Evening star. [volume] (Washington, D.C.) 1854-1972, 1913-11-02
RURAL CREDITS.
IX.-The German Land
Mortgage Banks.
BY Frederic J. Haskin.

Cooperative credit is Il product of a
bloody war. 1t was first developed
with reference to land. then with ref
crence to personal liability. 1t is also
the product of tyranny, although it has
sufficed to release millions from the
tyranny of debt and the thralldom of
poverty. Looked upon when it began
as an unmitigated evil by the rich
landholders upon whom it was forced,
it has persisted and has brought in
numera.. e blessings to millions of poor
peasants. the while not hurting the
rich landholder.
We must go back to the seven years
war in Germany to see the beginnings
Of the present system of cooperative
credit. That war hit the noble land
holders a terrific blow. leaving them
landpoor in the superlative degree.
They had acres and acres of land. but
they had not mark with which to
cultivate it. To add to the confusion,
Frederick the Great suspended all in
terest charges against debtors for d
period of three years, and afterward
extended the period, thereby banishing
the money lender and leaving the
landowner with no power to get money.
At this juncture there came upon the
scene a Berlin business man, Herr
BuhrinS, who had the ear of the great
monarch. Require the mobiles to pool
their credit" said he to Frederick.
"and then they can borrow money"
so royal cdict was issued, forcing
the mobiles To join the association,
whether they wanted to borrow money
or not, and to make their lands liable,
without limit. for all loans granted by
the association. In that idea were
born the two greatest factors In mod
ern commercial lfe-the trust and the
ni..fi
The experiment worked like a charm.
Soon tho association found itself with
unlimited credit
Association Soon Had in keeping with
Unlimited Credit. ,,a = il eS-
tended. and so the first landgeschaft
started. Others we're formed voluntarily
And from that day to this, nearly a
century and half, the associations
of borrowers in Germany have thrived
and have made German agriculture the
worlds best example of the possibilities
of the soil.
The principle behind the land mortgage
bank. whatever its nature, is largely
the same as that behind our currency
system. The government tells us that
paper dollar in circulation. and so we
prefer the paper to the coin. So the
land mortgage bank says there is a
mortgage behind every bond IT issues
a mortgage that has perhaps two dollars
of property behind every dollar 1t rep
resents-and the investor is glad to get
hold of it.
Under our system the matter of mort
gage loans is "A personal one. Each
lender must know the financial RESPONSE
bility of the borrower and the value
of the Inortgaged property. Under the
mortgage bank system the banking eN-
perts look after this. The result is that
the land mortgage becomes as imper-
sonal as a railroad mortgage
Under the German system. when one
buys a land bond he buys II just as the
American investor buys a railroad bond.
Behind II lies mass OF underlying
mortgages, in addition TO the other as
sets of the bank issuing 1t, and behind
that the liability of all its members.
In former wears every member OF CO.
operative land-mortgage bank was liable
without limit. although the tendency
now is toward limited liability and a
large cash reserve.
Originally the landgeschaften did no,
give cash to a member in exchange for
his mortgage. Ii gave him, instead, :
bond containing promise to pay both
principal and interest in case of de-
fault by the debtor. This was simply a
process Of guaranteeing an individual
mortgage with an individual bond
Later they undertook to collect the in
terest and principal on behalf OF the
lender. and afterward adopted the pres
ent practice OF handling the whole
Observation-Disclosures the money to
the debtor, selling the bond to the
creditor. collecting principal and inter
est from the debtor and redeeming the
bond for the creditor.
This reyolntionized the money-lendins