Reconstruction Finance Corporation

The Reconstruction Finance Corporation (RFC) was an independent agency of the U.S. government, chartered during the administration of Herbert Hoover in 1932. It played a major role in the New Deal and World War II in restoring the U.S. economy from the Great Depression.

Origins

The RFC was Hoover's most important attempt to deal with the depression. It was proposed by Hoover and created by Congress in January 1932. The collapse in the value of assets combined with demands from panicky depositors to get their money out meant that many banks that were otherwise solvent, hoarded their money and refused to make loans. It was much like the Financial Crisis of 2008. The RFC could make loans to banks, insurance companies and railroads. The Emergency Relief and Construction Act of July 21, 1932, enlarged its power to allow for loans to state government and to farm agencies. The immediate aim was to restore confidence in financial institutions generally and encourage them to start lending again, prevent ruinous bankruptcies that would further destabilize the shaky economy, and--hopefully-- revive the economy through the restoration of credit. The RFC was capitalized at $500 million (comparable in size to $75 billion in 2009), provided by the federal government, and it was empowered to sell $3.3 billion (comparable to $500 billion in 2009) of debentures. Through the end of the Hoover administration $2.2 billion was actually loaned to authorized borrowers (comparable to $350 billion). The RFC saved many railroads, banks, and insurance companies. Democrats limited its effectiveness by overly stringent security requirements for loans and by the decision of Congress to require public disclosure of borrowers, which virtually forced a bank to admit publicly it was in trouble.

Operations

The RFC advanced $2 billion in loans to state and local governments and to banks, railroads, farm mortgage associations, and other businesses, funding, for example, the construction of the original Hayden Planetarium. Thomas G. Corcoran received a placement in the Reconstruction Finance Corporation when Hoover was President.

The RFC also had a division that would give the states loans for emergency relief needs.

The RFC was bogged down in bureaucracy and failed to disburse many of its funds. It failed to stem the tide of mass unemployment of the Great Depression. The failure of the RFC helped to lead to the election of Franklin Delano Roosevelt.

New Deal

During the New Deal era, the Reconstruction Finance Corporation was given a blank check appropriation by Congress and authority to borrow money. It borrowed twenty or more billions. The RFC would buy the stock of a new corporation and lend it money, as much as­ ten, fifty or a hundred million dollars, billions in some cases. Thus the Executive branch was able to bypass the Constitutional power afforded to Congress.

World War II

President Roosevelt merged the RFC, Board of Economic Warfare (BEW), and the Lend-Lease Office together under the direction of Leo Crowley, former head of the Federal Deposit Insurance Corporation (FDIC), which was one of the landmarks of the New Deal. Oscar Cox, a prime author of the Lend-Lease Act, general counsel of the Foreign Economic Administration joined as well. Lauchlin Currie, formerly of the Federal Reserve Board staff, was the deputy administrator to Crowley.

The RFC established seven new corporations, and purchased an existing corporation. The eight RFC wartime subsidiaries are Metals Reserve Company, Rubber Reserve Company, Defense Plant Corporation, Defense Supplies Corporation, War Damage Corporation, U.S. Commercial Company, Rubber Development Corporation, Petroleum Reserve Corporation. These corporations were involved in funding the development of synthetic rubber, construction and operation of a tin smelter, and establishment of abaca (Manila hemp) plantations in Central America. Both natural rubber and abaca (used to produce rope products) were produced primarily in south Asia, which came under Japanese control. Thus, these programs encouraged the development of alternative sources of supply of these essential materials. Synthetic rubber, which was not produced in the United States prior to the war, quickly became the primary source of rubber in the post-war years.

From 1941 through 1945, the RFC authorized over $2 billion of loans and investments each year, with a peak of over $6 billion authorized in 1943. The magnitude of RFC lending had increased substantially during the war. Most lending to wartime subsidiaries ended in 1945, and all such lending ended in 1948.

The Petroleum Reserves Corporation was transferred to the Office of Economic Warfare, which was consolidated into the Foreign Economic Administration, which was transferred to the Reconstruction Finance Corporation and changed to the War Assets Corporation. The War Assets Corporation was dissolved as soon as practicable after March 25, 1946. Presidential aide and alleged Soviet spy, Lauchlin Currie headed the office during this time.

Spies

Nathan Gregory Silvermaster, who headed a group of Soviet agents working in the U.S. Government during World War II, was transferred, along with the rest of the division from the Treasury Department's War Asset's Administration into to the Reconstruction Finance Corporation, where it became the War Assets Corporation.

See also

• War Assets Administration

Further reading

• Jones, Jesse H. Fifty Billion Dollars: My Thirteen Years With R.F.C. (1951)
• Olson, James S. Herbert Hoover and the Reconstruction Finance Corporation, 1931-1933 (1977).

External link

• Oral History Interview with Hubert F. Havlik, Truman Presidential Library, June 20, 1973.