Lowering the Boom

Until last week, Washington planned to tighten up gradually on credit to fight inflation. Then Chairman Stuart Symington of the National Security Resources Board took a hand in the matter. Result: drastic new restrictions on housing and installment credit which brought loud cries of anguish from businessmen and consumers.

House builders were the first to feel the crackdown. They had thought that for the time being, at least, there would be comparatively mild controls. But Stu Symington, the man chiefly responsible for gearing the U.S. for war production, thought differently. The only way to keep prices down and to free men and materials for the rearmament program, he said, was to clamp down harder & faster. After talking it over with FRB & housing officials last week, Symington won his point. The new restrictions:

P: For veterans, down payments on new one and two-family houses, which were 5%, now range up to 45% on houses valued at $24,250 or more.

P: For nonveterans, down payments which had ranged from 10% to 25% were raised to a maximum of 50%.

P: For veterans and nonveterans alike, the payoff time on houses costing more than $7,000 was cut from 30 to 20 years.

The object of the new regulations was to cut new housing construction from the current rate of 1,400,000 units a year to 800,000. But builders cried that the cut would be much greater. Said Long Island's Builder William J. Levitt: "We'll be lucky to have a half million housing units built in 1951." Some other builders thought it would be as low as 400,000.

In any case, construction men everywhere scrambled to get credit under the old liberal terms. During the 24 hours before the new rule took effect, Washington builders alone swamped the Veterans Administration and the Federal Housing Authority with 14,000 applications for Government-insured credit on new houses, more than the number of houses built in the area this year.

"Bad Faith!" Stu Symington then put the heat on FRB to tighten up regulation W (which covers credit on all installment purchases). He wanted it made almost as stringent as during World War II. FRB fell in line. The new regulations:

P: Down payments were raised from 15% to 25% on radios, television sets, refrigerators, washers and other appliances, and the payment time cut from 18 to 15 months.

P: Down payments on furniture were raised from 10% to 15%, and the payoff time cut from 18 to 15 months.

P: The payoff time on automobiles was cut from 21 to 15 months, but the one-third down payment was unchanged.

Retailers, who had just finished discussing installment credit with Washington officials and had been given no hint of the move, shouted: "Bad faith!" FRB had assured them, they said, that there would be no change in credit regulations for 120 days at least. Automen were just as surprised. Some of the smaller companies were already talking of layoffs and production cutbacks. Said one automan: "Expensive cars just won't be sold any more." The feeling was the same among TV set dealers, whose problems were compounded by FCC's color ruling (see RADIO & TV) and a 10% tax which starts Nov. 1. Cried an enraged TV dealer: "The boys in Washington are doing everything short of putting out an elimination order."

Word from the Voters. There was no doubt the new restrictions would cut down buying and trim some prices. The much milder restrictions of the past two months (TIME, Sept. 18 et seq.) had already had a chastening effect. Prices of lumber and many another building material were on the skids, housing starts were dropping and used car sales had slumped as much as 75% in some cities.

If the new curbs caused as sharp a production cutback as predicted, Washington might find it hard to keep them in force. Furthermore, there were already complaints, which no sensitive politico's ears could miss, that the credit curbs were hurting the poor man worse than the rich. At week's end, the Veterans Administration was the first to decide that the new housing curbs were too harsh. It restored the maximum payment terms to 30 years in cases of "real need."

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