The people who have become involved with the farmers all over the South, and I guess all over the United States, and who took second mortgages on their property, are entitled to assist those men to save their situation. If they can buy bonds at 30 cents on the dollar and pay them 100 cents on the dollar, it is nothing but honest and fair to let them do it. The truth of the business is I have been intending to take up the question legally in my State, if I had the situation in hand. If one contract debt was offset against the other, and if the borrower had the bonds, and then a foreclosure was instituted, he could offset one against the other. But the difficulty is that he does not know there is going to be a foreclosure, and the first thing you know, the papers are served on him. There is a counterclaim. If he goes out and buys bonds, he cancels the counterclaims. It is recognized as his right, and it is provided for under the land bank act, in section 25. The only thing there is that it provides for installments and everything else. We are not asking for any provision in regard to installments, because that would paralyze the joint stock land banks. We have taken that out of the bill, and I submit this is something of very vital importance to a lot of farmers in this country, and it will preserve the plant upon which they have to operate. Mr. MICHENER. Will you permit the farmer to go out and buy bonds in the open market at market prices? Mr. STEVENSON. Yes, sir. Mr. MICHENER. And then to pay his debts with those bonds, not at the price for which he bought them, but at the face or par value. Mr. STEVENSON. Yes, sir; at par value. Mr. SABATH. This would help, more or less, the second mortgagee? Mr. STEVENSON. It would help the second mortgagee, of course. Mr. SABATH. And not the landowner? Mr. STEVENSON. The second mortgagee would have to do it through the owner of the land. Mr. BANKHEAD. Mr. Hare, if you desire to make a statement we will hear you briefly. STATEMENT OF HON. BUTLER B. HARE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF SOUTH CAROLINA Mr. HARE. Mr. Chairman, there is no new principle involved in this proposed legislation. It only attempts to enlarge the principle involved in the original farm land bank act. In that act it is provided that after five years, as to any loan that has been in operation for that length of time, the borrower has the right to present the amount due on it in money, and the bank is required to accept it, and then retire the equivalent amount of bonds. The farm land bank is now required to accept bonds at any time in satisfaction of the amortization payment due, or in satisfaction of a mortgage due, but it does not apply to joint-stock land banks. This bill provides that after a mortgage has been in full force and effect for a period of five years, the mortgagors shall have the right to take bonds corresponding to the amount of its mortgage and present them to the bank, and the bank is required to accept them and cancel his mortgage and retire an equivalent amount of bonds. The reason for this legislation is this: Under existing circumstances, we will take, for instance, a man who has borrowed $10,000. He has carried it for five years. He is unable to carry it longer. The bank forecloses the mortgage. It is placed upon the block and the property is bought for $5,000. That is an illustration. Mr. BANKHEAD. It is bought in by the bank? Mr. HARE. It may be bought in by some outsider for $5,000. That is a $20,000 piece of property, because it had to be worth $20,000 when the loan was made. Then the bank goes into the market and buys $10,000 worth of bonds. Mr. BANKHEAD. Its own bonds? Mr. HARE. Its own bonds, for $3,000. That is the market price. Actually, in my State now it is 27 cents on the dollar. It would take these $10,000 worth of bonds for $2,700 and would then retire $10,000 worth of bonds, and he takes the difference between $2,700 and $5,000, the purchase price, and places it in the assets of the bank, or, as has been said time and time again in my correspondence and here are my files on the subject the officers of the bank are alleged to be placing their own funds, in this operation, buying bonds for $2,700, retiring $10,000 worth of bonds of the bank and depositing the difference between $2,700 and $5,000. Mr. O'CONNOR. How can they do that? Mr. HARE. Because the law permits any man to go into the market and buy bonds. Mr. O'CONNOR. The bank is not going to take them out for more than $2,700. How are they going to get the $2,300? Mr. HARE. These are the officers. The bank has already sold the land and the purchaser has turned over to them $5,000. Mr. BANKHEAD. When he says "bank" he refers to the joint stock land banks. Mr. O'CONNOR. I know. Mr. HARE. Yes. If this practice is to continue, it looks to me like nothing but fair, just, and equitable and honorable that I, as a borrower, would have a right to go into the market and buy bonds equivalent to the amount of my mortgage, present them to the bank, and ask them to cancel my mortgage and retire the amount of bonds to that amount. The bank has not lost anything, and its obligation is wiped out. Mr. MICHENER. The fellow who owned the bonds is the fellow who loses the money? Mr. HARE. Sure. Mr. MARTIN. Why could not we have an amendment and say these bank officers can not do that? Mr. HARE. I do not know. We have not done it. Mr. GREENWOOD. I would like to understand this transaction a little better. You say the officers of the bank go out into the market and buy $5,000 worth of these bonds at $2,700? Mr. HARE. $10,000 worth. Mr. PURNELL. You mean as individuals? Mr. HARE. No. Mr. GREENWOOD. They could still hold the bonds, and they do not give up any cash, but you talk about them pocketing the difference. Mr. HARE. They retire the bonds for that amount. Mr. GREENWOOD. Whatever the amount is. How can they retire the bonds under those conditions? Mr. HARE. I want to make this statement Mr. GREENWOOD (interposing). It is giving them extra money. Mr. MICHENER. It has wiped out the fellow who bought the bonds to begin with, has it not? Mr. HARE. He loses. Mr. GREENWOOD. The officers did not get that money. I want to know where the officers did get the extra money. Mr. HARE. Let me make one more statement. Mr. PURNELL. The Secretary of the Treasury and the Farm Loan Board have opposed this? Mr. HARE. They have always been opposed to it. The bank itself buys $10,000 worth of bonds for $2,700. They have sold the property for $5,000 and they have offset against that this $2,700, and the bank then retires $10,000 worth of bonds. Now, it has been alleged-I want to make this statement-Mr. GREENWOOD (interposing). You mean at par? Mr. HARE. Certainly; at par. Mr. GREENWOOD. Why should the bank retire $10,000 of bonds at par when they can go out in the market and buy them for $2,700? Mr. HARE. They have bought the bonds for $2,700. If the difference between $2,700 and $10,000 does not go into the pockets of the officers of the bank, it certainly goes into the treasury of the bank. Mr. BANKHEAD. I am sorry, gentlemen, but it is necessary for the committee to rise at this time. Mr. FULMER. Mr. Chairman, may I have it noted on the record that I am present on behalf of the Hare bill, which I think is a bill in the interest of agriculture. It proposes to put the farmer on an equal basis with the land bank; it protects his interest by enabling him to buy these bonds at their reduced price, just as the banks are buying them to-day. Mr. BANKHEAD. The committee stands adjourned. (Whereupon the committee adjourned.) AUTHORIZE PAYMENT OF FARM-LOAN MORTGAGES WITH BONDS ISSUED BY THE MORTGAGEE BANKS THURSDAY, JUNE 16, 1932 HOUSE OF REPRESENTATIVES, The committee this day met, Hon. Edward W. Pou (chairman) presiding. The CHAIRMAN. Mr. McMillan has a request to prefer. Mr. MCMILLAN. Mr. Chairman, Mr. Hare, my colleague, was here yesterday on his bill, but did not have sufficient time to properly present his views. I would like to ask the committee to be good enough to hear him briefly this morning. The CHAIRMAN. Very well; we shall hear Mr. Hare. STATEMENT OF HON. BUTLER B. HARE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF SOUTH CAROLINA Mr. HARE. Mr. Chairman and gentlemen of the committee, I shall add but very little to what I said yesterday. I feel, however, that because of the limited time we had yesterday, we did not make clear to the committee just what is contemplated in this bill. It is short, as I said yesterday, and simple. It involves no new policy. Everything in this bill, every principle involved in this bill has already been incorporated in the law. In short, it simply authorizes and directs a land bank to accept its bonds in satisfaction of a mortgage when presented by the mortgagor. In other words, it means this: If the chairman should give to Mr. Bankhead a note for $5,000, and I should give the chairman a note for $5,000, if at maturity of these obligations I should have in my possession the note of Mr. Bankhead-in other words, if he should negotiate that note and transfer it to me-then I should present that note to the chairman in satisfaction of the note that I had given him. That is all there is to it. It is nothing but fair, it is noting but honest, it is nothing but just. It does not make any difference what consideration I gave Mr. Bankhead for his note. That is not a matter into which the chairman may look. Mr. Bankhead may give me his note for 50 per cent of its value or he may give me his note for 10 per cent of its value. But it wipes out my obligation and wipes out his obligation to the chairman. Mr. O'CONNOR. Is not this the fallacy of your argument? You used the example of notes as contrasted with bonds or stock that are issued and which have a fluctuating value. If the Pennsylvania Railroad gives me a note, and it is due, I can offset what I owe them for |