freight or transportation against that note. But if I have Pennsylvania Railroad stock, I can not go down there and demand the par value of it to offset what I owe them. These are bonds that are outstanding. They are not notes at all and you might as well say that I could take a Pennsylvania Railroad bond down to them and demand transportation to the value of the face of the bond.

Mr. HARE. Well, I do not think that is an analogy.

Mr. Cox. I think it perfect. You understand, I am in sympathy with your position. It seems to me that it is fair and just to everybody that does business with these banks; yet, just as Mr. O'Connor says, it involves a reversal of a principle that runs through all the law. Here is the situation. A farmer borrows money from one of these joint-stock land banks. He runs on for four or five years, keeps up his interest payments in some way. The stock goes down to where it is selling for 25 cents on the dollar. The farmer manages in some way to get into his possession stock in the amount equivalent to his debt. He comes in and says to the bank, "I owe you $5,000. I bought up $5,000 worth of your stock. Surely, it did not cost me but $1,250, but anyway it is your stock and I hand it to you in satisfaction of my debt."

Now, under the law of this country, you can not do that.

Mr. GREENWOOD. You said stock. I understood the gentleman. to refer to the bonds of the bank.

Mr. HARE. That is correct.
Mr. GREENWOOD. Not stock.
Mr. HARE. I mean bonds.

Mr. O'CONNOR. But the bonds are not due until maturity.

Mr. GREENWOOD. Are not the bonds issued as the basis of the security for the mortgage? That is what makes the difference between the bonds and the stock.

Mr. HARE. That is right.

Mr. PURNELL. Are there not different degrees of reliability and financial responsibility, we will say, in the borrowers? Is there not such a thing as a good borrower and a bad borrower, and a middledistressed borrower? What I am getting at is this. Are you not penalizing really the fellow whom you want to help, the distressed borrower? How is he going to buy these bonds? You let the good borrower come in here and buy these bonds and pay off the mortgage for 20 cents on the dollar.

Mr. MCMILLAN. I do not think so, because the land is the consideration involved in every loan that has been made.

Mr. PURNELL. Primarily, who is it you are trying to help in this legislation? Will you answer that question? Primarily who is it we are trying to help? If you were to write down a list of those whom you wanted to help, in the order of their priority in your mind, whom would you put on top as No. 1?

Mr. HARE. I am trying to aid everybody, every borrower.
Mr. PURNELL. Every borrower?

Mr. HARE. Every borrower; under the law as it is now written and as it now operates, when a mortgage has been in full force and effect for five years, any mortgagor can walk up to the bank, put down the money he owes the bank and the bank is compelled to take it.

Mr. PURNELL. That is, at par.

1

Mr. HARE. At par and retire the bond that was issued.

Mr. PURNELL. But you are allowing him to settle the mortgage at 20 cents on the dollar.

Mr. HARE. No; retire the bond at its face value at which it was issued and upon which the original money was obtained.

Now, instead of taking the $5,000 in gold or in greenbacks or in silver, you go up to the bank and say, "Here is your obligation that is outstanding against my obligation. Here is the thing you gave, the bond that you issued. I give it to you in satisfaction of my obligation."

Mr. PURNELL. At 100 cents on the dollar?

Mr. HARE. At 100 cents on the dollar. The bank is relieved of its obligation at 100 cents on the dollar, because the bond is wiped out. My obligation is discharged. The bank's obligation is discharged, because the bond that it gave to cover the loan is wiped out, retired. Nobody is hurt. The only man that is hurt is the man who sold the bond to me.

Mr. GREENWOOD. Will the gentleman yield?

Mr. HARE. Yes.

Mr. GREENWOOD. When the bank goes out to take up the bond that was issued on the basis of this mortgage security, do they have to pay the par value of that bond?

Mr. HARE. No. The bank can go out and buy its own bonds to-day at its market value.

Let me make this observation, gentlemen. Here is the information that came to the Banking and Currency Committee, that since we passed the Reconstruction Finance Corporation act, these banks are borrowing money from the Reconstruction Finance Corporation to-day, to buy its own bonds at 37 cents on the dollar and retire them and still hold the mortgagor responsible 100 per cent.

Mr. O'CONNOR. They are well-run banks if they are doing that. Mr. HARE. Yes; that is good business. But if the mortgagor can be given the right to go out and buy the bonds and retire them against his indebtedness, the bank has not lost anything.

Mr. PURNELL. What is the source of income of the joint-stock land banks?

Mr. HARE. It is the interest paid by the mortgagor.

Mr. PURNELL. Then, do you not destroy their source of income by this procedure?

Mr. HARE. Yes; but then at the same time you wipe out the bank's obligation.

When you do

Mr. GREENWOOD. The bank pays interest on those bonds. Mr. HARE. The bank pays interest on its bonds. that, you wipe out its obligation and nobody is hurt.

Mr. MARTIN. This legislation must be detrimental to these land banks.

Mr. HARE. Of course, the land banks are not in favor of it, because they make money out of the situation as it is.

Mr. PURNELL. It would put every one of them out of business. Mr. HARE. Suppose every bond should be bought and tendered to the bank; where would the bank be? All of its liabilities would be wiped out, is not that so? It would still have its stock and it would be ready to begin business just as it did the first day it started.

Mr. MARTIN. Will you tell me one thing, Mr. Hare? Are these land banks doing any good for agriculture? Do you consider them worth while?

Mr. HARE. I do not know that I want to go into that at this time. Mr. MARTIN. It is important, in my mind, because we have been trying to keep them liquid so that they would be helpful to agriculture; and if this legislation is going to destroy them, naturally you are going to hurt agriculture.

Mr. HARE. I do not think it would destroy them. I think it would increase the price of their bonds. It would relieve them of an enormous obligation and if it wipes out all of their bonds; suppose everybody bought bonds and presented them, nobody would be hurt. The CHAIRMAN. Gentlemen, we will have to ask you to close your statements.

Mr. HARE. I am ready to close at this point.

Mr. MCMILLAN. Let me ask you this question-with your permission, Mr. Chairman. If this bill passed, would it help agriculture? Mr. Cox. It would help the individual borrower.

Mr. MCMILLAN. Exactly, it would help the individual borrower. And how many of them have borrowed? About 95 per cent of them. Mr. HARE. The great trouble with agriculture to-day is the foreclosure of these mortgages by these banks and putting farmers who were good farmers and they had to be good farmers or they would not have gotten a loan-into the road or into the street without a home. I think it would be good for your farmers who have mortgages, and it would not destroy the banks.

Mr. MICHENER. Of course, it does this. Here is a farm in your community. It is run by a good farmer and be borrows money through the joint-stock land bank. Adjoining him is another farmer and he borrows money through the local bank. They make identical loans on identical terms on the same day. Now we are passing legislation here which would permit the man who chose the joint stock land bank from which to borrow to pay off a mortgage at 27 cents on the dollar, and his neighbor, who borrowed from the local bank must pay 100 cents on the dollar. Surely there is a vast discrimination in favor of the man who borrowed from the joint stock land bank as against the man who borrowed from the local bank. That is true, is it not?

He

Mr. HARE. That discrimination was made in the beginning. elected where he should borrow, and whether or not he should profit by this legislation permitting him to borrow from the joint-stock land bank and being able to put up their bonds in payment of his obligation.

Mr. MICHENER. That is true, but he did not know then that you were going to come along later and make it possible by legislation for him to pay off his obligation at 27 cents on the dollar, when the farmer who has borrowed from the local bank has to pay the full amount of his indebtedness.

Mr. HARE. Under the existing law, the Federal land banks have the right and the authority to accept their own bonds in satisfaction. of the mortgage when presented by the association to which the mortgagor belongs.

That is a right that already exists under the law, and I say this is no new principle. You only accord the same right to the individual

farmer, instead of according it to the association, making it apply to the joint-stock land banks.

Mr. MICHENER. But the associations are all liable for the loans of the association?

Mr. HARE. That is true.

Mr. MICHENER. Supposing I owned some of those bonds. I bought those bonds on the assumption that the association was liable?

Mr. HARE. Yes; it was.

Mr. MICHENER. There are some loans in the association that are good to-day; some of them are paying; some of them are all right.

I still insist when I made the loan I took this group as security, whereas you permit the fellow who has not been successful within the group to go out on the market and purchase something cheap and put it into the pot.

Mr. HARE. That provision is in the original Federal farm loan act, in section 25.

Mr. PURNELL. Nobody is suggesting whether or not the committee has determined what percentage of the distressed borrowers will be able to go out and get the bonds.

Mr. HARE. Nobody knows.

Mr. PURNELL. Nobody has suggested how a man who is so absolutely down and out that he can not keep up his mortgage can go out and buy these bonds.

Mr. HARE. He will not be able to do it.

Mr. GREENWOOD. A man who can not make his payments and is delinquent probably has no money to buy bonds. The man who had made the loan and can pay will go into the market and get his bonds to apply to the cancellation of the debt. The man who will want to

get them will not be able financially to get them.

Mr. PURNELL. Ninety-five per cent of these distressed borrowers will not be able to get the benefit of it at all.

Mr. HARE. My reaction to that is this, that as soon as you begin, to go out and buy these bonds, the bonds will increase in price until they get to the point where nobody can afford, as a business proposition, to go out and buy bonds.

Mr. GREENWOOD. The ultimate result will be to increase the value of the bonds and not to help the borrower to any great extent.

Mr. PURNELL. The bond speculator will go out and buy up the bonds, and then if he wants to go into the farming business, he can buy up plenty of farms all over the country.

The CHAIRMAN. The committee will have to go into executive session as soon as possible.

Mr. HARE. I have said all I desire to say, Mr. Chairman. bonds can not be presented except by the mortgagor himself.

The

(Thereupon, the committee proceeded to the consideration of executive business, after which it adjourned.)