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Mr. PETERS. I do not agree that the task is insuperable. That is just exactly what we want Congress to do.

Mr. STEVENSON. I want to get the lay of the land on this thing. You said just now that the day of liquidation was when the corn was harvested in the Corn Belt, when cotton was picked in the Cotton Belt, and when wheat was harvested in the Wheat Belt. As I understand, there is no necessity, from your statement at the time, of additional financial arrangements for them up to that point; that is, the counry banks finance the farmer in his production ?

Mr. PETERS. Yes.

Mr. STEVENSON. But it is when it comes to market that some further financing has got to be done; he has got to sell and liquidate right then. What good is financing going to do if at that time you are going to finance some other fellow? Why do the financing of the other fellow instead of the farmer?

Mr. Wingo. You say he has got a day of judgment he has got to face. This provision, as I understand, has got to take care of the man who gets the estate after he faces the day of judgment.

Mr. STEVENSON. In other words, the man who buys the farmers' products is going to be financed until he can market his purchase?

Mr. PETERS. Not at all. That man already gets his financing. Let me give you the present cycle: At present the country bank finances the farmer until he produces; then the farmer must have other funds to either orderly market his crop or he must sell those crops. He sells them to the speculator, to the jobber or to the warehouseman or to the manufacturer, or to the middleman, we might say. He, in turn, goes to his bank in the city, borrows funds, pays the farmer for the products, and the city bank in turn discounts the note with the Federal reserve bank, if it is necessary for them to do that in order to get the funds. What we want is a system of credits by which when the farmer has produced his crop that he can go to that reservoir of credit and get funds to orderly market his crops and pay up his bank, in order that the bank may be in a position when the season opens up again to supply with the credit with which to buy fertilizer, seed, and pay for the harvesting of the new crop.

Mr. STEVEN SON. Your idea is that the farmer should be financed so that he can pay his local bank and still hold his stuff until he can market it in an orderly way?

Mr. PETERS. That is it exactly.
Mr. STEVENSON. About what do you say is the time of orderly marketing?

Mr. PETERS. The time of orderly marketing will depend almost entirely upon the conditions o: the country from the standpoint of the amount of the supply on hand and the demand; that is, the consumption. We had too much corn, we thought, in 1920. We thought we had too much cotton. I want to give you as an illustration in our own State: A few banks throughout the State were able to take care of their customers' cotton when it dropped down 8 or 10 cents a pound and to carry that cotton along for them, the most of which has been sold in recent weeks at very good prices. I recall the instance of one man selling a lot of 10 bales of cotton which brought him enough to pay a note of $1,500. There was a time when he could not have gotten $600 for that cotton. We want funds by which the country bank can be enabled to carry the products for the farmer until there is a demand for them.

Mr. WINGO. Is it not true in your observation that one of the things that does depress the price of those commodities at harvest time is that it becomes “distressed ” cotton or wheat because the farmer has to sell those products and you break the market by throwing more on the market than the current consumptive capacity for that particular month?

Mr. PETERS. That is true.
Mr. WINGO. That is what happens?
Mr. PETERS. Yes, sir.

Mr. Wingo. Would it not be better for the producer, better for the people who wear the clothes and for the cotton mill man and everybody else to have that whole thing stabilized so that the farmer himself might feed into the market each month the amount of cotton that is necessary to meet the current demand?

Mr. PETERS. That would be much better.

Mr. WINGO. And is it not also a law of economics that you can do a thing like that more economically in the beginning than you can by “hogging” it somewhere along the road?

Mr. PETERS. Much easier. If we had had the proper secondary credits in 1920—- I would not venture to say how much, but I believe that we could have

saved the farming industry of this country at least $2,000,000,000—it is impossible to estimate how much could have been saved the farmer · if it had been possible for the farmer to have tapped this secondary credit resource and take care of his current obligations and to have taken the cotton, corn, wheat, and live stock off the market and to have said, “Now, I am not going to produce much more, just enough to take care of the demand; and then we are going to sell the products when the country needs them."

Mr. STEAGALL. I am going to ask you a question right there.
Mr. PETERS. Sure.

Mr. STEAGALL. But you assume that instead of the condition such as existed in the fall of 1920 that the general disposition of the farmer would have been to hold his products wherever he could get the credit to take care of his needs and handle them?

Mr. PETERS. That is not altogether true; no.

Mr. STEAGALL, Is it not true that whenever a period like that starts and things get depressed, the disposition of the farmer is to sell?

Mr. PETERS. That has been true

Mr. STEAGALL (interposing). And that whenever anything goes up our disposition is to hold our products; and is not that the disposition of everybody in our country?

Mr. PETERS. The farmer is not a very good business man, I must admit. But they are learning a good many of the tricks of the trade.

Mr, WINGO. And that often they get the weakness common to everybody that the public sells on the falling market and rushes in and buys on the rising market?

Mr. PETERS. Yes.

Mr. Wingo. Is not that what they call the tide of the suckers”? The farmer is no more ignorant than anybody else. He has a lot more horse sense than a great many other men engaged in other lines of business.

Mr. STEAGALL. The average man in the South, according to my observations, whether he is a farmer or whoever he may be, is more inclined to hold cotton to-day, or if he speculates he is more inclined to buy right now than he was a year ago or six months ago, because it has gone up a lot in that time.

Mr. PETERS. That is the weakness of human nature; we can not get by that. But, let us go back to where we stopped: You need not worry about the farmer getting the primary credit, and what we want is the secondary credit. The country banks can take care of the farmer, whether a member of a Federal reserve system or not a member of that system. We can take care of the farmer in producing. Our difficulty now is this: In 1920 we furnished the money to produce the crop, and the trouble is he did not have that secondary source of credit to tap and we still have production files in our portfolios. We have not been able to hold cotton when it went down to 10 and wheat and corn and other commodities likewise.

Mr. Wingo. The cotton factor that gobbler up the farmers' distressed cotton and held it made a very fine profit.

Mr. BLACK. They lost on most of it.

Mr. WINGO, I do not know about that. I know one man who did not lose. I know that when he died he left a magnificent pearl necklace to his wife worth $100,000. But, to get back: At that time the system of intermediate credits that caused that was only available to the factor and speculator-and I am not condemning him for taking advantage of an opportunity that was permitted—but I say that was the only man who had the intermediate credits. and the fact that the farmers did not hold it only had a tendency to break the market more and throw it more and more, and made it possible for the factor who had a long line of credit to take advantage of the situation.

In its report the Federal Reserve Board Said at the time the farmer was being squeezed and his loans were being called that the rediscount of agricultural paper was climbing. Of course, that included the paper of the fellow who bought his cotton; that included packing-house paper that was stuffed in every portfolio in the South and West. They called that “agricultural paper,” and yet they did not shear a sheep or grow a bale of cotton or till a single acre of soil; they simply gathered what the farmer bad produced. Those men had the intermediate credit. I understand you to say that you want that intermediate-credit system extended to the farmers?

Mr. PETERS. The only person now who has intermediate credit that you speak of is the man who has prime collateral, such as stocks and bonds, and

who goes into the market and buys the agricultural products and warehouses them and holds them until the price increases.

Mr. Wingo. You want to extend that secondary credit to the farmer?
Mr. PETERS. Yes; I want to give that to the producer.

Mr. WINGO. All right; I agree with you on that. Do you think it is necessary to set up a distinct banking system to do that? Is that the logic of your thought?

Mr. PETERS. The present systems that we have have utterly failed.
Mr. Wingo. I am not getting into a controversy with you.
Mr. PETERS. I understand.

Mr. WINGO. Your ideas and mine largely agree on the matter of secondary credits.

Mr. PETERS. We should have an entirely separate and distinct system of credits.

Mr. WINGO. Do you agree with the theory that it is “frozen” credit if a farmer gets credit with which to hold his cotton, but that it is “ liquid ” credit if the cotton factor gets it with which to hold cotton?

Mr. PETERS. I see no difference in the two credits.

Mr. WINGO. That seems to be the current theory in certain circles, that it is frozen credit for one and not for the other; and I just wanted to know if you subscribed to it.

Mr. PETERS. Not at all. Our contention is this—and I want to say this, gentlemen, that I deal with the farmer every day right across the counter and I am fairly familiar with all conditions in my section of the country, and conditions, economically speaking, do not vary very much in the different sections of the country--the farmer needs some source of credit. Now, bear in mind, because this is the gist of the whole situation—these periods, like 1907, 1914, and again in 1920—he needs a source of credit that has not already been tapped; he needs to go to an institution that has sympathy for him; he needs to go to a board or to a bank who wants to serve him and who will not serve him as a secondary consideration.

Mr. STEVENSON. What was it that was overproduced in 1907?

Mr. PETERS. I was reading yesterday afternoon the statement of a very distinguished witness that appeared before the Committee on Banking and Currency of the Senate, who said that there was no overproduction but there was underconsumption.

Mr. STEAGALL. He is right.

Mr. STEVENSON. Not in 1907—not so far as my country is concerned. I come from a cotton State that is pretty close to yours.

Mr. PETERS. Yes.

Mr. STEVENSON. There was no overproduction of cotton that year at all. Cotton was selling at a devil of a good price and we were getting money in the bank, and my bank had $100,000 in New York, and they started this bankers' panic in New York, and it took us two weeks to get $10,000 of our own money.

Mr. WINGO. Do I understand you to subscribe to the idea that there was not an overproduction in 1907 but an underconsumption ?

Mr. PETERS. It is very difficult to distinguish between overproduction and underconsumption. However, the seasons of production are like the waves, they come and go.

Mr. WINGO. But that theory has been advanced here several times, and I am so thickheaded that I can not catch the point of the statement. I have also heard it said that there is a difference between two times 5 makes 10 and five times 2 makes 10. Some people say there was not an overproduction, but an underconsumption, but that at other times it is overconsumption and underproduction. I can not catch the difference, and since you have made some reference to it I do not know whether you can make that distinction or not.

Mr. PETERS. I doubt very much as to whether I get the distinction between overproduction and under consumption. We should say this: The production gradually increases as the price increases; that causes an inflation of prices, and we go on and pyramid year in and year out, and we increase production, and when the production reaches the peak for some reason or other that is unexplainable, it happens all over the country at the same time; everybody decides they are not going to buy anything else—the speculator and the consumer-and they just stop and get out their old shoes, their old clothes and old hats and wear them, and when we do that we say we have under consump

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tion, but we really do not have under consumption, as the same amount of consumption is going on. That is the condition that happened in 1920.

Mr. STEAGALL. You do not contend there has ever been any more cotton produced than was necessary and good for the human family, if trade conditions were such that they could buy according to their necessity ?

Mr. PETERS. Not at all.

Mr. STEAGALL. You have never seen a time when the women and children, white and black, that plant, chop up, plow, and pick it, gin and spin it, ever had half enough cotton clothes to make them comfortable in Georgia?

Mr. PETERS. No; not at all.
Mr. STEAGALL. Then, there has not been any overproduction?

Mr. PETERS, There has not been overproduction, but there has been a failure to provide necessary credit facility for the farmer to make it, to carry it and market it in an orderly way.

Mr. WINGO. I agree with you on that.
Mr. STEVENSON. Certainly.

Mr. STEAGALL. So far as production is concerned, but in a period of years it runs pretty much the same in proportion to the increase in population, with temporary variations and changes due to labor conditions, crop disturbances, and things like that.

Mr. STEVENSON. As I understand it, we are discussing the Lenroot-Anderson bill?

Mr. PETERS. That is true.

Mr. STEVENSON. We have provided in the farm-loan system the long-time credit that the farmer needs. That is your position, and I think you are correct in that. This Lenroot-Anderson bill here is according to the way I read it, preparing a vermiform appendix for that thing. It looks to me as if it will endanger the long-term credit. Here is my difficulty: We provide here for a specific division for those banks to discount this comparatively short time agricultural paper and to sell debentures to the extent of ten times the amount of capital that is segregated for that. When you go on the market you are going to have two sets of debentures.

You have got debentures based on real estate mortgage under Title I, and debentures based on warehouse receipts or on mortgages on livestock under Title II. It looks to me as if there is going to be a very serious mix up. We have already got joint stock land debentures; we have got Federal farm land bank debentures, and now we are going to put out another kind that are not supported by anything like the security that the others are, and you going to have a mix up of that. That is one of my difficulties which I am afraid of. I am afraid it is going to ruin the mortgaging facilities of the other fellow. Then there is the other thing. This says that the funds, the collateral, etc.

, that are put up for the security of the farm loan banks as they are now known shall in no wise be liable for security for the new debentures put up by the Title II. That may be so. I believe here is the language:

Capital so allocated to a farm credits department and the surplus earnings of such de partment shall be applied solely to meet obligations incurred in the operation of that department; and the capital subscribed, together with the reserve and accumulations from earnings under Title I shall not be applied to meeting obligations or losses, if any, incurred in the operation of any farm credits department.”

That simply says it shall not be applied, but it is the same corporation; it is issuing its debentures in two forms. Suppose there is a default and failure on this short-time credit business. Is not this corporation that is back of the whole thing liable? By your saying that certain assets shall not be ap. plied, can you say that the corporation will not be liable? Are you not going to destroy the credit of the farm-loan bank itself? That is the difficulty, and that is the nub of the whole thing with me. I do not propose to ever vote for any bill like this, unless I can be made very thoroughly to see that that thing can not be done. It is a dangerous business, in my judgment. It is just a provision that here is a debtor who owes two kinds of debts, and you can only exhaust little bunch of assets as to one and another bunch of assets as to another. You are going to segregate and say, That is not to pay, unless this particular bunch of assets pays them.”

Mr. WINGO. That is done.
Mr. Black. Mr. Stevenson, the security that is out could not be touched.

Mr. STEAGALL. How are you going to keep from touching any collateral that you hold? The law makes it liable for your debts.

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Mr. BLACK. The land that is up for the security bond is the first lien. But, of course, the general assets would be also.

Mr. WINGO. As I understand it, you are in favor of the Lenroot-Anderson bill?

Mr. PETERS. Not altogether. We are in favor of the Lenroot-Anderson bill in a general way, but I want to discuss now with particular reference to the idea that there seems to be no question about the fact that the farmer needs secondary credits.

Mr. Wingo. Every intelligent man agrees on that.

Mr. PETERS. Now, we have come to the relief. We have the following objections to the Lenroot-Anderson bill:

In the first place, it is made a bureau of the Federal land bank. Congress has for the commercial and industrial interests of the country taken almost the entire gold supply of the Nation and pledged it for the commerce and industry of the United States. You have provided, very wisely, a Federal reserve bank, with resources that it is almost impossible to tell how great they are, for the benefit of 50 per cent of the population that lives almost entirely within the city limits. Now, when it comes to the farmer whose business it is just as important and who is just as numerous in this country, we want to take the credit facilities that we are going to extend him and place it as a bureau in an organization that already exists. We do not believe that it will be to the best interests of agriculture in this country to do that. We think that in place of that we ought to have a separate and distinctive administrative body located here in Washington, call it what you may-agricultural loan board or rural credits organization-but give us a separate and distinct organization, whose sole purpose will be to look after the short-term credits for the farmer. Do not make it a by-product of some other organization.

We contend that the personnel of the Federal Farm Loan Board is selected because of their training in long-time securities. Their first obligation is looking after the interests of the land bank and the loans that are made under the original land bank bill. We do not believe that they can adequately take care of the short-time credits of the country.

In addition to this we only have 12 land banks at present. It may be necessary for short-time credits to establish more agencies. As I recall it, the War Finance Corporation has three scattered at different points in the country.

Mr. WINGO. On that point right there may I make this suggestion, without expressing any opinion as to the merits or demerits of the suggestion that is made in the bill or your suggestion or the suggestion I am going to make?

Mr. PETERS. Certainly.

Mr. WINGO. Is it not this point that has been urged to some of us: That the Federal land bank system is peculiarly an investment-credit machine-land credits—that the Federal reserve system is a rediscount system, primarily for the benefit of the existing commercial banking system, with short-time commercial credits based upon demand deposit machinery ; that if you are going to attach the intermediate credit business on either one of these two systems that it is more nearly related to the commercial banking system than it is to the land-bank system, because it is commercial credits and it is made up of what is termed “personal obligations” as contradistinguished from bonds and mortgages and land-investment obligations. Is there anything in that contention, that if you are going to attach it to either one it ought to be attached to that one that is more nearly akin to the particular kind of credit which you are going to handle ?

Mr. PETERS. The difficulty that I think you would meet there is this

Mr. WINGO. As my friend from Texas suggests, the degree of consanguinity is nearer in one system than in the other.

Mr. PETERS. The short-time rural credit partakes of the nature of both the primary loan and the secondary loan.

You will face this difficulty if you undertake to attach it to the Federal reserve system: The country banks are the people that you really must deal with in distributing this credit. You may place a certain portion of it through the cooperative associations, but the majority of it will be distributed through country banks. Now, country banks go ahead and furnish primary credits, and they get their discount from the city banks and from the Federal reserve banks. Then, when the farmer goes in and calls for a secondary credit he is going to tap the same source that he tapped when he went for the primary credit, and the Federal reserve bank will say, “Oh, no; we have loaned the

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