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has done a big piece of business; it has labored under adverse conditions but they have done a big piece of business, and that law can be amplified and amended to make it do a better piece of business. But it will be dangerous, I think, to put the short-time credit game into the farm-loan system because it will confuse the investment mind that is now seeking the long-time investments, and the farmer needs an amortized loan. That is my way of stating that.

Now, as to the Federal reserve system. I understand the mechanics of the Federal reserve system. I see these 20,000 little banks with that great stream of farmers back of them, and I see in my State 850 little fellows with 150 national banks. Do you get me? Of the 150 national banks perhaps 30 of them are city correspondent banks. The point I want to make is that our farmers must come down through 850 little banks; then they must come down, at the most, through 150 national banks, but in actual practice they must come through 30 gates only. It is a dangerous proposition and we have suffered from that thing. Now, gentlemen, that ought not to be. Do not deceive yourselves. I do not believe the farmers are coming out of this distress in a year or two years or three years, and there is danger of a knockout blow being given agriculture in this country if you do not provide comfort for those engaged in it and provide means whereby the farmers can secure credit facilities to proceed on their program.

Take the live-stock industry in this country. As I said two years ago, anybody could see what was coming after the drought in the western country and could see that the sheep stock was being slaughtered before it ought to be, and see where we are to-day-away behind. I tell you, we must set up a piece of machinery that will give to the live-stock men and the commodity men representing agriculture necessary credit, not for the purpose of profiteering but for the purpose of carrying on and in order to bring about an orderly marketing of their products. Some one says, “ We do not want to set up a third system.” I came down here on Monday and I was not dead sure where this ought to be, whether in the Federal reserve or in the Federal farm loan.

But I have been thinking seriously and have been conferring with some men on the actual situation and I am convinced that agriculture, as the basic industry of our country, should be removed from the hazards of the commercial business and the commercial banks. Now, as to the mechanics of that. The War Finance have proved their worthwhileness, have they not? They have saved the situation. A little working unit of five men in a State could assemble these farmer notes through these country banks, with credit statements, and get by, in my State at least, with the security. We got the money and we saved the present; that is all. We have saved the loss and the farmers have been enabled to do business this year. But we have just held the thing temporarily and another crop with fair prices will lift the load. Now, gentlemen, do you want to shoot that farmer out again to that country banker and let him trust to his whim and his decision? There are a lot of these bankers who are cowards. We have hundreds and thousands of country bankers who have not a bit of heroism in facing the program of their community. They will not even go out and loan their credit to the farmer in order to get money from the city banks, from the War Finance, or from the Federal reserve. They say to the farmer, “We have got all the money loaned out now that our depositors have put here.” Those men ought to be put out of business.

Now, gentlemen, is it a violent proposition to consider the setting up of a third institution? Is it? Let us see. When the Edge Act was put upon the statute books it was done for the purpose of facilitating the export and import business of our country. Those men were handling the products of the farmers. Am I right? I am. The city banker--the banker handling the commercial interests—is now using the bankers' acceptance commercial paper and all kinds of agencies, but the farmer, an isolated unit and almost unorganized, is left to work out his own salvation, and he has got to come down to the city banker. I am not criticizing the city banker; not at all; but I do not think it is fair to agriculture to leave him out there to take his chances."

Now, the mechanics of the Simmons bill appeal to me a little better then the other bill because it ties it to the farm-loan system. If it is possible to get the Lenroot-Anderson and Simmons bills into working form so as to create that institution. it would be all right; but it should be gotten into such a form as to follow the war finance, not for this year but for a continuing period of time,

and guarantee to the American farmer that he is going to have adequate credit facilities.

Now, the men of commerce are organized, and they have a right to organize. The farmer has the right to organize, and is organized in my country. Now, he got a blow, and he is asking the reason why, and he gets some part of it from the country banker and a little of it from the city banker, but he does not know just what hit him. The mechanics of our present financial institutions do not adequately serve the farmer, certainly not in a day of emergency or distress. That is why I think it is feasible and practicable to provide this third intermediate line of credit, an instrument—or whatever you care to call it, a debenture or certificate-for the one or two year need, and let it be popularized in much the same way that the bąnkers' acceptances have been popularized and accepted by the Federal reserve system as a proper piece of paper. It simply represents the credit of the city banker as he loans it to his customer. That is all. But the farmer can not do it.

Now, the Simmons bill provides for the bankers having a part interest in this third system; also the live-stock institutions and also the cooperative institutions, and they are going to be capitalized. It is a safe program, and it is worthy, I am sure, of your earnest consideration, and I am sure you are going to give it. I believe, if that is done, a great deal of good will result. I do not want to go on record absolutely for this today. We must keep the Federal reserve liquid; we must keep it with full respect for the notes issued, but let us see whether it is dangerous to extend the period of time to nine months for the farmer paper or for a year. Is anyone afraid of the gold reserve in our country; that is, that it will be removed from this country within our lifetime? I think not. Will a year's paper be nonliquid? I know many city bankers will say that, but I am not so sure that farmers' paper is dangerous, as has been indicated here, and would not be a proper piece of paper in the Federal reserve system. I am sure, if you analyze the note issue of the Federal reserve system and the return of that note, that it would come well under this one-year loan and I do think we could safely extend it at least nine months.

Now, under one of these ills, I do not recall offhand which one, it is provided for only a year's paper, with the privilege of renewal. What the farmer wants to know is, “ Can it be carried until he gets a return from his products? Now, who got the profit when his wheat was sold? Who got the profit on the live stock which has recently been sold? In the last four months I sold 2,000 sheep at $2.90 a head, and yet the fellows who bought those sheep, who had the money, have made at least $12 a head on top of my sheep. I was only an instrument in the proposition, but the other fellows had to sell. The same is true of beef. It was not the farmer who produced that stuff that got the price; it was those who took it out of his hands; they got the profit. It was the miller who could put the grain in an elevator that got the profit on wheat. It was the fellow in the feed lots of Iowa and Illinois who had banks or had money to take care of his purchases of that stock who made the money. Now, do you want to discourage the producer? If so, that is the way to do it.

There is no question but what you ought to give your undivided attention now, while the going is good, to a third line of credit, supervised by this Government, so that the farmer can be sure, through his country banker or directly, of getting credit in volume at the lowest possible rate of interest.

Now, if I have not made myself clear I have at least gotten that out of my system.

Mr. STRONG. Do you not think the farmer should be financed by his local bank during hs turnover period? Do you not think the financial system of the country should enable the farmer to go to his local bank and get the credit he needs?

Mr. MOEHLENPAH. Surely, because he is the best workman we have.

Mr. STRONG. If all the banks of the country, both those who are members of the Federal reserve system and those who are nonmembers, had the right to rediscount the long time personal credit of the farmer at some place in the financial system of the country, would not that be a good system?

Mr. MOEHLENPAH. That is what we are getting at.

Mr. STRONG. A bill which I introduced-I do not claim it has all the virtuesdid have that virtue, in that it provided that member and nonmember banks could rediscount that class of paper--the long time personal credit of the farmer-through a special fund in the Federal reserve system by using half of their surplus funds. Now, it has been said to me that that would have the favorable consideration of some of the prominent financiers if I would limit it to the member banks, but I have insisted that the very fact that the bill pro

vides that that class of paper can be rediscounted by both member and nonmember banks is the thing that makes it of the greatest value to the farmer.

Mr. MOEHLENPAH. But not all in the Federal reserve system?

Mr. STRONG. Well, the only way I knew was to get capital, and I proposed to get over $100,000,000 by using half of the surplus of the Federal reserve banks, which I was informed could be used without hurting the system.

Mr. MOEHLENPAH, I would not want to go on record for that kind of a proposition.

Mr. STRONG. I am not asking you to go on record. I am suggesting that if the member and nonmember banks alike had a place where they could rediscount that kind of paper it would give the farmer an opportunity to get those credits from his local bank.

Mr. LAWRENCE. Would that be added to the capital?

Mr. STRONG. I do not know that it would. My thought was this: That a country banker would take that class of paper if he only knew that when a pinch came he could rediscount 10 or 15 per cent of his paper so as to increase his reserve and decrease his loans; that the country banker would carry a lot of that kind of paper, and by the use of $100,000,000—being half of the surplus of the reserve banks—it would enable the banks to finance and carry on for the farmers to the extent of at least $5,000,000 or $6,000,000.

Mr. WINGO. As I understand your point, you say to us: “Gentlemen, you have provided the mechanics, under Government supervision and control, a commercial credit system, which furnishes the free rediscount of commercial and industrial paper and agricultural paper up to six months; you have also established, under Government control and supervision, the Federal land bank system to handle-even though not satisfactorily—the investment land credits of the farmers; but you have not provided a proper system to furnish a safe, sound, and sure rediscounting of agricultural personal credit paper from six months to three years, when the great bulk of the agricultural activities and production of the country is financed, and necessarily has to be financed, on credits that run from one to three years, and that we ought to set up safe and sound mechanics for the handling of those credits the same as we have for the others.”

Mr. MOEHLENPAH. That is my idea of this thing from an experience of 30 years.

Mr. Wingo. You are not partial to any particular scheme, but you are for any plan which may be worked out that will be safe, sound, and practicable, and which will function properly and give that relief?

Mr. MOEHLENPAH. Yes. On this question of intermediate credits that came up with my directors, and I told them my convictions in the proposition without going into the thing very fully. "Well,” they said, “ Moehlenpah, you have established a rural credit system for Wisconsin exactly like that. Do you not know that will put you out of business?I turned to the man who said it, and I said, “ Ernest, do you think that is the viewpoint we ought to take? Do you not think we ought to have a larger program? We have proved this proposition in Wisconsin over a year, and what would be done if the Government should undertake to do this and supervise the establishment of these credit instruments for between two and three years, to run in companionship with the program of the farmers, and popularize those instruments?” Why, gentlemen, it would settle the whole thing if you do it.

The CHAIRMAN. I was not quite clear as to your grouping of the credits. Did I understand you to mean that the banks would guarantee them?

Mr. MOEHLENPAH. Yes, sir.

Mr. BLACK. Will you permit this question? At the present time the War Finance Corporation handles this paper by reason of having capital stock of its own-$500,000,000, I believe?

Mr. MOEHLENPAH. Yes, sir.

Mr. BLACK. Which is Government money, and, of course, that furnishes a very large reservoir. The question with me is how would the capital be obtained? Your banks, for example, cover this paper with their own guaranty and are able to continue operations by reason of selling this paper through this agency, and they in turn selling it on the market. Now, have you thought anything about how the capital should be raised for this central agency?

Mr. MOEHLENPAH. I might answer that question, at least partially, by asking you how the capital was provided in the Federal reserve and how the capital was provided in the farm-loan system?

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Mr. BLACK. In the Federal reserve system, of course, the banks are all compelled to become members and take stock, all the national banks, but here the proposition is whether we are going to have the Government furnish the capital of this agency; and if we are not, then, of course, the important inquiry is as to how it shall be raised?

Mr. MOEHLENPAH. This is a guess—and we all have the right to guess, but it is not based entirely upon speculation-but the Government provided the initial capital for the farm-loan system.

Mr. BLACK. With a system of retirement?

Mr. MOEHLENPAH. Yes. You take this cooperative farm association, and I want to tell you gentlemen that this cooperative movement just needs something substantial to stabilize it. They are all for it in the western country, and they would like capital. Now, if these cooperative associations and livestock associations should be compelled to capitalize this institution and bring about a guaranty on the back of their paper that would be worth while, why would it not be reasonable for them to make some contribution to the capital stock of the parent association ?

Mr. BLACK. I was wondering whether we might work out a system of the Government, for example, putting up the initial capital to start with, with a system by which the Government's money would ultimately be retired and private capital, in the way you mentioned, be substituted. I was wondering whether you had given that any thought.

Mr. MOEHLENPAH. I have not gone clear through that, but when you speak to them about the capital for this institution, and when you once have popularized the credit instrument secured by this farm paper, you see, the turnover is going to be quick, it is going to be prompt, and you are not going to require the capital you think you will require.

The CHAIRMAN. This occurs to me: Would it be possible for your banks out there to form a corporation, and would your banks subscribe to the capital stock of that corporation? For instance, if they subscribed $1,000, we will say, to that new corporation which you might organize, and could rediscount through that corporation $50,000 worth of paper, would not that be an inducement to the country banks to take stock in your parent organization?

Mr. MOEHLENPAH. There is no doubt about it. At the conference at St. Paul, when Congressman Haugen's committee was there and you were there, tooyou will remember the statement made by Dean Russell when we were talking and discussing that proposition. I was quite surprised when the dean said, “If something is not done, my State (referring to Wisconsin) will take its 850 little banks and do something to start a small-sized reserve system for Wisconsin." But I do not want to see that done.

Mr. MACGREGOR. You have not said anything about the working of your system, so far as the selling of bonds is concerned.

Mr. MOEHLENPAH. You are talking about my private system?
Mr. MACGREGOR. Yes.

Mr. MOEHLENPAH. I will tell you what we issue. We také farm notes for 4 months, 6 months, 8 months, and 12 months from these country banks; then when we assemble this paper, we will say during the month of April, and we get $200,000 of it for different maturities, we proceed on May 1 to issue maturities corresponding with the maturities of our paper and we issue our bonds; you call them bonds, but I call them rural credits. Then we go to the commercial banks and they buy them very readily, because they are backed by farm paper, and it is a well-organized and a well-capitalized proposition and the men who lead it are well known. The First National Bank of Chicago buys some of almost every issue, and I have on my desk an order for $30,000 worth on May 1.

Mr. LAWRENCE. How many dollars' worth would you issue for $200,000 ?

Mr. MOEHLENPAH. We carry, perhaps, $210,000 of foreign paper as a little working margin.

The CHAIRMAN. Gentlemen of the committee, there has been a roll call. I do not want to interrupt the hearing, but I would like to ask about the matter of program. It is now a little after 12 o'clock, and I am wondering, Mr. Allen, how much more time your committee will want. I am trying to ascertain whether we shall recess until some time this afternoon or finish now.

Mr. ALLEN. I know you have been fed on this so much that you are suffering from indigestion, but it is the most important thing in the world, and if you will give me about three minutes we can finish.

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Mr. STRONG. You understand there has been a roll call ?
Mr. ALLEN. We are your servants.
Mr. STRONG. And we are the servants of the people and must go.

Mr. ALLEN. The point is that Mr. Holderness would like to speak for a few minutes, and there are two or three technical questions about running banks · that I would like to present.

The CHAIRMĄN. What we wish to know, Mr. Allen, is whether we shall recess now and come back this afternoon, or finish at this time, if you think it will take but a few minutes.

Mr. PHILLIPS. Mr. Holderness says he wants about 15 minutes.

The CHAIRMAN. We can probably give him 15 minutes and not interfere with our answering the roll call.

STATEMENT OF MR. GEORGE A. HOLDERNESS, CHAIRMAN OF THE BOARD OF DIRECTORS OF THE FARMERS' BANKING & TRUST CO., TARBORO, N. C.

Mr. HOLDERNESS. I am a country banker, and even a country banker recognizes the safe, economic principle that our loans should be short-time liquid paper, but those of us who recognize that admit it is an impossibility in a rural community.

We have other depositors besides farmers. We feel that this third line of credit is essential so that we can be honest with our depositors. We believe that there should be some provision to take care of these farmers in our section from 9 to 15 months. I think possibly there is some misapprehension about the method and what happened to the loans in the farming communities. You take a bank the size of mine, with $100,000 capital and $50,000 surplus. During the peak, with $1,250,000 deposits, we felt that for our bank to borrow on its capital and surplus was on the verge of extravagance. When the slump came our deposits slumped from $1,500,000 to $400,000. Our borrowers were unable to pay. Our only resource was to borrow. My bank is a member of the Federal reserve system. I have not anything but good words to say for that system.

The CHAIRMAN. Did they order you to call your loans?
Mr. HOLDERNESS. No, sir.
The CHAIRMAN. Did they refuse to rediscount during this period?

Mr. HOLDERNESS. They sent for me I am chairman of the board-and said, “You realize the overextended condition of your bank, together with all others in the State"; and I said, “ Most assuredly I do.” They said that we should liquidate some.

The CHAIRMAN. You were extended beyond the so-called basic line?

Mr. HOLDERNESS. Yes, sir. They said, “We are willing to extend to you further credit, but we want your directors to indorse the paper.” I said,"“ Mr. Harding, when you require that of us, I am going out of the banking business, if we can not furnish a line of credit.” I want to say frankly that we had an argument, but I want to say that their attitude to us was a great saving to us in the long run.

Mr. MOEHLENPAH. What was that last statement, please?

Mr. HOLDERNESS. We had some argument with them about what they ought to do and what we ought to do. They never took an arbitrary attitude.

Mr. MOEHLENPAH. I thought you said they saved you something?

Mr. HOLDERNESS. Yes, sir. I do not believe that we could have gotten the line of credit from our correspondents that they gave us. On $100,000 capital and $50,000 surplus we got something like $300,000.

Mr. MOEHLENPAH. Did you collect anything?

Mr. HOLDERNESS. Only in cases where we knew that customers had Liberty bonds did we require them to sell.

Mr. MOEHLENPAH. The Federal reserve system took care of the shrinkage?
Mr. HOLDERNESS. Yes, sir.
Mr. MOEHLENPAH. In addition to the loans?
Mr. HOLDERNESS. I mean that the total was $700,000.
Mr. MOEHLENPAH. On a capital of $100,000?
Mr. HOLDERNESS. It would be foolish to say that we collected nothing.
Mr. MOEHLENPAH. I mean no substantial collections ?

Mr. HOLDERNESS. In other words, we did not force any collections. I know one bank in the South with deposits of $28,000,000, in a town of less than 15,000

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