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Federal land bank we turned to Farm Security and found we were able to get sufficient security to set up 60 out of 300.
Senator MILLER. That situation does not exist only in that particular instance; it exists in several other instances in Arkansas, where we are blacked out on account of our flood troubles and drainage districts.
Mr. Dickinson. That, however, is improved very materially, because Congress provided funds for refinancing and improving districts, both drainage and flood.
If the Government guaranteed the bonds, investors would look to the Government for security and would not be interested in dictating policies of the Farm Credit Administration. If the System is ever to be made responsive as a farmers' cooperative, we must get from under this influence. It is true that the Government has at least morally guaranteed the System from the beginning. Investors naturally expect it will do it in the future. Therefore, they would probably prefer that it remain as now, that they may collect a little higher rate of interest on the bonds.
Much of the opposition to this bill has come from the banking interests and insurance companies of the Nation. This would seem to be in poor faith when we remember that the System from May 1, 1933, up to the present has bailed out the life-insurance companies, commercial banks, savings banks, and other private lending agencies, to the tune of approximately $2,000,000,000.
Senator MILLER. In that connection, I want to ask you a question about the list of the delinquencies of the Federal land-bank loans and Commissioner's loans. I just want to call the attention of the committee to that situation.
Senator BANKHEAD. Before you go to that, I would like to refer to the last statement Mr. Dickinson made about bailing out other agencies. Senator MILLER. That is what I want to get at.
Mr. DICKINSON. I mean the money, Senator, that they borrowed from the Commissioner to take up mortgages that went to those people. I will list them a little further.
Senator MILLER. Commissioner's loans have only been made since 1933.
Mr. DICKINSON. Maine, 54.9 percent.
Senator MILLER. The national average of delinquencies on Commissioner's loans was 28.9 percent.
Mr. DICKINSON. At the present time it is 29 percent.
Senator MILLER. On the old Federal land-bank loans it was 20.5 percent.
Senator BANKHEAD. It is now 22 percent, I believe.
Senator MILLER. But there is considerable discrepancy, now, and I would like to know where that money went.
Senator BANKHEAD. What caused that discrepancy between the Commissioner's loans and the land-bank loans?
Mr. DICKINSON. Remember, the Commissioner's loans in most instances are second-mortgage loans-a man who is already in distress when he borrows. He owed the Federal land bank 50 percent of
. the value of his farm, and he borrowed up to 75 percent. Then, another thing I would say is that in the poorer sections the original
loans were made by the Commissioner, and they were low-producing farms.
Senator BANKHEAD. The best loans went into the banks?
Senator BANKHEAD. Are the Commissioner's loans now all firstmortgage loans?
Mr. DICKINSON. No.
Mr. DICKINSON. A man already had a loan in the Federal land bank, and then he was in distress by losing his home, so after he had provided for a 75-percent loan through the Commissioner, he again went to the Commissioner and secured another 25 percent.
Senator MILLER. They are all made out by the same people?
Mr. DICKINSON. Same agent. Commissioner loans are Government money.
Senator FRAZIER. In case of Commissioner loans, the money comes from the Treasury and not from the sale of bonds.
Senator MILLER. But they are both made through the same agency.
Mr. DICKINSON. Let me repeat my statement: This would seem to be in poor faith when we remember that the system from May 1, 1933, up to the present has bailed out the life-insurance companies, commercial banks, savings banks, and other private lending agencies, to the tune of approximately $2,000,000,000.
In paying off these private lending agencies the scale-down of debts was only 10 to 12 percent and, evidently from the delinquencies and troubles we have had since then, we probably did not scale them down enough; but be that as it may, they benefited by it. That is what I am complaining about.
When the Farm Credit Administration was rushing to the rescue and pouring out the hundreds of millions of dollars to take care of a collapsing credit structure, who got that money? We want to answer that question for the record. We all want to know who was being rescued.
Life-insurance companies were rescued to the tune of over $330,000,000. Joint stock land banks were rescued for $150,000,000. Commercial banks, savings banks, and trust companies were rescued to the tune of nearly $400,000,000. In addition to these collossal and unbelievable sums there were nearly $400,000,000 of additional credit issued to take care of commercial bank loans, taxes, and redemption from tax sales and miscellaneous items. For this last item of nearly $400,000,000 bonds were issued on a basis of unsecured indebtedness.
I should like to file with the committee a statement showing where that money went to.
Senator BANKHEAD. It may be filed with the reporter, to be included in the record.
(The statement referred to is as follows:)
Estimated amount of Federal land-bank and Land Bank Commissioner loan proceeds
used for refinancing, May 1, 1933, to Dec. 31, 1939 1
Mr. DICKINSON. The contention has also been made that if the Government guaranteed the bonds, it would probably encourage loose credit and destroy a sound lending agency. It is difficult to understand how the system could be made much more unsound than it has proven to be in the past. It has been pointed out that 60 percent of the farm loan associations have either lost their stock completely or have it so impaired that they can no longer make loans through these associations. Even in the new associations, organized since 1933, 20 percent have had their stock so impaired they are unable to make loans.
Reference to a report of the Farm Credit Administration discloses 1,101 associations have their stock fully impaired 100 percent; 1,089 associations have their stocks impaired to the extent that they cannot close new loans; a total of 2,190 associations out of the total of 3,722.
Senator HUGHES. And the farmers cannot get a loan at all?
Mr. DICKINSON. No, sir; not through associations. In some instances they have provided for direct loans or Commissioner's loans or for some other kind of loans.
DESIRABILITY OF 3 PERCENT INTEREST RATE
I shall now take up the subject of interest rates.
It has been suggested that the bill should be amended to increase the interest rate to 32 percent. I have heard that not only from some of those who have testified here, but I have also heard it said elsewhere that probably that agreement may be reached. We are opposed to this as we believe the market will absorb the bonds at a rate to give the farmers money at 3 percent.
While the Government has been subsidizing interest rates from year to year, we feel lower rates should be made permanent and should give farmers the fullest benefits of Government borrowing. With the present outlook for farm prices during the next few years we feel 3 percent is all that farmers can be expected to pay. We urge most strongly that the 3 percent interest rate remain in the bill as it is.
Senator MILLER. Assuming that this bill is passed, providing for a rate not to exceed 3 percent on new loans, what is your suggestion with reference to the refinancing of outstanding loans where the contract rate on those loans is in excess of 3 percent? Do you think that that might be advisable or might not be advisable?
Mr. DICKINSON. I think that you must sell bonds when they are callable. Unfortunately some of your high-rate bonds are not yet callable. I don't know when the last of those are callable; I think it is 1946.
Senator MILLER. I had thought they all became callable in 1944.
Senator BANKHEAD. In 1946; gradually up to that time. Doctor, let me ask you a question. I am a 3 percenter here. Suppose we arrive at a time when we cannot get the money, on account of the expenses of operation, which are estimated now to be 1.01 percent, and over a period of years 1.5 percent. If the cost, by reason of losses and other factors that happen from time to time in administration, exceeds 1 percent, as the cost is now, and you cannot get the money at less than 2 percent, what are you going to do?
Mr. DICKINSON. I think it provides enough to operate the bank.
Senator BANKHEAD. You have your losses- your reappraisements, losses in value, and readjustments—which, of course, affect the income, too.
Mr. DICKINSON. Of course, that condition may arise.
Senator BANKHEAD. What would be the situation if you could not get the money at the maximum rate of interest prescribed by the law?
Mr. DICKINSON. Well, I think Congress would have to give that leeway to make a little higher rate until such time as you could sell the bonds back.
Senator BANKHEAD. Do you think it is advisable to have a definite interest rate? I just want your views. It has been a question here.
Mr. DICKINSON. Here is the reason why I am advocating a definite, fixed rate. I am afraid the folks in charge of the system would be so anxious to build up a reputation for reserves and surpluses that they might be inclined to take advantage of the limit or the higher rate.
In the first place, they could sell short-term securities. They will always sell at a lower rate. They could sell short-term securities and try to bail themselves out or carry themselves over.
If they could not, why, of course, there would be nothing to do but to have Congress permit them.
By selling short-term securities for 1, 2, or 3 years, to carry them over that period of high money that we might run into, I believe we would make out all right.
Senator BANKHEAD. From your experience, do you think there is any substantial margin for reduction in operating costs?
Mr. DICKINSON. Ďo you mean that 1 percent is not enough?
Mr. DICKINSON. Well, Senator, I have some definite ideas about the whole system, but I doubt if it would be practical for me to suggest them at this time. I think the system is costing too much money.
Senator BANKHEAD. That is what I want-your opinion. Do you think that by good management the operating cost might be reduced ?
Mr. DICKINSON. Yes; and by reorganization.
LIMITATION OF FORECLOSURES AND DEFICIENCY JUDGMENTS
Mr. DICKINSON. We strongly favor the provision eliminating foreclosures and deficiency judgments. No valid arguments can be made for the elimination of this section. The Government is amply protected as in event of the farmer deeding his farm to the Corporation, he must, if he takes a 5-year lease on the property, pay to the Corporation a reasonable rental, pay insurance and taxes, if required by the Corporation, and maintain the property in normal repairs. Failing to do this, a deficiency judgment can be taken for this amount. It has been suggested that by regulation or amendment it might be wise to provide for a deficiency judgment in the amount of rentals and money advanced during the time the bank carries him in a delinquent state before requiring him to deed the property to the Corporation. This would protect the bank against an unscrupulous borrower who might otherwise take advantage of the bank for a year or two while they were giving him a chance to adjust his delinquency. Further than that, however, deficiency judgments certainly should be prohibited, but whatever action and whatever policy may be adopted, we favor it being written into the law rather than have the Farm Credit Administration create the law by administrative orders.
I do not subscribe to the idea advanced here that we should not write these things into the law. I think they should be written into the law and not be left to the discretion of administrative officers to make the law.
Senator HUGHES. Doctor, in my State years ago they did attempt to take-and did take-secured deficiency judgments. "That practice has been abandoned. For 10 years or more there have been no suits to obtain deficiency judgments because they were always an expense, and nothing was ever secured by it.
Mr. DICKINSON. Well, I will say this for our institution: I think we have a very fine bunch of fellows running our bank. They are sincere. I have not always agreed with them on policies, because I have felt that perhaps they were not quite close enough to the farmers. However, I have no desire to criticize their integrity and their desire to do the right job.
But here is and has been my objection to deficiency judgments. As you suggested, they have not collected on very many; in fact, they have not tried in my district to collect on very many of them; but a deficiency judgment hangs over a fellow's head.
In Mississippi County a fellow named Fairly and his wife went into the woods several years ago, in the Mississippi River bottoms, and undertook the development of a whole section—640 acres of as fine land as there was in that country. He developed half of it-320 acres—and erected, I believe, 18 or 20 family units on it.
In the meantime, he had been forced to secure a loan from the Federal land bank. Then he started developing the other, and as he went along with that development, he had to have more money, so he came to the joint-stock land bank, and he borrowed from the Southwest Joint Stock on that half section. But he had insufficient buildings. I think, as I remember now, he had only three or four houses on that section. In 1931 or 1932—I don't remember which-right at the