The Sky Room's the Limit

Originally, the Reconstruction Finance Corp. was a Republican baby, but it learned to walk & talk in the New Deal's progressive school. By now it was 18 years old, big for its age, and inclined to lend money as if there was no rubber band on daddy's bankroll. Last week it was asked where all that money was going, and why.

In 1932, Herbert Hoover had set up RFC to lend $1.5 billion to ailing banks and industries. Then the Democrats fattened and pampered it like one of their own alphabetical children, bolstered its lending power to $18.8 billion, and put it into the wartime business of running rubber plants, Central American fiber plantations and steel mills.

When both the depression and war had vanished, RFC, in its $6.5 million new Washington office building, kept lending away: to Henry Kaiser ($188 million), the now bankrupt Lustron Corp., the foundering Waltham Watch Co. (which later hired an RFCman as president). It also decided to prop up gasoline stations, country stores, restaurants, plumbers and a host of small businessmen. Though it made some curious loans, it claimed an overall profit of $560 million during its existence.

A House Cleaning . . . Two months ago, Harry Truman asked Congress to transfer RFC to the Commerce Department, thus giving it family status. Last week the Senate voted an emphatic "no." Principal reason: a Senate investigating committee had been digging into RFC's past, was beginning to wonder whether RFC's lending machinery shouldn't be shut off altogether. What RFC needed, said Illinois' Paul Douglas (who had stoutly championed all the other presidential reorganization plans) was "not so much a transfer as a thorough house cleaning."

In 1949, Senators learned, RFC had lent $975,000 to the Mapes Hotel in Reno, which drew 30% to 40% of its income from a thriving twelfth-floor gambling casino called "The Sky Room." The casino operators, said Committee Chairman William Fulbright last week, were "lawbreakers and thugs." The casino's boss is Lou Wertheimer of the gambling Detroit Wertheimers.

Ponderous RFC Chairman Harley Hise sputtered that the loan was made to the very respectable owners of the hotel, who had in turn leased out the gambling rights, in a state where gambling is legal. Though the RFC did not set the house percentages on the roulette wheels, RFC admitted that it had, of course, considered the "take" in deciding to risk the loan.

. . . Or a Burial? Nobody could prove anything shady or illegal about the Mapes Hotel loan, but neither could anybody prove that the RFC's action looked very smart. There was a more basic question: Was it a proper Government function in boom times to lend money to businesses where private bankers refused to tread? Wasn't RFC too often supporting an army of potential bankrupts, to keep them going against sharper competitors?

Two ex-RFC chairmen, Texas' hard-fisted Jesse Jones and pince-nezed Publisher Eugene Meyer of the Washington Post, seemed to think the agency was out of date. Jones had recommended "a decent burial" for RFC. Last week Eugene Meyer's Post added pointedly: "The time has come to abolish the agency, or at least put it on an inactive standby basis to be revived only if an emergency arises."

Hardly had the Post got the word "emergency" out of its mouth before the RFC put it to use. At week's end, it decided to reopen three of its wartime synthetic rubber plants (see BUSINESS). War in Korea had probably prolonged RFC's life as an agency, but its power to make business loans was still in question.

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