mortgage would be possible. It depends on how cheaply they could get money.

The CHAIRMAN. In either event, the farmer should get the benefit of that reduction?

Dr. MYERS. In either event, the farmer should get the benefit of that reduction.

Mr. CLARKE. As I understand, incorporated in this bill is an increased authorization to the Reconstruction Finance Corporation of $300,000,000?

Dr. MYERS. Yes, sir.

Mr. CLARKE. And that ultimately the policy will be to liquidate all of the joint-stock land banks?

Dr. MYERS. Yes, sir.

Mr. BRUNNER. I would like to interrupt for a minute to ask a question.

The CHAIRMAN. Without objection.

Mr. BRUNNER. I represent a community of home owners of about 100,000 homes and I have been thinking seriously of adding an amendment to this bill to take care of just that situation. I was wondering whether I would be at liberty to talk to the Governor about a matter of that kind, before we act on this bill.

The CHAIRMAN. It is my understanding that the small-home owners in cities will be taken care of in a separate bill; or, at least, it is planned to present a measure of that kind at a later time, but it has no connection with this particular measure.

Mr. BRUNNER. The reason I bring it up at this time is I am in favor of the farmers, but I think we who represent the home owners should know in what form that bill would be introduced, so that they would know how to act on this bill itself. Are you at liberty to talk about that?

The CHAIRMAN. I do not know whether anyone can give you definite information, but the President's message, as I understand, made reference to the fact that a measure of that kind would be presented.

Mr. BRUNNER. I understand that, too, but I wanted to know if it is possible for me to find out in what form it would be.

The CHAIRMAN. I would not think the farmers or their representatives would be supposed to be equipped with that information; but, if they have it, I would be glad to have them give you the information.

Mr. BRUNNER. I am asking the Governor now, not the farmers. Mr. MORGENTHAU. They have already started a bill on those home

owners.

Mr. BRUNNER. Who would know about it, if you do not?

Mr. MORGENTHAU. Have you talked with Mr. Steagall or Mr. Goldsborough?

Mr. BRUNNER. They know about it?

Mr. MORGENTHAU. They know about it; yes.

Mr. BRUNNER. Thank you.

Mr. BIERMAN. The situation out in my part of the country is that the mortgage farmers cannot afford to pay 41/2 percent in the immediate future: Has there been any calculation by the framers of this as to what it might cost the Government to put a rate of 2 percent for 3 or 4 years on these loans?

Dr. MYERS. It could be figured.

Mr. BIERMAN. It would be a very large amount?

Dr. MYERS. It would be a very large amount. May I add, further, in connection with that, that provisions are made here so that, in addition to the fact that the interest is reduced for 5 years, there is also a provision that if a good farmer, operating the best he can, cannot meet that 412 percent, that the part he cannot meet can be extended. He will owe it, but it will be extended for 5 years and then can be refinanced and the mortgage rewritten and carried over, and he be left on the land. So that you have an authorization here for the Federal land banks to treat individual borrowers as their necessities deserve. If a man is continuing to operate well and, because of disaster, or low prices on crops, cannot meet the 412 percent, he is required to pay what he can and the remainder will be carried in such a way that he will not be distressed with it.

Mr. BIERMAN. That remainder that he cannot pay will be extended to the end of the 5-year period?

Dr. MYERS. And then the mortgage can be rewritten.

Mr. BIERMAN. That is in this bill here?

Dr. MYERS. Yes, sir; that is cared for under section 3.

The CHAIRMAN. Are there any further questions under section 4? If not, we will proceed to the next section.

Dr. MYERS. Three and four are covered under section 4. No amortization payment required and interest rate reduced to 412 percent for 5 years. Then item 5 on your analysis is covered in section 3. For 5 years, land banks authorized to grant necessary extensions of payments to deserving old or new borrowers, such extensions to be financed through loans from the United States, with an appropriation of $50,000,000 authorized for this purpose for the fiscal year. The idea is to get away from a blanket moratorium. There is no need for a moratorium for those who can pay and there are some who do not deserve to have extensions-they have simply given up-but the terms of this are such that individual cases will be considered and those who deserve to have extensions, will be relieved of the part that they cannot pay. They will be relieved of it in the sense it will be deferred so that they can get a chance to pay it off.

In other words, the philosophy of that provision might be said to be this: We believe present conditions cannot continue and recognize in the emergency a direct subsidy is called for, for a few years, to make possible a maximum rate of 42 percent. Furthermore, if a man cannot pay that, and he is operating, that will be extended and rewritten into his mortgage. Now, if prices do not improve within five years—well, you know the answer just as well as I do; no credit system is worth anything.

The CHAIRMAN. Now we will take up the next section.

Dr. MYERS. Item 6, raising the maximum limit from $25,000 to $50,000, is a matter of congressional policy. The reasons for it have been well stated. The fact is that joint-stock land lanks will wish to dispose of some of their mortgages. Some of them are for amounts of more than $25,000, which is the present limit of the Federal land banks. The demand is particularly from the livestock industry, and there seems to be no reason for discriminating against a type of

agriculture where a form of farming represents a bigger capital investment (and I believe, Mr. Kleberg, that relates to the situation you referred to). The question as to what the limitation should be is one of the things that should certainly be left for you to decide as a matter of congressional policy.

Mr. KLEBERG. Inasmuch as this is a question of administration, upon which the success or failure in the operation of this particular piece of legislation depends, would it be opposed by the administration to suggest that amounts in excess of $50,000 can only be granted by and with the consent of the Commissioner?

Dr. MYERS. That is the way it is stated here.

Mr. KLEBERG. No; in excess of $50,000; $25,000, and $50,000 is the limit. I would cut out the $25,000 feature, if you are going to turn it over to the administration, and give the administration an opportunity really to function.

Dr. MYERS. That is a question of congressional policy, Mr. Chairman, on which I have no statement.

Mr. KLEBERG. Would you gentlemen oppose that idea?

Mr. MORGENTHAU. Well, it places a pretty heavy responsibility

on us.

Mr. KLEBERG. You have that anyhow, Governor.

Mr. MORGENTHAU. I know that.

Mr. CLARKE. Is not that a question there, Mr. Kleberg, of resolving the benefits and purported benefits to the most people, a question of policy; and if you increase the limit of the thing, you reduce the number that can be benefited under the bill?

Mr. KLEBERG. You would restrict in excess of 73 percent of the acreage of this country, that portion which is tillable, and put that into production, and I want to know how that would affect the borrower.

Mr. CLARKE. Do not worry about a lot of it being put under cultivation.

The CHAIRMAN. Proceed to the next section.

Dr. MYERS. Section 6 is a long section, and the sense of it is given. It is item 7 of the analysis. It authorizes land banks to make direct loans where local farm loan associations are not available, either because they do not exist, or because their capital has become impaired on account of losses suffered during the financial depression. Direct loans are made possible, and are made on condition that the borrower agree to join the local association when there are enough new borrowers to establish one, and the interest rate is half percent higher until he becomes a member of a local association, and they it is reduced.

Mr. PIERCE. In my country, the local associations have failed, we cannot pay-it is the wheat country of the Pacific Northwest-are we to be fined one half percent interest during the difficult process of reorganizing these local associations?

Dr. MYERS. Only during the period in which a new one can be set up. As soon as there are 10 borrowers, with loans aggregating $20,000 in that district, they can set up a new one and immediately get the interest rate reduced.

Mr. PIERCE. As soon as we can repair our fences?
Dr. MYERS. Yes, sir; that is correct.

Mr. FLANNAGAN. Before the Governor leaves, I would like to ask, if the Government guarantees these bonds, what do you think they can be sold for?

Mr. MORGENTHAU. You mean as to interest?

Mr. FLANNAGAN. As to interest.

Mr. MORGENTHAU. I do not know what the answer is. I could answer it in another way by saying I doubt very much if the Government is ready to guarantee the principal.

Mr. FLANNAGAN. This is what I am driving at: If the Government would guarantee the sale of these bonds, then the interest rate to the farmer could be materially reduced?

Mr. MORGENTHAU. I do not know.

Mr. FLANNAGAN. Well if you can sell these bonds at 4 percent, by guaranteeing the interest, would not a bond guaranteed as to interest and principal by the Government but carrying a lower interest rate sell at par?

Mr. MORGENTHAU. It would be purely a guess. I would imagine

so, yes.

Mr. FLANNAGAN. Just one other question: If the farmer can be given a lower interest rate by the Government guaranteeing these bonds, why is it not the duty of the Government to guarantee the principal of these bonds, just like it did guarantee the principal and interest of the bonds we sold and turned the money over to the Reconstruction Finance Corporation to help business? If we are going to help business with a guaranteed Government bond, why not help the farmers?

Mr. MORGENTHAU. I think you will have to ask some of the financial representatives of the Government that question. I do not think I can answer it.

Mr. FULMER. Can you tell me the value of the joint-stock land bank stock at this time?

Mr. MORGENTHAU. You mean the stock itself?

Mr. FULMER. Yes.

Mr. MORGENTHAU. What it is worth?

Mr. FULMER. Yes, what it is worth.

Mr. MORGENTHAU. Mr. Bestor says the stocks are not worth much of anything.

Mr. FULMER. I want to ask this further question: In your reorganization and in liquidating the joint-stock land banks, under this legislation will the Government be called upon to pay into any jointstock land bank, or any individual, or some dummy corporation that may hold these worthless stocks, anything above the actual value of the stock?

Mr. MORGENTHAU. I do not think so.

Mr. DOXEY. Was there any particular reason why you gentlemen included the time limit of 1 year, where the foreclosure has been made? In other words, have you any objection, if it is the will of the committee and of the Congress, to increase the time limit from 1 year possibly to 2 years, in which a man has been foreclosed, to obtain the benefit of this law?

Mr. MORGENTHAU. If it is the will of the committee and of the Congress, I would not have very much to say, anyway.

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Mr. DOXEY. I want to get your reaction concerning it, because it is important and I do not know why 1 year was definitely fixed, in preference to 2 years, when the facts are that within the last 2 years there have been so many farms foreclosed, and titles passed

Mr. MORGENTHAU. They felt if we went back as far as 12 months, that is about as far as we can go back and handle it. As I understand it, if you go back 24 months, it is a question of the title and all that which is involved, and it is a legal question whether we could handle it by going back more than 12 months.

Mr. DOXEY. Then your preference is 1 year, but you realize there would be a greater benefit if we could extend the time and do it in a practical way?

Mr. MORGENTHAU. That is right, sir.

The CHAIRMAN. Now, Dr. Myers, you may proceed.

Dr. MYERS. Section 7, in the first title, applies only to a small number of joint stock land banks in receivership and permits the receiver to borrow on receiver certificates of the Reconstruction Finance Corporation in order to pay taxes. They have to have money to meet the payment of taxes on property owned during the process of liquidation. It involves only a very small amount of

money.

The CHAIRMAN. That applies only to the Federal land banks?

Dr. MYERS. It would apply to either the Federals or Joints, but only the joint stocks are in receivership-2 or 3 of them are in receivership.

Mr. BOILEAU. Under section 6, as I understand it, to be eligible for a loan, the farmer must buy stock in the Federal land bank at $5 for each $100, or fraction thereof?

Dr. MYERS. Yes.

Mr. BOILEAU. In other words, he pays interest at 412 percent on 100 percent of the money, and only gets 95 percent of it?

Dr. MYERS. That is right.

Mr. BOILEAU. That increases the interest rate on the smaller amount.

Dr MYERS. With this exception: The Federal land bank system is cooperative. In ordinary times, he receives dividends on that stock, and whatever the Federal land banks charge above their cost ultimately belongs to the borrowers. The way it is distributed is in dividends on the stock.

Mr. BOILEAU. Did they ever obtain any money back?

Dr. MYERS. Oh, yes.

Mr. BOILEAU. Within the last 2 years?

Dr. MYERS. Not in the last 2 years. The general depression and losses on foreclosed farms eliminated their earnings. But there are two sides to that stock feature. The 5 percent stock has double liability, but it is the feature that makes them cooperative, and whatever the land banks make above the costs of operation goes back to the borrowers under ordinary conditions. When they lose, it is a cooperative loss; when they gain, it is a cooperative gain. Mr. BIERMAN. Where is the farmer going to get the money to subscribe to that stock?

Dr. MYERS. It comes out of his loan. It would reduce by that much the amount that the mortgagor would get.