Evening star. [volume] (Washington, D.C.) 1854-1972, 1913-11-02

business and built up system
of credit,
A Revolution combini ing
In Money Lending. ~ cue ,,onas aa me
gradual repayment of the principal by
the mortgage maker and the building
, up of a sinking fund to meet the bonds
when they should fall due. Each of
these functions is Indispensable to the
success of the system. but the greatest
among them is the principle of amor
tization. The borrower decides how
many years he requires to pay back
the loan, and it is then divided into so
many annual installments He must
meet these as Well as his interest pay
ments. and that means frugality and
sustained effort at getting out Of debt,
thereby intoxicating the habit Of thrift
1t also reduces the interest burden of
the borrower from year to year, at the
same time increasing with each passing
year the margin between the value Of
the mortgage and the size Of the debt
The present day landgeschaften are sim
ply syndicates of borrowers, who sup
ply themselves with capital upon the
lowest possible terms and upon the
easiest possible methods of repayment. In
most of these societies there are no
shares paid in, and when there are they
are usually a certain percentage of the
loan to be made. The candidate for a
loan simply asks that n bond be issued
against a mortgage on his property If his
mortgage is approved he gets his money
ana the society sells the bond in the
open security market, the mortgage ma
turing before the bond does. The Sc
curity for the bond does not lie in d
ylv-fiO rl.nr-
OF the mortgages held The result is that
per cent bonds are usually at a pre-
MUM. While the debt is usually amor
tized III fifty years, the borrower does
not have to let it run that long He
can anticipate just as many annual paw
ments as he desires.
The tendency in the landgeschaften Of
Germany today is to place especial Dor
rowing facilities in the hands of the
small borrower. He is furnished loan
up to a closer margin of the value Of the
property pledged. Where the big bor-
rover cannot pledge his buildings or his
stock. the small borrower can get ad-
vances based upon them in connection
with his land. Under the law no landge-
schaft can refuse to place a loan where
, the borrower meets the conditions of
security required and must inform the
borrower OF the results of its appraisal of
his property. Appraisal is made by a
committee of neighbors, none of whom
may be relatives of the borrower. Loans
cannot be recalled except where the bor-
rover allows his property to deteriorate
In such way as to affect the selling
value of the pledged property.
:: K
The result of the operation of the co.
operative land mortgage banks has
D r o g h I
Farm Mortgages Are into ex
Favored Investments. So. : Il &c a
Der of homeopathic banks of this
nature, and this in turn has brought
about in Germany condition where farm
mortgages have become the favorite
sources OF investment. Even governmeU
bonds mean no more to the investor than
the land mortgage bonds, and the German
farmer finds his securities the most
sought after of any on the market His
credit is gilt-edged. He can borrow on as
good terms. both with respect to low in
terest rates and easy installments of re-
payment of the principal. as the govern
ment itself can.
Compared with our American system
where the land mortgage is about the
most difficult of all securities to handle
where the term of repayment is less than
a fourth as long as that of other classes
of securities, and where the farmer finds
himself up against the highest rates of
interest. large commissions and short
terms of repayment the German system
makes ours look more than a century out
of date. Although the American farm is
at the basis of all American values. it
has never been touched by the simple
alchemy of transmutation of property
into money and money into property as
the needs of the farmer require: and con-
sequently the farmer must labor under
/ financial conditions that We're regarded
as out of date in Germany soon after
America achieved its independence
| In the articles that follow the reader
will have glance at how the German
system of rural finance works when
i transplanted to other lands-how ii has
set the farmers of Italy upon their
economic feet. how il has aided the
French farmer in achieving his economic
!. independence and how it is Transforming
rural ireland. The advocates of rural
credits for the United States see In the
Universally OF its success an effective
answer 10 the contention that what might
iwork in Germany might not succeed in
1.-THE United States.