The Washington times., 1920-05-04
FARM LOAN BOARD
FACES EMERGENCY
Borrowed "caII Money" From
Banks to Lend on Farm
Mortgages.

Uncle Sans Federal farm loan
banks are facing an unusual and
highly delicate situation. according TO
the Federal Trade Information
Service.
The farm loan system has, in ef-
feet. borrowed call money from pri-
Vate banking institutions, TO lend TO
farmers on mortgages--long-t term in
yestments, in anticipation OF a favor
able decision by the Supreme Court
OF the validity Of the farm loan act
The decision has been delayed. and
bankers. who have loaned. IL Is under
stood, approximately $40. 900. 900 to the
board. are becoming restive, and in
dicate that they may want TO "cali
in their loans"
sitastton IL Unusual
As the beard is without funds, the
situation Is an unusual emergency.
The Federal Trade Information Serv-
Ice says:
"The Federal farm loan system Is
threatened with serious embarrass-
ment as a result OF the action of the
Federal land banks, with the approv-
al OF the farm loan board. in antici-
pating the decision OF the Supreme
Court OF the United States in the
case involving the constituionality OF
the farm loan act by making loans.
subject TO call. with banks In various
cities. The case was expected to
reach a decision last winter. but the
Supreme Court ordered a reargument.
indicating that there Is a division In
sentiment among the members as to
the validity Of the act.
Because the act had been assail-
ed. the Federal land banks found diff
ficulty in marketing their bonds and
raising funds with which to make
loans through the National Farm
Loan Associations TO the farmers of
the country. Eager to meet the de-
mands OF the farmers and confident
that the court would find in favor of
the validity Of the act and. therefore,
re-cstablish the market for these
bonds, the Federal land banks made
arrangements with banks whereby
they borrowed sufficient funds to
keep going, giving as collateral Sc
curity farm mortgages which they had
taken from the farmers and farm
loan bonds. In order to obtain the
loans, il was necessary for the Fed
cral land banks to make them on
condition that they would repurchase
the collateral and refund the loans on
call Of the banks.
Banks Become RestIve.
"Inasmuch as the order OF the
court requiring a reargument of the
case means that there can be no de-
cision before late fall or winter. some
Of the banks have become restive
ard have indicated to the Federal
Land Banks that they may wish to
exercise their option and demand the
sums advanced.
'sThe Federal Land Banks have, Of
course, been lending the money OBJ
tained through these loans to the far
mers at long term and therefore have
no funds with which to meet the
banks calls
The situation is so serious that the
Federal Loan Board called the Pres
ident OF the twelve Federal Land
Banks into conference at Washing
ton on Monday to devise emergency
means Of meeting the situation. For
the banks which advanced the funds
20 foreclose on the Federal Land
Banks would mean a serious attack
upon the solvency of what, under the
low is. indirectly Government
agency.
"The board and the presidents Of
the Federal Land Banks have reme-
dies for the situation under advise
ment. One plan is TO have Congress
amend the Federal Farm Loan Act so
as to permit the secretary OF the
Treasury to purchase S100,Oo0.O00 of
Farm Loan bonds. This would bring
in enough money to permit the Fed
eral Land Banks to pay off their
emergency loans. Another plan is to
have Congress amend the act so as to
permit the Secretary of the Treasury
10 make large deposits in Federal
Land Banks. Under the act as it now
reads. the Secretary may make such
deposits but only to the extent OF
Sc 900 900, an amount insufficient to
take care Of the bank loans
Use Is Prohibited.
Further, section OF the act pro-
hibits use of such deposits for invest
ment in bonds or mortgages held by
the Federal Land Banks. Should
either of these plans to amend the
act be successful, il would mean that
the public Treasury would be called
upon TO put $I00,O00,OO or more into
the Farm Loan system in addition TO
what it already has invested.
For the first two .ears of the sys-
TENS existence the law authorized
the Secretary OF the Treaury TO buy
Farm Loan bonds at the rate OF $780,
900 900 year. This was done, nearly
up to the limit. although some of the