Evening star. [volume] (Washington, D.C.) 1854-1972, 1916-07-23


to it's members, on approved first mort
cages"
Action to obtain Charter.
DO you mean it is necessary for ten
men to get together and organize an
association to borrow always in sums
not less than s2o,O0O?" he was asked.
"Oh, no." he said this is only for
the establishment of a farm loan as
ISOLATION in order to procure a charter.
The charter having been granted, any
natural person may become memoer
and apply for loan not less than $loo
nor more than $4,000 by subscribing
to stock of the association to the ex-
tent of per cent of the loan desired.
such stock to be paid for only If mem
bership and loan be granted. The mem
bershsip and loans may be thus IN
creased indefinitely, but you will see
that under the limitation of 3 per cent
stock subscriptions the loans can never
exceed twenty times the assoc1atons
capital
We have seen how the borrower is
the owner and proprietor from the
beginning of every farm loan asso-
citation through providing and owning
the stock. These associations are re-
quired to invest the money thus re-
federal land bank, and the federal
land bank is prohibited from loaning
any association ION mortgages) In ex-
cess of twenty times the amount OF
stock such association holds in the
land bank.
Capital Stock Increases.
Thus you see the 5 per cent OF each
loan obtained by the borrower auto
maticalIy increases the amount of the
stock of the federal land bank, so
that the amount of it's increased stock
contributed by borrowers can never
be below per cent of the mortgages
or loans it makes. The initial capital
stock of $4,000 would enable each
federal land bank to make loans to
the extent of twenty times, or. say.
S15,0O0.G00, but in making SIS. 100000
loans the banks stock will have in
creased automatically by subscription
of the borrowers. 5 per cent thereof,
would be in the position to pay off its
initial stock, and yet have much
stock as it had originally. 1t is there
fore provided that the initial or
off and retired. commencing when the
loans made by the bank reach 81, 1000.
900. which means when its capital
stock automatically increases to $780,
stock contributed by the government
draws no dividends"
This is interesting, and explains
ultimate ownership of the banks by the
borrowers. it was asserted. but this
capital contributed by the borrower
is only 5 per cent of what he borrows,
and that, well as the 95 per cent
he retains for his own purposes. must
come from somewhere"
Proves Difficult prob1an,
Quite true" he said. This was the
most difficult part of the problem the
legislators had to solve. Some of the
misguided friends of the farmer had
the idea that credit can be created by
legislation, and some maintained that
the government had only to provide
an issuance Of it's notes to the federal
land banks, similar to the provision
for federal reserve banks and the
problem was solved These friends
failed to grasp the true nature and
function of credit: while it is the most
useful and powerful instrument in com
mercial and even civilized DEVELOPMENT
IT necessarily involves the use of an
others capital. and hence the creation
of debt, or promise of it's return The
use of another's capital cannot right
fully be had without his consent in
our form of government and therefore
10 pcy oHu Tue power OIL leSlSlat1On. The
issuance Of notes as in the case of the
federal reserve banks presents no an
alogous case. Such notes. no matter
by whom or how issued, are but the
evidence or expression of debt payable
upon demand. a promise to DISCHARGE
such debt with gold, and the federal
land banks could not be put in the DO
sitfon where such demand could be met
from the very nature of the assets they
are created to handle The use Of
{ Of
debts as a circulating medium is en-
tirely foreign to the function of land
banks. and whenever attempted in
conjunction Herewith has invariably
| led to failure and disaster, and must
always continue to do So
Margin Of Security.
THE problem which the legislators had
to solve was in part to provide the method
| whereby the land security which the
farmer can offer may be utilized, so as
| to secure for him the use of capital at a
| rate of interest which would leave him a
reasonable profit in the pursuit of his avo-
cation. The first essential was to satisfy
| the holder Of capital the use of which is
| sought, that its return is assured beyond
any reasonable doubt 1t being conceded
| that there is no better or safer ultimate
security for a debt than productive land,
| its non-availability as a quick asset (not
DelnS readily cOnVertlDIe INTO cash was
removed by putting one-half the actual
value it represents into the form of a debt
| or bond which would pass by delivery.
| This gives the investor or holder of capi-
| tai 100 per cent margin of security when
| invested in these land bonds. These bonds
are made the direct obligation of one Of
| the federal land banks. are secured by a
| first mortgage Of equal amount on pro-
| ductive lands worth at least double the
amount of the mortgage. and are guaran-
| teed by each of eleven other similar
! banks. AS a further attraction to the in
| weston the bonds and the income there
| from are exempted from taxation. In this
| manner the bonds issued by these banks
| are made SO attractive to the investor as
! to meet his approval and thereby COM
mand a broad and general market. hence
a low rate of interest, and thus secure for
the use of the farmer practically an un-
| limited supply of capital where 1t can be
safely and profitably employed.
Special Limitations.
There are special limitations and
restrictions to which attention should
| be called. and especially those as to
| the rate Of interest, which the mort
| gage loans made to the borrower. and
the bonds issued to the lender. may
| bear.
Il will not attempt to enter into the