Mr. SHORT. I think the authority as granted under the Farm Mortgage Corporation Act which I referred to yesterday has a very material effect and could have a very material effect upon the bonds

Senator LA FOLLETTE. As I understand it, if you will pardon me for interrupting you, you would prefer an indirect guaranty, which you allege exists, of the obligations of the system to a direct guaranty such as is provided in the pending bill?

Mr. SHORT. That is right.

Senator LA FOLLETTE. And as I understood your statement, on page 4 you cited the fact that the Federal Government, through the Federal Farm Mortgage Corporation, owned this large amount of consolidated bonds, as one of the indications of an indirect guaranty. Is it not a fact that if a change in political, fiscal, financial and economic policy took place, which you hold out as a danger under the guaranty plan, such an administration could, through the Federal Farm Mortgage Corporation, unload these 760 millions of consolidated bonds on the market?

Mr. SHORT. Well, Senator, do you feel that any administration, regardless of its attitude toward agriculture

Senator LA FOLLETTE (interposing). I do not share your views that we are going to get, under any kind of a political change that may happen in this country, an administration that is going to do what you seem to fear it is going to do and which you said in your statement was one of your reasons for your opposition to the guaranty features of this measure. All I want you to state for the record is whether it is or is not a fact that if this complete change in attitude and policy, of a political nature, took place, the ownership of this large block of consolidated bonds by the Federal Farm Mortgage Corporation could not be divested under an order of the administration and the bonds sold on the market.

Mr. SHORT. Surely. I think they can be sold on the market. Senator LA FOLLETTE. On the other hand, if the bonds were guaranteed, that would be impossible, would it not, no matter what the political attitude of the administration was? Those bonds could not be unloaded on the open market if the Federal Government was guaranteeing the obligation, and could not have the effect which it would have if they were unloaded without guaranty?

Mr. SHORT. Well, I imagine that the authority is there to buy and sell these bonds. That is one of the privileges of the Corporation; and I imagine that if the Corporation today determined to liquidate some of those bonds, it would liquidate them wisely in order to save money for the Treasury of the United States. It would be a wise fiscal policy in the disposition of those bonds. I do not think that has any effect. But I think we should be clear in our thinking and not confuse the Corporation with the Federal land bank system, because its bonds are federally guaranteed and it has got to assume all the losses.

Senator LA FOLLETTE. I am not trying to confuse it with the system. I am just citing the fact that you view with alarm the possibility of a political change in policy if we adopt the policy, proposed to be inaugurated in this bill, of guaranteeing the bonds. All that I am trying to bring out and I think it is a fact is that if such a political upheaval takes place under this indirect guaranty which you now hold out as being preferable to a direct guaranty,

the ownership of these consolidated bonds by the Federal Farm Mortgage Corporation creates a situation where the system and the farmers could be made to suffer greatly, whereas if the plan of guaranteeing the bonds, principal and interest, as provided in this bill, were enacted into law, a much greater protection would be extended to the system and to the farmers.

Mr. SHORT. I want to make myself clearer than I did yesterday on where I think that protection is. We have built up over the last 23 years a market for bonds. That was and is a very favorable market. The spread between Federal land bank bonds and Government bonds of like issue narrowed and narrowed until some time in December-I cannot give you the exact date-it got as narrow as eighteen-one hundredths of 1 percent. I understand that the spread has gone up, now. I am not in position to tell you just where it is today. But we got to the low point in December of 1939.

Now, if we have a cooperative system and can get money under our system, after the experience of 23 years, Senator, at comparable rates and I feel that those are comparable rates-in the light of, we will say, what has happened to the H. O. L. C., the farmers would have a system with confidence on the part of the investing public and we would have money available to us through that bond market. If you go to a directly guaranteed system and destroy that confidence in that market that we have built up over these 23 years, and then at some future time, through lack of funds, or because of the attitude of Congress in failing to make funds available, we would be left high and dry with absolutely no agency because our bond market had been destroyed during the period.

Senator LA FOLLETTE. You talk about comparable rates.

you

not willing to acknowledge that the only reason you have got those rates is because the investing public makes the presumption that you made in your opening statement, that the Federal Government is, as a matter of actual fact, really behind these bonds and would never let them go into default on their interest or principal? Do you want to leave this committee with the impression that if the Congress should make a declaration that it assumed no responsibility, moral or otherwise, for those bonds, you would have any such interest rate as you have had?

Mr. SHORT. Senator, I think that that has some influence. But I want to ask you this. We started out in 1916 at a time when we had the highest agricultural prices in the history of this country. This system started out at that time and has operated and gone through a depression in 1920, immediately after the World War, and then suffered from 1929 to 1933 the worst depression that agriculture has ever gone through; and if my information is correct, even through all that experience the Federal land banks have operated without direct Government guaranty, and have been paying their expenses, paying all losses, and have set up ample reserves, substantial reserves, to take care of future losses, on a basis of 1.01 percent. I say that has something to do with the spread between interest rates on Federal land bank bonds and Government bonds of like issue.

Senator LA FOLLETTE. Are you not willing to admit that if Congress tomorrow passed a bill in which it made a declaration of policy to the effect that the Federal Government under no circumstances would

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assume responsibility for either principal or interest on these bonds, the cost of credit in this system would increase enormously?

Mr. SHORT. I will agree with that. If you at the same time disturbed the ability of the banks and associations to maintain a sound collection policy, that might be true.

Senator LA FOLLETTE. I did not say that. I said, just let the system stand the way it is. I gather that you think it does not need anything more than minor changes to make it a perfect credit system for the borrower farmer; and I ask you now what your judgment is because I think it is important. You emphasized the fact in your opening statement that this indirect guaranty was important, or at least I so understood you. Suppose Congress did not do another thing at this session, so far as the Farm Credit System is concerned, except to pass a bill absolving it, as a matter of policy, declaring its policy to be that it would assume no responsibility for interest or principal on these bonds and wanted the investing public to know it

Senator BANKHEAD (interposing). And would not hereafter appropriate money to replace capital.

Senator LA FOLLTEE. Yes; what do you think would happen to the cost of money to the farmers?

Mr. SHORT. Well, I think we are making a lot of assumptions here, Senator.

Senator LA FOLLETTE. If you will pardon me for saying so, I think you have made a lot of assumptions with reference to a cooperative system, and so forth. We cannot get very far in these matters unless we do make some assumptions.

Mr. SHORT. I would like to call your attention to this—and I think the record of our organization is certainly clear on it. I happened to have the privilege, after the hearing yesterday, to sit in and listen to some of the debate on the appropriation bill. The answer to the farm credit problem of America is not in low interest rates. It is not scaling down the present land debts. I don't think there is a man in this room that knows what the price of land is going to be 10 years from now. I think the answer to this problem, if we are not in America going the way of all agriculture-and that is servitudeis. to put the emphasis not on low interest rates and not on cheap land prices, but on parity of purchasing power on the part of farmers. Senator BANKHEAD. Why not emphasize all the factors?

Mr. SHORT. Here is the point I am trying to make. While I have not made an extended study, I would like to invite the committee to do so. If my information is correct, as prices went down in agriculture in other countries and they came to servitude in agriculture, that was brought about through credit. If we emphasize, on the one hand, this discussion about interest rates-and we are for it and do not attack the other side of the problem, there is no question in my mind that American agriculture will go the way of all agriculture.

I would like to say to you that we appreciate, beyond words that I have to express myself, the interest that Congress has shown in trying to find a way to bring about an increase in agriculture's purchasing power. But we have not gone all the way, and today we find agriculture's purchasing power at 22 percent below that of other groups, and therefore we are going to have from time to time demands on the part of farmers for assistance to meet their obligations.

So, let us not confuse our thinking. Let us study just how this socialization of credit has come about in other countries that brought agriculture to a position that I do not think we want to be in in this country.

Senator BANKHEAD. What do you mean by socialization of credit? Mr. SHORT. This bill as it is now written

Senator BANKHEAD (interposing). No; I mean your definition. What is your definition of "socialization of credit?"

Mr. SHORT. Usually that comes about by centralization, in the first instance, and then, as it becomes centralized in the Government's hands the tendency is to confuse it with social and political principles and policies to where we become involved in a system that I don't think we want.

Senator BANKHEAD. Is that the formula of the American Bankers Association on credit?

Mr. SHORT. I don't know what the formula of the American Bankers Association is.

Senator BANKHEAD. It sounds like it, to me, as I read their propaganda material.

Mr. SHORT. I have not seen any of it, sir.

Senator LA FOLLETTE. I do not think there was anything in my question which indicated that I thought that a credit situation, so far as the farmer is concerned, is the sole answer to this problem; and you will examine my record in the Senate in vain to find any instance where I have not been doing what I could to attack the problem of farm prices. But, nevertheless, the fact remains that the farmers' share of the national income has been decreasing ever since 1920, and it also is a fact that during the last 7 years efforts have been made, whether we agree with them or not, by the Government to increase the share of the farmer in the national income. It seems to me that if you ignore this question of debts, if you ignore this problem which is confronting the farmers who borrowed money at a time of high land values and high prices, in your effort to maintain what seem to me are the mythical advantages of the alleged cooperative features of this system, what it comes down to, Mr. Short, is that you are asking the farmers who are in that situation to take a licking, to be ground to powder and to lose their farms and homes while we are fumbling around here trying to lift the farm prices.

Is it not a fact that so far as industry is concerned, on the other side of the picture, there has been a scale-down of indebtedness, a scaledown of interest rates, and a refinancing of past obligations in order that industry might continue to borrow and to remain solvent and to prevent failure? It just seems to me that the nub of your testimony comes down to the fact that you want the farmers who are caught in this catastrophic situation to "take it on the chin" until you can get around to some kind of a program which will lift farm prices and values so that they will not have to be ground down through the cruel process of foreclosure and deficiency judgments.

Mr. SHORT. Senator, I would not want you to misunderstand me. Senator LA FOLLETTE. I do not want to misunderstand you.

Mr. SHORT. We are willing to go all the way to improve the condition of the farmer that you are so much interested in. We are just as much interested in the farmer as you are. We do not think it is necessary to destroy this system to do it. We know there is a situation in the area in the northern part of your State that needs attention.

the way to try to meet dat sitation. But let stem that is good. It has not sansted all of us; sied me in every respect, but we think there is somenem to build on. Let us strengthen the cooperative features

Osram rather than to just say that because of these catas

we have got to throw it out of the window and go to a cen

va form of credit.

Senator LA FOLLETTE. Of course. I do not agree with your conclusous as to what this bill is going to do. I suppose I have already taken more than my share of the time, and I do not want to impinge *ity further upon the time of the witnesses; but I would like to take you, Mr. Short, up into Wisconsin and show you some of the farmers that have been ground to powder in this cooperative system of yours; and I will stack them up against any farmers that you have in your section of the country for their industry, their intelligence, and their good faith in having made every effort to operate their farms and pay

their debts.

Mr. SHORT. I will agree with you, Senator.

Senator LA FOLLETTE. I have seen them foreclosed and seen leases taken on those farms, and no mercy extended to the person who owned the farm and perhaps his father helped to cut it out of the wilderness with an ax. you talk about and want to preserve in its entirety refused to give an This magnanimous cooperative system that extension on the loan which had already been incurred upon the principal of the obligation, but let somebody else buy that farm in, and then turned that man out on the highway with his family and let him go somewhere and humiliate himself by taking direct relief from the Government.

I am all through.

Mr. SHORT. I would like to make one more statement, and I want to make it very clear to Senator La Follette that we are willing to do everything we can and to lend support to any move that will relieve the borrowers that find themselves in difficulty at this time in Wisconsin, in North Dakota, or in Arkansas, or wherever they might be. But we feel that that can best be done by decentralization rather than through centralization.

Senator LA FOLLETTE. I think you are just using highly abstract words which have no form of reference to this practical situation, if you will pardon me for saying so.

Senator BANKHEAD. Just one question. You have spoken eloquently about the desire to get parity income for the farmer-and we are all agreed on that objective. Has your organization any plan to accomplish that except through more and larger appropriations by Congress?

Mr. SHORT. I think you have been submitted a brief that we have prepared on that subject.

Senator BANKHEAD. Yes. But that is the same thing; it is more appropriations,

Mr. SuoRT. Through a tax.

Senator BANKHEAD. It is more through appropriations. How the Government gets the money is another question. But that plan is the only plan the organization has to bring about a parity income. You are proposing to accomplish that desirable result that everybody agrees should be accomplished, in only one way, and that is through