« ForrigeFortsett »
which was only saved by 12 of the banks of the country coming to their rescue. They were not members of the Federal reserve system.
Mr. KING. Were any farmers required to come in and pay?
Mr. HOLDERNESS. We required men who had been holding cotton for a long period whom we thought were speculating to sell it. There is another thing. I happened to be connected with the finance committee of a life insurance company and I made an effort to borrow money on loans. Where a farmer had to go out to borrow money for a long time, for five years, from brokers and lawyers it cost him a bonus of 10 per cent. No business will stand that..
The CHAIRMAN. A 10 per cent bonus?
The gentleman from Massachusetts was speaking of the cheapness of money. He should not confuse the ability of a farmer who is worth $100,000 to get credit and the ability of a man who owns $100,000 in stocks or Liberty bonds to get credit. The man who owns a farm that is worth $100,000 is confined entirely to his local market for credit that is already extended in the agricultural situation. The man who has $100,000 of Pennsylvania Railroad stock can go to New York and get his credit. That is where we need the third line of credit.
The CHAIRMAN. What do you think of Mr. Moehlenpah's suggestion to get these banks together and introducing this paper to the investing public through a trustee?
Mr. HOLDERNESS. My particular idea is that it should be an institution separate and distinct from the Federal reserve system and from the Federal loan banks, because it is big enough to be alone and it should have a sympathetic management. If you tack it on the Federal reserve system or to the farm-loan banks it will not have that sympathetic management. I should like to see a system modeled somewhat after the Federal reserve system, in which it would require the member banks to take part of the capital, just as we are required to do in the Federal reserve system, and the Government furnishing a part of it. I have read the Simmons bill and other bills, and I like, of course, the special feature which makes it an independent organization.
The CHAIRMAN. Is it your impression that if the Government created a national rule for the organization of one or more institutions of this kind that these State banks, which are not members of the Federal reserve system, would voluntarily submit?
Mr. HOLDERNESS. Yes, sir.
The CHAIRMAN. If they knew that it would be possible for them to take loans that they could not handle through other institutions?
Mr. HOLDERNESS. Yes, sir.
The CHAIRMAN. To have sufficient capital back of it, and that would provide a method of sale in which the investing public would have confidence ?
Mr. MOEHLENPAH. The Simmons bill provides for 20,000.
The CHAIRMAN. The capital is to be furnished by the Government in the Simmons bill, I think.
Mr. HOLDERNESS. I believe that any bill should require the banks participating in it to take a part of the capital.
The CHAIRMAN. I think Mr. Moehlenpah has made the suggestion of a practical solution. If you can get the banks to whom the farmers go, but who can not give the farmers that relief; if you can create an institution of the banks all over the country which can issue securities, debentures, or what. ever you might call them, and which will find an equal right in the investment market with other high-grade securities, I believe that such a plan as that appeals to me.
Mr. STRONG. Why should the farmer be forced to go into some different division of the financial agencies of the country in order to get relief—to get credit for his turnover period? Why not say to the merchant, “ We can not accommodate you; you must get the bankers to form some corporation or some organization to lend you money”?
Mr. HOLDERNESS. For this reason, that in our immediate section we have not sufficient capital to furnish it.
Mr. STRONG. Why should we not provide in this country a financial system that would take care of the credit needs of the farmer the same as we do for the merchant?
Mr. HOLDERNESS. You can not overlook this fact. I am from a rural community largely of farmers who sell through customers. If it were not for
those customers we would keep our assets more liquid than we are doing. That is why we want this third line of credit.
Mr. STRONG. And I want to give it to you.
The CHAIRMAN. You want to provide for the farmer an investment market so that he can have every advantage that the big borrower has?
Mr. HOLDERNESS. I want to give him exactly the same advantages that the manufacturer has who can take his raw material and in 90 days convert it into liquid assets.
Mr. STRONG. If you force him to go to an association for his credit you build up an overhead cost which he has to pay for.
Mr. HOLDERNESS. I do not want to do that. I want my bank to perform that function. I want them to have an outlet for that paper through some third line of credit.
The CHAIRMAN. I do not understand that the farmers of the country are opposed to going to the local banks?
Mr. HOLDERNESS. No.
The CHAIRMAN. They will be greatly strengthened and their position greatly strengthened if they know their local banks have facilities whereby they can always take care of the demand and pay the current rate of interest. I do not think that the farmers of the country are demanding any subsidy.
Mr. HOLDERNESS. None.
Mr. STRONG. Certainly not; but when they go to their local banks, such banks should be able to discount that paper under a regular financial system.
Mr. HOLDERNESS. I do not believe that that class of paper either from a manufacturer or a farmer should go through the ordinary commercial banking channels. My own idea would be not to form an association, but my idea would be to form something on the order of the Federal reserve system to handle paper from one to three months. Then my bank could be made a member by subscribing to a certain amount of capital stock, just the same as the Federal reserve system, to handle 36, 60, and 90 days' paper. I think that we should differentiate between farmers' loans. A great many farmers' loans are an asset to furnish fixed capital, but they do not realize it.
The CHAIRMAN. Under the Federal farm-loan system?
Mr. HOLDERNESS. Yes, sir; but as to th's other capital, there is no class of paper than can be taken that is more self-liquid than paper based on farm products.
The CHAIRMAN. You mean money that is borrowed for production and which is self-liquid when the crops are produced ?
Mr. HOLDERNESS. Yes, sir. In our immed'ate section one year would be ample, but there are sections of the United States that require a longer timethe cattle sections, for instance.
Mr. STRONG. Why not rediscount that paper in a special fund in the Federal reserve system, without building up another overhead?
Mr. HOLDERNESS. I feel that the Federal reserve system will not be sympathetic to this movement.
Mr. STRONG. You understand that we are going to put a member on the Federal Reserve Boad who will be in sympathy with agriculture?
Mr. HOLDERNESS. Mr. Moehlenpah was sympathetic.
Mr. STRONG. But they took him off. Now we are going to require them to put a man on the board who is in sympathy with agriculture.
How many members are there?
Mr. HOLDERNESS. The farmer does not want any subsidy. The manufacturer can start out manufacturing material, and if things go bad he can leave the cloth right in the loom, but when the farmer once starts he can not stop. When he makes a crop-I will take cotton, which is our principal crop-and when he harvests it in October he is forced to sell that crop through the months of October or November. It is not an orderly way of marketing, and the result is that they put more on the market than is necessary and that depresses the price. Personally, I do not feel that it would take very long, but I feel that the cotton crop ought to take at least six months to dispose of. He can then market it orderly. Therefore, you do not have to make that paper longer than six months or nine months.
The CHAIRMAN. After all, is not the real problem to be solved into which market this farm paper should go? Is it to be absorbed in the investment market or the commercial banking market? In case the record shows that 85 per cent of our commercial banking system is involved in what might be called
frozen credits, and practically 15 per cent of the current commercial banking credit is all that is liquid now, the danger, it seems to me
Mr. HOLDERNESS (interposing). I did not know it was so general; I thought it was rather individual.
The CHAIRMAN. The danger is that we may break in still further on the 15 per cent.
I believe there is no one who understands credit who does not recognize the necessity of keeping at least 15 per cent of the assets of the banking system in a liquid condition. It seems to me that none of us recognizes the fact that this class of paper should go into the investment market rather than into the commercial channel. What is your judgment?
Mr. HOLDERNESS. I think my line of thought would lead me to say yes.
The CHAIRMAN. One reason why I say that is, if it goes into the Federal reserve system it is bound to create an increase in the issue of Federal reserve notes. It might not do it immediately, but it will later. Have we not gone about as far as it is safe to go? I am thinking of the suggestion just made by Mr. Moehlenpah, and which you have largely agreed to, for the creation of an institution in the country subscribed to by the bankers, the bankers who are not members of the Federal reserve system, or those in rural communities! who are not able to take care of the demands on them by their farmer borrowers, through the development of a provision to market their crops, such as wheat, corn, oats, live stock, and the like. If you create such an organization, owned by these bankers, they can issue debenture notes and sell them in the investment market. I can see that the prestige and the capital back of that and the fact that there would be Government supervision over the institution would open up a broad market for the sale of those securities. I am impressed with this suggestion, which is a new angle. We always get new angles when we get men like you before the committee.
Mr. HOLDERNESS. There would be a market created, for instance, in the Middle West for cotton paper that would mature; and later when they put out their paper we might have money.
The CHAIRMAN. We all know that there are certain sections of the country which need help during this stress period, and the Federal reserve system, we all must agree, has to obtain money from those sections where money is most plentiful. Through the operation of the Federal reserve system they put large amounts of money into those districts, which has been a great help to the rural communities, but if we attempt to put a further strain on those people and force them to do a lot of these things it will destroy, perhaps, confidence in the Federal reserve system. I think that we are making a mistake.
Mr. HOLDERNESS. I agree with you.
The CHAIRMAN. If this be continued, we might withdraw from the Federal reserve system those institutions which are now the backbone and furnishing a large part of its assets. There is that danger. If we can create a system
de of that, outside of the Federal reserve system, think it is advisable. There is no question but what we will create confusion in the minds of the investing public.
Mr. HOLDERNESS. I am fully convinced, in my own mind, that the third one should be independent.
I can see, as a country banker who has dealt with farmers and knows their problems, that practically all the country bankers would feel greatly relieved if they could make loans to their farmers and if they had an outlet in case they had to have it through some institution of this kind. I can see where every sound banker realizes the situation and would be glad to subscribe from $1,000 to $10,000 for the stock of an institution of that kind, because that institution would pay.
The CHAIRMAN. Most assuredly.
The CHAIRMAN. I do not think it would make a fraction of a mill difference. The joint-stock banks are making money and they are being organized overnight. I noticed the other day that the first joint-stock land bank of Chicago is getting out an issue of $750,000,000 of stock and that they are selling it through one of the New York investment houses at $135 per share.
Mr. ALLEN. The fact is that we know they are earning from 15 to 30 per cent.
Mr. HOLDERNESS. In the suggestion made by Mr. Moehlentah and these gentlemen, you have the cooperation of the local banker, because he is a stockholder in this new corporation,
The gentleman this morning remarked that money was cheap. I want to say, while he is not here, that the difference is this: A man in a rural community, such as I live in, has a farm worth $100,000, the banks are extended, and his only recourse is a mortgage on that farm through some broker. That will make the money cost him from 8 to 10 per cent. If the man across the street has $100,000 of Pennsylvania Railroad or B. & 0. bonds, he can go to the northern market and borrow the money. He has not real estate, but his credit is not local,
You gentlemen can not appreciate really the position of the farmer. I know a farmer in my section who on land worth $500,000 in 1919 made $38,000. That was not an excessive amount to earn on property worth that much. In 1920 he lost between $25,000 and $26,000. The $38,000 had gone into improvements. Naturally when a man makes money he tries to improve his farm. For that reason, of course, that was gone when the crop failed, and there was no place to borrow money, unless he went to an insurance company through some broker. I know of a case where 10 per cent bonus was charged. Of course, you gentlemen will agree that no business can stand that rate of interest. This money was not borrowed for fixed capital, but he had to borrow it to pay his losses and borrow sufficient to operate another year. That loss has got to be absorbed in the next few years or his place will have to be sold.
The CHAIRMAN. We are very much obliged to you.
STATEMENT OF MR. GEORGE E. ALLEN.
Mr. ALLEN. We are in a little different situation than people anywhere else in the world where the turnover is only three or four months. The farmer's turnover is a year. What happens? Suppose he puts in a spring crop; in the fall he has to sell it. The people who buy it are the members of the Chicago Board of Trade. They begin to bear the market, and he has to sell it. Those fellows hold it until spring, and make enough money to build two Capitols in the city of Washington. Some method should be provided in order to give the farmer longer than six months' credit. He should have a year for that purpose. Then we have the live-stock industry. God Almighty can not make a 3-year steer in one year. That man has to have three years in some sections. The sheepman will want two years. I venture to say that the sheep industry would be revived in Vermont, New Hampshire, and western Massachusetts enough to double the taxable valuation of those States and save the Boston & Maine Railroad by simply developing those things in the only way there is to develop them. You do not believe in the Government doing this. What ought to be done is to take the assets and revive the War Finance Corporation and make a privately owned corporation with, perhaps, the Government holding stock in it of $100,000,000, maybe of $500,000,000, and as bankers subscribe for the stock reduce the Government's stock, and the thing would work out.
The CHAIRMAN. Do you think that the bankers would subscribe to it when they knew that Uncle Sam was furnishing the capital?
Mr. ALLEN. Some of them would.
Mr. ALLEN. We would not be any worse off than now. What the country banker is so anxious about, what he is worrying over, is that he is unable to accommodate his customers, and he wants some place to put this six months' to three years' paper where he can rediscount it, just the same as the merchant rediscounts the paper through his bank, but his turnover-it is all a matter of the turnover-the merchant's turnover is three or four months, but the farmer's is very seldom under nine months, if he sells as quickly as he can. With the live-stock man it is three years.
Mr. LUCE. Right there, please. I do not know much about the live-stock business. I had supposed that a man with a flock or a herd held some of them?
Mr. ALLEN. Yes, sir. He has to calculate on that. If a man sells some of his lambs he sells the males and keeps the females. The males are polygamists. The same way with the cattle. The cattle people do not sell their cows, they sell the steers.
But it develops now that the business has gone to the bottom and they have even sold the cows now.
Mr. LUCE. I do not think I made my difficulty clear. I am told that merchants in the city, the department store people, for example, are expected to get out of debt once a year.
Mr. ALLEN. Yes; they are expected to liquidate once a year.
Mr. LUCE (continuing). What I had feared was that the proposal to finance the cattleman would be a proposal to furnish him working capital so that it would never be cleared up.
Mr. ALLEN. His fixed capital is his land and buildings, and his working capital is his animals. Of course, the more expert he is, the more he equalizes this year after year, but at present the live-stock men have sold their cows and they can not do anything with less than two or three year money. Now, I am presuming that this bank would have sufficient discretion to not give three years' credit to a farmer whose turnover is only nine months. Practically, only the cattlemen would be entitled to that.
Mr. LUCE. But does the cattleman ever have a turnover?
Mr. LUCE. Just as soon as he sells his 3-year old cow he goes and puts the money into calves.
Mr. ALLEN. Yes.
Mr. ALLEN. The merchant does the same thing and cleans up once a year and goes and borrows the money over again.
Mr. PHILLIPS. It does not take so much to buy a calf as it does a matured steer.
Mr. ALLEN. The banks want you to show up once a year to see whether you can liquidate or not, and then they are willing to lend it over again, just as if I owed $5,000 to some New York bank, I would be expected to liquidate it and then could borrow it again.
Mr. LUCE. But do you think it would be a safe system of banking under which any individual would be asked to show up only once in three years.
Mr. ALLEN. Yes; if properly supervised.
Mr. LUCE. We have many people come before us, first and last, showing how pests or climatic conditions or other contingencies in the business wipe it out every once in a while.
Mr. ALLEN. Oh, well, it is not quite wiped out. I do not see how you can actually wipe out land and make a farmer awfully poor.
The CHAIRMAX. Is it not true that while the commercial interests are required to liquidate once a year they do that by paying up one bank and borrowing the money from another?
Mr. ALLEN. Officially, no; but, practically, I presume that is true.
Mr. LUCE. And it had seemed to me that if the live-stock man showed up continuously in debt
Mr. ALLEX. No; he does not. The banker would not find it necessary to give the live-stock man, where his business is flourishing, only the one year's credit that would produce his animals, but at present there is not any live-stock business. They have sold the cows and they can not get out of the hole in less than three years. We have cattle companies that are meeting that situation to a very moderate extent, but they can not meet the present situation any more. and we have to call on the Government, or the War Finance Corporation, and it is a matter of organizing this third line of credit to take what there is of the War Finance Corporation and make a regular corporation of it, preferably with the Government owning some stock, so that that would inspire more confidence and insure supervision, but we want the banks that fit the farmers' turnover.
Mr. LUCE. To that I do not demur. I am simply trying to understand how you can avoid the danger, if any financial institution that you may form proceeds to finance cattlemen on a 3-year basis, and at intervals of 10 or 12 or 15 years, there is some climatic or other cause that may wipe out the business, that the institution may go by the board.
Mr. ALLEN. That is no more true of them than it is of any bank that lends on a shorter time.
Mr. LUCE. But I do not understand that any bank in principle furnishes continuous working capital.
Mr. ALLEN. No; they should not. Some of them do through their loans, but it is an unsound principle.