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 Disadvantages 
 
 OF THE 
 
 Federal Farm Loan System 
 
 TO THE 
 
 Borrowing Farmer 
 
 An Article by 
 
 Norman Lombard 
 
 vlFOR"^ 
 
 
 
 
 
 Printed and Distributed by 
 
 Agricultural Credit Corporation of California 
 
 San Francisco, Cal. 
 
 
 
 
 
Copyright 1916 by Norman Lombard 
 
Disadvantages of the Federal Farm Loan System 
 to the Borrowing Farmer 
 
 This article is intended to assist the farmer who is 
 thinking of obtaining a loan on his farm to decide whether 
 it will be better for him to obtain his loan through the 
 so-called Federal Farm Loan System or to obtain a pri- 
 vate loan through some of the established agencies such 
 as the banks or farm mortgage companies which make a 
 specialty of that business. 
 
 REQUIREMENTS IMPOSED. 
 
 First it is necessary to consider some of the requirements im- 
 posed upon borrowers by the terms of the Farm Loan Act. 
 
 In order to secure a loan from one of the twelve Federal Land 
 Banks, hereafter to be organized, it will be necessary for a farmer 
 intending to borrow money to join with- nine of his neighbors in 
 organizing what is to be known as a National Farm Loan Associa- 
 tion. The ten men organizing such an Association must all be land 
 owners actually engaged in cultivating their farms or must be 
 intending to become such. Simultaneously with organizing the 
 Association they must all make application for farm loans in accord- 
 ance with the terms, of the act. When these ten members have all 
 completed their arrangements and their Association is in working 
 order, they may admit additional members, who, in joining the 
 Association, will be subject to the liabilities and responsibilities 
 imposed upon the charter members. 
 
 Let us examine now the liabilities and responsibilities incurred 
 in joining one of these Farm Loan Associations, that being a neces- 
 sary step in securing a loan from the Federal Farm Loan System. 
 
 MUST PURCHASE STOCK. 
 
 First every borrower must set aside 5% of the amount of hi.^ 
 loan for the purpose of purchasing stock in the Farm Loan Associa 
 tion of which he is a member. Thus if he secures a $2000 loan, he 
 will receive only $1900, or 95 per cent of the amount of his loan, the 
 balance of $100, or 5%, going to make up the capital of the Farm 
 Loan Association, together with similar amounts contributed by 
 other borrowers. 
 
 347148 
 
■ 'Eaoli of.fliese Ea.rm-Loan Associations, of which there may be 
 a number in a county or which may extend over an entire county, 
 is obliged to re-invest all of its capital in the stock of the Federal 
 Land Bank in whose district the Association is situated. At this 
 writing the location of these Land Banks has not yet been determ- 
 ined. There are, however, to be twelve of these Banks, the business 
 of w^hich will be to issue bonds against the mortgages, the sale of 
 which bonds will provide the necessary funds with which to make 
 additional mortgages. 
 
 ADDITIONAL LIABILITY. 
 
 Thus, the situation of the individual borrower will be that h? 
 will have given a note for say $2000 secured by a mortgage in favor 
 of his local Farm Loan Association, of which there must be at least 
 ten members and of which there may be as many as a hundred or 
 more. He will have received $1900 for his mortgage, the balance 
 of $100 remaining in the Farm Loan Association and being invested 
 in the stock of the District Land Bank. In addition to the 5%, or 
 $100, thus reserved, on entering the Association, the borrower is 
 obliged to enter into an agreement Avhereby he shall be liable for 
 $100 additional, this being a provision similar to that contained 
 in the law with resp^ect to ordinary National Banks. 
 
 Admitting that the $2000 mortgage is sound and well secured, 
 this borrower, in order to safeguard himself against the loss of this 
 $200, will be under the necessity of ascertaining that every other 
 mortgage made by the Association of which he is a member is equally 
 sound and secure, as he is liable to the extent of 10% of his mortgage 
 for the failure of any of the other borrowers of his Association to 
 make good on their mortgages. Thus if John Smith borrows from an 
 Association and his neighbor Will Green subsequently obtains a loan 
 upon his farm from the same Association and then Will Green moves 
 out of the country, leaving his mortgage unpaid, and if there is not 
 sufficient security to satisfy the mortgage, then John Smith will be 
 obliged to come forward and put in his own cash to make good his 
 share of the deficiency. 
 
 PROTECTION DIFFICULT. 
 
 The only way that a farmer can protect himself from this dan- 
 ger, and it is a very real one, is to satisfy himself that every loan 
 made by the Association is as good as his own and has behind it a 
 man as good as he is. With new members continually joining the 
 Association, this will be found to be a very troublesome procedure 
 
and if the security offered by a new member is located in a distant 
 part of the county, he may find it very burdensome and expensive 
 to secure the necessary information. 
 
 And even if the borrower takes this precaution and carefully 
 scrutinizes every loan made by his Association with the idea of 
 objecting to the making of the loan before it is made or of with- 
 drawing from the Association in case it is made, even with all of 
 this precaution, he is still not protected against the possible loss of 
 the 5% of cash which has been invested in the stock of the District 
 Land Bank, , 
 
 . There are likely to be a hundred or more local Associations, 
 each having business dealings with the District Land Bank. If any 
 one of these Associations should fail as a whole, it would then be 
 necessary for the District Land Bank to make up the deficiency and 
 to assess the loss pro rata to the various Associations owning stock 
 in the Bank. Therefore, it is not only necessary for the farmer to 
 inform himself as to the safety (^f. the loans made by his own Associa- 
 tion but also as to the safety of every loan made by every other 
 Association in the district. 
 
 It is quite reasonable to expert that some of the local Farm 
 Loan Associations will sometime fail, regardless of any precautions 
 that may be taken and that the District Land Bank mil therefore 
 be obliged to assess the loss to the other Associations composing its 
 membership. We all know that crop failures are not at all unusual 
 but are one of the hazards under which the farmer continually 
 lives ; and it is well known that crop failures do not affect individual 
 farmers alone — they always affect groups of farmers located in the 
 same neighborhood — and crop failures arise from a large number 
 of different causes. Thus, about every so often, there is a failure 
 of wheat in Kansas, due say, to the cinch bug or to rust. There is 
 a failure of corn, perhaps, in Iowa, due to a late spring and excessive 
 moisture. There may be a failure of the cotton crop in a given sec- 
 tion of Texas due to the boll weavil or a failure to market the crop 
 (which is equivalent to the same thing) because of some world-wide 
 war or other economic disturbance. There is a failure of the peach 
 crop in a certain valley in Georgia due to a late frost. There is 
 failure in some other section due to a rain. Crop failures on a large 
 or small scale are inevitable accompaniments of the farming busi 
 ness. During such periods of disaster farmers are usually unable to 
 pay their interest and frequently are unable even to pay their taxes. 
 Occasionally the disaster is so severe that the ordinary living ex- 
 penses of the farmers are not obtainable, and sometimes even land 
 
values are seriously and permanently affected. Those of us whose 
 experience runs back any number of years can remember numerous 
 instances of this kind and it is reasonable to suppose that as history 
 repeats itself they will arise in future. And when they do arise and 
 losses occur every borrower in the District must bear a part of the 
 loss and he cannot escape it by any amount of diligence. 
 
 Nor have we yet considered the full danger to the farmer 
 growing out of this liability feature. As each of the twelve District 
 Land Banks is liable for the bonds of each and all of the other Dis- 
 trict Land Banks, it is obvious that the failure of one of these Land 
 Banks would cause a loss to each of the other banks. Thus, the indi- 
 vidual farmer should not only satisfy himself as to the safety of 
 every loan made by every Association comprised in his District, 
 but he also should satisfy himself as to the financial soundness of each 
 of the other Land Banks in the entire system, which would mean 
 an examination into the affairs of all of the Farm Loan Associations 
 comprising the entire system. This is obviously impossible to the 
 individual, the result being that the borrower under this system is 
 simply obliged to take his chances. 
 
 That the picture here presented is not overdrawn — that there 
 is a possibility, if not likelihood, that one of the twelve Federal 
 Land Banks will fail — must be admitted, otherwise the framers of 
 the law would not have included the feature of mutual liability 
 upon the Land Banks.- 
 
 INCONVENIENCE OF SYSTEM. 
 
 We now turn to the question of the inconvenience of the system 
 to the individual borrower. 
 
 One of the purposes of the Farm Loan Act was to enforce upon 
 the farmers of the country a policy of co-operation. Our friend, 
 John Smith, may not be on good terms with his neighbor, Will 
 Green. One may think the other is a degenerate and a reprobate 
 while the one thus complimented may not like the way the other 
 parts his hair. One farmer may not like the other because he paints 
 his buildings while again the second farmer may not like the first 
 because he does not paint his buildings. It is well known that 
 neighborhood jealousies and animosities arise from a number of 
 more or less important and relevant causes. It was therefore felt 
 by those who are responsible for the passage of the Federal Farm 
 Loan Act, that these neighborhood differences ought to be done away 
 with, that the farmers ought to be compelled to like and admire 
 
each other, regardless of the merits of the case; in short, that they 
 should ' ' co-operate. ' ' 
 
 NEIGHBORHOOD DIFFERENCES. 
 
 Before any loan can be made at least ten farmer-borrowers 
 must find themselves in sufficiently friendly accord so that they can 
 transact business together and be willing to go security on each 
 others' notes. An elaborate scheme of organization has been pro- 
 vided. Thus each of these Farm Loan Associations is to have a 
 corps of officers, including a secretary-treasurer, a president, etc., 
 and three of the members of the Association are to act as a Loan 
 Committee. It seems to me that if I were a member of a Farm 
 Loan Association, that I would by all means insist upon being a 
 member of that Loan Committee because that Loan Committee is 
 going to be supreme in its own little realm. 
 
 Every loan obtained from the Federal Farm Loan system will 
 have to pass the scrutiny of the Loan Committee of one of the Local 
 Farm Loan Associations. Woe be yours if one of the members of 
 that committee objects to having farm buildings painted, if yours 
 are painted, and woe to you if you do not happen to have your hair 
 parted correctly when you appear with your hat in hand before your 
 neighbor (whom you have perhaps recently kicked off the lot) to 
 beseech the approval of 5^our loan. 
 
 Perhaps one of the members of this Loan Committee will have 
 a covetous eye upon your farm. Perhaps he is himself anxious to 
 buy it at a bargain. Is it to be supposed that he is going to approve 
 your loan if that loan will enable you to tide yourself over your 
 financial difficulties? 
 
 Again, perhaps one member of that Loan Committee will have 
 a son who is anxious to marr^^ your daughter whereas you and your 
 daughter both have other plans. Is he then going to look with favor 
 upon your loan? 
 
 It is not necessary to further elaborate as to the situations 
 which are likely to arise under this system. It is well known that the 
 detached and segregated conditions of country life promote the 
 growth of petty feelings of jealousy, envy and distrust and it is only 
 reasonable to expect that human beings who will be members of 
 these Loan Committees will be governed in their decisions by the 
 dictates of their sympathies and their personal feelings. 
 
 If you are a man of any character, if you have ever "stood 
 up in meeting" and asserted your beliefs in opposition to those of 
 
others, if you have ever shown any independence in the conduct of 
 your business, if you have any ideas which are not in line with the 
 hiiradrum ideas of your neighbors ; in short, if you are a man of any 
 character or self-assertiveness whatsoever, the chances are very 
 good that you will not be able to secure the approval of your loan 
 by the members of the Loan Committee and you may as well save 
 yourself the mortification and embarrassment which are sure to 
 result if your application is filed. 
 
 NEIGHBORLY INTERFERENCE. 
 
 However, let us assume that the prospective borrower has 
 been able to break through the magic circle drawn by the Loan Com- 
 mittee of his Farm Loan Association. He is then in the position of 
 having received a favor, not only from this Loan Committee, but 
 from all the members of the Association and he will be expected to 
 conduct himself accordingly. It should be noted that the favor 
 which has been extended to him_ is not a mere nominal one, as each 
 and every member of the Farm Loan Association, including the 
 members of the Loan Committee, stand in the position of guar- 
 antors or sureties upon his note to the extent of 10% of their own 
 loans. Each member of the Association, therefore, has a personal 
 financial interest in the borrower's methods of conducting his farm- 
 ing operations. 
 
 If you are a borrower and a member of the Association, it is 
 therefore only reasonable that you should expect your neighbors, 
 who are also members of the Association, to take an active personal 
 interest in the manner in which you farm your property. Let us 
 suppose that you intend to plant w^heat in the ' ' old pasture lot south 
 of the creek"; you happen to mention the matter to some of your 
 neighbors and the result is that some evening a member of the Loan 
 Committee of the Association stops at your front gate and remon- 
 strates with you for planting wheat. That method of farming your 
 land does not meet w4th his approval. Of course there may be 
 nothing that he can do about it, your loan having been approved 
 and the money spent. It is not to be supposed that merely because 
 you decide to plant the old pasture lot to wheat that the loan is 
 going to be called. At the same time, it would cause you to feel 
 somewhat uncomfortable to think that the other members of your 
 Association, your benefactors, were criticizing the manner in which 
 you were conducting your farming operations. 
 
Or perhaps you ma}^ be a progressive farmer and you may 
 decide to experiment witli some new crop. Perhaps alfalfa is not 
 very generally grown in your neighborhood and you desire to de- 
 vote 10 acres to an experiment with this highly profitable crop. You 
 purchase your alfalfa seed, level up your land and are all ready to 
 plant your crop when the President of your local Farm Loan Associa- 
 tion drives up and calls attention to the fact that you are obliged to 
 make a payment on your loan on September first and if you devote 
 that 10 acres to alfalfa, which the Honorable President doesn't be- 
 lieve in, you may find it difficult, if not impossible to meet your pay- 
 ment. Perhaps the President would not go so far as to endeavor 
 to force you to abandon your plans, but at the same time you must 
 admit that he has some rights in the matter because he is financially 
 liable in the event of your failing to pay your interest and take care 
 of your loan in accordance with its terms. 
 
 The inevitable result of such a system is going to be that the 
 neighbors of every borrower from the Farm Loan System are going 
 to have a ''finger in the pie." They are all going to make pointed 
 suggestions as to how the borrower's farm should be operated and 
 there is going to be more or less unpleasantness if these suggestions 
 are not acted upon. Thus there will be created a situation which is 
 altogether distasteful to all independent and self-reliant farmers 
 and the inevitable result must be that if a man wants to conduct his 
 farming operations in accordance with his own ideas and without 
 interference from his neighbors then he had better not get mixed 
 up with his neighbors in any scheme whereby they appear to have 
 rendered him a favor in making his loan possible or where they 
 are in the position of creditors or guarantors of the payment of 
 his mortgage. 
 
 We have not yet discussed the functions of the Secretary- 
 Treasurer of the Farm Loan Association. This individual is sup- 
 posed to be a sort of a little king in his own domain. When your 
 interest comes due, he collects it; if your taxes are not paid, he 
 will come nosing around to see what is the trouble and if you do 
 not comply with the terms of your mortgage agreement as to the 
 cultivation of your property, etc., all to his satisfaction, you may 
 expect a call from him without delay. 
 
 RED TAPE AND DELAY. 
 
 Now let us consider the matter of red tape and of the time 
 consumed in obtaining a loan through the Federal Loan System. 
 
This article is being written in September, 1916. I have just had 
 a talk with some of the members of the Federal Farm Loan Board 
 and they have advised me that they do not even expect to designate 
 the towns in which the District Land Banks will be located for 
 several months and they do not expect that instructions will be 
 issued for the formation of Farm Loan Associations for some time 
 thereafter. It is safe to expect, therefore, that this system will not 
 even be in shape to consider business for at least six months. Even 
 after the system is inaugurated, the machinery will move very slowly 
 indeed and very little business can be transacted at first. 
 
 Supposing, however, that the system finally becomes thoroughly 
 organized and sufficiently equipped with clerical assistants, land 
 examiners, etc., then prospective borrowers should notice the exces- 
 sive amount of red tape necessary to be gone through with in order 
 to secure a loan from this system and they should contrast this red 
 tape with the simplicity of obtaining* a loan through the ordinary 
 channels. 
 
 In the first place, it will be necessary for the local Farm Loan 
 Association to be organized. The Association will then have to 
 elect its officers and designate a Loan Committee. Applications 
 for loans will then be submitted to the Secretary-Treasurer of the 
 Association and if all of the requirements of the law have been com- 
 plied with, he will refer the application to the Loan Committee who 
 will then make a personal inspection of the security offered. If the 
 difficulties which have been above outlined are finally overcome 
 and the application is approved, the Loan Committee w^ill then 
 forward the application to the District Land Bank and the District 
 Land Bank will then have to send one of its examiners to make a 
 further examination of the security and check up the uses to which 
 the money is to be put, and other details, as provided in the act. 
 If the District Land Bank happens to have any money on hand and 
 the application is approved, the Land Bank will in time forward 
 the necessary funds to the local Farm Loan Association and this 
 Association will in turn deliver the money to the borrower. This, 
 however, will not take place until the mortgage has been duly re- 
 corded, the title properly searched and all of the ordinary details 
 encountered in making a loan fully taken care of. It is only reas- 
 onable to expect, in this connection, that this work will go slower, 
 being handled by officials whose appointments are more or less 
 political, and to suppose that the individual borrower's business will 
 
not receive the attention which it now receives from, the private insti- 
 tutions who have a desire to build up a reputation for prompt closing 
 of loans and for good service to borrowers in other particulars. 
 
 PURPOSE OF LOAN. 
 
 We now come to a consideration of the question of the uses to 
 which the money must be put after a loan has been obtained from, 
 the Federal System. The Federal Farm Loan Act very specifi- 
 cally states the purposes for which money can be expended by the 
 borrower and furthermore provides that if the money is expended 
 for any other purpose that the loan shall be immediately called. 
 The three purposes permitted under the terms of the act are roughly 
 as follows : 
 
 1st — For the purchase of the security; 
 
 2nd — For the equipment or improvement thereof; and 
 
 3ru — ("this is very important) — For the purpose of paying off 
 a loan which was on the property prior to the formation of the first 
 Farm Loan Association in the County ; or, if made subsequent to the 
 organization of the first Farm Loan Association, one which was 
 made for one of the other two purposes above outlined. 
 
 It is to be noted that if any borrower expends any of the 
 money obtained from the Farm Loan System in the payment of a 
 doctor's bill, in the payment of a store bill, in the payment of living 
 expenses while his trees or vines are coming into bearing or for any 
 of the numerous purposes for which borrowers are obliged to have 
 money other than those specifically enumerated in the act, then his 
 loan will be due and payable at once. Nor is this all. If he has a 
 loan on his property which loan was made subsequent to the organi- 
 zation of the first Farm Loan Association in his county and if any 
 portion of the proceeds of that loan was used for any unauthorized 
 purpose, then that loan will not be subject to refund through the 
 Federal Farm Loan System. Thus, let us say that on June 1st, 1917, 
 the first Farm Loan Association was organized in the prospective 
 borrower's county. Let us suppose that sometime after that date 
 the borrower incurred some unusual expense, such as a doctor bill 
 for the sickness of some member of his family, or the payment of a 
 judgment for damages or for some other purpose. He goes to his 
 local banker and borrows this money, perhaps taking up a mort- 
 gage which he has on his property at that time and executing a new 
 mortgage for the entire amount. It should now be noted that this 
 mortgage can never at any future time be refunded by a loan from 
 
the Federal Farm Loan System for the reason that the loan intended 
 to be refunded was made subsequent to the organization of the first 
 Farm Loan Association in the county and a part of the proceeds 
 thereof was used for purposes not specifically authorized in the Farm 
 Loan Act. 
 
 ADDITIONAL RULES. 
 
 Now this is no doubt a hardship to some borrowers as the loan 
 intended to be refunded in the case outlined might be abundantly 
 secured and much safer than some of the loans which meet with the 
 technical requirements of the act. However, it is necessary, in the 
 conduct of so large a farm loaning system as is contemplated under 
 the Farm Loan Act, to have some arbitrary rules of which this is 
 merely an instance. As the operation of the system develops and 
 additional experience is gained, it will become necessary to adopt 
 additional rules which will be found, while in general sound and 
 equitable, to work hardship in many cases and to preclude many bor- 
 rowers from qualifying" for Federal farm loans. 
 
 RULES STRICT AND RIGID. 
 
 Before leaving this phase of the subject, it should be noted 
 that the rules laid down in the Farm Loan Act as to the payment 
 of interest and taxes promptly on the day when due are very strict 
 and rigid. Many farmers frequently have occasion to hold their 
 crops off the market, expecting a higher price later, or to hold their 
 cattle off the market in order that they Can be put into proper mar- 
 ket condition and the ordinary mortgage company or bank which 
 lends money upon farm lands is, as a rule, perfectly willing to agree 
 to the propriety of such proceedings and to adopt a very liberal 
 attitude toward borrowers in assisting them in the convenient work- 
 ing out of these financial arrangements. 
 
 However, when your Uncle Sam goes into business, he is not 
 permitted to consider individual requirements but is obliged to con- 
 duct his affairs in accordance with strict rules laid down in black 
 and white. It is therefore necessary that borrowers who are con- 
 templating securing loans through the Federal Farm Loan System 
 should take every precaution in advance to make sure that they 
 will have their money ready exactly on the day when due, other- 
 wise they will not only find themselves embarrassed through calls 
 by their neighbors, asking them to pay up their delinquencies, but 
 they will also find themselves in imminent danger of having their 
 loans declared due and payable. 
 
 10 
 
CONSERVATIVE POLICY. 
 
 The Federal Farm Loan Board is proceeding with conservatism. 
 They take the position, which is undoubtedly sound, that this system 
 must be made absolutely safe beyond any question, the convenience 
 of borrowers being a secondary consideration. Undoubtedly this 
 is the only policy to pursue as any disaster to the Farm Loan System 
 as a whole would be most unfortunate for the farmers of this country 
 and would discredit them for all time to come in the minds of in- 
 vestors and financiers, so that it would be an exceedingly difficult 
 problem for the ordinary farmer to secure any loan upon his prop- 
 erty upon any terms. They have therefore wisely adopted a very 
 conservative policy and they are cautioning everyone that applica- 
 tions are to be considered on the most conservative basis, that the 
 strict requirements of the law are to be adhered to, that valuations 
 are to be based only upon the income producing power of the land 
 and that only successful farmers can be considered as applicants 
 and these only for loans for reasonable and conservative amounts. 
 
 Now it is well known that the existing institutions take into 
 consideration the character of the borrower when making a loan 
 and if he appears to be a man of character, following proper farming 
 methods and otherwise inspiring confidence in his ability to pay the 
 interest and principal of the loan when it comes due, his application 
 is given more liberal consideration than in the case of borrowers not 
 having these personal qualifications. 
 
 Under the Federal Farm Loan System it will be necessary for 
 the managers to eliminate the character of the borrower from the 
 consideration of the proposition. It is the land and the land only 
 which is considered in arriving at the amount of money which will 
 be loaned. 
 
 AMORTIZATION LOANS ONLY. 
 
 The only form of loan permitted under the Federal System is 
 an amortization loan, the period being for anywhere from five to 
 forty years. The amortization form of loan is exceedingly popular in 
 Europe and it will no doubt, in the course of time, become popular 
 in this country. However, there are many borrowers who do not 
 desire to make a loan of that kind as they do not want to be obliged 
 to retire their loan by making a small payment on account each and 
 every year. They prefer a flat term loan where they know that they 
 will have the use of the funds for a given length of time, at the end 
 
of which time they expect to be able to secure a renewal for the same 
 or perhaps a larger amount, which renewals of course are not con- 
 templated under the amortization form of loan. 
 
 It should not be understood that I am advising borrowers 
 against making an amortization loan. I am a great believer in the 
 amortization loan as I believe it much better for the borrower to be 
 compelled gradually to work himself out of debt and much better 
 for the investor to have a constantly decreasing loan and a conse- 
 quent increasing margin of security. 
 
 However, if a farmer is desirous of securing an amortization 
 loan, it is not necessary for him to go to the Federal Farm Loan 
 System for such a loan as the same can be obtained from a mort- 
 gage company in almost any State and no doubt other companies 
 will commence making loans upon the amortization basis as soon as 
 they become more familiar with the plan, and if there seems to be 
 any demand from farmers for loans on that basis. 
 
 THE RATE OF INTEREST. 
 
 It is contended by some students of the question that the 
 farmer will be able to secure a lower rate of interest by obtaining 
 his money from the Federal Farm Loan System than he has been 
 able to obtain in the past through the ordinary channels. As to the 
 correctness of this prophecy, only experience can determine. There 
 are now between three and four billion dollars' worth of farm 
 mortgages in this country. If it is proposed to refund all of these 
 mortgages and to issue Farm Loan Bonds to provide the necessary 
 money, it will mean that in the course of time an immense quantity 
 of Farm Loan Bonds will have to be issued. Now it is well known 
 that there is only a limited amount of money in this country which 
 is willing to accept less than 6% on its investment. 
 
 It is not to be expected that investors who have been obtain- 
 ing farm mortgages which netted them from 51/^ % to 6l^% interest 
 will consent to accept bonds bearing a lower rate of interest and 
 having no better security. We therefore may eliminate this large 
 body of investors from our calculations in considering the market 
 which will be available for Farm Loan Bonds. This eliminates the 
 largest life insurance companies, those savings banks which have 
 been large investors in farm mortgages and the majority of private 
 investors (few of whom invest in large amounts, but whose large 
 numbers make up a considerable volume of the investment capital 
 
of this country). When you have eliminated these three classes 
 of investors, you have left a comparatively small number of people 
 who can be called upon to make investments. 
 
 It should be noted that a recent issue of joint notes of the 
 Governments of Great Britain and France was offered, the issue 
 being only partially subscribed, and in this case there were patriotic 
 and business reasons for purchasing. Also a recent issue of notes 
 of the Government of France, secured by American collateral, paid 
 investors 5%%. "What chance is there then for experimental bonds 
 where the amount ultimately required will be over ten times the 
 amount of this French issue? 
 
 It is all very well to talk about how our Government bonds 
 sell on a low interest basis, but it must be remembered that the 
 amount of United States Government bonds is comparatively small 
 in proportion to the amount of farm loans in this country. Fur- 
 thermore, certain privileges have been accorded to the holders of 
 United States Government bonds, which are largely owned by the 
 National Banks of the country, in permitting these bonds to be used 
 as a basis for the issuance of currency, which privilege of course 
 does not attach to the Farm Loan Bonds. It is therefore absurd to 
 think that this country will afford a sufficient market for Federal 
 Farm Loan Bonds at the low rates of interest which are being talked 
 of to finance more than a limited number of farm loans. 
 
 Even considering, however, that it might be possible to refund 
 and refinance the entire mortgage debt of the country into Farm 
 Loan Bonds at the rate specified in the Federal Farm Loan Act, yet 
 even so, it is difficult to see where the individual farmer will benefit 
 as he is now able to secure loans at an interest rate very little if 
 any higher than that which will be necessary under the Farm Loan 
 System and which are free from the objections herein explained. 
 
 It must be remembered that the local Farm Loan Association 
 must have its expenses fully paid, including the salary of a Secre- 
 tary-Treasurer. The district Land Bank is obliged to charge a pre- 
 mium in order to cover its own expenses, the salaries of managers, 
 bookkeepers, clerks, attorneys, land examiners, etc., and also a fund 
 to take care of losses and by the time all of this has been attended 
 to, it is not to be expected that the cost to the borrower will be 
 much, if any, less than the cost to him if he obtains his loan through 
 the ordinary channels. 
 
 13 
 
ORDINARY METHODS BEST. 
 
 On the other hand prospective borrowers should consider the 
 many advantages which accrue to them in obtaining their loans 
 through private mortgage companies or through commercial banks 
 making a specialty of farm mortgages. 
 
 It will not be necessary to elaborate at any length upon the 
 many advantages, upon the promptness with which loans can be 
 considered and acted upon, upon the secrecy of the transaction, the 
 borrower's business not being a topic for gossip among the borrow- 
 er's neighbors, the fact that loans can be arranged for flat terms 
 if desired or on the amortization basis if that plan is preferred b}'- 
 borrowers and that partial releases can be arranged with the mini- 
 mum amount of ''red tape" and delay and, finally, the liberality of 
 farm mortgage bankers in taking care of farmers during those pe- 
 riods when they are not able to pay their interest promptly or do 
 not find it advantageous because of market conditions or for other 
 reasons to do so. 
 
 The value of the service rendered by the farm mortgage bank- 
 er as above briefly outlined, is so well known to experienced bor- 
 rowers that it is not necessary to elaborate upon this feature. No 
 Governmental institution, with which any of us has yet had any 
 experience, has been able to operate with that facility, speed and 
 regard for the interests of its clients w^hich we have learned to expect 
 in our dealings with private individuals and institutions and there 
 is no reason to expect that the Federal Farm Loan System will be 
 any exception in this respect. 
 
 If borrowers desire to secure personal service, if they desire 
 to be treated as human beings rather than as numbers or members of 
 some gigantic machine ; if they desire speedy and reasonable service 
 and if they desire freedom from interference by their neighbors 
 and from gossip which will be sure to result under the so-called 
 co-operative plan, they should continue to do business through those 
 farm mortgage bankers which are thoroughly established, have 
 efficient organizations and which, in their past dealings, have shown 
 a desire to consider the interests of their clients in the conduct of 
 their business. 
 
 Americans have frequently been accused of being a temper- 
 amental people inclined to act upon impulse rather than upon due 
 consideration. However, the farmers of the United States are 
 known to be our most substantial and conservative class of citizens 
 and those least inclined to take impulsive action. If the farmers of 
 
the United States had been at all active in the agitation for a Federal 
 Farm Loan System, there might be reason to suppose that there was 
 some real call for such a system. It is well known, however, that 
 the Federal Farm Loan Act is the result of agitation by politicians 
 seeking the rural vote and by rural publications endeavoring to 
 curry favor with those from whom their revenue was derived. It 
 remains to be seen whether or not the farmers of this country will 
 be misled into financial tangles which will secure them practically 
 no financial advantage and which will at the same time embroil them 
 in quarrels and disputes with their neighbors. For myself, I have 
 perfect confidence in the sound wisdom of the average farmer and 
 believe that he will be found patronizing those same old institutions 
 which have been of the greatest benefit to him in his period of 
 greatest need and which have always shown themselves anxious to 
 render him the best possible service. 
 
INFORMATION BLANK. 
 
 Agricultural Credit Corporation of California, 
 San Francisco, Cal. 
 
 Gentlemen : 
 
 Without obligation on my part please advise whether I could 
 
 probably secure from you a loan of $ _ for 
 
 years on acres of land located miles 
 
 (direction ) from (name of town) 
 
 in the County of _ legally described as 
 
 follows: _ 
 
 There are acres in alfalfa; acres in 
 
 vineyard years old ; „ acres in orchard 
 
 years old ; balance as follows : _ 
 
 I have a water right or pumping plant as follows; 
 
 The place is conservatively worth $ The 
 
 buildings are worth $ I have a loan on the place 
 
 now of $ , obtained from ~ 
 
 maturing , 19 , and bearing per cent 
 
 interest. I do live on the place. 
 
 Yours very truly, 
 
 Date - Name 
 
 Address _ R. F. D. No. 
 

 
 UNIVERSITY OF CALIFORNIA LIBRARY, 
 BERKELEY 
 
 
 
 
 1 
 
 We 
 
 loans on 
 
 THIS BOOK IS DUE ON THE LAST DATE 
 
 STAMPED BELOW 
 
 Books not returned on time are subject to a fine of 
 ^^ly^^^^^'-o^^^^e after the third day overdue, increasing 
 to $1.00 per volume after the sixth day. Books not in 
 demand may be renewed if application is made before 
 expiration of loan period. 
 
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 iltural Credit Corporatic 
 
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 of California 
 
 SAN • 
 
 FRANCISCO, • CALIFORNIA 
 
UNIVERSITY OF CALIFORNIA LIBRARY