"

The X, qui a large pan off the loud well owned by the Oh te di to their trien f they refused to speak on the face ***** . dient adhereix every tank depostor, every farm owner,

It a * interesting fact, that all toraltarian ecocome greens in the world VAA7 580 pet such denjera za tola oil. proposes to enable them to take over the great ejetem and metaly & types of private business enterprises. Toere, la tore, kombed in the pricmply underiying the proposals of the Joves them to that the red dwie te It is dit to understand why there is a sudden rash, to destroy an existing agricultural credit system that has be operating for 24 years and was establated after long and careful study by * Cairo mittorien by Congress and appointed by Woodrow Wilson. It We hably significant that the principal organizations of the farmers are strongly opposed to the emase nation, of tuls credit system which the farmers themselves have laboriously bunt and wiccessfully managed for the past quarter of a extury.

We ask but this: That time and opportunity be given for the people to give consideration to this proposal to destroy the agricultural credit system of this country and to understand the real significance of the program proposed.

That is the end of Mr. Wiggins' statement.

As Mr. Wiggins indicated in that statement, the American Bankers Association has been accused of opposing this bill and its companion measure in the other House because, it is said, the bankers of the United States desire to hold up the rates of interest on farm mortgages. No statement could be further from the truth. We oppose this bill because the American Bankers Association desires that this country shall continue to have publicly chartered and Government-regulateď, but privately owned, local banking institutions, and not that our people shall be compelled to apply to a system of Government-owned, politically controlled institutions whenever they need or desire credit, We believe it is not now, nor will it ever be, in the public interest that persons requiring credit for their normal business operations shall be obliged to apply to the Government for that accommodation.

The American Bankers Association has the utmost sympathy for that American farmer who, by reason of depressed agricultural prices and lack of rainfall in certain areas, has been unable to meet his mortgage obligations. We believe the plight in which many of these independent land owners now find themselves constitutes an emergency, and one which should be dealt with as an emergency. But we do not believe that their misfortune should be used as a cloak under which the system of farmer-owned and farmer-operated credit agencies-set up some 25 years ago under the administration of Woodrow Wilson, after long and careful study by a commission appointed by William Howard Taft should be destroyed. If the Federal land-bank system has weaknesses and I would be the first to admit that it has--they should be sought out by men familiar with its operations, and the changes made only after long and careful study by those qualified to determine the effect, not only upon agriculture, but upon business generally, of the changes proposed.

By and large, the Federal land-bank system operated rather successfully until the depression of the thirties. Farm-mortgage loan interest rates, which had ranged from 6 to 10 percent prior to the enactment of the law, were driven down to an average of well below 6 percent. The system's bonds found a ready sale in the money centers, and were gradually beginning to have that seasoned investment status which would have, as Mr. Goss has just told you, inevitably, lowered the rates, both on the bonds themselves and, consequently, the rates on the farmer's mortgage.

In common with all other institutions, the period from 1929 to 1933 was a period of stress and strain for the land-bank system. I believe, as a matter of hindsight, that the farmers of the United States, and certainly the Federal land-bank system, both would have been better off if, in 1933, when the Federal Farm Mortgage Corporation was established, it had been set up on the same basis as the Home Owners' Loan Corporation as a pure rescue agency for those farmers who were about to lose their farms through foreclosure-and there had been no connection between it and the Federal land-bank system. It seemed wise then to connect the two. But I believe most of the complaints about the Federal land-bank system which have been coming to your desks I know in goodly quantities in the last 5 years have come from those who were forced to become borrowers from the Federal land bank by reason of the fact that the mortgage upon their farms was due and could not be refinanced elsewhere, and who did not become members of a national farm-loan association and borrowers through the Federal land-bank system because of their own desire.

I was just checking up on the situation in our Louisville district. From 1917 to 1933, inclusive, in those 16 years the Federal land bank at Louisville made 55,800 loans. In the year 1934, when the emergency financing came in, the bank made 25,800 loans, or half as many as it had made in the 16 years preceding. Since 1934, in the 5 years, 1934 to 1939, inclusive, we have made 12,400 loans only.

So that it was that emergency financing that brought a lot of people into the land-bank system that did not know anything about it and did not care anything about the land-bank system. All they knew was that the mortgage was due and they had to get the money some place.

I believe if you will keep the Federal land-bank system and the emergency farm financing separate in your thinking, you will decide, as we have, that the Congress, instead of destroying the land-bank system as the bill now under consideration by this committee would do-should take care of the emergency situations where they exist and continue the Federal land-bank system with only such refinements as may be needed to make it operate better.

Turning now to the bill itself, section 2 (a) provides that the rate of interest payable on any Federal land-bank loan now outstanding or made prior to June 30, 1946, shall be fixed at 3 percent for the entire life of the loan, and that the interest rate on loans made after June 30, 1946, shall be at rates to be fixed by the Governor of the Farm Credit Administration, which shall be high enough to reimburse the bank for the cost of its money, plus 1 percent.

I realize, again, that in opposing enactment of the first part of this section the American Bankers Association again will be charged

with self-interest and with seeking to maintain high interest rates to farmers. But our opposition is not to the low rate but to the continuing drain on the Federal Treasury which this measure would entail. If the nearly $2,000,000,000 worth of Federal land-bank loans now outstanding should be reduced to an interest rate of 3 percent, we know that the money which the land banks invested in those loans will cost in excess of that figure until at least 1946. No one can predict now what the money still invested in those loans will cost after that date. Thus we are sure of only one thing-that the United States Treasury will be paying some unknown amount for the next 40 years.

It is true that at present the average cost of money to the United States Government is 2.598 percent; so that, if by reason of the Government guaranty of Federal land-bank bonds proposed later in this bill, the land banks could refinance their entire outstanding debt on this basis, there would be a spread of approximately four-tenths of 1 percent between the cost of money to the land banks and the interest collected from the farmer on those loans made prior to June 30, 1946. Senator MILLER. The average cost of money to the United States Government is 2.59 percent?

Mr. MYLANDER. Yes, sir.

Senator MILLER. That indicates long-term or short-term financing? Mr. MYLANDER. I am just coming to that, Senator, in my state

ment.

Senator MILLER. Proceed.

Mr. MYLANDER. Those who claim this, however, overlook one very important point, and that is that the 2.598-percent rate is the average rate paid by the Government for money, and not the rate paid for long-term money, such as the land banks necessarily must borrow. This average rate includes not only the rate paid by the Government upon its 5-year notes and its 10-year and longer bonds, but also the rate paid on the 90-day bills sold by the Treasury, which have been, at times, recently, as you gentlemen know, sold at a premium. There is no assurance today, in the face of troubled conditions abroad, that even the United States Government could sell 20-year bonds, or bonds due in 30 years but callable at any time after 10 years, at anything under a 3-percent rate.

I think I ought to say that I wrote that just a week ago today. In view of what happened in the markets the early part of this week I might have made that a little bit stronger, had I written it earlier this week.

Consequently, the effect of this section, it seems to us, means a continuing drain upon the Federal Treasury by way of a subsidy to those farmers who have borrowed from the Federal land banks. How much that subsidy will be, no one can foretell. We know what It is today, but no one knows how many farmers, attracted by the 3-percent rate, will apply for Federal land-bank loans between now and June 30, 1946. If only half of those whose farms now are mortgaged would thus refinance their present indebtednes, it would slightly more than double the existing land bank loan account; or, from something under 2 billions to approximately 41⁄2 billions. And if the land banks were unable to refinance their outstanding bonds at less than 3 percent, the drain on the Federal Treasury might be increased from its present 29 millions a year to approximately 50 millions per year.

I do not know how accurate those figures are. They are only estimates. No one can foretell how many farmers now having mortgages elsewhere would pay them off and go into the Federal land bank for loans.

Subsection (b) of section 2 abolishes the present land bank and corporation law and regulations which provide penalties for the borrower who is delinquent in his payments. What good reason is there for this provision? Certainly the borrower who by self-sacrifice and self-denial meets his payments when due should have some advantage over the one who carelessly allows them to go past due.

As Mr. Goss told you this morning, there are a great many free riders when they have an opportunity.

Subsection (c), section 2, provides that prior to June 30, 1946, the Treasury shall pay to the Federal land banks the difference between 2 percent and the actual cost of money to the banks. But what of the period after June 30, 1946?

Section 3 provides that the Government shall guarantee all farm loan bonds hereafter issued. It provides that the Secretary of the Treasury shall meet both principal and interest of these bonds if the Federal land banks are unable to do so and that the Treasury Department may engage in the purchase and sale of these bonds and use the proceeds in its accounting as a public debt transaction. No guaranty of Federal farm loan bonds is needed. Until 1932 these bonds sold readily in the market at prices which compared favorably to the prices enjoyed by the highest grade industrial and municipal bonds. Though from 1932 to 1934 it was impossible to sell any farm loan bonds to the general public, it also was impossible to sell any other bonds.

I understand that Mr. Albert S. Goss, the former Land Bank Commissioner, has furnished statistics showing that the difference between the interest rate commanded by the Federal farm loan bonds and United States Government bonds was for many years less than one-half of 1 percent. That small spread shows the confidence which investors have had in the Federal farm loan bonds under the present system.

Why is it advisable further to increase the contingent liabilities of the United States Treasury at a time when the Congress seems unwilling to allow the direct liabilities to be increased?

I might say, also, that that was written several days ago; but in view of the President's message of yesterday I imagine I would not have written that.

Senator MILLER. I doubt whether you would; and I doubt whether Congress is unwilling to increase liabilities at this particular moment. Mr. MYLANDER. They will probably have to be increased. Senator MILLER. As a matter of necessity.

Mr. MYLANDER. And no one will kick a great deal about it. But at the time this statement originally was prepared the conditions were different. It simply shows how rapidly conditions can change in as delicate a thing as the money markets of the country.

It seems to me, however-and this statement is still true that the present tax-free status of the Federal land bank bonds is all that is needed to make them sell at prices very near to those commanded by the United States Government bonds.

I think you gentlemen will remember that the Federal land bank bonds are the only obligations which are free from surtax. Consequently, to men of large means who invest in them they are a very, very attractive investment.

Section 4 of the act provides that the Federal Farm Mortgage Corporation and the Federal land banks shall, immediately upon the enactment of this act, surrender to the Governor all the farm loan bonds which they hold which bear interest higher than the average rate being paid by the Government for money and exchange them for guaranteed bonds bearing interest at that rate. The Federal Farm Mortgage Corporation holds approximately $800,000,000 of consolidated Federal land bank bonds, most of them 4 percents. The surrender of these in exchange for 24 percent guaranteed bonds means a reduction in income to the Federal Farm Mortgage Corporation of 14 percent on $800,000 or approximately $14,000,000 per year. I do not have the figures at hand to determine how seriously such a reduction in gross income would cripple the operations of that Corporation or its ability to absorb the losses which everyone agrees it will take, but I suggest to the committee that it request the Farm Credit Administration to furnish this information. I believe these figures when furnished will indicate that a loss of that much income over a considerable period of time covered by the life of these bonds probably will result in the Federal Farm Mortgage Corporation's capital being impaired with subsequent loss to the Federal Treasury which in effect owns all of its stock.

Let me interpolate here to say that the Federal land banks today are making loans at 4 percent based on the last bond sales of 3 percent bonds plus a 1 percent spread. In our district in Louisville if the Federal Farm Mortgage Corporation would surrender the 4 percent bonds which it holds in exchange for 3 percent bonds which we could probably readily sell in the market today, we could reduce the contract rate on all of our 41⁄2, 5, 5%, and 6 percent loans to 4 percent and guarantee that no borrower from the Louisville land bank would ever have to pay in excess of 4 percent for his money. So long as the Federal Farm Mortgage Corporation holds our 4 percent bonds it would result in a loss to our bonds to reduce the rate to 4 percent. Subsection (b) of section 4, as I read it, hands to the present holders of Federal farm loan bonds, other than Government agencies, a nice juicy plum in the form of about a six-point increase in the value of their holdings. The section provides that any holder of Federal farm loan bonds may exchange those bonds for fully guaranteed bonds having the same maturity and bearing the same rate of interest. United States Treasury 3's of 1946-48 are currently selling at 10822. That was the quotation at the close of business on Wednesday. Federal land bank 3's of 1946-56, the same call date, are selling at 1024. If the Federal land bank 3's become exchangeable for fully guaranteed Government 3's of the same maturity we can expect to see the Federal farm loan bonds jump in price about six points which represents a gift to their holders if they desire to sell and take their profit of approximately $51,000,000.

Sections 5 and 6 of the bill abolish the Federal Land Bank System as we have known it for 23 years. Under their provisions all of the capital both of the Federal land banks and of the national farm loan associations will be retired. The cooperative character of both the