cannot pay 31⁄2 percent, 3 percent, 2 percent, or 1 percent They need help, but in seeking to help them care should be to avoid taking steps which may jeopardize a credit sy and can continue to provide funds for the great group of farmer Ja in more normal times, can help themselves.

It seems to us that in considering this whole proben important to distinguish between the problems presente two groups. In addition to needing a type of cresa ve considerable risk, farmers in the seriously distressed grou need outright grants for relief and some form of far-m supervision. Since risks are great and the costs of promising a advisory and supervisory services are heavy,

assumed by a cooperative credit agency.

The Farm Security Administration and other age ment have been established to assist this writ It seems to us that the approach to this part of t be made through these latter organizations wort a equipped to handle such problems. To ap through the Federal land banks is likely outright Government credit system for wa strong cooperative credit system. A: problem, since basically it is not a cre prope relief problem.

We do not think it can be met me ge on Federal land bank and Land Bank Com favor a continuation of subsidized

emergency, we feel that such red je ne

periods and always subject to congressional m
subsidized rates made possible through approa
Federal Treasury always hold the danger of ging the
land values. It is difficult to imagine, for example,
would have gone in 1920 had there been outstandi
40-year mortgages bearing interest at 3 percent. The
no way of forecasting the future course of tugtices and in
It would appear to be merely prudent, however, to
so that artificially low
wild inflation ind

done through long years of effort and with a background of sound operation on which to build. If the system is now changed by abandoning the consolidated bonds and substituting Governmentguaranteed bonds, this bond market would be sacrificed, and if it should prove later on that a succeeding Congress, pressed by the need for economy, might abandon the program of Government guaranty, the system would have to start at the beginning to rebuild this bond market, and the farmers would pay the price.

Experience has demonstrated that one of the fundamental principles of cooperation is that the members who benefit should share in the responsibilities of financial support and management of their organization. A study of the cooperatives made by Farm Credit Administration in 1936 shows that the total assets of the marketing and purchasing cooperatives was $510,846,000. Of this amount $287,860,000 had been contributed by the members. In the Federal LandBank System ownership is shared by borrowers and the Government. This arrangement has provided farmer ownership and responsibility without imposing an unduly heavy financial burden on farmers.

Incidentally, I would like to say that in the Berkeley district the National Farm Loan Associations now own about $7,000,000 of the capital stock, which is about 65 percent of the total stock in that land bank.

Control of any business goes with ownership. If farmer ownership is eliminated, the possibility of attaining farmer control will also be eliminated. Admittedly farmers have not in the past exercised as much control or had as much of a voice in management as we believe to be desirable. This is a weakness which can and should be corrected under the present form of organization. I believe at the present time it is being corrected. On the other hand, if the Government becomes the sole stockholder as provided for in S. 3509, and guarantees the bonds of the banks, no one can reasonably object to the Government running the banks. This it will inevitably do in the long run. As a matter of fact, S. 3509 provides for just such a centralization of management and control.

I noticed that the question was raised the other day of the possible constitutionality of the Government's guaranteeing the bonds of a quasi-private corporation. I do not know anything about constitutionality, and it is a question that perhaps should be looked into.

In the judgment of the National Council of Farmer Cooperatives, we should move in the opposite direction; that is, toward greater decentralization of both operations and control. We do not think this will be possible if farmers cease to be stockholders in the system. There is, in our opinion, no practical substitute for farmer ownership if we are to develop a truly cooperative farm mortgage credit system.

Section 16 of S. 3509 provides that no foreclosure shall be instituted or deficiency judgment taken if the mortgagor turns the mortgaged property over to the bank or corporation, as the case may be. While it is recognized that abuses of the deficiency judgment power are possible, it is our view that such abuses as may exist should be corrected in other ways and without destroying the fundamental basis of all credit-personal integrity and responsibility. In our judgment, the effect of section 16 would be to destroy both. No cooperative or private agency could long operate under such a provision. The

Government could only do so at enormous expense to the Federal Treasury.

Section 14 of the bill provides for variable payments, and section 15 provides for the reamortization of land bank Commissioner loans. Both of these means of assisting debt-burdened borrowers to work out of their difficulties can be and are now being used. As we recall the figures, more than 100,000 Commissioner loans have been reamortized. Crop payment and other variable payment plans are also available as are extensions, deferments of principal, and stand-still agreements.

As previously stated, it is our opinion that if farmer ownership in the Federal land banks is eliminated and if farm loan bonds are guaranteed by the Government, the system will inevitably move toward greater centralization in both operation and control. As a matter of fact, S. 3509 provides for such centralization. I cite the following instances as moves in this direction:

1. The Governor is authorized (sec. 8) to determine "who can be conveniently included" as a member of a national farm-loan association. Thus the Governor is substituted for the board of directors of a national farm-loan association in determining who shall become a member of the association. Whatever else a national farm loan association would be under such a set-up, it would not be cooperative when a Government official rather than the members determine who shall be eligible for membership.

2. The Governor is authorized (sec. 8) to substitute county committees of his selection for national farm loan associations where "associations cannot perform" certain functions which are to be delegated by the Governor to such form of local organization. The functions to be so delegated might include some things as making loans, servicing loans, servicing bank real estate, and similar activities. This provision obviously gives the Governor life and death power over associations, since he can transfer the services which they are performing, and presumably the compensation for such services, to county committees of his selection if, in his judgment, the association "cannot perform" them.

3. The Governor determines (sec. 10) who is entitled to have his loan refinanced and the amount of the loan to be made. Thus the Governor is substituted for the boards of directors of national farm loan associations and the Federal land banks in determining whether a loan is to be refinanced, and in determining the amount of the loan. In connection with such refinancing operations the banks and associations are required to scale down loans on the basis of the Governor's determination of the value of the security. This raises a question as to why have associations and banks with boards of directors if the Governor is to have sole authority to determine whether or not a loan should be refinanced, and the terms of such refinancing?

4. The Governor determines (sec. 13) whether or not a foreclosed property acquired by a Federal land bank shall be sold back to the former owner and the price at which it shall be sold. Again the question may be raised as to why have associations and banks with boards of directors if the Governor is going to determine the disposition of assets?

5. The Governor is authorized (sec. 14) to determine whether a farm is too large or too small to constitute what, in his opinion, is an

efficient unit, and to adjust the size accordingly in cases where the mortgage debt is refinanced under section 10. He is given similar authority in instances where a foreclosed farm is soid back to a former owner under section 13.

6. The Governor is substituted sec. 8 for the board of directors of the 12 Federal land barks in determining what functions shall be delegated, to whom they shall be delegated, and the compensation to be paid for services performed. The functions delegated might include such things as making loans, servicing loans, servicing real estate, and similar activities. Why have a board of directors under such a set-up. since they have no authority to determine who shall perform services for the banks, how such servicing shall be performed, or the amount to be paid for the work?

The opposition of the National Council of Farmer Cooperatives to S. 3509 in its present form is based upon the conviction that it would lead to the development of a highly centralized Government owned and controlled credit system. We strongly feel that this is not to the best long-time interests of agriculture. We do not feel that a move in this direction is either necessary or desirable in order to assure farmers of a permanent source of farm mortgage credit at a reasonable cost. We would like to see definite steps taken toward greater decentralization of both operations and control and to strengthen the cooperative features of the Federal land banks. To that end we make the following specific suggestions:

1. Provide for a definite source of income for national farm-loan associations for servicing loans and acquired real estate: A cooperative, like any other business, needs a reasonable income if it is to operate effectively. One of the difficulties under which national farm-loan associations have labored in the past has been the lack of a definite and adequate source of income. During the early years when the Federal land banks were paying dividends, this was not a problem.

I would like to remark again that in the Berkeley district we have paid in the past nearly $900,000 in dividends, and I believe that we could pay dividends again today if we were allowed to.

However, during the depression years the banks, like many another business organization, stopped paying dividends. During a part of this period the associations were closing few new loans, so that their income from loan fees was small. The result was that they simply did not have sufficient income to maintain an active, going organization.

Since 1933 the Federal land banks have been gradually turning over the job of servicing loans to associations and compensating them for it. In order to insure that this move to decentralize land-bank operations will be continued and to afford the associations a definite source of income, it is suggested that legislation be enacted authorizing payments to associations for servicing loans and real estate.

They do make some payments now, but there is some question, I believe, as to the actual authority for so doing. It is not definitely stated, I understand.

2. Provide for strengthening the financial structure of associations with impaired stock:

There, again, I would like to remark that in the Berkeley district the impairment is not so bad as it is made out to be in some of the other areas. I think we have some 72 percent of our associations with

practically no impairment; that is, just a little temporary impairment. In the State of California alone I think 81 percent of the associations are substantially free from impairment.

Senator HUGHES. How have you gotten up to that?

Mr. HODGKIN. Sufficient business with losses that have not run up too high, and reasonably good management, and some help from the Government.

Due to unforeseen conditions and factors beyond their control, many associations have an impairment in their capital stock. It is suggested that some program be worked out to strengthen these associations. Congress might want to consider, for example, authorizing the Federal Farm Mortgage Corporation to refinance the consolidated farm-loan bonds which the Corporation now holds on the basis of current interest rates. This would mean a very substantial saving to the land banks. Provision might be made whereby the savings from such refinancing would be passed on to the national farm-loan associations as special dividends. Over a period of 5 or 6 years such a step would go a long way toward strengthening farm-loan associations.

3. Provide that the district farm credit boards shall have a majority of farmer-elected directors. At the present time three directors are elected by the borrowers, three are appointed by the Governor of the Farm Credit Administration, while the seventh director is appointed by the Governor from the three nominees receiving the highest number of votes in a nominating contest held by national farm-loan associations. In the last analysis, this gives the Governor authority to appoint four of the seven directors. To insure farmer control this situation should be changed. It is suggested that the board might be increased to nine members, with two directors elected by national farm-loan associations, two by production credit associations, and two by borrowers through the district bank for cooperatives. This would give a total of six elected directors. The remaining three directors would be appointed by the Farm Credit Administration.

4. Continue to encourage regular meetings within each farm-credit district of the presidents and directors of national farm-loan associations, production credit associations, and borrowing cooperatives. This would, in our judgment, greatly increase farmer interest and participation in the system and keep the Federal land banks much more closely in touch with the problems and point of view of their farmer stockholders. This sort of thing has been done in the case of production credit associations, during the past 3 or 4 years, with excellent results.

Again, I should like to refer to the Berkeley district where such meetings have been held with the directors and presidents of the national farm-loan associations and also with the borrowers from the bank for cooperatives. We have held one or two meetings a year with very satisfactory results. It brings to the board of directors and the management the sentiment in the country, and it informs the directors of the associations as to what is going on in the bank and the reasons for it. It works both ways.

5. Restore the Farm Credit Administration to its former status as an independent agency of Government under a bipartisan board, with staggered terms of office. We feel that this is most important. As previously stated, the National Council of Farmer Cooperatives