Big Days for The Scourge of the Banks

A new session of Congress will begin this week, and it could very well turn out to be the biggest one yet for the leading scourge of the financial establishment, Wright Patman. For most of his 42 years in Congress, Texas Democrat Patman, 76, has flailed away at banks and the Federal Reserve Board as the main sources of almost every conceivable economic trauma. Now that those institutions are being severely criticized because of the current credit scarcity, Patman, as chairman of the House Banking and Currency Committee, is flexing his political muscle as he rarely has before.

Two months ago, under Patman's prodding, the House passed a tough bill to break up one-bank holding companies, through which nearly every major bank in the U.S. has taken steps to diversify into such highly profitable fields as insurance, mutual funds, travel agencies, equipment leasing and data processing. Last month, Congress passed the 1969 Tax Reform Act, which not only imposed a sharp tax increase on banks but also deprived them of the flexibility that bankers regard as important in managing investment portfolios. There is a distinct possibility that the banking system will be confronted with even more adverse legislation this year. Within a few weeks, either Patman's banking committee or a blue-ribbon commission of legislators, Administration officials and experts is expected to open major hearings on the entire U.S. financial structure. All this constitutes a personal triumph for Patman, a self-styled "money nut," who had long been regarded by many critics as an ineffectual scold or a crank advocate of easy money for everybody. Today nobody laughs at Patman, least of all the bankers. "The time has come for me," says Patman in his misleadingly benign way, "and I'm going right on."

Most of all, Patman is going on in his crusade to strip the Federal Reserve Board of its independence and many of its powers. At a time when it bears the main burden of the fight against inflation, the Federal Reserve has come under public scrutiny as never before, partly because of admitted errors in the past and partly on the ground that it has carried monetary restraint so far as to create the danger of recession. Says Economist Henry Kaufman of the Manhattan bond house of Salomon Brothers & Hutzler: "Success in 1970 is virtually a necessity for the survival of the Federal Reserve System." Next week, to Patman's undisguised delight, Federal Reserve Chairman William McChesney Martin will reach the legal limit for time on the job and will retire. Washington will miss the frequent confrontations between Martin and Patman at hearings of the banking committee; on one occasion, Patman condemned Bill Martin as "the most disastrous influence in American history." Patman has no such animus toward the new chairman of the board, Economist Arthur Burns, whose economic expertise he respects.

Whatever his feelings about Chairman Burns, Patman can be expected to continue badgering the Federal Reserve System. Every year since 1934, he has introduced his pet bill to reform it. The present version would force the board, which now sets its own budget and finances its operations mainly from the interest on its holdings in Government bonds, to come to Congress for annual appropriations. Patman would also disband the Open Market Committee, through which the board controls the money supply, reduce the term of board members from 14 years to five, and make the chairman's term expire with that of the President who appoints him. For years Patman has argued that the Government should increase the money supply at a steady rate of perhaps 4% a year, rather than permit the Federal Reserve to expand or contract it by greater amounts. He says that his aim is to "return control of our monetary policy to the President and Congress" and "rid the Reserve System of its tight-money bias."

Populist Roots. Patman's tireless advocacy of easier credit long ago gained him renown as "the last of the great Populists." The Populist fallacy--the bigger the money supply, the more for everybody--lost its national appeal after the election of 1896. but strains of it persist in the rural America where Patman has his roots. He was born in Patman's Switch,* Texas, the son of a struggling farmer. He earned enough money as a sharecropper and insurance salesman to take a law degree at Tennessee's Cumberland University. As district attorney in Texarkana, his present home, he so energetically attacked vice and gambling during the 1920s that a squad of Texas Rangers was sent to protect him from underworld assassins.

Most of Patman's constituents seem less interested in his assaults on the Federal Reserve than in his success at bolstering the shaky economy of his piney-woods district by obtaining pork-barrel projects. A tireless worker, he goes to his office seven days a week, puts in ten hours each weekday. Despite his reputation for vituperative oratory, Patman in person seems more like a grandfatherly American archetype: Baptist, Mason, Elk, Shriner, Eagle and American Legionnaire (all of which he is). Briefly a widower, Patman two years ago married a Texarkana widow in her 70s, whom he had dated as a teenager. People who know him only from bombastic broadsides are often surprised at his cherubic smile, soft voice and gentle blue eyes.

Concentrated Power. Since 1963, Patman has run his banking committee like a fief. He often gets away with oversimplifications and half-truths because so few Americans, in or out of Congress, fathom the intricacies of finance. Many bankers contend that Patman thoroughly misunderstands how the U.S. banking system operates. They argue that some of his proposed reforms would yoke the Federal Reserve to policies of permanent inflation by depriving the board of its ability to take unpopular actions. Still, Economists John Kenneth Galbraith, Seymour Harris and several others support Patman's idea of placing the Reserve Board under presidential control.

One trouble is that such a tidy arrangement collides with the fundamental American proposition that led to a government of checks and balances: beware of power concentrated in the hands of one man. The patchwork U.S. banking system is overdue for an overhaul, but hardly the kind that Patman has in mind. The danger is that Patman's polemics may splatter his financial foes with mud and lead to a legislative muddle. For all that, even his opponents have considerable admiration for Patman. Federal Reserve Vice Chairman James L. Robertson once complimented him for "keeping the System on its toes." Beyond dispute, Patman's often flamboyant investigations have roused people to think about important problems, particularly the shortcomings of the Government's monetary policies.

-A onetime switching point on the Katy Railroad, named for his forebears.

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