over 90 percent of our capital is either in mortgage loans or in foreclosed real estate.

Senator GOLDSBOROUGH. Senator Gore asked you how many building and loan associations there were in the United States, and you answered 11,500.

Mr. BODFISH. Senator Gore asked as to 1929. There are 10,997

now.

Senator GOLDSBOROUGH. In the State of Maryland, including the city of Baltimore, we have about 1,000, and it is my understanding that of that thousand perhaps not more than half a dozen have had any serious difficulty.

Mr. BODFISH. Senator Goldsborough, the only difficulty has taken place in the city of Philadelphia, where real-estate promoters and lawyers have been loaning on second mortgages. But they have departed, and the fundamental building and loan first-mortgage investments remain.

The CHAIRMAN. What causes the difficulty of the building and loan associations?

Mr. BODFISH. Largely two things, Senator. No. 1, fear because we have had 10 times as many withdrawals in the area where there was a substantial number of bank failures. The other factor is unemployment. This fund of 8 billion dollars that has been accumulated largely from the working classes and people in very humble walks of life-they are the people, of course, who first felt the pinch of the depression. They needed their funds; and I think the withdrawals from the building associations have been one of the great factors in tiding that kind of a family through the depression.

Senator GORE. What fund is that?

Mr. BODFISH. The total assets of the 11,000 building and loan associations in the country today.

Senator GORE. How much has that gone down since the depression began?

Mr. BODFISH. It has decreased almost a billion dollars. We have cards in some of the associations which are signed where a person will come in and get $5 a month for a period of 3 or 4 years.

While I am very sympathetic with unemployment insurance and things of that kind, I think one of the things that is very important is that we teach some of the old fundamental principles of saving a little money in a safe, nonspeculative investment, and providing some of your own unemployment insurance.

Senator GORE. You do not think that unemployment insurance will militate against that spirit, do you?

Mr. BODFISH. Senator, I confess I do not know. I do know that the spirit of thrift and saving, and property ownership, which is merely another angle of it, is terribly important to this whole country, and it is at a low ebb at the present time. Real-estate taxes in my city are a disgrace and a discouragement to home ownership. There used to be a time when a man owned a home that it was an island of safety, absolutely. In other words, taxes were so low that if he got out of work for a year he could get along all right, and he really had an island of safety there. But real-estate taxes and one thing and another have broken that idea down somewhat.

Senator GOLDSBOROUGH. In other words, he had a roof over his head?

Mr. BODFISH. Yes.

The CHAIRMAN. Are the building and loan associations functioning now? Is confidence coming back to them? Are they making loans now?

Mr. BODFISH. I would say that confidence is returning and a number of them are making loans at present, but they have not anywhere near the whole volume of savings that they used to have which really supplied the loan funds. Where an institution is on notice, Senator Fletcher, a man is not going to walk in and deposit money or put money in on shares. Psychologically they will not do it when their neighbor knows they cannot get their money for 2 or 3 months. They say, "I am going to wait and see." When that association is meeting its withdrawals within 30 days and has money on hand, the flow of savings resumes.

The CHAIRMAN. Are the members slow about keeping up their dues?

Mr. BODFISH. Yes.

The CHAIRMAN. And meeting their installments or payments? Mr. BODFISH. Yes. But, Senator, this should be kept in mind: Every building and loan mortgage in the country was on a longterm monthly repayment basis. In other words, it was built just as you designed the original Florida law. If I recall correctly, you are the author of that law in Florida. It was enacted with the objective of getting the home owner out of debt. The most unsound thing in our whole debt structure is that they do not have the objective of getting a man's home free and clear. The building and loan companies have adhered completely to that principle. It doesn't mean anything if you have added to the second mortgage and the building association and the tax collector. It only means something if some day you have an absolutely free and unencumbered home which is an island of safety for a person in a depression of this kind.

Our building and loan people have kept up their mortgage payments. They are better than other forms of mortgage loans, because they were adjusted to the monthly or weekly income of the borrower.

The CHAIRMAN. Is there any complaint about the interest? Do borrowers now feel that interest is too high in building and loan associations?

Mr. BODFISH. Senator Fletcher, I think the interest question is one that needs some very thoughtful consideration from Congress as well as from other public leaders of this country. I do not want to defend for a moment high exactions or usury, or anything of that kind; but interest rates must be high enough to encourage the accumulation of capital for whatever purpose it is needed. In our building and loan associations we have been unable to get people unless we paid them 412 or 5 or 52 percent. As a matter of fact, we have often talked of it as the workingman's bank that gave them a higher return than they could get anywhere, and in an investment which they could understand. I think that the concept-I say this as an economist, not as a business man-of putting political pressure on the interest rate by spreading the information up and down the land that the Government is going to loan on farm mortgages at 4 percent, and things of that kind, is not socially desirable in the long run.

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Senator GORE. Double check!

Mr. BODFISH. I believe in usury legislation and I believe in better inspection of all financial institutions, but I think we have started on something that we have got to be awfully careful about, namely, by establishing low interest rates for direct lending operations with the idea of forcing private capital down below grade

Senator GORE. Do you not think that when you make a rate of interest less than the market price of money, or what it ought to be, you invite more borrowers than you would otherwise have and lure people into debt?

Mr. BODFISH. That is possible, Senator, although I find that people's borrowing is not a function of the interest rate; it is a function of the general feelings of the times.

Senator GORE. That may be. But Senator Fletcher and I had something to do with establishing this farm land bank system, and one of our objectives was to reduce the rate of interest, and we did. That compelled private lenders to reduce the rate of interest to farmers; and in 10 years the farmers owed three times as much as they owed when we started that institution.

Mr. BODFISH. And today you have the whole farm-mortgage business of the country right square on your hands.

Senator GORE. Certainly. We were lending money more cheaply than the people that had money were willing to lend it.

Senator TOWNSEND. What is the eventual outcome?

Senator GORE. That the Government is going to finance everything and drive private financing out of the market, and sooner or later the Government will have all industries sitting in its lap; and I don't know but what some people desire to have that come about.

Mr. BODFISH. I hope not, Senator.

Senator WAGNER. I do not know enough about these things; that is my difficulty. But what would the farming communities of the country have done recently without the aid that we have given them, without sufficient income to pay the interest on their homes? They were beginning to lose them one right after another. Something had to be done for them. It is easy enough to talk in these terms, but we have got to deal with human beings in some way.

Senator GORE. That is true, Senator, and that is why the Government has to lend more and more.

Senator WAGNER. What could we have done?

Senator GORE. The Government is fixing it so that people cannot borrow money, because it is fixing it so that people cannot collect their debts; and if they cannot collect their debts, credit will not be extended.

The CHAIRMAN. The Farm Loan Act saved farmers $450,000,000 a year.

Senator GORE. Yes; it did, Senator; but how many did it get into debt? You will find at that low rate of interest that the aggregate interest paid by the farmers was a great deal more than that.

Mr. BODFISH. I think you would be intensely interested in a recent study that has been made, sponsored by Edward Filene and a number of others. There are some very shocking things in their report to those of us who have given study to the debt question. They came to the conclusion that the debt structure has not been one of the principal problems of the depression, and the relief measures in

many cases were inexpedient, for the reason that in attempting to help, for example, the person that was having his home taken away from him as a matter of foreclosure, they allowed four or five other fellows to ride in that did not deserve to be considered. In other words, we have not matured in our capacity to deal with that problem.

Senator GORE. The Government agents went to and fro in this country urging farmers to borrow money in order to reduce the overhead; and down in the community where I was raised they tell me that every farm in that vicinity except one has been taken over by the Government. They got the money to buy automobiles.

Mr. BODFISH. I do not think that a 30 or 40 years' mortgage indebtedness on rural property is a wise thing. I am not ready to go the whole jump in the urban credit picture. I think we had better establish a 10 or 15 year proposition at the most, and get them out of debt.

Senator WAGNER. With amortization?

Mr. BODFISH. Yes. Incidentally sometimes reference is made to the long-term loans made by the banking systems in Europe, from which we got a lot of the ideas that we put into the Home Loan Bank system. For instance, in Sweden they have stable property values and no real property taxes. I think that is a significant thing in thinking about this 80 percent proposal.

The CHAIRMAN. As I understand it, one of the objects of this bill is to induce private capital to come forward to supply loans and to get the Government out of it as far as possible. I do not think the Government ought to take over the lending business of the country at all.

Mr. BODFISH. Senator, I think this proposal in section 5 of title I and in title II is the fundamental beginning of the nationalization or socialization of the whole urban mortgage business in this country. I am glad to make that statement for the record, because if those phases of the bill go through it will be interesting to check up 5 or 10 years from now to see where we are going.

Senator TOWNSEND. Why do they have no real-estate taxes in Europe?

Mr. BODFISH. Recently I was talking to a chap from France who owns a fairly substantial home. He has not suffered from the depression particularly. He is an artist, as a matter of fact. I asked why, and he said, “I have my home." I interrogated him further and it developed that he has a 12-acre place some 30 miles from Paris and he has a very substantial home on it, and his annual taxes approximate $12 a year. In other words, he pays his taxes in the form of consumption taxes of one kind or another; and his home, in the words of Richard T. Ely who was my teacher in economics, was a "real island of safety" for him during the depression, because he could certainly get $12 to pay taxes on it.

There is one of the fundamental readjustments that is going to have to take place in our economics. The burden of municipal, State, and county taxation on real property is a question that just cannot be cast aside much longer. I think the thing to do is to put it over on consumption taxes and profit taxes.

Senator WAGNER. You anticipated what I was going to ask you. I know you have thought about it more than I have. I do not think

anybody would want to have municipal government reduced to the point where it does not give the people the services that they need, such as education and public-health service. But there ought to be a sort of an exploration of that field so as to relieve the real-estate taxpayer who really is contributing more than his share to the expense of the municipal governments today.

Mr. BODFISH. It is a very vital and important thing. I think one of the things that has made this country great has been our concept of education.

Senator GORE. Did it ever occur to you that they might have run that into the ground? Don't you think we ought to put little motors on the children to guide them so that they will not have any difficulties at all to encounter?

Mr. BODFISH. Well, I don't know, Senator. I am a great believer in the system of having everybody given an opportunity to have an education.

Senator GORE. Surely. Give every child a chance, but don't spoil them by not letting them ever encounter any difficulties.

Now, on this tax point: In Oklahoma there are 6,356 governmental agencies vested with the sovereign power to impose and collect taxes; and in the State of Oklahoma we collect and pay annually Federal, State, and local taxes in the sum of $226,000,000. That is $100 per capita. It is $500 per family. Two hundred and twenty-six millions in 1931. All the farm produce marketed in that States that year brought $66,000,000, and all the oil brought $110,000,000. Those are the chief resources on which we pay our taxes. All the proceeds of oil and farm produce brought $50,000,000 less than enough to pay taxes. The interest charge is 70 million a year, and the insurance premiums are 60 millions a year.

What are you going to do about that?

Mr. BODFISH. Senator, in my county, in Chicago, we have 250 individual tax jurisdictions.

Senator GORE. I think there are 10,000 in Senator Wagner's city. Mr. BODFISH. I think the Government has got to give some real attention to the housing problem; but I do not think the solution lies merely in demonstrating the fact that the United States Government can raise capital at 3 percent when private industry cannot raise it for less than 4 or 42 percent for a long term. I would have no objections to see our country going the same road that England has gone in regard to the destruction of such properties as are declared uninhabitable by the ministry of health. I think there is a whole avenue to be developed there. I do not think that the function of government in solving the housing problem is essentially one of credit.

Senator GORE. North Dakota launched a scheme of that kind, did it not?

Mr. BODFISH. Yes. The bank went busted, sky high.

Senator GORE. It was an utter failure, was it not?

Mr. BODFISH. Yes.

Senator GORE. And did not California also undertake it?

Mr. BODFISH. California financed homes for veterans, but they have not been able to collect yet.

Senator GORE. You lose certain elements of character when the Government gets to dealing with an individual. The relationship