had but one foreclosed, and I paid that. But, I do not believe that you can build a man over in a year.

Mr. Goss. I do not think that we are attempting to build a man

over.

Mr. CUMMINGS. You just cannot change him.

Mr. Goss. Just let me give an example that was brought to me last month. Here was a man in North Dakota, a man that had been running delinquencies for a number of years. We had done our best to get the money, but he did not have the money, apparently, and he developed a complex that it looked as though he just was not willing to cooperate with the bank and do his best, and then when the variable payment plan was offered to him, in January, and one of our field men from here accompanied the secretary-treasurer of the farm loan association in offering it to him, he said, "Yes," he said, "I would like that." He said, "I have a chance to make good on that.' And he said, "However, if I am going to be given a 5-year chance to make good, I do not want to pay interest on this whole debt. I have got $700 in a savings bank." And he had $700 and he reduced the debt by $700 right then and there.

Mr. CUMMINGS. Why didn't he pay it on his debt?

Mr. Goss. What is that?

Mr. CUMMINGS. Why didn't he pay it on his debt if he had the $700? Mr. Goss. That is just the point that I am making. You see that man had lost hope. Now, I am not criticizing the man, because he was salting away some money, and not paying it on the debt when he thought that he was headed for an eventual foreclosure. I do not say that he is dishonest. I say that he ought to pay his debts, but he owes his first allegiance to his family to see that they do not go hungry, but that man had a record with the bank of not doing his honest best. They just could not see how under his operations that there was not a little more income than there was. As a matter of fact, he was taking some out. But, they went along with him. Maybe they ought to have pressed him a little harder; but I do not think so.

But, that case came to my desk just last month.
Mr. CUMMINGS. That is an exceptional case.

Mr. Goss. I agree that it was an exceptional case. I said that it was an exceptional case. But, those are the human problems that we have to deal with.

Mr. CUMMINGS. What about the taxpayers who are furnishing the money? We have got the other fellows who are paying these taxes who have not got the $700 in a bank either.

Mr. Goss. I know it. It is a thing which we do not condone. We say that if a man is able to pay he should pay, but still, I would not call that man dishonest. But, that is one of the reasons we have to test it out for his 1-year trial, because it is a very human problem, and we have such cases.

Mr. CUMMING. There is the other side which is a human problem too, and that is the fellow who is furnishing the money.

Mr. Goss. I do not deny that.

Mr. CUMMINGS. There is the other side of the human problem too of the fellow who is furnishing the money. We are taking this money away from somebody some place.

Mr. Goss. That is right. You are arguing that we ought to be more hard-boiled. I do not agree with that.

Mr. CUMMINGS. That is all.

The CHAIRMAN. Mr. Pierce wanted to ask a question.
Mr. Goss. Just let me answer one more thing.

The vast majority of our borrowers are honest and want to pay their bills, and they will pay what they are able to pay. There is a certain percentage of farmers, just like there is a certain percentage of lawyers, bankers, and every other group that will not pay unless you make them pay. I would not attempt to tell you what that percentage is; but there is a certain percentage of them. We have got to take care to see that that percentage is not given cart blanche to go in and rob the taxpayers of the Government or the farm-loan associations, or the members or whoever it may be. You have got to have rules which enable the banks to insist that those men pay, and that is the objection I have to this bill, which attempts to put them all in one class under the law and says because 80 percent of them will pay, we know that the other 20 percent will go forward on a basis of 100 percent, when we know that only 80 percent, or whatever the percentage is will pay and the other 20 percent won't pay unless made to.

Mr. CUMMINGS. The part that I do not like is that here a man has a farm and he says, "You just take the darn thing. I can buy another one cheaper than what I owe on this."

That is the part that I do not like. He ought to be made to pay. Mr. Goss. That is what we are trying to do, I agree with you just 100 percent on that.

The CHAIRMAN. Mr. Pierce.

Mr. PIERCE. Yesterday you justified the 5 percent taken from the borrowers by the local associations which I have always considered as a sort of a bonus to guaranty his loans in that local association. I would like to have a further explanation, Mr. Goss, as to why you think that is necessary and why you think that extraction of 5 percent from the borrower is necessary to make this a cooperative organization.

I would like to have you explain your justification for that 5 percent.

Mr. Goss. Well, Governor, I will say this: that I do not think that that 5 percent stock is necessary to make a cooperative, but I think something is necessary and you cannot remove that 5 percent stock without substituting something for it, if you are going to preserve the borrowers' interest and the members' interest for doing this work in the field.

Now, my judgment, after having been connected with this system more or less actively for 23 years, is that the farmers in the field, who know the farms, know the man, know his character, know his difficulties, under proper supervision could do a better job in judging about that man's capacity to pay than can anybody from Washington or anybody from the land bank, and that they should be very decidedly brought into the picture.

What I object about in this bill is that the borrower's stock is repaid and he has no further interest in the system. He doesn't share in the profits. He does not share in the losses. His sole concern is that he

has got a loan. If his neighbor does not pay, it does not make any difference to him at all. The Government will foot the bill.

If, on the other hand, it has operated successfully and it builds up a margin of earnings, he has no concern, no incentive, to help that, because he does not get any of those benefits.

The strength of the cooperative movement is that all are working together to try to run a sound institution.

Now, the only device so far proposed has been that financial interest of 5 percent. Under the original concept of that it was a working capital upon which the institution was to operate. I have no objection to having the Government furnish the working capital in an emergency, although I would rather see it-and I think it can be done eventually-solely a farmer owned and controlled institution; but it is going to take a long time, because that great big dip in the depression shown there on the blackboard is going to take us maybe a generation to recover from; but I would like to see us leave to the next generation something which will work soundly and which the farmers can own and control and nobody can upset it.

Now, there are other ways of developing and continuing farmer participation, and a true cooperative system, but this bill does not have it.

Mr. PIERCE. The 5 percent of the loan taken out for stock is virtually a guarantee of his neighbor's loan to that amount.

Mr. Goss. That is right.

Mr. PIERCE. Now, how much; what percentage; take the United States through, has gone back to the man who contributes that 5 percent? Has it not all practically been lost to the borrower?

Mr. Goss. Oh, no. No. I could not give you the percentage, hut all loss to the borrower is away, away, away off. I would judge that it is more than 50 percent off, but I do not have the figures.

Mr. PIERCE. It was all loss out in our country.

Mr. Goss. In part of your country; yes, it was all loss in my particular farm loan association. We were in an irrigated district, and the district practically went broke.

Mr. PIERCE. I sat for several years as chairman and president of a local board and my experience there was that the 5 percent operated not to the advantage but to the disadvantage of the Government in loaning the money. A member would say, "Yes, you have got to give up 5 percent." He would say, "Raise the loan a couple of hundred dollars."

The whole tendency was to shove the loans up. The borrower just regarded the 5 percent as a loss and almost entirely it was a loss.

Mr. Goss. There might be a little of that shoving the loans up. There was quite a bit of it on the part of the associations to start with, but most of it was caught in the bank and through appraisals and when they showed up, they shoved them down again.

Mr. PIERCE. It seems to me from the very start if every loan could have rested on its individual responsibility instead of attempting to hold the local men responsible for that 5 percent, you would have been vastly better off.

Mr. Goss. Well, in my judgment-were you in here when I read the first part of my comments yesterday?

Mr. PIERCE. I think so.

Mr. Goss. In my judgment an association of borrowers who are joined together to help each other is the strength of the whole cooperative system. In my judgment, that is the strength of the cooperative purchasing system or cooperative marketing system.

The cooperative movement has come forward by leaps and bounds in the past 20 years and that spirit of mutual helpfulness, that principle of mutual helpfulness, in my judgment, is the thing which is doing it and that is the thing which I hate to see sacrificed in this bill. You may recall that when I came to that section of the bill I stated that I felt that this was the most dangerous section of the bill, because it cut the heart and soul out of the bill.

I think we have got to maintain that feeling on the part of each borrower that he has a certain responsibility for helping his fellow borrower who is in distress.

Mr. PIERCE. I am just as sincere as you are in saying that I think that you are as wrong on that as you can be, Mr. Goss. My observation and my study has been on the opposite side exactly. I cannot get your viewpoint at all, have never been able to do so, as you know quite well, and I think even the production credit is making a mistake today in exacting that 5 percent on the loans. I just cannot see the value in it, and I think that it is working just exactly opposite to what men of your type, of high ideals, want it to work. I am not doubting your honesty, but I am doubting your judgment as to the outcome of the 5 percent.

Now, tell us just a bit more about the interest on these loans. Do you think that it is impossible for the farmers to have a 3-percent loan with the price of money today?

Mr. Goss. Do I think what?

Mr. PIERCE. Do you think it is impossible for us to give the farmers 3-percent money?

Mr. Goss. Well, now; I would not say that. I would say that it is possible to give them 2-percent money if you want to take the chance of borrowing money on 90 days or 6 months, and make a 30-year loan on it. I would say it is possible, but you might run into a condition where you could not borrow any more money at one-half of 1 percent on 6 months' time. You might have to pay 3 percent for the money as we have seen in the past, and any system would go broke unless somebody came up and footed the bill. That is just a question it seems to me of studying the trends of the money market and determining how much risk you want to take.

I have always felt that in developing a cooperative independent system we ought not to take too much risk of having the system torn up, destroyed, over night by a sharp increase in the money market, which undoubtedly would follow the recovery of business. I think our interest rates probably are lower than we will have when we do have business recovery and I think it would be shortsighted not to recognize that. I do think this, in the light of the experience: I can, by hindsight, say that we did not do as good a job in our borrowing as we might have done; but everybody else in the money market made the same mistake. We did not have the advantage of that hindsight. Had we done as good a job as we could have done, I think we would have had a little more short stuff, short-term stuff. You can mix it in. But I think the basic loans should be geared pretty close to the terms of the mortgage from which we must get

our money. I think that is the only conservative way that you can build an institution.

And let me say this, Governor, this 1 percent is only a cent and a half a bushel on wheat.

Mr. PIERCE. I am quite well aware of that.

Mr. Goss. And you know, as I pointed out yesterday, that you could sweat around here for 3 months and draft a bill which would save 1 percent, and the whole benefit could be wiped out overnight by having wheat go down a cent and a half a bushel or you could put the rate up to 5 percent and the farmers would find it just as easy to pay if you raised the price of wheat 3 cents a bushel.

So I feel this way about interest, Governor. I think that the interest ought to be at about the prevailing rates rather than at subsidy rates, and that when the rates go so low-I haven't any quarrel with the temporary reduction by the Government or subsidizing the farmers when you come to emergency conditions possibly brought on by uneconomic laws which have to cut down the farmer's income so that he needs this help. However, I think subsidies should be limited to the years when farmers need them. I don't think, in the absence of our ability to see far into the future, we should vote subsidies 34 years ahead and then find that it costs the Government possibly hundreds of millions of dollars when we have farm prices which enable the farmers to pay their interest without subsidies.

I do not think that we ought to call on the Government to do that. Mr. PIERCE. You know quite well that interest is one of the reasons for the smashes in our economic system. I think that that is generally admitted among economic students. Interest is now lower and is going to stay lower. It must stay lower. While we had the new lands, the Mississippi Valley and the Pacific coast coming in and we could raise the values, the farmers could pay big interest. Interest could be paid by the railroads, by the insurance companies; that day of rising land value has passed. How many insurance companies are back in the field wanting these better loans in Illinois, Iowa, and parts of Oregon?

Mr. Goss. I am not pleading for high interest rates. I think that the farmer is entitled to the cheapest interest which prevails anywhere in America; but when you figure the interest on our loans is less than 1 percent of the income from the farms, all of the interest, is less than 1 percent of the incomes of the farms of America, I say that the interest is not going to break or make agriculture. It is prices, it seems to

me.

Mr. PIERCE. Interest is what broke them in my country by the thousands.

Mr. Goss. If you had had just a little better prices--
Mr. PIERCE. I think throughout the whole country.

Mr. Goss. If you had had a compensatory price, or anything like a compensatory price, you would have been able to pay your interest. Even in your country, Governor, if there had been no interest at all, a great percentage of the farmers would have gone broke. You and I both know that.

Mr. GILCHRIST. Mr. Chairman, may I ask a question?
The CHAIRMAN. Are you through, Governor Pierce?

Mr. PIERCE. Just one more question.

The CHAIRMAN. He has one more question.

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