Dr. MYERS. That is a policy that is covered in the act, and that should be handled by administrative provisions.

It is provided that the regional banks are free to make loans within the policies laid down by the governor of the Farm Credit Administration, through the cooperative bank commissioner.

So my personal opinion is that you cannot lay down a policy that will apply to all commodities and all cooperatives fairly, and that

each situation needs to be handled on its own merits.

Mr. HOPE. The thing I am particularly interested in is this. I have noticed some dissatisfaction on the part of local grain cooperatives with the plan that has been followed.

Many of them would prefer to get loans direct, instead of going through the Farmers' National, because, under the plan that has been in operation, the Farmers' National imposes terms, not only as far as the loan is concerned, but in connection with other business relationships, such as requiring the local cooperative to deliver all its grain to the Farmers' National. There have been some cases called to my attention where that arrangement is very unsatisfactory.

I would like to know whether it would be possible, in cases of that kind, for the local cooperative to get a loan direct, or whether it is the intention to continue to compel them to go through the Farmers' National, if they desire to be free from that sort of an arrangement. Dr. MYERS. It is fair to say that I cannot determine the policies. That matter is a policy that must be worked out.

I believe this set-up would permit the local and national organization to do what has been true heretofore.

Mr. HOPE. As far as the legislation itself is concerned, the local could follow either route that they wanted to; they could still go through the National, and, if they preferred to get the loan from the regional bank, it would be subject to whatever regulation they might make down there?

Dr. MYERS. You understand, of course, I cannot speak for Mr. Morgenthau.

Mr. HOPE. Yes.

Dr. MYERS. It is our belief that you should not force the cooperatives to do something they do not want to do. There are two points of view in relation to the big organizations and in relation to the little ones. I believe the policy should be one of fairness to both, and the various situations should be handled on their merits. I could tell you my personal opinion, but it would not be much use.

Mr. KLEBERG. Dr. Meyers, discussing that proposition, may I ask this question: The thought occurs to me that inasmuch as we have had a couple of banking bills under consideration, one in the House and one in the Senate, to ask you whether you folks in the Farm Credit Administration have given any thought to the possibility, under the Glass bill, of any serious effect on the interchange of checks between banks, thereby very definitely hampering crop movements, particularly in the cotton States?

Under the Glass bill it would be impossible, with the restrictions placed on the circulation between banks of checks, for the crops to I am wondering if you have given any consideration to that phase of it, as to how it would affect your problem?

move.

Dr. MYERS. That matter has been brought up by one group from Texas, in regard to either wool or cotton.

Mr. KLEBERG. Both. It would bring it to a dead standstill, and I would personally like to see the Farm Credit Administration look into that because it would largely affect the operations of this measure, too.

The bill we passed does not affect that at all, but the pending bill would probably affect it.

I do not want to let this moment pass without calling the matter to your attention, and to the attenion of Mr. Morganthau, so that you may be able to appear before the conferees in reference to it.

Mr. HOPE. The loans made by the regional banks for cooperatives would include both facility loans and loans for current operating expenses?

Dr. MYERS. Working capital; and the interest provisions that are not explained here give authority to the Governor of the Farm Credit Administration to vary the rate between limits of not less than 3 or more than 6 percent. It is suggested that on facility loans he shall consider the rate paid by the farmers on mortgages to the Federal land banks, which, at the present time, would be 412 percent.

A facility loan, to finance a local elevator or a creamery, is the same type of loan, in general, as those to finance the purchase of a farm.

It is a longer term loan, and the rate should approximate the rate paid on farm mortgages, and the rate on working capital loans should be a little bit higher than the rediscount rate of the intermediate credit banks.

So, in that general way, the question of the determination of interest rates is left to the Governor of the Farm Credit Administration, but it will result in putting loans to cooperatives on a business basis.

Mr. GLOVER. We have had considerable experience in trying to help each other in our State, and we established a financial plan very similar to this. With reference to the organization of these bodies, instead of having large groups of people, we will have them grouped into smaller numbers, where they can select their own associates, and they will go into them very much quicker than otherwise, because you could take 10, or 20, or 50 men who would go into an organization, where you would know their ability to pay, and there would be no loss in that kind of an organization. That is what they prefer to have, smaller ones, so they can have no losses, even on their 5 percent.

Dr. MYERS. That would be true both in local credit associations and in cooperative marketing associations.

Mr. GLOVER. Yes. If they do that they can look after the men better, and see that they come up to the full, adequate standard.

Dr. MYERS. In relation to the local credit associations, the act is drawn particularly now so you can have them as small as necessary in your state. In the range States, where there is livestock, with bigger farms, they can have credit associations covering a wider

area.

The CHAIRMAN. I overlooked asking Mr. Morgenthau a question as to whether or not, in his opinion, this arrangement would save

anything in administrative expenses over the present scattered system of making agricultural loans, with the consolidation in operation, under the arrangement provided for in the bill. Would that, in your estimation, save on administrative expense?

Mr. MORGENTHAU. I have made the statement before the Committee on Appropriations of the House, that I felt we could save at least $2,000,000 in administrative expense, and we expect to turn back another $2,000,000 out of the $44,000,000 that Congress voted for Red Cross wheat and cotton. Due to what you might say is good organization, we have been able to systematize the delivery of the wheat and the cotton to the Red Cross, and Judge Payne has been most cooperative. So I hope to be able to turn back at least $2,000,000 out of the $44,000,000. And I am quite sure we can save another $2,000,000 in administrative expenses.

I do not like to be facetious, but if you could have seen my office, after we sent out a notice that we would lay off 150 people today, I think you would realize fully the need for saving money.

The CHAIRMAN. When we adjourned yesterday we had just received a telephone message from Mr. Byrns that we were wanted on the floor at 11 o'clock. Mr. Doxey had started to ask you some questions at that time. Do you wish to ask Mr. Morgenthau any further questions, Mr. Doxey?

Mr. DOXEY. One question I had in mind was along the line you have brought out, with reference to the expenditures of the present set-up.

I understand it cost about $7,000,000 to administer the seed-loan offices throughout the United States in the last season.

Mr. MORGENTHAU. Mr. Doxey, we make estimates on a 4 months' basis, taking the pay rolls of the Regional Agricultural Credit Corporations and crop-loan offices, taking those figures and then multiplying them by three.

On that basis they were spending, the two offices, at the rate of $9,000,000 per year.

Mr. DOXEY. I was $2,000,000 shy.

Mr. MORGENTHAU. Yes.

Mr. DOXEY. Is it your purpose, regardless of what legislation is enacted, to do away with the regional agricultural banks.

Mr. MORGENTHAU. May I take a few minutes to explain that? Mr. DOXEY. Certainly.

Mr. MORGANTHAU. If this legislation does not pass, then in regard to the regional agricultural credit corporations we are faced with this situation.

They have been furnished with $44,000,000. Some of the offices will not use their full amount. Columbus, Ohio, is an example. I believe they have a capital of $3,000,000, and they have loaned about $1,000,000.

As the law stands, we cannot take that money, for instance, to St. Paul, where they have loaned 15 times their capital, and the capital is wiped out. I am not permitted to take $2,000,000 away from Columbus and transfer it to St. Paul, which would be the commonsense thing to do.

So I am faced with this situation. I am advised, on a very quick look over the regional agricultural credit situation that, taking it by and large, most of the original capital of $44,000,000 is wiped out.

Of course, the capital at Columbus, Ohio, would not be wiped out, where they had a total of $3,000,000 and have loaned only $1,000,000. But in places where they have loaned 15 times the amount of their capital the capital is wiped out, and if we stay just as we are now, I would say in 75 percent of the offices of the Regional Agricultural Credit Corporation, if we start in next fall with that set-up we are broke, we are busted, and they would automatically cease to function.

Mr. DOXEY. Where one is in the condition that the Columbus, Ohio, bank is in, that would be one of the 25 or 30 percent that would still be in existence?

Mr. MORGENTHAU. That is right.

Mr. DoXEY. The others would automatically go out by virtue of having loaned to the limit of their capital?

Mr. MORGENTHAU. Yes.

Mr. HOPE. How do you expect to handle the loans outstanding now which have been made by the Regional Agricultural Credit Corporation when the new set-up goes into effect? Those are shortterm loans.

Is it your intention to handle them through the new set-up, say a man, for instance, in my State has a loan from the Regional Agricultural Credit Corporation at Wichita. When that loan comes due, will he have to see that an organization is formed in his own. community to which he can transfer that loan or how will it be taken care of?

Mr. MORGENTHAU. If you do not pass this legislation, my thought would be—and I am merely thinking out loud-to answer your particular question, Mr. Hope, that in that territory, we would, let us say, wind up the Regional Agricultural Credit Corporation, but we would not want to do that until we had set up something to take its place.

We would go down there into your territory and assist people to set-up credit corporations to take the place of the existing machinery, and the last thing we would want to do would be to leave the State of Kansas without the necessary facilities to take care of the farmer.

There would be no pressure; there would be nothing to make me say, wind it up in 30 or 60 days.

I do not happen to be familiar with the Regional Agricultural Corporation in that territory. I do happen to be familiar with the one in Columbus, Ohio, and with the one in St. Paul, because they have been brought to my attention.

Mr. HOPE. It seems to me that there ought to be some way to bridge the gap that you make when you wind up the Regional Agricultural Credit Corporation and expect these people to form local associations, and expect them to go into that all at once. There would have to be a period when you would have to use a set-up to carry on the business of the R.A.Č.C.

Mr. MORGENTHAU. You are served from Wichita?

Mr. HOPE. Yes.

Mr. MORGENTHAU. I do not happen to know whether the Wichita bank of the R.A.C.C. is solvent.

Mr. HOPE. They have made a good many loans.

Mr. MORGENTHAU. If they were solvent, and there is nothing in the law to force me to close up the R.A.C.C., I would certainly use horse sense and permit the R.A.C.C. to stay there long enough to set-up something to take its place.

Mr. HOPE. There are a lot of cattle owners there who have loans which they hope to renew. They are not all stocker and feeder loans necessarily. It would be a hardship on those people if they had to pay them now.

Mr. MORGENTHAU. I would imagine on some of those it would take a couple of years before we would be able to finally wind up some of the R.A.C.C., and the last thing I am going to do is to go in there, if there is any long-time paper-and I understand there is some of that on some cattle loans the last thing I will do is to go in on those 2- or 3-year loans; if I cannot find something better to take their place, I am not going to take a pistol and hold it to a man's head and say, "You have to settle up."

Dr. MYERS. The question was asked me by Mr. Hope regarding the attitude of the cooperative banks toward local and national cooperatives. Would you care to express an opinion on that, Mr. Morgenthau?

Mr. MORGENTHAU. The best way I can explain it is to simply tell you what we have been doing since I have been here.

I take it you mean, Mr. Hope, that in order to get a loan a local would have to join a national?

Mr. HOPE. Yes; or, in case where they have joined a national and gotten a loan, whether they will be free to withdraw from their national affiliation and get a loan from the regional.

Mr. MORGENTHAU. What we have done is this: I always feel that one's actions are better than promises or forecasts.

There has been a large cooperative-and we might as well call names—the National Vegetable Growers' Exchange. The first couple of weeks I was here a couple of loans came before the board and, inserted in the contract, was a provision which specified that this local had to sell through the national cooperative. I had that clause eliminated, because I feel that a national cooperative, to justify its existence, should be good enough and have good enough service and have low enough rates so that it should be attractive to the local to do business with it every day. If a national cannot make such an offer to a local, there is no excuse for a national to exist.

Mr. HOPE. I am very happy to know that that is your view. Mr. MORGENTHAU. It is not what I promised to do but what I have done, it seems to me, that is the best answer to your inquiry. If a national cannot stand on its own feet and offer service which is a little bit better than some commercial concern, I cannot see any excuse for its existence.

THE CHAIRMAN. We thank you very much, Mr. Morgenthau, for the statement you have given us, and as I understand you have another engagement you would like to keep, if there are no further questions that the members desire to ask you, we will excuse you at this time.

Mr. HOPE. You propose in section 15 to amend the Marketing Act. I do not have the original Marketing Act before me, and I would like to have you point out what the difference is.