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Governor FREEMAN. There are some of them. I have attended

and spoken to them, too.

Senator THYE. Yes. I have attended many of them. I am positive that they do not charge 8 percent.

Now, if you were going to a bank and you just wanted $2,000 for 3 months and you were not putting up very good security, they may ask you 8 percent.

Governor FREEMAN. That is correct. That is what I am talking about.

Senator THYE. But not too often are they compelled to do that.

Now, I will say to you, Governor, that this committee right here has as one of its responsibilities the objective of broadening credit facilities for the farmer. We sat right here at this table and protected the Farm Credit Administration at one time when there was some thought that it was not needed any longer. That was in the war years. But we saved it then, and we are going to broaden the act now.

But with respect to 8 percent interest-I do not know where you would find an area in the State where the Farm Credit Administration did not have some sort of association, a Production Credit Association, that could handle short-term production loans, and they have never charged any 8 percent. If they did, I think that we need to look into the Farm Credit Administration.

Senator HUMPHREY. But the problem that you are having there, which I found-and I will give you a specific example-I was in Waverly, Minn., on the 17th day of September. I spoke there to a group of people. I spoke there a year ago, and there were twentysome people that time, and now there were over 400. The bankers from Buffalo, Cokato, Howard Lake, and Waverly, Minn., were all there, and the production credit people were there and the FHA people were there, and rather than having a chance to talk with the farmers, I spent all my time talking with the bankers and credit people. And what was their story? They are out of money. They have overextended. And they had 13 or 14 young farmers from those counties with them. All of them were at the breaking point. They have no more credit that they could get, and the PCA people and bankers, Senators, went down with me to Ogle's Cafe, and we sat down for a considerable period of time, and their story was that you have got to do something to bail us out. "We are overextended to the point where we cannot loan another dollar to these young farm families." Now, this is the problem that you are getting constantly all the time.

Governor FREEMAN. That is precisely the case.

Senator THYE. I would say, Senator, that it may be that the production credit association, on that type of a loan, had advanced all that it could on the chattels and, therefore, they could not go any further. Senator HUMPHREY. That is the problem.

Senator THYE. But that question will have to be handled exactly as the farm credit needs were handled in the early thirties, when the Congress approved what was known as the Commissioner's loan, which was a second mortgage to the Federal land bank.

We may need some sort of a credit here to deal with the emergency, but I do not believe that production credit would ever charge such a rate of interest as 8 percent.

64440-56-pt. 8- -36

Governor FREEMAN. I would not say that.

Senator THYE. It would only occur in the event a young man went to a local bank, and even then it would have to be a pretty risky loan, if the banker was charging 8 percent.

Governor FREEMAN. With the contract.

Senator THYE. That is not the type of interest rate in Minnesota. Governor FREEMAN. In the first place, the PCA has limited loaning authority. Many of them have used up the amount that they have. And they also do not serve every community in our State, as you well know.

I don't know offhand how many there are, but they do not serve every community in the State. And many of our farmers deal with their local banker for a variety of reasons, as you know. And I know, too. In short term loans today, why farmer after farmer has told me that he is paying 8 percent interest to the local banker.

And when I had a farm advisory committee in, of 20 people from around the State, representing all different farm organizations in groups, it was generally agreed that most of them were paying those that were in a difficult credit position-8 percent for their short term money.

Senator AIKEN. If your farmers are forced to pay unwarranted high rates of interest by the local banks, is there not something wrong with your State law?

Governor FREEMAN. No.

Senator AIKEN. Does Minnesota law permit 8 percent?

Governor FREEMAN. 8 percent interest; yes.

Senator ANDERSON. I want to bring in one little word of support. Senator AIKEN. We have a 6-percent limit.

Senator YOUNG. 7 in our State.

Senator ANDERSON. I had a cousin who wanted to get into the farming business. He had gotten out of it because of family difficulties. I have recited this before. He lives in Iowa. He had been working as a tenant farmer.

He had $10,000 in cash, $5,000 in equipment, and wanted to buy a $22,000 farm and could not buy it. He could get a $12,000 loan but that still left him $7,000 short.

He was unable to find the money anywhere in the Federal credit system. There were only two banks in his town. Neither one would look at a loan of that character.

I agreed to endorse his note. They would not take any endorsement, either. I think I could have bought the capital of both banks without thinking too much about it.

I finally loaned him the money, and he paid me off in 512 or 6 years. So he really wanted to farm.

It is that sort of person that I hoped you were worried about. I know Senator Thye is worried about it.

Senator THYE. I can definitely assure you, Governor, that before this committee gets through with this farm question, the Farm Credit Administration will give us a report. We are scheduled to make a complete study of the credit needs of the farmer because there is no question but what he is hard pressed and it is frequently this youth who came out of World War II

Governor FREEMAN. That is right.

Senator THYE. And acquired his property during an era of inflated prices.

Governor FREEMAN. That is right.

Senator THYE. He is trying to pay off his obligations today on a reduced income and in a tight credit situation.

So for that reason this committee is already on record for making a complete study of credit needs. The Farm Credit Administration officials will be up here at the earliest opportunity before this committee, and we will hear them, and we will get a report on what the credit situation is in Minnesota.

Senator YOUNG. I think you are dealing with a very important subject, an important problem out in our area. The administration, I understand, is working on it.

I have taken it up with the Farmers' Home Administration and they are coming up with some new recommendations, too.

One of the real problems we have out there is with the younger farmers, the war veterans. They may owe money to several different places and the Farmers' Home Administration for years has had a policy against refinancing of debts.

Governor FREEMAN. That is right.

Senator THYE. This young fellow has no place to go when he wants to get his debts refinanced. I think something positive will be done on that soon.

Senator ANDERSON. That is a very true and accurate statement of the situation.

Governor FREEMAN. It is.

Senator ANDERSON. It seems to me, Senator Young, if I can interpose, that you cannot put a flat rule down and say, "We will never refinance."

I think there are circumstances where refinancing is the only thing that will save many of these people. It is a very serious problem. Senator HUMPHREY. The total sum of money that the FHA has is totally inadequate for the capital investment of the plant. It is related to 1940 standards. You do not have the dollars in the till to do the loaning that needs to be done. This would be like a man trying to pay for a house on the basis of credit facilities that were available in 1940.

Senator YOUNG. We will have to appropriate more money for that. Senator HUMPHREY. You buy a $25,000 house today that you could buy for $8,000 in 1940.

Senator AIKEN. This prohibition against refinancing was before you were Secretary, was it not, Senator Anderson?

Senator ANDERSON. I think it has been steadily in effect. Senator AIKEN. For about 15 years that has been in effect. Senator ANDERSON. And longer. The point Senator Young makes is a very valid one. Farm values sometime drop. I saw a statement the other day that Iowa farmland had gone up $10 an acre. That is not general. And the value of equipment has gone higher. It takes more money to do these things and men get very short of credit.

Senator AIKEN. I think the number of applicants for the FHA is probably near an all-time low today. The amounts they want to borrow is probable at an all-time high.

Senator HUMPHREY. Another reason for that it is very hard to get a loan.

Senator AIKEN. Fewer people have to borrow more.

Senator HUMPHREY. It has bannker's standards today and it is one of their real problems. There is no use of having it if the private bank can do it. I think there is no use for the Government being in the credit field then if it is not willing to take greater risks.

Senator AIKEN. They do not have the standards of the midthirties. Senator HUMPHREY. They have tightened.

The CHAIRMAN. May I say in passing, on my recent trip to the Philippine Islands where there is no limit as to the charge of interest, the farmer there paid in the past 200 percent, and we have had to organize cooperatives in the Philippines which reduced the interest rate from 200 to only 25 percent.

Proceed.

Governor FREEMAN. Our situation in Minnesota clearly indicates this need for credit. The real-estate debt on Minnesota farms increased from $324 million in 1953 to $337 million in 1954; the nonreal-estate debt increased from $160 million in 1953 to $181 million in 1954 (according to USDA report of January 1, 1955).

Federal land-bank reports, which take us into 1955, show that PCA loans on chattel mortgages in Minnesota totaled $14.6 million at the end of 1953, $16.6 million at the end of 1954, and $18 million at the end of 1955; and that Federal land-bank mortgages totaled $65.1 million at the end of 1953, $70 million at the end of 1954, and $78.5 million at the end of 1955.

The increase in per capita farm debt was even greater, since the population living on our farms has decreased as follows: 645,819 in 1951; 636,490 in 1952; 629,698 in 1953; 625,453 in 1954; and 624,071 in 1955. This increase in debt is most significant because it comes while incomes are declining.

Many Minnesota farmers have reported that they cannot get credit that they sorely need. They cannot get the credit to build farm homes that people in cities and towns can get. Therefore, I believe that it is important to provide more and easier credit.

I should like to propose a program of guaranteed loans to farmers, to provide them with capital to build homes, to get needed machinery, and to make necessary transitional changes.

A program patterned after the insured mortgages under the Federal Housing Administration, whereby the Federal Government would insure sound loans to farmers made by private lending agencies, could do a great deal toward solving the credit problem.

I believe that a program could be worked out whereby sound loans now existing could be brought under such a guaranty. Such a program could provide credit at lower interest rates and for longer terms than are now available.

If this credit program were a part of a sound overall farm program, and if it were carried out on a really adequate and financially sound basis, it would do a great deal to restore to American farmers their confidence in the future.

It would make it easier for them to carry out the changes in their operations that may be necessary. It would assist those businesses now hard hit by depressed farm purchasing power, and the financial institutions that would participate in the program. I urge you to give serious consideration to this proposal.

I wonder if the local banker knows the local situation and if the FHA principle of guaranty were put into effect and the longer period of loans on chattels.

My banking commissioner tells me when they go out in the State they find that the farmer has financed a tractor or something and it will usually be on a year's basis. Everybody knows he will refinance it.

But nonetheless, the fact that it is so much and he is allegedly or on the record supposed to pay it up in 1 year, actually discourages the making of the payments, puts him continually under the pressure of paying off in a 1-year period, and also puts the local banker under the pressure with the banking examiner with regard to how long he can make these loans and if there were a guaranteed proposal on it and a longer period in paying off chattels and personal property I think it will be very, very helpful to the farmer that has to buy so much of that kind of thing.

Senator HUMPHREY. I want to make one observation, Mr. Chairman. The only area in American life that pays higher interest for shortterm loans than for long-term loans is the farmer. Any businessman in the world can get a short-term loan at low rates of interest. The farmer has to pay on short-term loans high rates. He is the one person that stands on his head.

If the Government borrows money, they get low interest on shortterm. If General Motors borrows, they get low interest.

Senator YOUNG. I borrowed some a few years ago and I paid 7 percent.

Senator HUMPHREY. We had to do a little refinancing on a little business of ours where we bought some $20,000 worth of equipment. We borrowed money for a short term at the lowest rate. Whereas if the farmer borrowed the same money for the same machinery he would pay a very high rate of interest.

Senator AIKEN. We have 48 States setting 48 interest limits; that is partly due to that fact. In my State it happens to be 6 percent. I doubt if it is any lower in any State.

Senator HUMPHREY. Why can you go in and buy, for example, new air-conditioning equipment for a business place on short-term loan at 4 percent interest? That is good, 4 percent. And if you went out and bought a new piece of farm machinery, and borrowed shortterm money on it you would pay 6 percent on it.

One has got a depreciation to it. It is fixed in a building, loses its value as soon as you put it in, except as you keep this business. I have seen that happen.

I know what we have to do. You can borrow money for almost a third less on a piece of equipment that you are going to put in a retail establishment, that will have little or no value once you have fixed it into it with the ducts and your lead-ins and wiring and everything else. If you sell the store, you do not get anything for it. Yet, if you buy a binder or a combine or a piece of equipment you pay 2 percent more interest.

Senator AIKEN. You can make that look even worse by pointing out that the industrialist probably owes 80 percent of his total net worth, and that the farmer owes 20 percent of his total net worth. Yet the farmer pays the higher rate of interest. It does not make

sense.

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