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question of how far you can go in substituting a thing like land for gold where you are issuing notes against it.
Senator THOMAS of Oklahoma. I see your point fully, and you and I could discuss, I think, without any trouble. But I wanted to clear up the one point about the gold bonds, because that has been a serious point of contention with those who insisted that we must have the money based upon gold. It is a fact, is it not, Mr. Bestor, if you are familiar with the financial situation, that until recently we had more gold in our Treasury than we had represented in all kinds of money in circulation?
Mr. BESTOR. That may have been true.
Senator THOMAS of Oklahoma. It is true that until recently we had more gold in the United States than we had money of all kinds in circulation-gold silver, and paper, and all kinds and characters. We have lost some of our gold. I do not know how much we have left, but we certainly have around four billions left. We had more than five billions at one time, recently. Under the law, the gold is good for 40 per cent of the circulation. Four billion dollars in gold would be good for something like $10,000,000,000 of circulation, under the law, and at this time we have only about five and one-half billion in circulation. So, there is quite a spread that we can work on yet, and still maintain our gold standard under the law.
That was a point, Mr. Chairman, that I wanted to get in the record—something about the gold basis for our money,
Mr. T. E. HOWARD. Might I make an observation, Mr. Chairman, and ask a question?
A year ago, Mr. Bester, in Colorado, we believed we could see an impending crash of agriculture, and asked for a moratorium on Federal farm loan payments. The governor of the State took it up, and throughout the entire controversy that waged in the newspapers and by letters, the Federal land bank maintained that the Federal land bank system was a private system, maintained by private money. I am asking now if the indicated objection to this low rate of interest is merely because of its competitive quality with the private money loaned, which takes up the bonds of the Federal land bank.
Mr. BESTOR. As I understand, this is set up to function through the farm loan system, and my criticism was that, as provided here, it would be impracticable to have to function through the farm loan system.
Mr. HOWARD. You feel, however, that this low rate of interest and the amortization plan here would be a competitive rate, and more comprehensive and extensive than the present Federal land bank.
Mr. BESTOR. Undoubtedly, any farmer would rather borrow his money at 11/2 per cent than at 512 per cent.
Senator THOMAS of Oklahoma. You will admit that the passage of this law would put the present system out of existence, except to liquidate the bonds now outstanding, would you not?
Mr. BESTOR. I am inclined to think it would.
Senator THOMAS of Idaho. Would you have any objection to the lowering of the rate of interest ?
Mr. BESTOR. No, indeed. If it can be done on a workable and equitable plan, I am for it 100 per cent.
Senator THOMAS of Oklahoma. Is not that the only difference between this proposed plan and the plan under which you are operating, that it will reduce the interest to practically a nominal rate?
Mr. BESTOR. The first proposition here is to loan to the farmer 100 per cent of the value of the farm.
Senator THOMAS of Oklahoma. That would be an incident. You may be doing that now in some instances.
Mr. BESTOR. Mr. Chairman, I do not think anyone in the room would advocate loaning a man 100 per cent of the value of the farm, if he thought there were danger of the bank acquiring the farm.
Senator THOMAS of Idaho. Mr. Bestor, how are you going to tell the value of a farm to-day?
Mr. BESTOR. You can do your best.
Senator FRAZIER. In a great many States now the farms have practically no value. They can not sell them for enough to pay the taxes against them.
You know that from the experience you have had with the land-bank foreclosures you have made.
Senator THOMAS of Oklahoma. You have many farms under your control now that you could not sell for the amount of the loans against them. Mr. BESTOR. You mean in the banks? Senator THOMAS of Oklahoma. Yes. Mr. BESTOR. You recognize that we are simply supervisingSenator THOMAS of Oklahoma. That is what I mean. Mr. BESTOR. That is true.
Senator THOMAS of Oklahoma. That is because money has gone up, and everything else has gone down in value.
Mr. BESTOR. There are a good many factors in the situation.
Mr. PLUMMER (Colorado). Mr. Bestor, what will happen to the land-bank system under present conditions if they continue, if there is not something done to bring about a real change? They are sure to continue. I attended a Federal land bank meeting at Wichita, of the ninth Federal land bank district, which I think you will agree is among the soundest of the 12 Federal land banks.
This was the program that was laid down to be followed out and accepted. The plan was to continue to foreclose, and to continue to sell the farms in that district at the present market price, whatever that price happened to be, and to continue to make loans. This was the record that was confronting us. On the 1st of December, 1931, the delinquent list was 196 per cent greater than it was on the 1st of December, 1930. Of all loans made since January 1, 1931, 44 per cent of them were delinquent on their first installments.
What is going to happen to the whole system if there is not some real change brought about? So far as the market value, the present value of the land is concerned, I believe throughout the district that the Federal land banks now are carrying more on the land than the present market value. I could quote instances, and a number of them in different States, as well as our own, where land has changed hands and some of it owned by the Federal land bank sold for 20 per cent of what the same farm or adjoining farms sold for 8 or 12 years ago. So, at the present time the full value would be from 20 to 30
per cent of what the value would have been at the time those loans were made.
Senator McGILL. What is your occupation! Mr. PLUMMER. I am a farmer. I am president of the Farmers' Union of Colorado.
Mr. LEMKE. Mr. Chairman, may I ask Mr. Bestor a few questions?
Senator FRAZIER. Yes. Mr. Lemke is the attorney who was instrumental in drawing this bill.
Mr. LEMKE. I feel that he has overlooked some of the important features of the bill.
You talk about refinancing farms and making loans at 100 per cent of their full value. You forget that the limitation is the existing indebtedness. That is, just to take up the loan you have there now, which at one time was about 40 or 50 per cent of its value.
Mr. BESTOR. The law says a maximum of 50 per cent.
Mr. LEMKE. Something has happened out here if it is not worth that 50 per cent. But our 100 per cent is just your 50 per cent under the law, because it limits it to the existing farm indebtedness; is not that correct?
Mr. BESTOR. You know the provisions of the bill better than I do, although I have read it.
Mr. LEMKE. Let me make another observation. You also overlook the fact that at 112 per cent interest the amount the farmer will ultimately pay will be about two-fifths of what he pays under your existing rate of interest. I am going to ask the committee to permit me later to give the exact figures. It is about two-fifths of what it would be under your present interest rate. Would you say that was temporary or permanent relief, or at least approaching permanent relief? It ought to be done, because the farmers' indebtedness was created when your dollar was worth about 30 cents.
Mr. BESTOR. I do not admit that any loan of 100 per cent of the present value of any proposition is a sound business practice.
Mr. LEMKE. But you are in that boat, and how are you going to
Mr. BESTOR. Senator Thomas just pointed out that loans that have been made by some banks and insurance companies have proven to be 100 per cent of the value at which they would sell now, or ev
Mr. LEMKE. You are in that position, and we are trying to get the farmer out by providing a lower rate of interest. It is the only way you can get him out, isn't it? Let me make another observation.
Mr. SIMPSON. Let him answer.
Mr. BESTOR. I simply wanted to point out that I am unable to see how you could operate on that basis. You also provide that those who have been foreclosed since 1920 might come back and borrow the amount that was involved, plus all accumulations. In that case, it might be double the original loan on the farm, because of the accumulation of taxes and other expenses.
I would like to be just as helpful as possible, but it seemed to me that it is unworkable.
So far as the interest rate is concerned, I do not know that I have thought that through. The losses would have to be taken by the Government, whatever they might be. If that involved a large amount of money, necessarily it is just a question of what Congress itself wants to do on a proposition like that. So, it is not for me to criticize. My question is, if you made the interest rate arbitrarily low, lower than the price of money could possibly warrant at the present time, you might not be setting up machinery that would be inequitable and unworkable. That is the way it impressed me.
Mr. LEMKE. We are glad of your criticism, and we want to iron some of these things out, and I think we can get together. Are you aware how many farmers are losing their homes-old men with gray hair being foreclosed by the Federal land bank and insurance companies generally, and are being put off the farms, not even being able to pay their taxes, and you have to pay the taxes and get no interest at all ?
Mr. BESTOR. I am running a few little farms of my own, and my cotton has been selling at 4 or 5 cents a pound, and I do know what the situation is. I am sympathetic with the situation, just as sympathetic as anyone could be. The only desire I would have would be to see that any system that is set up would be one that would work.
Mr. LEMKE. The Government of the United States did not hesitate to select the farmer and single him out and fix his prices during the war, while the sky was the limit for practically everything else. Do you not think it would be an equitable proposition now for us to ask that same Government to help us out, so that these farmers may remain on the farm at a low rate of interest, and have the governmental agencies work it out as an emergency measure?
Mr. BESTOR. I am not passing on that question at all. I would not want to attempt to. That is purely a question of governmental policy.
Mr. LEMKE. Have you any information on the subject? As far as I have been able to ascertain, these local banks that have not been crushed by the larger ones are all willing to work and help refinance without any charge, because if they can not refinance the farmer, the few of them that remain will be crushed, and then the chain banks will have the whole field.
Mr. BESTOR. I do not quite get what you said as regards the local banks. Are you referring to commercial banks!
Mr. LEMKE. Commercial banks that have been dabbling in this mortgage business, not with the land bank, but the private mortgages.
Mr. BESTOR. You say they are willing to function at no expense, no cost?
Mr. LEMKE. I will say that they are willing, in order to get this bill through, and get the farmer refinanced out here, where they know the actual situation, where they see taxes are not paid
Mr. BESTOR. What you want to do is to take off the hands of the local banks the farms they have acquired, and put them in the hands of the farmers, and just relieve the local banks?
Mr. LEMKE. I want to refinance the farmer. I do not care who holds the mortgages.
Mr. Bestor. I got the impression that you said the local banks were willing to work
Mr. LEMKE. Yes.
Mr. BESTOR. I suppose in order that they might not be tied up with those farms.
Mr. LEMKE. Not that so much, but to get the money in circulation among the people. They want about two or three billion dollars issued among the farmers, the same as the Federal reserve bank has done in four or five large cities, by putting into circulation $1,250,000,000 in the large cities.
Mr. BESTOR. I think, if we are to work out the situation, we will all have to cooperate, so far as that is concerned.
Senator FRAZIER. Do you not think, Mr. Bestor, that a great many of these loan companies would be willing to sacrifice something in order to clean up these loans? Do you not think they would be willing to compromise, or make a reduction from the full amount of their loans ?
Mr. BESTOR. I do not know; undoubtedly they have losses in many of their loans. There is no question about that.
Senator FRAZIER. They are taking losses now. These people who are foreclosing are taking losses now?
Mr. BESTOR. Yes.
Senator FRAZIER. In order to settle and get what might be termed a fair value on the land at present, I think they would be willing to compromise.
Mr. BESTOR. Of course, with regard to the point he just brought up, a considerable number of foreclosed farms are in the hands of country banks.
Senator FRAZIER. I noticed a news item in one of the Dakota papers the other day to the effect that an insurance company had sold 15 farms in North Dakota without any cash payment, and it said the farmers could dictate their own terms on the sale.
Mr. TALBOTT. Might I ask Mr. Bestor a question? Is it not a fact, Mr. Bestor, in your candid judgment-and you should have knowledge of the fact—that to take the frozen assets, in the form of foreclosed farms, out of the banks in the Middle West, would enable those banks to pay honest depositors a large proportion of the money they have lost through the closing of those banks, to the extent of hundreds of thousands of dollars!
Mr. BESTOR. If that could be done, it certainly would be helpful to the country bank and to the depositors.
Mr. TALBOTT. The depositors are the same citizens that we are now pleading to have put back on their feet. The rehabilitation of those farm mortgages at a low rate of interest would, at the same time, pay off widows and orphans that have lost their money in those closed banks, because of frozen assets in farm mortgages.
Senator FRAZIER. There is no doubt that it would help a great deal.
Is there any other statement you wish to make, Mr. Bestor ?
Senator Thomas. Congress appropriated $100,000,000 the other day for the recapitalization of the Federal land bank system, and also appropriated $25,000,000 and earmarked it for the purpose of granting extensions. Will that legislative action rehabilitate the Federal land banks so that you can sell bonds and continue to loan money at the present time? Mr. BESTOR. We hope that it will, Senator.