matter of fact, he is the only private citizen who furnishes capital to this institution without receiving interest and he is then penalized to the tune of 6 percent, possibly 8, if he fails to pay his installment. There should be legislation, imme. diately, correcting this abuse, and crediting on the farmer's debt to the land bank the amount of this enforced stock subscription.

VICTIMS OF THE SYSTEM

In Malheur County, Oreg., a farmer, who is indebted to the land bank, makes an annual payment of $197.50. He had paid on his loan for several years without substantial difficulty, but in 1934 drought destroyed his crop and he could not pay. The following year the land bank sent him a bill for two annual payments plus interest on the delinquency-a little over $400. This was an amount which would have been difficult in a good year, and his crops were not good in 1935. Nevertheless, the land bank hounded him for payment. He received threats of foreclosure and collectors visited his farm. Finally, he took the only way open to him and sold some of his horses to meet the payment. In other words he dipped into operating capital. A few weeks ago that farmer stated that this one experience virtually ruined him, and that he was doubtful that he could ever again catch up to where he was in 1934. When depreciation is allowed to begin on a farm it is almost impossible to stop it.

On cattle ranches I have seen fine herds depleted and pastures ruined by pressure for the annual payment on Farm Credit indebtedness. In the dairy sections of Wisconsin and Minnesota dairy farmers have sometimes been forced to sell half their herds to meet installments; then, having liquidated their only means of making an income, they must stand helpless with their farms and homes going to foreclosure. The same situation can be duplicated countless times wherever land-bank loans exist. If a borrower once misses a payment, he is forced to "mine" his farm through cash cropping, failure to make necessary repairs, or selling livestock. It is thus made progressively more difficult to meet subsequent payments, until foreclosure is inevitable.

UNSOUND BANKING PRACTICES

The practices cited do not, in my judgment, constitute sound or intelligent banking. They would be condemned by any successful private bank. No one has ever heard of an institution like the Chase National Bank tearing up a railroad track and selling it to meet a payment on a mortgage. Such an institution would be more likely to advance additional funds for track maintenance, because without it the borrowing railroad company could never make any money to pay the debt.

Likewise, the farmer who is forced to mine his oil or liquidate his operating capital can never pay his debt. Furthermore, when the bank finally gets the property, its value has usually declined well below the value of the mortgage. Land-bank collection policies have literally killed the goose, the cow, and everything else which produces agricultural gold. It would be well for the Congress to see to it not only that Farm Credit stays in the Department of Agriculture, but that immediate action is taken to put some agriculture into Farm Credit.

The lack of adjustment of credit policies to agricultural needs may have something to do with the fact that 126,971, or 28.9 percent, of all Land Bank Commissioner borrowers were delinquent on December 31, 1939. One hundred and twenty-seven thousand and eighty-two borrowers, or 20.5 percent of all land-bank borrowers were delinquent at the same time. In both cases delinquncy increased over the year 1938. At this time the rate of delinquency in the Pacific Northwest is 21 percent. Of a total of 56,934 land bank and Commissioner loans, 12,222 are delinquent. The average rate of delinquency is $455.51 per borrower. In terms of dollars, delinquent loans in that district amount to $27,646,520 out of a total of $138,433,656 in loans.

NEW POLICIES DEMANDED

These facts lead me to believe that there are three major points on which policy with respect to farm mortgages urgently needs reconsideration by the Congress, as well as by the Department now charged with the responsibility of administering the system.

First. The alarming and widespread foreclosures remove good farmers from their farms and place them on relief rolls.

The policy which has brought this about is damaging to the banks and to the Government, and it creates a body of resentful and suspicious citizens. In its trail follows the write-down of the mortgage value for resale, the depreciation of the land and improvements during foreclosures and the period of redemption, the administrative expense of foreclosure and resale, and the burden which must be borne by Work Projects Administration, the Farm Security Administration, or some other public agency in caring for the foreclosed victims. Since the agency has been placed under Secretary Wallace, I understand foreclosures, in all but the bad-faith cases, have been suspended. Some more permanent solution must be worked out.

Second. Deficiency judgments, about which I have already spoken, must be abolished. These judgments which are taken against a foreclosed borrower if the sale of the property does not satisfy the debt, are a curse in our economic structure. The judgment may be taken either against the foreclosed borrower or against previous owners who held the land subject to the same mortgage. In one case which occurred in the State of Washington, a land-bank borrower died, leaving the mortgaged farm to his widow. She was unable to farm the place and sold her equity. She moved to a city and commenced working at whatever menial tasks she could secure. After several years she had acquired a boarding house and was making a small income. The land bank at Spokane foreclosed the mortgage on the farm she had once owned. There was a deficiency, and that widow was forced to pay it at $30 per month. In Jefferson County, Oreg., I personally observed a similar case of the collection of a deficiency by the Spokane Land Bank. In my opinion, the deficiency judgment procedure is neither fair nor necessary. It is but one step removed from imprisonment for debt. It has no place in civilized society. The Farm Credit Administration should take the lead in removing it from our agriculturalcredit system. I hope it will do so. I will make another attempt to secure action by this Congress, knowing that it may not now be thwarted by unsympahetic officials in the Farm Credit Administration.

Third. Collection policies must be changed. If a man owes you one or two thousand dollars, the time to collect it is when he has it. It does you no good to press him hard when he is broke. That statement is probably not included in textbooks on banking, but it ought to be, because it is recognized as a fundamental principle of sound banking by every successful banking institution in the world. If there were a possibility of making a profit by removing farmers from their farms and selling the properties in the open market, land-bank policies would be less open to condemnation, but experience has abundantly demonstrated that almost uniformly through the country, land banks are losing money on foreclosing and selling farm homes. Let us have no more of the handbills and blatant advertising of "finest farm lands" for sale by the Federal land banks. Shame on a system which would take such lands from the farmer who has paid taxes on them for years, enriched them by his labor, and slaved through our depressions to hold them. It is only natural that the man who owns a farm, who has made it his home throughout most of his life, values the place more highly and farms it more advantageously than does a stranger. In the vast majority of cases the best credit risk on any farm is the man who owns it and understands it, who has put his life's toil into it and has raised his family upon the bounty of its production. There are no end of cases to be cited to demonstrate that arbitrary collection policies prosecuted by absentee officials of land banks have forced the liquidation of the only means a borrower has to make a living. Dairy herds have been sold, herds of cattle have been reduced to the lowest grade stock, buildings have fallen into disrepair, and land has been exhausted by cash cropping to meet the rigidly inflexible annual mortgage payment.

BENEFICIAL POLICY CHANGES SUMMARIZED

I think it is safe to say that, for the last 15 years at least, it has been fairly well recognized that the land banks should-first, give greater consideration to scaling down or refinancing indebtedness where property is overloaned; second, give greater service and agricultural guidance either on its own initiative or in cooperation with other Government agencies; third, provide for repayment of indebtedness on the basis of farm income rather than a fixed scale of payment, and by that I mean a variable-payment contract which calls for a reasonable share of the income of a farm as an annual offset against principal and interest indebtedness; fourth, return to the forest or public domain land which is un

suited to agricultural use instead of foreclosing one borrower and selling it to another, only to foreclose him and sell again, providing a recurring, neverceasing method of destroying the lives and hopes of a certain number of farmers.

I do not recommend reconsideration of these policies exclusively as an aid to agriculture but as an aid to the farm-credit system itself.

THE SYSTEM VERSUS THE FARMERS

Whatever success the Farm Credit Administration has had in collection of principal and interest in the past few years has not been due to their policies nor to their initiative but rather to the beneficial effects of the laws passed by the Congress since 1933. I refer particularly to those important acts worked out by the Department of Agriculture, which now, very fortunately, assumes responsibility for administering the farm-lending system.

The phrase "sound banking," which has been used so frequently in recent discussions, refers only to the welfare of the banks themselves. The borrower's welfare is, in fact, the bank's welfare, and the situation of the borrower has been largely disregarded under present practices. We are not confronted with a question of preserving a sound cooperative credit system so much as with the necessity of determining whether the system is sound at all, and I think we might well inquire whether it is even cooperative.

OFFICIALS OPPOSED LOWER INTEREST RATES

I always recall with bitter resentment that it was upon the advice of such a controlling group that the President twice vetoed the bill Congress passed reducing farm-loan interest rates to 32 percent. The Congress then passed this over the veto, compelling friends of the administration, much against their wills, to vote to override the veto. At my last conference with the Farm Credit Governor and the Land Bank Commissioner, in August 1939, I pleaded with them to recognize the needs of agriculture and not continue their opposition to lower interest rates. They were insistent on continuing the higher rate though railroads were then getting Government money for 24 percent.

THE BORROWER'S SHARE IN ADMINISTRATION

When the Farm Credit Act was passed provision was made that local associations of any 10 or more borrowers should be formed and incorporated under Federal law, to be known as national farm loan associations. Each borrower was required to purchase an amount of stock in the local association equivalent to 5 percent of his loan. I repeat, he received no interest on this so-called "investment," but he paid interest on it. The association in turn subscribed to a like amount of stock in the Federal land bank. The association was to have an income in the form of dividends on the stock it purchased in the Federal land bank. With that income it was to establish a dynamic local administrative agency which would meet the day-to-day problems of credit and offer solutions based on first-hand knowledge of the borrower's circumstances. It was also to guide credit policy in any given area on the basis of conditions in that area. Such important elements of credit as the character of the borrower and his ability to handle credit were to be determined by the local board of directors, who were to be substantial citizens of the community.

In theory the Federal Farm Loan Act contemplated a cooperative system, but administration of the land banks has prevented the theory from becoming effec

tive. It is sometimes claimed that members of local associations have a voice in selecting the directors who administer each of the land banks, and thus may, indirectly, affect its policies. This claim is absurd. The borrower who is called to the annual meeting of the local association is given a slate already prepared and has no alternative but to vote for those originally selected by processes unknown to him. It is not popular nor people's government, and it is not democratic nor cooperative. An occasional rebel candidate is severely punished, and he must command considerable capital and make heavy personal sacrifices in order to be heard at all. The head official in Washington has power to name directors who will cast the weight of the board in favor of his policies. Cooperative? I should say not. A borrower has about as much chance to cooperate as has the holder of the smallest policy in one of the great so-called "mutual" life-insurance companies.

FINANCIAL STATUS OF ASSOCIATIONS

Most of the local associations are now seriously indebted to the land banks, and their stock cannot be liquidated to make it possible for the individual borrower who has paid off his loan to get back the value of his stock. In the Spokane district there were once 600 of these local associations. At the present time there are 275, of which only 70 are solvent. One hundred and eight of the associations in the Spokane district are indebted to the land bank for more than 100 percent of their stock. That may be attributed to bad economic conditions, but it is certainly due, in part at least, to the policies land banks have adopted with respect to their associations. Most responsible officials within the system itself will admit that land banks have tried to conduct the entire credit operation from the central office. Far too frequently the recommendation of a local board of directors, familiar with local conditions, has been disregarded in making a loan. Their requests for forbearance in meritorious cases have been ignored. Where pressure for payment is heavy, the farmer mines the soil and frequently forclosure has been pushed to completion only to find that the farm involved has deteriorated so it is no longer worth the amount of the indebtedness. Although the associations have had but a very small part in deciding who should get a loan and how that loan should be serviced, they are held liable for any losses incurred by the bank up to the full amount of their stock in the association. Under the indemnity agreement, the slightest obligation any borrower has to the land bank must be paid before any other borrower can liquidate his stock, even though his own loan is paid. So for practical purposes the framework of the policy has operated to destroy the financial integrity and the basis of personal responsibility as well as the interest of the local cooperative associations. The local associations have been given no real source of income, although millions of dollars have been spent by the land banks employing highsalaried officials to try to do the things which could better be done by a local group of farmers.

Nationally, here is the situation of the National Farm Loan Association. On June 30, 1939, there were 1,267 associations with no capital impairment; 320 associations with very slight impairment; 1,116 with impairment ranging from 5 to 100 percent; and 1,187 having impairment exceeding 100 percent. Those having very slightly impairment, and with a capital stock of $15,411,400, owed on December 31, 1938, $915,800; those with impairment from 5 to 100 percent and capital stock of $30,219,600, owed $13,072,600; and those with impairment of over 100 percent and capital stock of $19,672,400 owed $77,366,200. These figures include estimated losses from currently delinquent loans as well as established losses. The total loss actually established on the books since organization of the system was approximately $36,492,000 on December 31, 1938.

SYSTEM MUST BE MADE COOPERATIVE

I do not feel that a far-flung system of agricultural credit can succeed unless farmers who borrow from the system are permitted to participate in its operation, its administration, and the formation of its policies. Responsible officials in the Spokane bank have said repeatedly that the National Farm Loan Association is nothing more than a name. Its functions have been curtailed, its powers have been destroyed, the real basis of its usefulness has long since been forgotten by a group of administrative officials more interested in private banking business and in holding their jobs than in the credit structure of agriculture.

I should like to call upon the Secretary of Agriculture and the new Governor of the Farm Credit Administration to do something about making effective the cooperative features of the land banks. It is utterly hopeless to try to get cooperative administration from a group of bankrupt, downtrodden, nominal associations. If the farm-credit system is to get out of the financial hole in which it now finds itself, the cooperative effort of its hundreds of thousands of borrowers is absolutely necessary. The more I hear about preserving our sound cooperative, agricultural credit system, the more I am convinced it is not sound; it is not cooperative; and it will not be either sound nor cooperative so long as the concepts of its administration disregard fundamental principles of the farming_business and follow classical concepts of banking. A change is needed, and I hope the Secretary of Agriculture will be able to make that change. Speaking in this House in 1934, I said:

"The Federal land banks should be controlled by the borrowers, the farmers, because no other group is so interested in their successful operation. They do

all the work, they make the money, and pay the dividends. They should be the managers of their own institutions. They are now treated as an inferior class, subject to regulation by bankers and mortgage companies, who have certainly not earned their superior rating by the Government."

The men who have been in charge of the administrative policies of the Farm Credit Administration have always subordinated the interests of the farmer to other groups, even to the extent of questionable legality. There is, of course, no doubt that those who have invested money in farm-loan bonds issued by land banks should be given proper protection. But let us never forget that the main purpose of the Farm Loan Act was relief to agriculture and not the exhorting of unreasonable and unlawful rates of interest from farmers.

JOINT-STOCK LAND BANKS DEFRAUDED FARMERS AND BONDHOLDERS

Most of us know the history of the Farm Loan Act. The abuses of usury as well as extortionate charges and exactions of private lenders led to the enactment of this act in 1916, after a commission had toured Europe to examine European land-credit systems, and after extensive hearings had been held.

Let us examine the operations of a particular type of land bank resulting from the act-namely, joint-stock land banks-and see how a group of dictatorial and willful men guiding the policies of the Farm Credit Administration have allowed the joint-stock banks to treat farmers. I discuss these banks in order to show what practices have been tolerated by those in control. These joint-stock banks were organized to offer bigger loans. They were sheltered under the umbrella of the Federal Farm Loan Board. People felt that they had a definite relation to the Government which supervised their activities, though they owed their origins to the profit motive. These banks had the same tax exemption given to Federal land banks-complete, except from taxation of their real estate. It was because of this exemption and other advantages that these banks were prohibited by law from charging a rate of interest on farm mortgages taken by them which should exceed by more than 1 percent the rate of interest pand to bondholders. In other words, the "spread" for administrative expenses and profits was limited to 1 percent.

In this connection it may be of interest to refer to certain statements made in the Congress while the Farm Loan Act was under consideration. In the reports accompanying the introduction of the bill the Joint Committee on Rural Credits said, among other things:

"The land banks are permitted to charge farmers 1 percent more for interest than they pay bondholders. For example, if the current rate on farm-loan bonds is 4 percent, the bank may charge not to exceed 5 percent to farmers who borrow. This margin of 1 percent on the amount of unpaid principal outstanding is available to the bank for expense and earnings."

During the course of the remarks of Senator Hollis in presenting the bill to the Senate it was said:

"The entire expense and profit must come out of the 1-percent difference be tween the amount that the farm-loan bonds carry and the amount at which the money is loaned to the farmer."

Nothing could be much clearer than this.

After the economic depression had been in existence for some time, interest rates fell about as low as they have ever been in this country. Accordingly these joint-stock land banks proceeded immediately to call outstanding issues of bonds, paying on an average approximately 5 percent, and to pay off such bond issues by issuing new bonds carrying an interest rate, generally speaking, of about 3 percent. Thus, if a joint-stock land bank had $2,000,000 in bonds outstanding and was operating on a legal income of $20,000-1 percent of $2,000,000 by such device they increased their tax-exempt income from $20,000 to $60,000, since no reduction was ever granted any farmer whose 6-percent mortgage was part security for their issue of bonds. The figures are not available to me at this time as to just how much money the American farmer has lost as a result of such refunding transactions of the joint-stock land banks. It runs into lions, however, and one of the first things which should be done should be to compel these banks, and also the Federal land banks, to pay back moneys extorted in such manner from the farm classes of this country.

WHO GOT THE PROFIT?

It may be said that it was necessary to keep the old interest rates on farm mortgages because if such reductions were made in mortgage rates upon such