I don't believe it is farmer owned or controlled either. I think that is theory entirely. In practical effect we have no such thing. You have 3,722 farm associations; 1,101 of those have their capital impaired in excess of 100 percent-in other words, totally wiped out-1,101. You have another 1,089 associations whose capital has been impaired to the extent that they cannot close new loans, which takes 2,200 loan associations out of the 3,722 totally out of the continuance of lending business.

Are you satisfied with that sort of program either in the interest of the Government or in the interest of the borrowers?

Mr. SHORT. I am not satisfied with that situation, Senator, but I am not surprised, because we set up this institution 23 years ago and made no provision for losses.

First, we made provision that losses would have to be all borne by the associations. Second, made no provision for rehabilitating those associations.

Another thing, Senator, I don't know of any group of financial institutions that from 1929 up to this moment has never had one dime's worth of assistance from the Federal Government or from its present stockholders.

Senator BANKHEAD. We went over that, and you admitted, and everybody knows that banks have had very, very material relief. Mr. SHORT. You were talking about the associations.

Senator BANKHEAD. And so have the farmers and so have the individual members of the associations.

Mr. SHORT. I understand, but you were talking about the fact that 33% of these associations, approximately, were entirely impaired. A lot of losses took place in this institution before 1933. Our point is that the delinquencies and losses in this system are directly in line with the price structure of American agriculture. As you go down in price, delinquencies increase; as you go up in price, delinquencies decrease.

We object to the features in this bill that tend to relieve the individual responsibility of the farmer.

Senator BANKHEAD. There is a specific provision in here-and I have asked your position on that specific provision-that no deficiency judgments, except as set out in the bill for willful misconductyou have read the bill?

Mr. SHORT. Yes.

Senator BANKHEAD. Do you object to that?

Mr. SHORT. I think you are just weakening the institution's ability to go ahead and collect loans.

Senator BANKHEAD. Then, you object to it?

Mr. SHORT. When you say do we object to it being in the law, we believe that misuse of deficiency judgments are to be condemned, and I made every effort to find out in the last few years, not only in our bank but others, whether there has been misuse of that privilege.

You will find once in a while in the history of this institution some cases that you would criticize, and so would I, in the use of deficiency judgments; but we certainly believe in sympathetic administration, and I feel this way very definitely: that if I owe an obligation to this institution which I do; I am a borrower in the Federal land bank and production association, and sell a lot of my produce through a cooperative that uses this institution, so I am vitally interested in it as a

farmer-but I feel when I borrow money from this institution, if I am able to pay, I should pay, and I should not be permitted to connive or hide assets or anything else in order to avoid payment.

Senator BANKHEAD. I have your position now, and I think the record shows your attitude.

You said something about being a director in some bank. What board are you on?

Mr. SHORT. I am an elected member of the St. Louis Farm Credit Board.

Senator BANKHEAD. Any other bank?

Mr. SHORT. Effective January 1, I was appointed as agriculture representative on the Federal Reserve Board at Little Rock, Ark. I have no stock in a private bank. I have never been a member of the board of a private bank.

Senator BANKHEAD. Are you on one at Memphis?
Mr. SHORT. No, I am not, sir.

Senator BANKHEAD. At Little Rock and St. Louis?

Mr. SHORT. That is right. You are familiar with the policy of the Federal Reserve at this time to, as fast as vacancies occur, as I understand it, to get a farmer representative on the board.

Senator BANKHEAD. Senator Miller, have you any other questions? Senator MILLER. I haven't any.

Senator LA FOLLETTE. Mr. Short, have you served in the capacity of director of land banks in the past-in any of the banks?

Mr. SHORT. No; just effective January 1, 1938, as a member of the credit board in St. Louis, which, of course, deals with Federal land bank, production credit association, the bank for cooperatives, and

so on.

Senator LA FOLLETTE. You spoke about the low interest rates which farmers have got under this system. Have you made any study of the testimony before the House committee on the Jones bill, the companion bill to this measure?

Mr. SHORT. No; I have not had time to read and study all that testimony. I testified before that committee.

Senator LA FOLLETTE. As I understand it, you approve of the 31⁄2percent interest rate, do you not?

Mr. SHORT. Well, our organization's policy on that has been very clear. We have supported the bill that passed the House and is now before the Senate to continue that provision for another 5 years.

Senator LA FOLLETTE. At least, you are in favor of it for 5 years? Mr. SHORT. That is right.

Senator LA FOLLETTE. The reason why I ask you if you had read the House testimony was that I wondered if you had studied the analysis of the cost to the Government which was submitted by the Farm Credit Administration to the House committee.

Mr. SHORT. No; I have not.

Senator LA FOLLETTE. An analysis of the estimated comparative cost for the next 7 years, submitted by the Farm Credit Administration to the House Committee on Agriculture, indicated that a continuation of the present interest rates for the next 7 years would cost the Federal Treasury $255,500,000, and that under present laws a reduction of both land bank and land-bank commissioner loans to 31⁄2 percent, as was provided by the House in passing H. R. 8450, would be $281,400,000.

This analysis further shows that under this present measure in its present form the 3-percent interest rate would only cost $101,700,000, and that at a 31⁄2-percent rate over a 7-year period it would involve no net cost to the Federal Government if the savings after 1944, when all presently unguaranteed bonds were refinanced, were returned to the Federal Treasury to take care of the temporary subsidies that would be necessary until the unguaranteed bonds were retired.

What I should like to know is whether you believe and your organization believes that the danger which you envision in explicit guarantee and in abolishing the joint stock liability, now recognized to be unquestionable, is great enough to justify Congress in asking the taxpayers to contribute $255,500,000 over the next 7 years, which could be saved if the provisions of this pending bill were enacted into law.

In other words, do you think that the dangers which you envision in full guarantee of these obligations by the Federal Government and the dangers which you see in the revision of the stock ownership are sufficient to justify asking Congress and the taxpayers of this country to put up $255,500,000 in the next 7 years so that you can have a low interest rate to the farmer for this system?

Mr. SHORT. May I first state that I am no authority on bond rates, and I, of course, by reason of that fact, could not verify the figures that you are reading off. But I will say this, that I do not think that we are relieving the subsidy of the Government by the passage of the Jones bill; that the only saving to the Government at this time would be the saving on interest on the bonds that the Federal land banks own, which amount-I cannot tell you the amount, but it is small as compared with what the Farm Mortgage Corporation owns; and it is true you would save interest on the refinanced bonds now held by the Farm Mortgage Corporation, but that, in turn, would decrease the earnings of the Farm Mortgage Corporation by a like amount. At the present time the Farm Mortgage Corporation is losing money, and the loss is borne by the Treasury. So that the refinancing of the vast amount of bonds that the Farm Mortgage Corporation now has, so far as the Treasury is concerned, would be like taking money out of one pocket and putting it in the other.

Senator LA FOLLETTE. I should like to insert in the record at this time a copy of supplemental statement on comparative costs of interest subsidies, which I think will clear up this record and furnish the details of the figures which I do not want to go into at this time. Senator BANKHEAD. It will be received.

(Copy of supplemental statement on comparative costs of interest subsidies, referred to and submitted by Senator La Follette, is here printed in full as follows:)

SUPPLEMENTAL STATEMENT ON COMPARATIVE COSTS OF INTEREST SUBSIDIES UNDER PRESENT LAW, UNDER H. R. 8450 (AS IT PASSED THE HOUSE ON MARCH 18), UNDER H. R. 8748 IN ITS PRESENT FORM, AND UNDER H. R. 8748 IF AMENDED TO FIX THE RATE OF INTEREST PAYABLE BY BORROWERS AT 31⁄2 PERCENT

Yesterday, I was asked the comparative costs to the Treasury of the interest subsidies under present law and under H. R. 8748 in its present form. The estimate which was given to me yesterdy, and which I gave in answer to Mr. Hope's question, was an approximate figure of $350,000,000 under the present law and $365,000,000 under the proposed bill. These figures, however, were based merely

on a rough comparison based on last year's profit and loss statements, and do not reflect exactly how the subsidies would be affected. In view of this I should like to comment more fully this morning regarding the appropriations which would be required in connection with the administration of the provisions of H. R. 8748. For purposes of comparison I am also indicating the appropriations which would be necessary under three additional assumptions, (1) if the present law, which provides a 31⁄2-percent rate on land-bank loans and a 4-percent rate on Commissioner loans, should be continued beyond June 30, 1940, (2) if H. R. 8450, which has already passed the House, should become law and which reduces both Federal land bank and Land Bank Commissioner loans to 31⁄2 percent after June 30, 1940, and (3) if H. R. 8748 is amended to fix the rate of interest payable by borrowers at 31⁄2 percent with the banks and Corporation being reimbursed by the United States Treasury for the amount by which the actual interest expense on bonds exceeds 22 percent per annum, and vice versa, reimbursing the United States Treasury for the difference between the actual interest expense and a 22-percent rate if their interest costs should go below 21⁄2 percent.

In the following table the estimated appropriations, by years, are shown for the period July 1, 1940, through June 30, 1947, under each of the foregoing assumptions:

TABLE 1.-Estimated appropriations required under different assumptions with 1espect to interest rate on land bank and Land Bank Commissioner loans during the period July 1, 1940-June 30, 1947

1 Subsidy represents difference between contract rate of interest on land bank and Land Bank Commis. sioner loans and reduced rate of 32 percent and 4 percent, respectively.

2 Subsidy represents difference between contract rate of interest on land bank and Land Bank Commissioner loans and a reduced rate of 32 percent on both types of loans.

3 Subsidy represents the difference between 2 percent and the rate of interest on farm loan and Farm Mortgage Corporation bonds outstanding.

432 percent rate by borrowers with the banks and Corporation being reimbursed by the United States Treasury for amount of interest expense on bonds in excess of 22 percent, and vice versa, reimbursing the United States Treasury for the difference between the actual interest expense and a 21⁄2 percent rate if their interest costs should go below 21⁄2 percent.

5 No subsidy required.

6 Net recoveries resulting from reduction in cost of money below amount necessary to provide 1 percent spread between bond and loan rates.

As the foregoing table reveals the appropriation required in connection with H. R. 8748 would be $153,800,000 less than if the present law should continue during the period and $179,700,000 less than if H. R. 8450 (as it passed the House) should be enacted. If H. R. 8748 is revised as shown in column 4, the effect of the subsidies and recoupment would result in a net recovery of $4,100,000 by the Treasury in excess of subsidies.

BASIS OF ESTIMATES

In connection with the estimated appropriations just mentioned, I should like to comment briefly as to the manner in which they have been prepared. Present law. During the calendar year 1939 the Federal land banks received $29,175,000 in interest reduction payments and the Federal Farm Mortgage Corporation, in connection with Land Bank Commissioner loans, $7,340,000, a total of $36,515,000. It has been assumed that during the 7-year period July 1, 1940-June 30, 1947, payments in the same amounts would be received annually.

This, of course, gives no consideration to either an increase or a reduction in the volume of loans outstanding at December 31, 1939. On the latter date the Federal land banks had outstanding $1,904,655,000 in loans with an average interest rate of 4.98; the Land Bank Commissioner loans held by the Federal Farm Mortgage Corporation amounted to $690,880,000, all of which carried a contract rate of 5 percent. Likewise it has been assumed that there would be no change in the amount of outstanding bonds of the land banks or Mortgage Corporation during the period.

H. R. 8450.-The assumptions made with respect to this legislation are identical with those in connection with the present law except that an additional $3,700,000 has been added to the annual interest reduction appropriation to provide for an interest rate of 31⁄2 percent on Land Bank Commissioner loans as contrasted with the reduced rate of 4 percent now in effect.

H. R. 8748.—In estimating the appropriation which would be required by H. R. 8748 it has been assumed that:

1. The amount of land bank and Land Bank Commissioner loans outstanding at December 31, 1939, would remain unchanged during the period with the interest rate thereon being reduced to 3 percent.

2. Of the $1,742,834,940 of land bank bonds outstanding at December 31, 1939, the $761,129,840 held by the Federal Farm Mortgage Corporation and carrying a coupon rate of 3.86 would be exchanged on July 1, 1940, for 2 percent bonds. The remainder of $981,705,100, carrying an average coupon rate of 3.28 and held by the public, would be refunded at 2 percent at their first call dates, all of which occur between March 15, 1944, and May 1, 1946.

The $1,269,387,900 of Federal Farm Mortgage Corporation bonds outstanding at December 31, 1939, and bearing an average coupon rate of 2.998 would be refunded at 2 percent on their first-call dates, all of which occur between January 15, 1942, and May 15, 1944. This excludes $10,000,000 of bonds outstanding on December 31, 1939, which have been retired since that date.

The estimated savings on the refunding at 2 percent of the Federal land bank and Federal Farm Mortgage Corporation bonds, outstanding in the hands of the public, are as follows:

The foregoing savings on refunding account for the reduction in the annual appropriations required in connection with H. R. 8748, from $25,200,000 in 1941 to nothing in 1947. (See table 1, col. 3.)

H. R. 8748 (revised to 31⁄2 percent rate).—The assumption made with respect to this proposal is that the loan rate would be 31⁄2 percent, that the Treasury would pay the amount by which the cost of money exceeded 21⁄2 percent, and that the Federal land banks and Federal Farm Mortgage Corporation would pay the Treasury the difference between the interest rate of 22 percent and the cost of money when such costs were less than 21⁄2 percent.

EFFECT OF H. R. 8748 ON OPERATIONS OF THE FEDERAL LAND BANKS AND FEDERAL FARM MORTGAGE CORPORATION

In considering H. R. 8748 it is also necessary to evaluate its effect on the earning position of the Federal land banks and Federal Farm Mortgage Corporation. To make such an evaluation it has been assumed that the provisions of H. R. 8748 were in effect during the entire year 1939 and the earnings of that year have been adjusted accordingly. The results are summarized in table 2.