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Mr. BESTOR. Mr. Chairman and gentlemen of the committee. I appreciate very much this opportunity to speak to the committee on this bill. There is a letter written by the Secretary of the Treasury on the bill that I would like to submit for the record. I think you have a copy of that letter, have you not, Senator?

Senator FRAZIER. We would be very glad to have it.
Mr. BESTOR. I have not time to read it.

Senator FRAZIER. I do not think it has come to me. We will be glad to have it for the record. (The letter referred to is as follows:)

FEBRUARY 2, 1932. DEAR MR. CHAIRMAN: In your letter of December 14, 1931, addressed to the Farm Loan Commissioner, you requested that an analysis be made of bill S. 5109 which was introduced in the third session of the Seventy-first Congress. It is understood, however, that you prefer to have the analysis made of the bill as reintroduced in the present session (S. 1197 of the first session of the Seventy-second Congress).

The bill would provide “for the liquidation and refinancing of farm mortgages and farm indebtedness at a reduced rate of interest through the Federal farm loan system, the Federal reserve banking system, and the Postal Savings depository system,” and would set up machinery for refinancing farm mortgages and other farm indebtedness existing at the date of the passage of the act. This work would be carried on under the supervision of the Federal Farm Loan Board, which would be directed “to make all necessary rules and regulations for the carrying out of the purposes of this act with expedition.' There would also be created a board of agriculture consisting of one member from each State “who shall be elected by delegates selected by a mass convention of farmers in each county or parish within the United States.” Immediately following their election and upon call of the Federal Farm Loan Board, the members of the board of agriculture would be required to meet in Washington for the purpose of making “such rules and regulations as they deem necessary and expedient in carrying out the purposes of this act,” and of electing an executive committee of three” who would receive

a salary of $10,000 per annum, and 5 cents per mile for necessary traveling expenses while on official business, to be paid by the United States Government in the manner now provided for the payment of salaries of Members of Congress.”

The executive committee would in turn be required to “counsel with and supervise the work of liquidating and refinancing farm mortgages and farm indebtedness by the Federal Farm Loan Board and the Federal Reserve Board."

Section 3 of the bill provides for the liquidating of existing farm mortgages “by making real-estate loans, secured by first mortgages on farms, to an amount equal to the fair value of such farms and 50 per centum of the value of insurable buildings and improvements thereon

* Such loans to be made at a rate of 112 per centum interest and 112 per centum principal per annum."

Section 4 of the bill would provide for taking up and liquidating existing chattel mortgages and other “farm indebtedness” by making loans at 3 per centum interest per annum secured by first mortgages on livestock.

The first sentence of section 5 is as follows:

“The funds with which to liquidate, refinance, and take up existing farm mortgages and other farm indebtedness shall be provided by the issuing of farm loan bonds by the Federal farm loan system, through the Federal Farm Loan Board and Federal land banks, as now provided by law, which bonds shall bear interest at the rate of 112 per centum per annum, if secured by mortgages on farms, and per centum per annum if secured by chattel mortgages on livestock used for breeding or agricultural purposes."

The farm loan bonds, which would be issued under the terms of the bill, would be available for purchase by individuals or corporations; Federal reserve banks would be required to make certain investments in such bonds; "the trustee of the Postal Savings depository system” would be required to invest

40 per centum of postal savings in the same securities, and the Federal Reserve Board would be directed to issue and deliver an equal amount of Federal reserve notes against any such bonds not readily purchased.

The bonds, which would be provided for by the bill, would bear the same rate of interest as the loans which were made, so that there would be no spread with which to absorb operating expenses and losses. Since the realestate loans could equal the “fair value of the farms mortgaged and 50 per centum of the value of insurable buildings and improvements thereon,” no substantial margin of security would be required. Obviously, the interest rates of 142 per centum upon farm mortgages and 3 per centum on chattel mortgages on livestock, which are proposed by the terms of the bill for financing existing farm indebtedness, would be very much lower than the rates now available on loans of this character. It would have to be expected, therefore, that there would be an immediate demand to refinance a very large part of the existing agricultural indebtedness under the terms of the bill if enacted, bringing into the Federal lank bank system an enormous volume of loans with practically no margin of security required and no means provided for absorbing operating expenses and losses incurred by the banks.

The bonds would bear interest at the rate of only 142 per centum per annum if secured by mortgages on farms and 3 per centum per annum if secured by chattel mortgages on livestock. In the past it has never been found feasible to market Federal land bank bonds bearing a rate of interest lower than 4 per centum per annum. In such circumstances it seems obvious that, except for the mandatory investments required to be made by Federal reserve banks and trustees of the Postal Savings depository system, it would be necessary that the bonds be taken over by the Federal Reserve Board and that Federal reserve notes be issued therefor.

If Federal reserve banks were required to issue Federal reserve notes in exchange for the farm-loan bonds provided for in this act, which might be as much as $10,000,000,000, a much larger sum of gold than is now in this country would be required to provide the necessary reserves against these notes. Furthermore, the assets of the reserve banks, which are the custodians of the reserves of our entire banking and currency system, would be largely tied up up in adequately secured long-time paper.

In the circumstances I am convinced that the adoption of the proposed legislation would be ruinous to the Federal land-bank system and the Federal reserve system and would imperil the monetary standards of the country.

For the reasons stated the department is opposed to the enactment of the bill S. 1197 into law. Very truly yours,


Secretary of the Treasury. Hon. PETER NORBECK, Chairman Committee on Banking and Currency,

United States Senate, Washington, D. C. Mr. BESTOR. This bill, Mr. Chairman and gentlemen of the committee, is a very comprehensive bill and seeks to remedy a situation which, as we all know, is extremely serious and is one which certainly must be remedied if there is any way to remedy it.

Nobody, of course, wants to set up any new system unless it is going to be permanently helpful to the farmers.

My own experience has been largely that of the farm, supplemented by 10 years in the farm-loan system.

Of course, I have a keen interest in the farm-loan system and in seeing that it is of real service to the farmers. In reading over this bill, Senate bill 1197, it brought me back to the days when, as a boy on an Iowa farm, we had 8-cent corn, 11/2-cent hogs, and so forth. I remember how it became impossible for us to pay the mortgage on our farm in those days, and I remember the terrible years we went through then for four or five years. If I remember rightly, even up to 1896 corn had gotten up to only about 15 or 16 cents a bushel.

Of course, the present situation is complicated. We have many complications now that we did not have then. We have a tax situation which complicates the whole problem very seriously for every man who is a farm owner or who seeks to be a farm owner.

Among the things proposed in this bill that, frankly, I feel might prove difficult of working out are particularly those by which it would be proposed to loan the full value of the farm plus 50 per cent of the appraised value of the buildings. I think this would, of course, attract practically all farm owners who wanted to refinance their farms, because, with the reduction in farm values that has taken place, a very large number of the farmers with mortgaged farms find themselves with a capital debt that makes it difficult for them to qualify for a new loan should they desire to do so, and it has brought about the situation, mentioned by the chairman, of many men losing their farms.

However, it seems to me that if you attempt to go so far as to loan to a man the full value of the farm, you are going to a point where you may be setting up a system that will fall of its own weight, because of its not being based upon such conservative principles as would enable proper financing.

It seems to me that a provision which would loan the full value of the farm is not a provision that would stand up, and I think careful thought should be given to any system where you are, of course, endeavoring to help the farmer, so that you will really help him, and not set it up on a basis so that you will have a reaction against the farmer himself, and against agriculture generally.

So, briefly speaking, my judgment as to that provision of the bill—and it is one of the main provisions which I wish to mentionwas that such a set-up would not work out very well from the standpoint of the mortgage holder. Then, too, there is a section providing for an exceedingly low rate of interest to the farmers. If anybody needs a low interest rate, certainly the farmer does at the present time, but the question is just exactly how it can be accomplished. I am not quite clear in my own mind as to just how it would be accomplished in this particular bill. No provision is made, I notice, for any spread between the rate at which the notes will be sold, or the bonds will be sold, and the rate which will be charged the farmer; and if this were to be handled through the National Farm Loan Association and the banks, it seems to me that to make it workable you would have to have some spread to cover the expense of handling the loans and carrying on the regular routine of business.

A further provision, which I admit I am not in a very good position to discuss, because it involves the Federal reserve system, about which I admit I know very little, would require the Federal Reserve Board to issue and deliver an equal amount of Federal reserve notes against any bonds not readily purchased. If you had a large percentage of the total mortgage debt of the country refinanced under the provisions of this bill, it would require probably more gold than we have in the country at the present time, and you would run up against a natural limitation, because under the Federal reserve act

Senator FRAZIER. This bill is not based upon gold.

Mr. BESTOR. But you would have to change the Federal reserve act, would you not, because the Federal reserve act provides that reserve notes may be issued only where they have a gold reserve against those reserve notes. Mr. SIMPSON. This is based on land.

Mr. BESTOR. Would you not have to change the Federal reserve act to conform to that provision, then, as to the issuing of reserve notes?

Mr. SIMPSON. I do not think so.

Senator FRAZIER. It might be that there would have to be some amendment of the Federal reserve act. I am not sure about that. That question was raised yesterday here by one of the witnesses, Mr. Lemke, and his contention was that the land was a better security than gold was, because, upon the farms this money will be loaned upon, the food products to feed the Nation are produced. Mr. LEMKE. Mr. Chairman, may I just make a suggestion there? Senator FRAZIER. Yes.

Mr. LEMKE. This bill amends the Federal reserve act, so far as there should be any conflict with the Federal reserve act, and it does not talk about gold. We would just as soon see all the gold sunk in the Atlantic Ocean as floating around here and starving 30,000,000 people.

Mr. BESTOR. I do not propose to discuss the Federal reserve act. I did want to say this word, though, Mr. Chairman, that so far as the farm-loan system is concerned, with which I have been connected, the law setting up that system some 15 years ago provided certain ways in which money might be loaned on land. In general it conformed with the experience of loan companies in the country as to the basis on which loans might be made safely. It worked out all right, and something over two billion in loans have been made on an amortized basis.

I think that a real service was rendered to agriculture by popularizing the amortized loan, which does not need to be refinanced. That was one of the big accomplishments of the farm-loan systems.

I feel that the Federal land banks were set up on a basis on which they should be permanent and carry out the intent of Congress to loan to agriculture on a safe basis.

Now, we have an emergency situation, in which this bill seeks to remedy a condition where the average farmer, or some farmers, can not qualify for loans in the farm-loan system or elsewhere, and where, if they did, the rate of interest would be higher than that provided for in the bill. The problem seems to be, can that be done on a basis that is practicable and workable, so as to render help to those men who are not in a position to qualify on the basis of the tried rules and principles that have been laid down for loaning money in past years? If it can be done, and still be done on a sound basis, naturally we would all necessarily be for it.

Mr. Chairman, in pointing out the fact that it seemed to me it would be impracticable to loan money for the full value of the land and make the system stand upon its own feet, and in pointing out the difficulty of administering the system and obtaining the money at a low rate, with no provision for handling the expense of making those loans-because necessarily there is an expense and there has to be a certain amount of machinery to handle it-I am not wanting

to be overcritical but rather to express the hope that whatever is done should be on a sound, workable basis.

I want you to know that I am just as sympathetic as anybody could be in working out a system to render aid to the man who can not get it now, but at the same time I do not think we ought to go so far as to try to set up a system that may react against the farmers if it will not stand up and function. If that took place—and I believe

you will agree with me—we would be worse off at the end of it than we are now.

That is a very brief statement, and I have only brought up the objections I saw in the provision of the farm loan act more to try to answer any questions that anyone might see fit to ask me in connection with it than to make any speeech about it.

That is all I have to say.
Senator FRAZIER. Thank you very much, Mr. Bestor.

Senator THOMAS of Oklahoma. I would like to ask one or two questions.

Senator FRAZIER. Very well.

Senator THOMAS of Oklahoma. Mr. Bestor, you are the head of the Federal farm-loan system. You are also a member of the President's $2,000,000,000 Reconstruction Finance Corporation. As the head of the Federal Farm Loan Board, can you state how many bonds this system has sold to secure money to make loans to farmers!

Mr. BESTOR. They have sold something less than two billions. I would say, roughly speaking, $1,800,000,000.

Senator THOMAS of Oklahoma. Are those gold bonds?

Mr. BESTOR. I was taking the whole system-joint, stock, and Federal.

Senator THOMAS of Oklahoma. Taking the whole system, are those bonds payable in gold?

Mr. BESTOR. They are payable at the banks or their fiscal agents in gold or lawful money of the United States.

Senator THOMAS of Oklahoma. Are the farmers required to pay those bonds in gold, at the present fineness and weight?

Mr. BESTOR. No. There is no such provision.

Senator THOMAS of Oklahoma. Would you say that they are gold bonds?

Mr. BESTOR. I would not call them gold bonds in the strict sense of the word; no.

Senator THOMAS of Oklahoma. We hear the statement made frequently that we can not get off the gold standard because the country would be ruined; that everybody owes bonds and notes, and they are all gold bonds and gold notes. I would like to have the record show, if possible, whether or not these $2,000,000,000 worth of bonds are what might be termed gold bonds.

Mr. BESTOR. The provision of the bond simply says that it is payable in gold or lawful money.

Senator THOMAS of Oklahoma. Those would not be gold bonds. They would be payable in any kind of currency that Congress saw fit to establish-sheepskins, whetstones, or what-not.

Mr. BESTOR. Doesn't it come down to this question, Senator, and to how far it is necessary to go to have our financial organizations in a relatively liquid position? I think we sometimes go to extremes on that. I am ready to admit that. I think it is largely a

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