The Atlantic Report on the World Today: Washington

CONGRESS has not yet found a way to write laws tight enough to prevent failures, moral or administrative, by executive officials. That much was confessed in the Congressional Record as House and Senate, fully awake at last to the delinquencies in housing, enacted the 1954 housing bill. What is now going on brings memories of the scandals in the Reconstruction Finance Corporation. Congress must share some of the blame—for not having kept close enough watch, and for not having acted quickly enough when it began to realize that something was wrong.

The problem underlying the wrongdoing attributed to officials and some of those doing business under the housing program was stated for the House on July 20 by Representative Jesse Wolcott, chairman of the Banking and Currency Committee, presenting the new housing bill as agreed upon in conference committee. “The tightening up of the procedures, as we all well recognize,” said Wolcott, “could not be spelled out to the last detail in legislation. We had to leave many of them to regulations, and a broad provision in the conference report is to the effect that wherein we have not spelled out these safeguards in the legislation, generally speaking the administration may, by regulation, supplement the legislation with that objective in mind.”

Tightening up the law

In laboring to build honesty into the law covering government assistance for housing, Congress faced several handicaps. The housing program must be saved, with enough administrative leeway to make it workable. It is given key economic importance, in current doctrine, because of its “generative” characteristics stimulating industrial activity and employment far beyond the boundaries of the construction business itself.

Furthermore, in one area where the most spectacular misdeeds were alleged, the horse had not only been stolen but was dead. The great “windfall” profits had been made under Section 608 of the National Housing Act, which had expired in 1950. Congress could take only minor steps to avoid opportunities for like malfeasance in such parallel programs for construction of multifamily projects as continued under other, surviving sections. Finally, the question of tightening up the law was almost completely obscured in floor discussion by the storm over the public housing issue.

The principal step taken to block further offenses, ethical and legal, like those invited by Section 608, was the writing of a new provision requiring builders to certify actual construction costs of multifamily housing built with an FHA-insured mortgage and to reduce the mortgage by an amount corresponding to any excess of the mortgage loan over actual costs. The windfalls had been collected where builders obtained FHA-insured mortgage loans bigger than actual construction costs.

Otherwise, the new restrictions deal chiefly with the provisions covering insurance of loans for home repairs and improvements. There the offensive practices occur in terms of a few hundreds of dollars in individual cases, contrasted with the millions harvested under Section 608.

In one or two interesting instances, Congress recognized at least subconsciously that one way to police the appetite for material gain is to introduce the penalty of material loss. For example, lending institutions had as a practical matter been protected 100 per cent against risk on home repair loans. The new law requires them to bear 10 per cent of the risk. (The Senate had wanted to make it 20 per cent.) It is assumed that this provision will make them more careful on such matters as the reliability of builders, the credit standing of the borrower, and the common-sense factor in the job for which the loan is sought.

The new law requires the FHA to check up on the lending institutions through which it deals, and requires the lending institutions to look into the reliability of the firms doing the work under the home improvement programs. One provision would bar the multiple loans under which home owners have exceeded the limits on individual loans.

To protect the borrower against himself and against high pressure, new provisions state much stricter standards governing the kinds of projects on which loans may be obtained — the money must be used to protect the property or improve its basic livability or utility — and require the borrower to sign a dated credit statement to go with his application for the loan.

Congress moves too late

However creditable these legislative changes may be, Congress must admit to itself that it was slow in waking up to the defects in the housing law which made possible, and even invited, an estimated $80 million in windfall profits under Section 608. That section was enacted in 1942 to stimulate construction of rental housing for war workers.

The FHA insurance provisions were deliberately designed to persuade builders to put up apartment projects instead of concentrating on single dwellings. Their effect was to give a builder opportunity to get insured loans without putting up substantial equity. After the war, the program was continued with much the same characteristics, except that its new objective was to provide living places for veterans.

The conference report on the 1954 bill acknowledges that as early as 1947, Congress was hearing rumors of “mortgaging out ” under Section 608. That is the term applying when the mortgagor obtains a mortgage exceeding the actual cost of the project. It was these earlier suspicions which led to the repeated revision of the language covering the FHA estimates of cost.

There is a curious fact of history here. As the rumors of windfalls persisted, Congress acted to prevent them in two of the programs. It required builders engaged in FHAinsured work under the military housing program and the defense housing program to certify actual costs to the FHA and to apply any windfall to reduction of the mortgage. But Congress made no such move to eliminate the windfalls under Section 608. Not until 1954 did it write the across-theboard requirement for “builder’s cost certification” on all FHA mortgage insurance for new or rehabilitated multifamily and rental housing.

The Internal Revenue Bureau is looking at 1149 apartment projects on which builders collected an estimated $80 million more than they spent. It will press the contention that taxes on these windfalls should be paid at individual-income rates rather than the lower capital-gains rate. Attorney General Herbert Brownell, Jr., has grand juries all over the country looking for housing offenses, and has created a special unit in his department to expedite investigation and prosecution. The resulting cases are expected to include bribery of government officials, mail fraud, and violation of banking laws, as well as falsification of documents in the home improvement program.

When all the crimes have been uncovered, the future purity of the housing program will still have to depend, for all Congress or the policemen can do, upon the integrity of its administrators. FHA had insured about $3.5 billion in projects during the life of Section 608.

Taking the windfall figures as a guide, a rule of thumb may now be established that $3.5 billion in opportunity excites $80 million in cupidity. Between that rule and the most ardent efforts of Congress to write self-policing legislation, it is the man behind the desk in the administrative office who has to stand guard.

Young and the civil service

The recent report on the Federal government service by the sixth session of the American Assembly naturally won special attention in Washington, acutely interested in all things affecting government workers. As read here, the report seemed to spread a layer of tact over an inherent irony and drama. The American Assembly, which meets at Arden House, Harriman, New York, represents the fruition of one of President Eisenhower’s great dreams in his peaceful interlude as president of Columbia University. Having had the dream, he called upon one of Columbia’s bright young men, Philip Young, then dean of the graduate school of business, to do the work of giving it reality.

Philip Young, forty-four, son of Owen D. Young of General Electric, is now chairman of the United States Civil Service Commission. As such, he is the principal adviser to President Eisenhower in matters affecting Federal personnel. The critique of Federal personnel policies by an institution owing almost its very existence to President Eisenhower and Mr. Young contained, for Washington, the quality of a scene in which the son turns on his parents and gently but firmly points out ways in which they ought to improve themselves.

The report was not explicitly critical, but it did not suggest that perfection has been attained in personnel policies by the Eisenhower-Young regime. It did not say that the civil service had been purged of politics. It did not say that politics had been entirely absent from the loyalty program of which this Administration professes to be so proud.

Mr. Young has been a disappointment to Washington in his present post, and Washington has known him a long time and long held him in high regard. A good-looking man of great personal charm, he became one of the stars of the New Deal beginning in his mid-twenties — first at the Securities Exchange Commission, then at the Treasury, and then most notably, when war came, as a deputy administrator of Lend-Lease. He is remembered most of all for his determined and largely successful efforts to preserve honesty and common sense in programs which, being bold, novel, and usually expensive, always threatened to shoot off the track.

It is a matter of arbitrary judgment whether his total performance as Civil Service chairman has been good or bad. What has excited criticism has been his participation in the Administration politics of the loyaltysecurity program. He was a principal figure in the “numbers game” last spring, when the Administration announced the separation of 2486 persons from the Federal pay roll and undertook to convey the impression that most of them were dangerous subversives. Mr. Young dodged questions for a long time, and when pinned down was unable to support the Administration’s implication that it had been cleaning out Communists and spies wholesale.

That uproar might have died down for good, and Mr. Young might have been forgiven for good, had not his commission announced a new set of figures on separations just at the height of this fall’s political campaign. The public was told that in the 13 months up to the end of last June, 6926 “security risks” had been separated from the government, and that the files of 1743 contained information indicating subversive activities or associations.

The Republicans were perfectly willing to let it be understood that most of these had been appointed by the Democrats, but that thesis was challenged by disinterested experts in Federal personnel matters. It is too much to expect that politicans will not play politics with any materials that come to hand, but in Mr. Young’s case it can at least be said that his friends feel he is falling somewhat short of the marks they came to expect of him during his earlier career in Washington.

Competence in the Pentagon

In the Pentagon and in other quarters of the government with which he has to do business, it is gradually being discerned that the “new” Deputy Secretary of Defense, Robert B. Anderson, is one of those priceless public servants who get things done without making noise or getting into quarrels. In that respect he is distinguished from his predecessor, Roger M. Kyes, who though remarkably capable was also dramatic and controversial.

Since his ascension to the second post in the Pentagon civilian command last spring, little has been heard of Mr. Anderson outside the government. Inside, his influence has been growing. Mr. Kyes was a production man when a production man was needed. Mr. Anderson is, to use a word cropping up more and more, a “generalist.” This fall he has been in Europe, acting as the representative of the Department of Defense sitting next to Secretary of State Dulles in a whole series of international meetings including the Big Three, the Big Nine of the organizational efforts flowing from the London Conference, and the Big and Little Fourteen of the North Atlantic Treaty Organization. That he should have such an assignment is evidence, of the respect he has earned at the State Department and the White House.

“Partnership for Peace”

The new password in the Department of State is “partnership.” The official seal was put upon it by Secretary Dulles in his address before the United Nations General Assembly on September 23, called “Partnership for Peace.” High State Department officials passed the word to newspapermen that partnership was the thing to be stressed, although it is obviously less exciting as a slogan than “liberation” or “massive retaliation.”

What it means in action was explained by Secretary Dulles in his statement upon returning from the London Nine-Power Conference. “When I went to London,” the statement read, “I said that the initiative rested with the European powers. They have exercised that initiative. The result is what Europeans decided on for themselves. The United States will, I hope, coöperate with the result.”

Perhaps the most significant thing about “partnership” is that it reflects the new dominance of President Eisenhower in guiding the foreign policy of the United States. It contains the essence of the President’s instincts and thoughts as to how a coalition should be conducted.

President Eisenhower, in managing the affairs of the wartime military coalition, the peacetime North Atlantic coalition at SHAPE, the coalition of coördinate branches of this government, the coalition of factions within the Republican Party, and the coalition of all political elements which elected him to the Presidency, has believed in and practiced partnership. To him, it means gaining agreement, at however low a level, before leading the coalition in a course of action.

Dulles has been temperamentally disposed to order the coalition into a charge without waiting to learn just what the coalition thought about the objective and the proposed means of attaining it. Conscious of the power and resources of the United States, he was impatient with stragglers and malingerers. The most conspicuous example of his tendency to get too far ahead of his troops was when he rocketed off to Europe last spring to form a Southeast Asia defense alliance in advance of the Geneva Conference. The President’s method is slower, but his own record suggests that in the end an alliance is healthier for having taken its time — in partnership.