Dr. MYERS. That is correct; certain cooperative organizations in certain areas have been unable to get the product of their members because they have to go elsewhere for their financing. This would permit authority to be given, under those circumstances, for the credit organization to be run by the cooperative. Mr. HOPE. I have been told by a good many who have looked into the question of organizing local associations for the purpose of rediscounting paper through the intermediate-credit banks, that one reason they have not been able to do so successfully is because of their inability to do enough business to justify them in employing a man to look after the business and do the necessary clerical work and exercise such supervision as should be exercised over the loans. Is there anything in this set-up to make that easier? Dr. MYERS. There is this, that where there is a local farm association which has a secretary-treasurer who is a part-time employee, if he is a good man he could be used, if desirable, as secretarytreasurer of that local production credit association, using the same man for two part-time jobs would make it possible to get a better man to do the detail work. It is necessary in most cases to use a part-time employee. It might be possible to use a bank officer as secretary-treasurer; some man who would do that as a part-time job, who has the necessary qualifications. The situation would vary in different communities, but if there are enough people who need money, they could have one responsible man to do the detailed job at a reasonable cost. Mr. HOPE. It is not contemplated in this set-up that you will take over the class of loans that have been made on crops? The history of them has been that only a portion of them have been repaid. The loans expected to be made under this set-up will be loans which are considered as sound, and which you expect to be repaid? Dr. MYERS. Yes. Mr. HOPE. So there will not be anything to take the place of the type of loan that has been made a crop production loan, for the last 4 or 5 years in particular? Dr. MYERS. Of course, in some States crop loans have reached as high a proportion as 800 percent of the farmers. Now, the effect of this system would be to put into the hands of the people in the community the decision as to whether or not the note of a farmer was good. They would not endorse the note of a farmer whom they did not expect to repay the loan. To loan money to a man who probably would not repay is not business; it is some sort of philanthrophy. A good many farmers criticize the present system which financed submarginal competitors. There is no arbitrary standard set-up, but it is up to the committee to decide whether or not they think a loan is good. Mr. HOPE. Under the present system a man has to prove that he does not have any credit in order to get a crop loan. Say, Mr. BIERMANN. May I build up a case and ask you about it? for instance, that out in our country an ordinary farmer has 160 acres of land. He will feed ordinarily about 3,000 lambs. That would be a pretty good business. It would require 10 farmers to form an association. Dr. MYERS. Yes. Mr. BIERMANN. That would mean 30,000 lambs. It would cost them approximately $150,000 to feed the lambs. They would have to put in $7,500, would they not? Dr. MYERS. If they borrowed $150,000 they would have to put in $7,500. The production credit corporation would put in $30,000, or approximately 4 to their 1. Mr. BIERMANN. Where would the rest of the $150,000 come from? Dr. MYFRS. Then you would have a capital there which really is not loaned, but represents a guaranty fund which insures the payment of the notes. The notes of the borrowers, if accepted and endorsed by the local credit association, would be sent to the intermediate credit bank, which would buy them and rediscount them, and send them back the money. The intermediate credit bank rediscounts on the average about five times the capital of a local credit corporation in notes. So, with $37,500 capital, you have ample margin to permit your local association to borrow $150,000 in the intermediate credit bank. Mr. BIERMANN. They would have to have $90,000? Dr. MYERS. That detail is being handled right along. In some organizations-this set-up has been functioning with complete satisfaction in livestock areas. The trouble is there are not enough of them. Mr. BIERMANN. Suppose on the whole thing they lost a dollar a head. That would be $30,000. The farmers themselves would have $7,500. Dr. MYERS. Yes. That would come out of the farmer's capital first. The remainder would come out of the capital of the production credit corporation. There is where management comes in in trying to keep the loans on a conservative basis, so that the farmers do not become indebted for more than they can repay. But there might come to be years in which losses would occur. There might come other years when the profits would be such that those losses could be made up. But no farmer would be responsible for more than the amount of his own stock, which would be 5 percent of his loan. Mr. BIERMAN. Referring to this provision and the illustration where the Government would put in $30,000 and the borrowers $7,500; that makes a capital fund of $37,500. What becomes of that money? Dr. MYERS. That must be invested in United States Government bonds or similar securities and it is kept by the intermediate credit banks as security for the rediscounting of these loans. The association gets the interest on these bonds, but that money must be invested in high-grade securities that would be held by the intermediate credit banks. Mr. BIERMAN. The money is put in the hands of the intermediate credit banks? Dr. MYERS. Yes, sir. Mr. BIERMAN. What does the local association get? Dr. MYERS. The income, of course. Mr. BIERMAN. From the bonds? Dr. MYERS. The income. They would disburse the money to the farmers and when the farmers pay off their notes that is returned to the intermediate credit banks; but the capital fund is to be invested in securities that are safe and that would be in the custody of the intermediate credit banks. Mr. BIERMAN. The regulations provide for that? Dr. MYERS. Yes, sir. The CHAIRMAN. Any further questions, Mr. Bierman? The CHAIRMAN. Mr. Utterback. Mr. UTTERBACK. Concerning the administration of this farm-credit system, I am being asked continually concerning the method you are going to establish; whether you will have a branch in each State or whether it will all be done from the central office here. Would there be agencies in the States created to administer it? In my State of Maine I do not think there is a section in the country that is more interested in that feature of it, or that is more anxious for some relief from this source. Dr. MYERS. I am familiar with the situation in your State. Mr. UTTERBACK. And I am now receiving many letters from attorneys who have been in contact with farmers and they want to know how this will be handled. It seems to me that it would be well to have a department somewhere in each State to administer it; that would make it more effective and would result in having its benefits much more completely diffused than if it is to be administered solely from the Department here in Washington. Can you enlarge on that a little? Dr. MYERS. I believe Mr. Morganthau would be in better position to answer that question than I. Mr. MORGANTHAU. I beg your pardon, I did not get the question. Dr. MYERS. He is asking about State offices. Mr. MORGANTHAU. I am frank to say that I do not know just what will be done; just what the answer is to that inquiry. I have received 12 telegrams today from a State on the Pacific coast saying that they want to keep that one office open, and all that I can say is that I am not going to trim my sails, and I do not believe that we should have an office in a State unless it could justify itself. I think that if we cannot serve the purpose without having the branch offices, of course we are going to have them. Mr. UTTERBACK. It seems to me in order to get the farmers active it should be distributed among the different organizations. Mr. MORGENTHAU. Yes. Mr. UTTERBACK. And if you have the State offices or branch offices in the States, authorizing them to get in immediate contact with the farmers it would simplify the administration. Mr. MORGENTHAU. There may be different problems in each State. I have made this statement, to the effect that if I cannot give the farmers as good service as they are getting now and give them 50 percent better service, then I had better close up my office and leave. I do not have to have the job. The President brought me down here after having been with him for 4 years in New York, and if I cannot give them 50 percent better service than they are getting now the sooner I step out the better off they will be. The CHAIRMAN. You expect to work this out as soon as you can get to it. Mr. MORGENTHAU. I cannot tell what will be done. I cannot make any plans. All I have is a mass of records concerning the branch offices and their locations; and I have had the responsibility of the crop loans and have not reached this problem as yet. We have had to handle these loans, and I have not got down to the feature of working out the best way to handle this thing in each community, but as fast as I can get this other work off hand I expect to get after this and with the help of Mr. Myers we will try to work it out. Mr. UTTERBACK. I am not criticizing you; I am 100 percent for you. Mr. MORGENTHAU. Iunderstand. I am not trying to dodge anything. I am not going to dodge any responsibility, but I am just going to say that I am not going to put an office in some State just because some one happens to be a friend of mine. Mr. UTTERBACK. Surely. Mr. MORGENTHAU. I say that because that is the way I feel about it, and the people will just have to be patient with us. If you people should pass this legislation and the relief bill, then Mr. Myers and I can settle down and work this out the best way we can, and I am going to do the best I can with it. The CHAIRMAN. It is getting near 11 o'clock now, and I have received word that we are wanted on the floor at that time. Mr. DOXEY. I regret that I was not here at the beginning of your The CHAIRMAN. If it is just a question, go ahead, Mr. Doxey. The CHAIRMAN. Two or three of the members have expressed their desire to have us suspend and be in the House to consider the important bill that is up in the House, and it is only a few minutes now until 11. Mr. DOXEY. This is an important bill before this committee. The CHAIRMAN. I realize that, but we will not be able to conclude the hearings this morning. The committee will adjourn until 10 o'clock tomorrow, and you will have opportunity to ask your questions at that time. (Thereupon, at 10.57, the committee adjourned until 10 a.m. of the following day, Saturday, May 27, 1933.) FARM CREDIT ACT OF 1933 SATURDAY, MAY 27, 1933 HOUSE OF REPRESENTATIVES, The committee met at 10 a.m., Hon. Marvin Jones (chairman) presiding. The CHAIRMAN. The committee will come to order. Dr. Myers, we will be glad to have a further explanation of this bill from you. Perhaps it may be well for you to go ahead with the next feature of the analysis of the bill, unless someone wishes to ask questions about the feature you were discussing yesterday. STATEMENTS OF HON. HENRY MORGENTHAU, JR., GOVERNOR FARM CREDIT ADMINISTRATION; DR. W. I. MYERS, ASSISTANT TO THE GOVERNOR FARM CREDIT ADMINISTRATION; AND JOHN O'BRIEN, ASSISTANT COUNSEL, OFFICE OF LEGISLATIVE COUNSEL, HOUSE OF REPRESENTATIVES Dr. MYERS. Turning to page 2 of the analysis, covering central and regional banks for cooperatives, the successors to the Federal Farm Board. The CHAIRMAN. These are not credit corporations; they are really banks? Dr. MYERS. That is correct. We kept the name for those as banks, but it is not especially important. Those banks for cooperatives will really loan direct to cooperatives. The CHAIRMAN. They are really banks? Dr. MYERS. Yes. Mr. HOPE. What section is that in the bill? Dr. MYERS. It is mixed up. I will refer you to the sections. Title III relates to central banks for cooperatives and title IV relates to the 12 regional banks for cooperatives. To save space in writing the bill the sections were combined wherever they related to two or more classes of these institutions, so the bill sounds more complicated than it is. As to the central and regional banks for cooperatives, the successors to the Federal Farm Board. In the first place, the Governor is authorized to set up 12 regional banks for cooperatives, one for each Federal land bank district, and one central bank for cooperatives to be located in Washington, D.C. The central bank in Washington would be operated by the cooperative bank commissioner, directly under the Governor of the Farm Credit Administration. 25 |