The Washington herald., 1921-10-12


holders who felt q personal re-
sponsibilIty and therefore provided
inspection by a competent disinter-
ested auditor II is very probable
that there would have been less
wild cat banking and fewer failures.
Practically everyone will admit
that the farmer has greater difficulty
in securing satisfactory loans for pro-
duction, and that In securing loans
through the Federal Reserve system,
his security although good. is in a
form harder to put up as collateral
than Is the security of many other
classes OF borrowers. We need. in ad-
dition to our banking system, TO
remedy this very evident defect. II
seems to me that the bill in question
fills the need. 1t Is sound economically
and believe would work out prac-
tically. The system OF multiple insur-
ance which Is provided should give the
farmer sound insurance at a COM
paratively low rate. feel that 1t gives
added strength to the bill"
system Much Needed.
Prof. Frear. after setting forth the
I'VE have no adequate system to
meet these needs. In many States, no
chattel mortgage IS legal, nor is II
adapted as security for lipne, fertilizer,
feed or seed now except TO local lend
ers. Great associations, with limited
liability, have been legslized in a few
States, and are undoubtedly helpful
when utilized, but their securities are
localized and subject to the relatively
large risks which attend such localiza-
ton; and largely require fairly long
term loans. The chief dependence OF
the agricultural borrower has been the
State and national bank. II the con-
ditions of the farmers temporary
money requirements were like those pi
the merchant and like most Of THOSE
~ the manufacturer. the present bank
ing system could safely serve the
! farmer But production capital to be
u.ed nv the farmer must be borrowed
for a longer period than thirty to
ninety DAYS. The banks loanable
I funds consist, for the most part. OF
| deposits payable on demand.
"Experience has most painfully and
! clearly shown that deposit banks may
/ NOT except at a ruinous risk, lend
I SuCn deposits CAGCPN obcA
tion that they be returned within q
| feu, weeks. No device OF advance ar
! rsngement for frequent renewals ol
| sboTt.time loans can, II such loan:
4 FORM a considerable part OF the bank:
Ioanable funds. avoid. in a pincn' tn'
had alternative Of a broken promise tc
! the borrower or broken promise tI
| the depositor. The Federal reserve
! system can equalize the strains upor
the regional banks, but it cannot re-
move the necessity that demand de
posit funds be kept liquid.
McFadden Bill Meets Need.
| The McFadden rural credit bill
proposes a system which appear
| adequate to meet the capital neeo'
| above mentioned as now mad
eouately met. Its rural credit as
sociation features have proved
/ practicable in German, French ant
i italian experiences for fifty years
or longer. The local association
made conservative by its mutua
liabilities, will probably warran
the issue of farm credit paper onlI
upon information as to the sound
ness of the related production
project and the skill and characte
of the producer, fuller and safe
than that upon which most OF GU
present time commercial paper ant
investment securities are floated
and with collateral insurance no
used for the protection Of INVESTOR
in the later mentioned obligations
'fBy the proposed system, the risk
from drought, flood. storm an
plant and animal disease are wldel!
distributed and therefore great!
diminished; also its nationwide
reach should make ii a channel TO
the ready flow of the cheaper capi
tai to the point of demand.
When the rural credit paper ha
been standardized, 1t may reason
ably be expected that its interes
rate will be stabilized, that II ma,
readily be sold and resold, that !
will therefore become more liqui'
in its investment character, an,
that II will find a market with tn
smaller investors similar to tha
for bankers acceptances amonl
J the larger investors-to the mu
tuaI advantage Of debtor ant
creditor"