Iron County register. [volume] (Ironton, Iron County, Mo.) 1867-1965, 1917-02-15
farm LOAN ACT.
.. The Cooperative Banking
System estAbiished Under II

Ieau, Washington. u. CO
The federal farm loan act. adopted
in June. 1916. and signed by President
Woodrow Wilson shortly after, creates
a comprehensive, cooperative banking
system 10 lend money to farmers and
prospective farmers for purposes Of
land purchase, farm development, and
the refunding of indebtedness.
The system consists Of two main d.
visions; a mOney-assembiing agency.
through which the accumulation and
savings Of the country are gathered in,
and a money-lending agency. through
which this money is distributed for
agricultural uses.
The farm loan act. in brief, pools the
farm mortgages Of the nation; issues
a collateral trust security against these
pooled mortgages, and sells these Sc
curities in the open market.
The establishment Of this co-opera-
tive banking system was made neces-
sary by reason of the fact that banks
in most parts of the United States
have not possessed the facilities 10
properly take care Of farm loans be-
cause these loans required too long a
time to run; because interest rates to
turner's have been too higi' ranging
from ) per q n per amman to . per
cent per month; and because private
'ioney-lending agencies had not real
lied the reflex advantages to them
selves Of "A long time, amortiZed loan
TO the farmers.
Machinery for Its Application.
The machinery provided in the mp
plication of the farm loan act has
three main divisions:
First--The federal farm loan board
in Washington, ID. C., composed Of The
secretary of the treasury, William &
McAdoo. chairman OK otficio; George
W.. Norris, farm loan commissioner
Herbert Quick. Capt. W. s. A. Smith
and Charles Il. Lobtiell.
Sccond-The T. federal loan banks
throughout the United States.
Thira--The national farm loan asso'
\ cations, each composed Of ten or more
farmer-borrowcrs, which associations
secure loans for their members from.
the federal land banks.
The federal farm Joan board Is II
charge Of the entire system. Its first
important duty was to divide the coun
+v,- s,4%- Js t,L.i- .y....,At, cod y,1. Z,
one federal land bank in each. Thi'
board also provides the banks witt
temporary governing boards during
the process Of growth. Later Il system
Of cooperative self-government will b.
inauguratrd under which the associn
lions Of farmers will direct these bi!
financial institutions, under the super
vision of the federal farm lonn board
Each of the II federal land haul.
starts business with II paid-up capita
of S750,onO. subscribed by the govern
1nent, If private investors do not sub
scribe it within 80 days after the book
are opened. These banks have til
right to lend to national farm loan rs
sociations up to 20 times the capita
stock of the banks. The lending ca
pacity Of these banks Is a~utounaticall
increased by requiring the farm loa
associations to reinyest in the capita
stock of the banks one-twentieth q
the amount their members borrow
Thus the capital stock Of the banks il
creaseS in the SAME ratio as thci
loans. The banks acquire addition:
money for lending by selling their ow
bonds to investors.
Without Profit to individuals.
When a bank lends money and take
first mortgages on farms in exchange
it issues bonds against these mortgage
and sells the bonds to produce NOR
money to lend.
The bonds issued by one bank ar
secured by the assets Of all the bank
operating under this system, and til
rate of interest on the bonds is adjus
ed by supply and demand. The rat
of interest charged to members of far
loan associations for money which the
borrow from the banks. cannot excee
by more than l per cent the rate
interest paid on the bonds. This ma
gin Is provided to pay the cost {
operating the banks. So, il the homo
sell at 4 per cent and the cost
operating is ! per cent, the interes
rate to the farmer.borrowers will /
5 per cent. II the cost is held dow
to One.half of one per cent, the int
est rate to the farmers would be A.
per cent.
So, briefly. the members Of the Il
socintions Of farmers borrow from ii
banks; the banks issue bonds again.
the farm mortgages aud borrow none
from investors; the farmers invest &
amount equal to o~ne-twentieth Of Il
amount they borrow. in order to pr
vide I'M increasing capital for II
banks. and the whole process Is dor
under governmental supervision al
without profit to any individual.
No Hlndrance.
Pop. will you answer me one bus
ness question:"
-A