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With 500 banks in New York State, with lots of money, with lots of other industries, you would not see how a man could charge more than they were charging for service if there was not a demand for it, would you?

Mr. Wingo. Maybe the commercial bankers in New York State are country bankers who are in the towns in the midst of the grape growers and apple growers, or he lives adjacent thereto, and are they not possibly met with the same depressing influence and warning by either the private bank correspondent or the Federal Reserve Board that gives him to understand that that agricultural credit is dangerous and that they must not load up too heavy; has not that had an effect even greater than anyone might anticipate?

Mr. COLE. I have talked with a great many country bankers and I have always predicated any argument by “What do you think of farmers' notes?” And I have yet to hear the banker in New York State say they were not good absolutely good. But what happens is this: If the borrower is a little bit late, if he has protested notes or a dozen reasons why he can not go to town when his note is due; he may be busy as the dickens, and he can better afford to pay a protest fee than to go to town—the banker, by the very nature of the commercial credit term has made this fellow what is called “slow credit," and they get two or three or four renewals of this customer's paper.

The commercial bank must, it is true, keep its assets liquid and have its maturity come within the rediscount term of the Federal reserve system, but no one has been able to shorten much the processes of nature; and though the commercial term may be shortened by improvements in transportation or communication, the farmer is still the victim of his business and can not speed his turnover up to match the ordinary term of discount.

The six months' term of agricultural credit provided by the Federal reserve to agricultural loans is but very little used by the banks of our State, and I imagine the reason it is not used more is because the local banker knows that he will have one, or perhaps two, renewals of his ordinary farmers' notes. So, when money is easy he may get it, but when money is tight the slow fellow does not get it.

The CHAIRMAN. I did not hear all of your statement, unfortunately, but did I not understand you to make this observation, that in granting loans to farmers you consider it much safer to loan to those farmers who do diversified farming than to the ones who grow but one crop ?

Mr. COLE. I said it made for the general safety in New York State, because our farmers were engaged in diversified farming, but in no special case could you absolutely say that diversified farming was safer than some other farming.

The CHAIRMAN. The reason I referred to that is because certain sections of the country are devoted to cattle raising or to sheep and hog raising, while other sections raise wheat and corn and other sections cotton, as you know.

Mr. COLE. That is why I made the generalization about the credit and why I have always contended it was not a governmental function, unless there could be some general method of rediscount, and that you must have many local institutions to rest on to provide that very diversity. I doubt if the Farmers' Fund (Inc.) could have succeeded in a cotton State. You could easily see the reason for its not succeeding in a cotton State, because in two bad years we would have accumulated a lot of frozen loans. If there was, however, a national credit agency to which banks or agencies like ours had access, the percentage of payments would run, I believe, as high as ours did in New York State and your losses run as little, or even less.

Mr. BLACK. I think your system would absolutely require more or less liquid assets, stuff that could not get frozen. Where a farmer is producing cattle and hogs and some hay and apples and several other things, some of them are going to make a crop and he is going to be able to sell them.

Mr. COLE. We have taken straight loans from farmers who are growers of peaches, muck farmers, and all other kinds of farmers right straight through. There is no criterion. I would not like to generalize on that.

Mr. BLACK. Of course, the company you have organized if it would depend on loans of its own capital could not possibly make a dividend; it would never make a dividend.

Mr. COLE. Oh, no; in the very nature of this machine, in order to get diversity and to get the proper appraisal values, you must have somebody sympathetic toward the interest you serve. That sympathetic interest is personal and expensive; that is why one must do a big volume of business in order to pay dividends.

Mr. BLACK. In order to get that condition you have got to have some place where you can sell the paper ?

Mr. COLE. Absolutely. The only thing that helped us materially was the War Finance Corporation's advances.

Mr. BLACK. It occurs to me that the only way your system could successfully operate would be to have some central institution through which, whenever you have accumulated a certain amount of loans, you can go and rediscount and make some more.

Mr. NELSON. You say that the War Finance Corporation saved your institution ?

Mr. COLE. Yes, sir. I was authorized to borrow $250,000 in the beginning of January, 1920, because we had loaned our own capital. So I piled up bills payable to the extent of something like $240,000 when the cyclone hit us. It was a bad eight months for us, because we had to borrow really about $1,500,000 to make good, and borrow it over again. We did not want to deflate our borrowers. Our farm operators, however, have been disastrously deflated. I do not think there is any invisible government about it, and I do not want to be interpreted that way. But I am talking about the effect on the fellows who had perfectly good stuff, who were able with a reasonable amount of credit ex. tension to get out without a loss. And that is why I say that diversification of the business is vital.

The next essential is having a place, similar to the War Finance Corporation. i where these loans may be rediscounted without adding to the banking strain. At the time of the credit stringency we were in the market when everybody else was in the market, and we paid as high as 7 per cent for 90-day money in New York State, and we had to put up 120 per cent collateral, and we kept a good many idle balances in order to get the money.

Mr. Wingo. The whole thing hinges on having a certain rediscount market in the time of storm-in the time of strain and stress?

Mr. COLE. It does; and I have another idea about that. I believe that in any proposed bill there should be some provision whereby the customer may become, in turn, investor. We sell a gold trust note, collateralized to 120 per cent and guaranteed by our home bank as to the principal and interest, for which we pay them. We seli those gold notes and pay the buyer *54 per cent, exactly what we paid to the War Finance Corporation. It is a surprising thing that with no publicity at all among the farmers in New York State we have sold over $50,000 of those notes of our own. A farmer will buy one of those notes, due in one year. In six months he will say, “I want to cash it." We can cash it or in the time of stress we could pass them over. It does not subject us to deposit demands, like a commercial banker has. But if we are in easy circumstances we will say, “ We will make you a loan on it, or we will cash it." But some sympathetic adjunct should be there for this reason, that the more interest the borrower has in his local credit institution-it may be personal inerest or financial interest--the safer the loan is going to be.

Mr. W'INGO. What has been the situation in New York State during the last decade, as shown by the census, with reference to farm lands in cultivation ; has there been an ncrease or decrease?

Mr. ('OLE. There has been a decrease I think.

Mr. WinGO. With reference to the percentage of tenants, has tenantry in(reased?

Mr. COLE. Somewhat; perhaps 3 or 4 per cent.
Mr. MACGREGOR. There has been considerable decrease in New York State.

Mr. LUCE. Have you explained your method of getting information about new borrowers?

Mr. COLE. The system functions this way: We have served loans to 26,000 farm operators, and those are all classified as to towns and villages and postoffice addresses. We get a letter of inquiry about loans, and before the transaction is completed we use of "No.1" borrowers, as we call them, as ('redit committees; and the longer you do business the better your committees yet. It has happened two or three times that the credit information we would get from the borrowers past and present was better than we would get from the banks. Some of the banks used is pretty shabbily, and we can not rely entirely on their reports. In one case the banker had a mortgage on the man's property, and we paid him the money to grow a crop of wheat and rye, and when he marketed his crop the banker took the money. That was pretty shabby practice. I think.

We have run across some cases where the banker would recommend a fellow for a loan. Naturally I wanted to please the bankers, not being one of them, and I would accept the loan and it would be used to liquidate some loan in the bank.

Those are the things that you have just got to face the music on, and we eliminate much of the difficulty now largely by checking back to our borrowers, and their interest is our interest.

About general legislation perhaps I should not speak, but-
Mr. LUCE (interposing). That is what we want to know about.

Mr. COLE. Well, I am giving this for just whatever weight it may be entitled to. A good many troubles from this governmental credit machinery of the Federal land bank, for instance, or the War Finance Corporation, is because of the tendency in our governmental operations to have too much red tape. The Federal land bank's first applications had 87 questions. The first application we received from the War Finance Corporation was the second or third application for money they had received-and, by the way, it is the only application for money which has been granted by this corporation that I know about in New York State-was 14 pages long. What would an ordinary banker have to say about that? He would have said Nothing doing."

Mr. APPLEBY. That makes John Skelton Williams look like a piker, does it not?

Mr. COLE. I have read this bill and studied it a great deal, and it has
Mr. MACGREGOR (interposing). Which bill is that?

Mr. COLE. This is Senator Simmons's agricultural credit bill. It provides for a rediscount agency for the members, giving them the privilege of rediscounting up to the amount they have advanced for these various purposes. It seems to meet the present situation.

If this, or a bill along these lines, providing for a central rediscounting agency, be established you will have solved most of the present-day difficulties relating to farmers and their organizations. The history of farm organizations show's conclusively that the reasons for their high percentage of failures is at bottom a question of financial difficulty. For a long time it was almost impossible to get the farmers of our State to organize to do any business whatsoever. They were suspicious of men with money and they did not seek financial advice. These organizations were subjected to a great deal of external financial pressure which eventually would disrupt them. The individual members were offered higher prices for their produce than they could obtain through the'r organization. Their organization was, in many instances, unable to obtain advances which in turn might be given to the producer.

The largest farmers' organization in our State, the Dairymen's League, has had a struggle to meet competition from the outside, and it has also had a struggle to finance its own operations and at the same time pay the producer of milk.

With a central discount agency and sufficient local institutions members of that agency, each individual unit of our farm organizations might then hope to be financed fairly with a real term of agricultural credit. This would relieve their organizations of credit strain and in turn it would make these organizations more cohesive.

The moment it becomes profitable for a member of any farm organization to jump out of it and sell his products, he will be tempted to jump, and thereby weaken the organization, built especially for his benefit and profit. I believe it would be safer also for these organizations were the individual members properly financed, and I believe that these farm organizations could then bargain more successfully for the sale of the assembled products,

Mr. BLACK. Your theory is that the only advantage of a farm organization is to bargain collectively, and that in order to do that it has got to be able to finance the product. I think you are correct.

Mr. COLE. Finance must be either a complementary or supplementary operation to collective bargaining; to grade, to organize, or to sell gets nowhere, unless you get quick return or your units are properly financed as individuals.

Mr. WINGO. Have you had occasion to investigate the operations of what they call the “ California plan ” ?

Mr. COLE. Yes; part of the Farmers Fund (Inc.) system went out to the commissioner to start that California land plan for crop production.

This plan of ours has been copied in its essentials in Washington and in two or three counties in Michigan, and was tried down in New Jersey without much success, because they did not have capital enough.

Mr. WINGO. What is your judgment of that California plan?

Mr. ('OLE. It is too closely allied to the land credit. Production credit or working capital credit, which sounds better, should not have any connection whatever with land credit.

Mr. WINGO. What I had in mind was, they seem to get together for the purpose of marketing crops and put their stuff in warehouse and draw so much on account of that.

Mr. ('OLE. I thought you had in mind building bungalows.

Mr. W'INGO, I am thinking about the farmers and fruit growers marketing collectively; and they are given, say, 60 per cent when they bring it in, and when it is marketed they receive the net balance. Have you had occasion to study that?

Mr. ('OLE. The only study of it I have made is that I talked to Mr. Shapiro, and then I ad talked with Mr. G. H. Powell before his death. But the Shapiro plan tried to tie the farmer up in a water-tight contract for five years. It may be that is the only thing that would hold him. I am inclined to think it is the only thing, however, if you do not extend proper credit to the individual farmer.

Mr. LICE. The point where you rather discouraged me was when you said you thought, as I understood it, that you must rely upon individual credit; that is, you would discredit the credit union idea.

Let me show you my own difficulty. In my State we have developed the cooperative bank to a very successful degree, whereunder the operation of lending money for building purposes, and, to some extent, for personal purposes, is conducted on a mutual plan ; and some years ago it was my fortune to have a small share in the introduction of the credit-union system into my State, and that is gradually growing. We find that in the operation of the Farm Loan Board the idea is not succeeding; the Farm Loan Board reports show that this local association system is more or less of a failure. Are you quite sure there is nothing to look for in that line?

Mr. COLE. The farmer is the last of our individualists and it will be some time before he will take very kindly to group credit, indorsing the other fellow's note. If you know these farmers you will realize this is true, that his apples and his potatoes and his horses and his cotton are a little bit better than the neighbor's right over the fence, and he is quite inclined to think that John Smith is not much of a farmer; there is only one successful farmer, and that is the man himself.

Mr. BROOKS (presiding). May I ask if you have any plan suitable for adoption by our Government?

Mr. COLE. We have got to have some national method of credit between the commercial bank and the land bank.

Mr. BROOKS. If you have a national plan we would be glad to have it incorporated in our record.

Mr. COLE. The national plan must be a separate institution, with ability to get into the money markets selling tax-free securities and have access to the accumulated savings to put them out at work, or farming will slowly go bankrupt.

Mr. MacGREGOR. Mr. Brooks suggests that if you have any tangible plan that you submit it for our record. We have been fishing for something along that line, and we have not yet got very far.

Mr. NELSOX. What is wanted is some credit running from six months to three years?

Mr. COLE. It must reach that far.

(Thereupon, at 3.45 o'clock p. m., the committee stood adjourned to meet at the call of the chairman.)

COMMITTEE ON BANKING AND CURRENCY,

HOUSE OF REPRESENTATIVES,

Friday, May 19, 1922. The committee met at 10.30 o'clock a. m., Hon. Louis T. McFadden (chairman) presiding.

The CHAIRMAN. Gentlemen of the committee, this is a hearing on the subject of rural credits, and is not confined to any one bill before the committee, but is a general hearing on all of these bills which are pending.

This morning we will hear Representative Sydney Anderson on H. R. 10058, and he is not necessarily confined to that special bill. He is an expert on this subject and we will be glad to hear his general observations on the whole situation.

(The committee thereupon proceeded to the consideration of H. R. 10058, which is here printed in full, as follows:)

[H. R. 10058, Sixty-seventh Congress, second session.)

A BILL To amend the Federal farm loan act by establishing a farm credits department

in each Federal land bank.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That when used in this act the term “ Federal farm loan act” means the Federal farm loan act approved July 17, 1916, as amended.

SEC. 2. That section 1 of the Federal farm loan act is amended to read as follows:

“ TITLE. I.

· SECTION 1. That this act may be cited as the Federal farm loan act.' Its administration shall be under the direction and control of the Federal Farm Loan Board, hereinafter created."

SEC. 3. That the Federal farm loan act is amended by adding at the end thereof a new title, to read as follows:

TITLE II.

“ SEC. 201. That in addition to the powers granted by Title I each Federal land bank shall have power

“(a) Subject solely to such restrictions, limitations, and conditions as may be imposed by the Federal Farm Loan Board (1) to discount for any national bank, State bank, trust company, incorporated live-stock loan company, or savings institution, with its indorsement, any note or other such obligation the proceeds of which have been advanced or used in the first instance for an agricultural purpose or for the raising, breeding, fattening, or marketing of live stock, and (2) to make loans direct to any cooperative association organized ụnder the laws of any State and composed of persons engaged in producing staple agricultural products, if the notes or other such obligations representing such loans are secured by warehouse receipts covering such products. Such loans or discounts must have a maturity at the time they are made or discounted by the Federal land bank of not less than six months nor more than three years. Any Federal land bank may, in its discretion, sell loans or discounts made under this subdivision, with or without its indorsement. Rates of interest or discount charged by the Federal land banks upon such loans and discounts shall be subject to the approval of the Federal Farm Loan Board.

“(b) Subject to the approval of the Federal Farm Loan Board, to issue and to sell debentures or other such obligations with a maturity at the time of issue of not more than three years, which shall be secured by a like face amount of cash, or notes or other such obligations discounted or representing loans made under subdivision (a). The provisions of Title I relating to the preparation and issue of farm loan bonds shall, so far as applicable, govern the preparation and issue of debentures or other such obligations issued under this subdivision; but the Federal Farm Loan Board shall prescribe rules and regulations governing the receipt, custody, and release of collateral securing such debentures or other obligations. Such collateral shall be held separate and distinct from the collateral securing farm-loan bonds. Rates of interest upon debentures and other such obligations issued under this subdivision shall, subject to the approval of the Federal Farm Loan Board, be fixed by the Federal land bank making the issue. A Federal land bank may, subject to the approval of the Federal Farm Loan Board, buy in the open market upon its own account and retire at or before maturity any such debentures or obligations issued by it.

"SEC. 202. For the purpose of exercising the powers conferred by this title, each Federal land bank shall establish a separate department to be designated as the farm credits department, for which $1,000,000 in capital shall be subscribed before any of the powers so conferred may be exercised.

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