were surprised at the demand, and they were more or less surprised that a machine could work under those circumstances. They felt that it should be continued. Mr. William Church Osborn, Mr. Jacob Schiff, Mr. Hepburn, of the Chase bank, and Mr. Woodward, of the Hanover bank, and several other men of money and ability were very much surprised at it, and they said they believed it should be continued. We became incorporated in May, 1919, under

the banking laws of the State.

Mr. APPLEBY. What was the title of these agency banks?

Mr. COLE. They were just "agent banks."

Mr. WINGO. What was the name of your corporation?

Mr. COLE. The Farmers Fund (Inc.).

Mr. WINGO. Incorporated in 1919?

Mr. COLE. Yes, sir.

Mr. WINGO. What is your capital?

Mr. COLE. $500,000-$400,000 capital, with $100,000 surplus.
Mr. WINGO. All paid up?

Mr. COLE. Yes, sir.

Mr. WINGO. Subscribed by whom-who paid for it?

Mr. COLE. I will explain it to you in this way: We canvassed the banks before incorporation as to who would join. We wanted as many agencies as possible, geographically. They were solicited to buy any amount of stock in the Farmers Fund (Inc.) that they felt they could stand, purely as an advertising scheme and to perpetuate a good work, with the hope of some time making some money out of it. One hundred and seventeen banks in the State bought $100,000 worth of stock in the Farmers Fund (Inc.) and the other $300,000 was made up by the gentlemen who origanlly made the first pool and then simply took stock for their previous contributions.

Mr. NELSON. Have you paid dividends on the stock?

Mr. COLE. We have been in operation two years. We have an earned surplus of approximately 4 per cent. We have not made any money, and, frankly, I am rather congratulating ourselves that we have not, because since we were incorporated our customers have been hard hit. You gentlemen have heard of their distress, undoubtedly. We have had two terrific years, but it is a remarkable fact that in New York State, with five hundred and some odd banks, the Farmers Fund has loaned to approximately 10 per cent of her farmers. In other words, we have made about 26,000 loans, and we have about 250,000 actual farm operators.

I do not know whether there are any bankers on this committee or not, but the bankers in New York State or the East for 20 years, to my personal knowledge, have not realized anything about the financial agricultural changes which have and are taking place. I bought my first self-binder on a $5 bill and a five-year note, and I was not worth half as much even as I am now, and yet if I went to buy a binder now my note is not any too good. In other words, it would have to be pretty near a cash transaction.

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The so-called agricultural credit" of this country up to the present time has been principally secondary credit. By that I mean that the credit to move the crops from the farms or to move the supplies and machinery to the farm was granted to the dealers in supplies and to the purchasers of farm products. It was not primary credit to the producer of food. Both these secondary agencies had access to the commercial credit reservoirs of the country-banks, trust companies, etc. A great strain was put upon these agencies at certain seasons of the year to move crops and to move supplies to the farmers. Farmers under this system had a certain amount of credit, but it was not commercial credit in the sense I mean. It was not a primary obligation of the farmer in the money markets. That system, with which you are all familiar, worked this hardship: The farmer in purchasing his supplies and equipment paid a credit price, a high price for the things he bought, sometimes, of course, giving a note to the dealer from whom he purchased these things. The dealer in turn indorsed the note and obtained money on it to meet his bills from the local bank. He was the man who tapped the credit reservoir, and he charged the farmer for the interest and possible losses he might have. When it was time to sell the farm products exactly the same situation met the farmer. The buyer of farm products would borrow enough money to start him off if he did not have enough of his own and would go to the farmer and buy his produce for the lowest possible price, giving him spot cash for it. When the produce was delivered he then again had access to the commercial credits to

move this produce in an orderly fashion and well within the ordinary commercial term of 60 or 90 days.

The producer was caught coming and going. With such a system it is surprising how many farms and farmers have ever paid at all. No other business could stand this system for five years and keep out of the bankruptcy courts.

Another interesting phase of this credit matter is that whenever a banker is approached with any new system of granting credits, he always objects, and usually adds, "We take care of everybody." I have come to believe that this statement is as universal as any one group of words that I know anything about. It is the natural attitude of a merchant who sells clothes to say, "We take care of everybody," meaning, of course, everybody who visited his store or gave him an order. The point is that the banks have been selling or trying to sell a suit of clothes that did not fit or were not built for the fellow who was buying it.

I know bankers will say that they renew the notes of their good farmers, but the very fact that they said to the borrower, after taking his promise to pay a certain sum in 60 or 90 days, "Well, you need not pay me when it is due, I will renew it," if the customer had explained that he would be unable to meet the note at maturity, was a fundamental error, and produced a bad attitude of mind toward every banking obligation held by the banks given by food producers. This attitude of renewing or accepting a shorter promise than was possible for the borrower to fulfill educated the farmer in more or less contempt for not only his promise to pay but also banks and bankers generally.

Mr. WINGO. What has been your experience since you have incorporated in the last two years with reference to default in payment at maturity? Have you any figures showing the percentage defaulted notes?

Mr. COLE. You mean delayed payments or renewal payments or just absolute losses?

Mr. WINGO. All of them.

Mr. COLE. I will try to clear that up. Our dead losses, total losses, that we write off averaged one-half of 1 per cent. Our cash payments at maturity have run about 68 per cent of the actual maturity amount, while in the same period of time in New York State the commercial payment was not much over 57 or 58. Mr. WINGO. Were there any loans on which you have had to grant one year's extension?

Mr. COLE. Quite a few.

Mr. WINGO. About what percentage now in dollars and cents would you think that would amount to in absolute full-term renewals of one year?

Mr. COLE. My best judgment-and I am simply relying on my judgment now— would be about 25 per cent.

Mr. WINGO. About how many of them do you think paid promptly at or before maturity?

Mr. COLE. Something over 60 per cent within the last two bad years. In normal years, say, at the peak of the prices of farm crops, in the fall of 1918 and the spring of 1919 they were running up to over 78 per cent.

Mr. WINGO. In this last time about 60 per cent paid up at maturity?
Mr. COLE. Yes, sir.

Mr. WINGO. How would they run? Would there be a good many who paid 60 or 90 days after maturity, or paid part at maturity and got an extension? Mr. COLE. We never had over 10 per cent of past-due paper.

Mr. WINGO. Those who had obtained extensions, what percentage of them had extension for the whole sum; were there many of them or not?

Mr. COLE. I would say, offhand, that there were quite a good many in 1921 and not so many last fall, when the situation rather cleared.

Mr. WINGO. Is it true that a great majority you had to carry over any length of time would pay something at maturity and carry the balance?

Mr. COLE. They usually did, and we always were rather insistent on payment of interest.

Mr. WINGO. During the existence of your organization-you have been in business two years-you say your total losses on loans amounted to less than one-half of 1 per cent. Is that on the volume of your business or the number of persons; which do you mean?

Mr. COLE. One-half of 1 per cent of the receipts by the way of interest. I mean if we had $60,000 worth of income we would have about $3,000 worth of losses.

Mr. WINGO. Figured in dollars and cents and not in percentage of numbers?

Mr. COLE. No, sir. We are under supervision of the banking department in our State, and we have to carry it on a business basis and not on the basis of numbers.

Mr. WINGO. From your experience, what part does character and the fact that a man is relied upon independently play in the security of your loans?

Mr. COLE. It would be 99.47. I have never seen a written instrument that could tie a crook.

Mr. WINGO. You go, then, on the theory, which is most wise, that collateral security is to meet an unforeseen contingency?

Mr. COLE. Absolutely.

Mr. WINGO. You look at the character and capability of the man?

Mr. COLE. In a good many instances we have looked even beyond the bad local reputation without knowing it and have merely judged the man's income over the period of a year or two as a producer and his ability technically as a farmer.

Mr. WINGO. I am not familiar with your farming conditions up there, but I have an idea human nature is about the same everywhere. Is there a tendency on the part of the farmer to be conservative or to be optimistic sometimes on the question of capital and whether he will be capable of handling and returning the funds at maturity?

Mr. COLE. He is the greatest gambler on earth. It does not make any difference how conservative he is about his gambling, he is per se a gambler. Whenever he plants a seed in the ground he has naturally got to expect he is going to reap some harvest, or he would not plant it.

Mr. WINGO. Do you find they are apt to overreach themselves and take more credit?

Mr. COLE. They rarely ever get enough.

Mr. WINGO. You do not catch the idea. That was the point I want to get at. While necessarily gamblers, because they have to depend on seasons and markets-we all agree on that-the point I want to make is this: The charge has been made that the American farmer, if given all the credit he wanted, would simply ruin himself. Is there anything in that, in your experience?

Mr. COLE. It has been our experience in New York State that we can take his business statement and increase it 25 to 50 per cent with safety.

Mr. WINGO. I had a banker tell me as a rule he would like to discount the capable business man about 25 per cent, whereas he would be able to loan a farmer 25 or 50 per cent more than he would take.

Mr. COLE. He checks up with my experience exactly. I will tell you a story to show you the attitude of the farmer in that matter, and I told it to the bankers' New York State convention. A man came in to me one day and allowed he wanted to borrow $300, and he whispered most of the conversation, perspiration stood out on the back of his neck, and he was pretty uncomfortable; and I told him, "I have borrowed money all my life, and there is nothing to be ashamed of about it." He said, "It is the first time I ever borrowed any." I said, "You might be foolish about that, because if you can make a dollar work harder than the fellow who has got it you may be a fool not to hire it." He said, "I will tell you: I have been in business on the farm about 45 years, and I do not know about bankers. I always think that the reason they have these fine cages in the banks is to keep the bankers from biting the customers."

You can tell that to the bankers, because every farmer who comes into my office and probably 60 per cent of the borrowers of the Farmers' Fund have some time seen me or a representative of our office and they will tell us in most every instance of more reasons why I should not lend them money than why I should.

Fortunately, I was not a banker when I started. I had no banker's perspective. It might have been a good thing, and it might not, but the fact remains that I wanted to help every fellow who came in. I wanted to go to war, and the best thing I could do was to help with food produced with these loans, and that was in the back of my head whenever I put out this money. During the last four years which cover my experience in this business there have been but few bankers who undertook to perform anything like their normal extension of credit to the farmers of our State. The conditions might have warranted this attitude; but even now, and even with the most progressive bankers, they will never be able to undertake the business I have in mind. We have had not one but actually hundreds of men come to our office whose statements would entitle them to from five to ten thousand dollars worth of bank credit but could not obtain it from any banking institution; perhaps

because they did not know the right ones. They were unable, however, to obtain credit, and I doubt if they ever will be able to obtain it with our present financial system.

Mr. WINGO. Are you exclusively grape growers in your section, or do you practice diversified farming?

Mr. COLE. That is an interesting point, and I just want to make a general observation that will bring out that point exactly. I doubt if any system of agricultural credit will work unless it is diversified as to crops-that is, unless the risk is diversified-and that is why the Farmers' Fund (Inc.) can do business where a commercial bank can not. A little bank of $25,000 or $50,000 in New York State in the grape country can not loan all the farmers where the principal operation is grapes all the money they need on grapes, because one early frost or some calamity will freeze up that bank's assets. We have a system that operates all over New York State and covers the apple belt, the hay belt, the potato belt, hops, and back of all is the dairy business, which makes not only diversification of risk geographically but it makes diversification of risk in the very nature of time. The dairy farmers want money in the wintertime to buy their feeds, when the fruit farmers and the other farmers do not need it.

Our statement is interesting. During 1919, with our capital and surplus of $500,000 and borrowed money, $40,000, we loaned seven hundred and eighty-nine thousand and odd dollars. In 1920, with $500,000 capital and surplus and approximately $23,000 of borrowed money, we loaned three hundred and seventytwo thousand and odd dollars. In 1921, with the same capital and surplus and $280,000 of borrowed money, we loaned over $1,800,000.

Of course, some of the loans in the later months of each year would run into the next year. These statements show, however, that not only is the volume of our business increasing but the number of our customers is also increasing, and our money is turning over with remarkable speed, when you consider that we will give 12 months' credit.

Mr. WINGO. With reference to the food-producing habits of those farmers, do they as a rule grow their own foodstuff on their farms?

Mr. COLE. I am sorry to say that the dairy business is not at all flourishing, because it will not learn that it can not pay freight rates and pay the western grain farmers for their produce instead of growing it

Mr. WINGO (interposing). I am from the State of Arkansas. The bankers of my State have a kind of an agreement among themselves that they insist on the farmer who comes to them for credit conducting farming operations that they have got to make a showing of how much foodstuff they will produce. He must show that he will grow sufficient foodstuffs for his family and the stock that he has; that he will grow enough foodstuffs and supplies for himself and tenants in addition to his cotton operations. In other words, he will treat his cotton as a cash crop, so if there happens to be a failure of cotton or the price falls below the cost of production, he will still have his food supplies to maintain himself. Do you have the same situation in your State?

Mr. COLE. We are not confronted with that problem in New York State. Our people probably inherited their methods from New England. They have always been pretty well diversified as to the units of production; all have a few pigs and all have a few calves and all have general farming. In other words, even in the apple country, where I have a farm, there is never over 20 per cent of the area in that one crop.

Mr. WINGO. Take the apple growers, the grape producers, and the dairy people-they do diversified farming, all of them?

Mr. COLE. Generally. There are some exceptions. We are talking in generalities now. As a general proposition our farming is diversified.

Mr. BLACK. Allow me just this one question, because it will be a pertinent one, in my opinion. What percentage of these farmers are tenant farmers? Mr. COLE. In our State, roughly, about 64 per cent, I believe, are tenant farmers.

Mr. BLACK. That would have been as high a percentage as in our State. Mr. COLE. We have not discriminated between tenant farmers or farm owners in making these loans. There has been no discrimination whatever. The CHAIRMAN. How are your demands divided?

Mr. COLE. The demands this year are greater among farm owners than among farm tenants.

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The CHAIRMAN. What does that indicate to you?

Mr. COLE. The reason for that is that the situation in agriculture is serious. I am quite certain, Mr. Chairman, it will take two years in New York State for agriculture to recover. I think it will take a good harvest this year at fair prices to write off the losses of last year, and it will take another harvest in New York State to come anywhere near getting us back to normal purchasing power.

Mr. NELSON. You made the statement a little while ago that some farmers who were well enough to do to be entitled to a credit of $10,000 who could not obtain a nickel's credit in New York State. Is that due to the local banks, or what?

Mr. COLE. Partly that. I do not hold any brief for the bankers, but I see them absolutely neglecting opportunities at home of making safe and locally profitable loans. In my home town there is a well-to-do gentleman who goes around and whispers to everybody that he has a fine loan to sell out in Arkansas that will pay 9 per cent, and the wealth of my county is going away at about the rate of three hundred thousand to four or five hundred thousand dollars every year that could be better employed in our own State and in its agriculture.

Mr. WINGO. Right on that point. If proper credit facilities were furnished to those men making loans in Arkansas and Oklahoma-and they do make them out there at 10 per cent and pay the local agent 1 per cent commission-if a proper system of credit-just assuming that the local banker is right in his contention that he can not take care of them; and, of course, to a certain extent he is right about it—assuming that a proper, safe, sane system of farm credits were established to take care of the one to three years' farm personal credits that the farmers need that was applied in that country where they have not accumulated capital-Arkansas, Oklahoma, and the other newer Stateswould not that have a tendency to ease the situation, say, in your county? Mr. COLE. It certainly would help prevent the drifting of money.

In addition to that, there is one thing I feel strongly about-and it is not because I am a banker, but it is because I am a farmer-that is that nobody has in the hearings or anything I have read ever realized that as the farmer is engaged in one of the most hazardous of businesses that he needs money for the longest periods of turnover and that he should pay the highest going rate of interest. I do not say that selfishly, to graft out of the farmers, but that is the only way you can ease the thing.

The legal rate of interest in our State is 6 per cent, but there are two ways in which this rate can be, and doubtless is, evaded. A corporation is not allowed to enter the defense of usury in our State, and a demand loan made with proper collateral may be subject to any rate agreed between the parties. With this situation, you can readily see that when corporations or when collateral loans, call loans, or other loans need the money they can pay the market price for it, and the average board of directors of any bank will of necessity loan their funds where they can get the highest rate consistently safe, because they are private institutions and must function at a profit. This arrangement as to interest deprives certain classes from obtaining commercial credit during a period such as we have just passed through.

Money is drawn away at times from localities when it is needed the most, and it is drawn away for the same purpose that it should be used at home, namely, to prevent disastrous declines or too rapid advances. We have just experienced in our State this very thing. When money was tight and the interest rates high the productive farmers of New York State were on their backs. Naturally, our little contributions by way of credit did help certain sections and certain individuals, but you did not hear of any expansion of credit or any boom in farm prices or the prices of farm products from our State. We can show, however, 5,000 individual statements for the year 1920 that are better to-day than at that time when the crash came, because they had the financial assistance of the Farmers Fund (Inc.) to cushion the shock of the rapid decline in the value of their products, and while they rarely made money they did save themselves from disastrous loss and failure.

Another interesting thing is that our rate of interest is governed by 6 per cent, but we are allowed under the law to charge an appraisal fee which amounts to approximately 1 per cent. The banker says, "I do not see how John Smith will pay you 7 per cent for money when he will not give me 6." Part of that may be salesmanship, but chiefly it is selling something he wants. There is no other answer to it.