Julius Nelson.
The Administrator of the National Financial Administration is the N.F.A.'s chief executive. The Administrator sets policy for the N.F.A. and oversees the loans it offers to businesses in the Confederation of North America.
The N.F.A. was established in 1880 by Governor-General John McDowell in response to the coming of the Great Depression to the C.N.A. McDowell appointed Howard Carson as Administrator, with a mandate to offer low-interest government loans to distressed businesses that were on the verge of bankruptcy. Under Carson's leadership, the N.F.A. made 354 loans totaling N.A. £3.5 million to failing businesses between 1880 and 1884. Carson's intervention is credited with allowing the Northern Confederation Trust to recover from bankruptcy, with preventing the bankruptcy of North American Steel, and with the prevention of a wave of foreclosures in Michigan City.
McDowell's defeat in the 1888 Grand Council elections brought Ezra Gallivan of the People's Coalition to power in the C.N.A. At his investiture in February 1888, Gallivan outlined what became known as the Fifth Point, stating that under his administration "new means will be found for the people to ... share more fully in the profits their work made possible." Gallivan appointed Julius Nelson as Administrator on 5 March 1889, with a mandate to repurpose the N.F.A. into a venture capital firm, offering start-up loans to new businesses.
Under the Fifth Point legislation, which passed the Grand Council in 1891, the N.F.A. was granted the right to float bonds at preferred rates and use the money so obtained for the loans. The new entrepreneur would become a partner of the government in his operation -- depending on the circumstances, the government would receive from ten to forty-nine percent of the new company's common stock, as well as the bonds for the loan. The groundwork for the new program was laid by Nelson, who set to work restructuring the agency, setting up new confederation-level offices, and arranging for new financings, even as Gallivan guided the legislation through the Grand Council. Under the terms of most of the contracts reached by the N.F.A. under Nelson, the agency had the option of selling its stock to the entrepreneur at current market value within ten years of its issuance, provided the value was at least ten percent over the original price. The N.F.A. could also sell shares to outsiders, or on the Broad Street stock exchange.
The first important financings began in 1891, after final passage of the Fifth Point legislation and the N.F.A.'s first bond issue. New firms incorporated in 1891 included the dry goods chain Kenton, Ltd., the flour producer Indiana Milling, Ltd., and the construction company Parkins, Ltd. Kenton, Ltd. proved to be a spectacular success, so that the N.F.A.'s stock in the company came to be worth a great deal. By the end of Gallivan's first term in 1892, financings by the N.F.A. had risen from 21 per year to 155; by the end of his second term in 1897, they had risen to 280.
The Fifth Point proved to be a great success, and it had far more important implications than Gallivan himself realized. The 1890s saw the rise of a new class of ambitious and talented young men who wished to start their own companies, and who applied to the N.F.A. for loans rather than commercial banks, since the government agency had lower qualifications and would accept equity as well as bonds as collateral and payment. Given the economic boom of the 1890s, which the N.F.A. both stimulated and benefited from, most of agency's loan recipients were able to succeed at least moderately; the failure rate for N.F.A. loans fell steadily throughout the decade. Thus, the Fifth Point "worked" in the sense that it did what Gallivan wanted it to do: contribute to the economic growth of the C.N.A. by encouraging new business creation.
Despite the Fifth Point's success, the program never lacked for critics. Andrew de Molay, head of the New York Bankers Association, accused Nelson of "stealing business from commercial banks, and not serving the purpose for which he has been named to office. Almost every N.F.A. financing could have been handled by a member bank of this Association, but the borrowers went to Nelson instead, since by law his rates are lower than ours. This is not creating new business; it is taking money from one pocket and putting it in the other." In 1900, during Gallivan's third term, Samuel Frier of the textile union argued that Nelson's own low failure rate statistics indicated the extent of his failure. "The N.F.A. was not supposed to be a money-making operation, but a service to the people. A commercial bank might be pleased to show a failure rate of 13.3. To us it indicates that Mr. Nelson has not been taking the kind of risks he should. In 1899 the N.F.A. granted 314 loans and financings, nine more than the previous year. Mr. Nelson does not tell us that the N.F.A. processed 2,539 applications and culled the 314 from that amount. What of the other 2,225 men who failed Mr. Nelson's test? These are the people the Governor-General told us were to be helped, and these are the men the N.F.A. ignores." A newspaper columnist named Milton Fields opined that the N.F.A. ought to be making 30,000 startup loans a year, not 300.
Nelson's total capitalization upon assuming office was N.A. £50 million. At the time of his retirement in 1904, the agency had N.A. £175.8 million in cash, N.A. £203.4 million in secured bonds, and common stock valued at N.A. £259.9 million, against N.A. £265.7 million in liabilities. At the same time, the Securities and Exchange Board Index rose from 93.4 on the day of Nelson's appointment to 325.6 on the day of his retirement. The number of financings per year rose from 21 in 1889 to 355 in 1904, while the failure rate fluctuated between 12% and 15%, and mostly between 13% and 14%.
At the time of Nelson's retirement, Govenor-General Christopher Hemingway called him "the greatest banker of his age." Sobel goes further, saying that Nelson was in large part responsible for the great economic growth of the C.N.A. during his lifetime and after, and in his own way was a more powerful figure than even Diego Cortez y Catalán, the President of the largest business in the world, Kramer Associates.
Following Nelson's retirement, Hemingway initiated the only important reform of his administration, revising the N.F.A.'s charter so that the agency was headed by three Administrators, serving six-year terms ending at staggered two-year intervals. Hemingway appointed Hugh Neill and Edward White, who were both bankers, and Maxwell Boatner, a former Governor of Indiana. The three men continued Nelson's conservative lending policies.
Governor-General Henderson Dewey made no changes to the N.F.A. during his first term in the mid-1920s, but following his re-election in 1928 he announced a major study of the N.F.A. "to see how this important agency may better serve the interests of the nation and its people". Dewey sought to decentralize the agency and its financings in proportion to each confederation's population, in order to help make the economic map of the C.N.A. conform to its changing demographic outlines. Dewey's plan was opposed by N.F.A. Administrators Carl Bixby, Norris Jones, and Philip Koch, and Dewey suffered a fatal heart attack in May 1929 before he could introduce it into the Grand Council. Nevertheless, Dewey's successor, Douglas Watson, was able to gain passage of his plan in 1930, which established semi-autonomous N.F.A. branches in the confederation capitals. Jones and Koch resigned in protest, but Bixby became administrator of the Northern Confederation branch.
Financings increased immediately after the Dewey plan was implemented, especially in the western confederations, while at the same time the amount of the average finanacing declined sharply and the failure rate rose steadily. The N.F.A.'s ratio of assets to liabilities fell steadily throughout the early 1930s, and when a financial panic struck in February 1936, caused by Kramer Associates' move from San Francisco to the Philippines, the agency's branches all suffered liquidity crises. On 14 March 1936 Wilson McGregor, the Administrator of the N.F.A.'s Manitoba branch, informed Minister of Finance Ezra Clarkson that he would be unable to meet interest payments on Manitoba N.F.A. bonds that were due that day. Clarkson was able to rush Treasury funds to North City to ensure that McGregor's bondholders were satisfied, but word of the shortfall leaked to the press, and by nightfall the news had been broadcast throughout the C.N.A. Panic struck the C.N.A.'s financial community, and on the following day the North City office of the N.F.A. was forced to close its doors. By 17 March all the other confederation-level branches had also shut down.