(6 of 7)
Not surprised were the holding companies. In January, Chairman Frank had reminded them of Section 11's purpose, reassured them somewhat. "Many of the holding companies," said he, "were created overnight, by the magic-silk-hat act of some reckless investment bankers. But our job is not of that kind. We have no rabbits and no silk hats. Ours is a slow, tedious process which will take years." The process, Jerome Frank believes, will prove to be not a death sentence to the utility industry, but a rejuvenation.
Besides show-cause orders, two weapons has Chairman Frank to speed the unscrambling. When a system goes bankrupt, SEC can guide (or veto) its reorganization plans. Guinea pig for this method is huge Associated Gas & Electric (TIME, March 4). And no holding company or subsidiary, however solvent, can issue any new security without SEC approval. Under this power SEC has already made 334 decisions, is making more every week. No decisions have caused stormier criticism.
Judicial Lawmaking. Most sensitive to criticism of all New Dealers, boyish Jerome Frank is constantly writing letters to unfriendly newspapers, often in longhand, always defending his views. More anxious to be liked than any of his predecessors, he is in the least likely spot for it. Ever since Douglas (and Depression II), SEC has been suspect among businessmen-in-general, accused of being the bottleneck through which new capital investment, hence Recovery, fails to squeeze. Those technically concerned with SEC (brokers, underwriters, lawyers) grumble increasingly about red tape, 20-day "cooling periods," ambiguous rules, duplication of registration statements, "arrogant & upstart" personnel. To offset their complaints, Chairman Frank thinks of the 10,000,000-odd trusting U. S. investors, resolves to guard them against needless shearing. On his tongue are figures from a recent Elmo Roper poll of New York Stock Exchange customers: 41% (a plurality) favor present regulations. And when utility men raise technical or ethical difficulties (over Section 11, over competitive bidding) that appeal to the judicial Frankian mind, at his elbow are Tom & Ben, pressing him to apply the tough Brandeisian letter of the law.
To resolve these conflicts, Jerome Frank needs all his legal brilliance, all his mental flexibility. In his utility securities decisions, he has stirred up a new criticism: that SEC, intended to be Wall Street's cop, is crossing the Rubicon between a government of laws and one of men. But to Legal Philosopher Frank, such a Rubicon is fiction, since any judicial decision is a government of men. Using the Holding Company Act as a means, he makes no bones about his sociological ends: 1) to encourage equity financing, so that U. S. utilities may avoid the bond-burdened fate of U. S. railroads; 2) to free operating utilities from Wall Street control, get their still profitable equities into public hands.