to the ordinary gambling transactions?

Mr. BROOKS. Yes; I do not think it possible to make a law that would apply to one without having it apply to the other.

Mr. LEVER. In other words, you do not think you could separate the two?

Mr. BROOKS. No, sir; I do not.

Mr. LEVER. Do you have any information as to the percentage of gambling transactions carried on on the exchange in comparison with the legitimate transactions?

Mr. BROOKS. I have no official figures, and it is almost impossible to get them.

Mr. LEVER. Do you have an opinion about it that you would like to express?

Mr. BROOKS. Well, so far as I have been able to obtain, 90 per ĉent is usually what is expressed as the purely speculative feature. Mr. LEVER. Ninety per cent is purely speculative?

Mr. BROOKS. Yes, sir.

Mr. LEVER. The statement has been made that the effect of the change in this country would be to transfer the gambling transactions to Liverpool and Bremen. What have you to say as to that?

Mr. BROOKS. Well, I think we could be more independent of one in Liverpool than we could in this country, and I know there is a way by which, if Liverpool interfered with us too much, we could force a readjustment there; but I won't go into a discussion of the details of that.

Mr. LEVER. Do you know whether or not there is now pending in the English Parliament a bill similar to the one now pending before this committee?

Mr. BROOKS. I am not informed on that.

Mr. LEVER. I might say to the chairman that that is a fact. Mr. BROOKS. I will say in connection with that that a resolution was passed at this same congress, at Atlanta, demanding that Congress pass this law and that the Parliament of Great Britain also do so; it passed the congress, but it was not unanimously authorized, so it did not go out as the recommendation of the congress.

Mr. BURLESON. I would like to direct Mr. Brooks's attention to the fact that there is no gambling on the Bremen exchange at all; it is prohibited by law; in fact, it has not been practiced for many, many years, if it was ever practiced.

Mr. LEVER. Does your information agree with the information given the committee yesterday, that New York influences, and in a large measure controls, the Liverpool operations?

Mr. BROOKS. That seems to be the preponderance of evidence on that side.

Mr. LEVER. What have you to say as to the ultimate effect upon the producers and spinners by the abolition of exchanges in this country?

Mr. BROOKS. The producers and spinners?

Mr. LEVER. Yes.

Mr. BROOKS. Well, I think it would bring them closer together, eliminate useless waste and expense, just as was expressed in this resolution, and there is such a thing as raising the price to the producer and lowering it to the consumer by eliminating unnecessary friction.

Mr. LEVER. You do not think the effect would be to depress the prices paid the producers?

Mr. BROOKS. No, sir; not one way or another; no, sir.

Mr. LEVER. The effect would be, then, you think, to permit the law of supply and demand to have freedom of action?

Mr. BROOKS. Yes, sir; that is what we want; that is all we ask. Mr. SIMS. If hedging constitutes any considerable amount of the dealings on the cotton exchanges-I mean hedging by persons who actually handle cotton-if the percentage of future dealings is due to that kind of hedging, why shouldn't the hedging be as great in November as in October or December?

Mr. BROOKS. Well, it would appear that it should be just as great in that month as in those months.

Mr. SIMS. Is it not a fact that at the ports and interior points there is as great a volume of cotton received in November as in any other month in the year?

Mr. BROOKS. Yes, sir; I think that is so.

Mr. SIMS. Yet isn't it a further fact that there is practically no dealings in the future market in November?

Mr. BROOKS. I am told that that is called a quiet month.

Mr. SIMS. But isn't there as great activity in the actual movement of cotton in November as in any other month, say October? Mr. BROOKS. Yes.

Mr. SIMS. Then if hedging is due to the actual movement of cotton, why shouldn't it be as great in November as in any other month? Mr. BROOKS. Well, it would have to be, I should think.

Mr. SIMS. Therefore the conclusion inevitably is that hedging of the character described constitutes a considerable portion of the future dealings on the cotton exchanges?

Mr. BROOKS. That, I think, is certainly admitted.

Mr. HEFLIN. But if it were not for wild fluctuations there would be no necessity to hedge?

Mr. BROOKS. If prices were always stable, of course nobody would hedge; there would be no inducement for it.

Mr. HEFLIN. Mr. Lever asked you a little while ago how it would affect the producer if the exchanges were abolished. If the prices were more stable, the spinner and producer closer together, it would help the producer to get money from the banks-that is, if you had more stable prices? The fact that prices fluctuate, now up and now down, injures him in that respect, doesn't it?

Mr. BROOKS. Yes, sir. They will not limit the amount; they would advance on it to a greater extent.

Mr. HEFLIN. One other question. The chairman asked you why they sold cotton so rapidly in the early fall. I believe that was the substance of his question. That is largely due to the fact that they owe money, a great many of them, isn't it?

Mr. BROOKS. Yes.

Mr. HEFLIN. And they sell the cotton in order to meet their obligations?

Mr. BROOKS. Yes; that applies to a number of them.

Mr. Cocks. Don't you people have some fear that there might be a combination of spinners that would absolutely control the prices as is done in the beef proposition?

Mr. BROOKS. No, sir; we do not anticipate that difficulty; we think that there is an equal show for the farmer in dealing with the spinner as with anybody else.

Mr. Cocks. You realize that it would require a great deal of capital on the part of the spinner to do business under this system?

Mr. BROOKS. Not necessarily, because the farmer could hold the cotton until he needed it; he wouldn't have to invest in it.

Mr. Cocks. That would depend on the success of the warehouse scheme, would it not?

Mr. BROOKS. Yes, sir.

Mr. MENDELBAUM. I would like to ask you whether you are aware, or not, of the fact that the unions have tried to sell cotton on the cotton exchanges?

Mr. BROOKS. Do you mean the farmers' union?

Mr. MENDELBAUM. Yes.

Mr. BROOKS. I am very positive it has not.

Mr. MENDELBAUM. You stated here that you have attended several spinners' conventions?

Mr. BROOKS. I attended only one.

Mr. MENDELBAUM. Will you tell me how much nearer the spinners and farmers came together than heretofore?

Mr. BROOKS. Well, we think that we can see

Mr. MENDELBAUM. Not what you think-what you know.

Mr. BROOKS. Well, I know this: That we are sure now of our central sales offices in some of the cotton States making direct deals with the spinners, and I cited Mississippi as an instance.

Mr. MENDELBAUM. Mr. Sims has asked you the question how it is that there is less hedging in November than there is, for instance, in December or January or March, and he has emphasized the fact that there should be more hedging terminating in that month, as most of

the cotton comes in then. I do not know whether you can answer the question exactly-I do not know whether I should ask it of you or bring it out myself-but isn't it caused by the fact that cotton which is hedged is cotton that is to be used in the far distant time and not immediately? There is no use to hedge cotton that is bought and needed and controlled for immediate consumption. Cotton that is hedged is to protect those who bought in January, March, July, and August.

Mr. BROOKS. That may have something to do with it, but I do not think that causes the difference that really exists.

Mr. CONE. Did I understand you to say that you can borrow money cheaper on cotton than on real estate?

Mr. BROOKS. Very emphatically so in my State.

Mr. CONE. I grant that is right, Mr. Brooks. Will you permit me to give these gentlemen the reasons for that?

Mr. BROOKS. I have no objection.

Mr. CONE. Cotton, gentlemen, can be hedged on the exchanges and the banks cheerfully, or the lenders of money will gladly, lend money on a security such as cotton that can be turned-in the first place they know it is insured in a manner to protect them, and in the second place they can turn it into money within five minutes. If they can not find a mill who will buy that cotton they can actually compel the delivery of that cotton on the exchange and they can turn that cotton; they can put that cotton on a dray and they can draw a bill of lading any moment they choose. That is a thing that can not be done with real estate.

Mr. BROOKS. The gentleman seems to infer that this cotton was hedged, which was the reason the banks would advance this money at a low rate of interest. I will state that that is not the case; that the cotton was not hedged. It was stored in the warehouses owned by farmers, and therefore no one could hedge on it.

The CHAIRMAN. I should not think it would make any difference, for the purpose of the argument, whether that money would be loaned more cheaply on cotton than on real estate. The only point of the question, which brought out this information, was to develop to what extent cotton was being put in warehouses by the producers. Mr. SMITH. I should like to ask Mr. Brooks a question right in this connection touching right on this particular point. Is it not a fact, in your experience and mine-we are in the same business-that banks will not lend within approximately the value of cotton on a given date for fear that the violent fluctuations that occur, unwarranted as we say, might wipe out the margin, and you would have to put up more to secure your cotton or it would be sacrificed?

Mr. BROOKS. Yes, sir; that is the way we look at it.

Mr. SMITH. Therefore you can not realize as much on your cotton, according to its value in the world's market, as you could on other property, by virtue of these wild fluctuations? Is not that true? Mr. BROOKS. Yes, sir.

Mr. MENDELBAUM. Isn't it a fact that there is more money loaned, I mean on cotton, with less margin, even by your banks at home, than there is on any other commodity, including real estate, which is supposed to have a stable value?

Mr. BROOKS. That may be true, but it does not necessarily imply that they

Mr. MENDELBAUM. I asked whether that was true or not, not what it implies; whether you can not obtain on cotton more advances than you can on any other product or any other class of property, including the one considered most stable, real estate? The suggestion has been made that you can not get as much on cotton by reason of the fluctuations in the market; there are not those fluctuations in real estate, and I ask whether you can obtain on real estate anything like the advances you can get on cotton?

Mr. BROOKS. Well, I wouldn't say anything like it, but then, perhaps, the average would not be higher.

Mr. MENDELBAUM. I would like to just ask whether the reason you can obtain such an extraordinary amount of advances on cotton is not because of the fact that the exchanges insure the loan in the banks and in case of necessity they can sell that cotton immediately? Mr. BROOKS. I do not think the exchanges furnish the means by which a farmer can sell his cotton.

Mr. MENDELBAUM. I am talking about the banks making the loans.

Mr. BROOKS. The cotton that the banks have loaned money on is not cotton that is hedged.

Mr. MENDELBAUM. I am not talking about hedging; you confuse the two propositions. The fact that people are willing to loan large amounts on cotton, more than on any other property, including real estate, as I have pointed out, is because through the medium of exchanges they find a ready market in case they want to sell it.

Mr. BURLESON. Bearing directly upon that point, and to throw some light upon the statement made by Mr. Cone, I would like to read a letter that I received this morning from the president of a national bank. In this connection I am pretty sure if you would call on national bank examiners you would find that in the banks in rural districts cotton accounts are the cause of the most worry. I venture you the assertion that three-fourths of the losses of the banks are from those sources, and I believe it would be very well to examine those sources of information; that is, the information that comes from the banks themselves.

Mr. MENDELBAUM. Yet they are willing to loan more on that commodity than on any property you can name.

Mr. BROOKS. That does not necessarily prove that the future dealing has any advantages.

Mr. MENDELBAUM. Just one more question. Do you consider the fluctuation in prices only when the market goes down?

Mr. BROOKS. It is a fluctuation, no matter whether it goes up or down.

Mr. MENDELBAUM. You do not complain when the fluctuation causes the market to go up, but you only complain when the prices. go down?

Mr. BROOKS. I will say that the fluctuation that goes above where the natural law of supply and demand would place it is just as evil as if it goes below normal.

Mr. MENDELBAUM. Did you consider the law of supply and demand applied one or two years ago when the farmers' unions put up the price to 15 cents when cotton was selling at 12?

Mr. BROOKS. The law of supply and demand has not applied since the exchanges have been in control.