The Washington times. [volume] (Washington [D.C.]) 1902-1939, 1929-09-10
+ AR NJ BANKING
SYSTEM now
PARALYZED
BY MERRYLE s. RUKEYsER
Copyright 1929. by Universal
Service. Incl

SeFVlce Incl
NEW YORK, Sept. IA serious
by-product OF the new preference
Of the financial public to trade In
common stocks rather than invest.
ing in bonds has been the driving.
up Of various economic activities
which are dependent on a good
bond market.
For example, the farm loan sys-
tenn, because of the condition of
the money market. Is virtually at
a standstill. On account OF an un.
favorable market for the bonds of
farm loan institutions, the banks
are unable to raise new funds on
a satisfactory basis. and as a re-
suit they are currently making vir-
tualiy no new loans to farmers.
The present inactivity comes
after period of internal mis-.
management of some OF the banks.
which resulted In several failures
among the Joint Stock Land
banks. Moreover, several of the
Federal Land banks have been
in unsatisfactory condition.
Some of the competent and
conscientious insiders are anxious
for a thoroughgoing congressional
investigation. with the hope that
constructive program can be
evolved.
In the IL years of It's opera.
tons, the system was perhaps
never so paralyzed as today.
The system consists of two
groups of banks-joint stock land
banks and Federal land banks,
which are under the supervision
Of the Farm Loan Board at
Washington.
About two years ago Eugene
Meyer was called to the Federal
Farm Board at Washington to
improve the administration. and
he and his associates, in seeking
to heighten the efficiency of the
, system. increased expenses.
In its earlier years the sys-
tenn was badly managed In Wash
fngton. In IL years II had five
different commissions at the head
of II, and there were numerous
changes in the personnel of the
board. Few real bankers were
chosen for the Washington board.
The system met its first great
crisis with the postwar deflation
OF farm values. AS result of
shrtnkages. banks found them
selves with mortgages covering
not so per cent of the land value,
but IS per cent or more.
Furthermore. some of the banks
had Incompetent management. In.
dictments have been brought
against the presidents OF two of
the largest banks, one in Kansas
City being in receivership. There
have been instances of dishonesty
and criminal prosecution. Three
joint stock land banks have been
placed in receiversilip and even
some Of the Federal Land Banks
have had tough shedding.
Conditions of regulation. which
have been frightened, have further
added to the difficulties of the
Federal Land Banks. When the,
law was first passed. the expenses
or the Federal Farm Loan Bureau
were paid by the Government.
The law allows to the Federal
Land Banks a gross profit on
its operations of only per cent.
out of which all operating ex-
penses must be paid.
An amendment to the law in
1923. compelled the banks of the
system to pay the entire expenses
of the Farm Loan Bureau. which
Tor the current fiscal year are esti.
mated at close to 81 1000, 600, which
must come out of the l per cent
gross profit of the banks.
The Federal land banks used to
sell their bonds at 5 per cent. and
lend to farmers on an amortiza-
ton plan at s per cent.
Up to Is months or SO ago, when
the bond market was still good.
the best-managed Federal Land
banks could market their bonds at
a premium. and could also borrow
at local banks at around Az per
cent. Accordingly, they could re-
lend to farmers for long periods
on real estate, and make a profit.
me change In the money mar.
ket, with interest rates substan-
tally higher all along the line,
has caused the banks practically
10 suspend making new loans.
with the Administration, ,Intler
President Hoover committed to
farm relief. it is important that a
reading agency for farm aid after
IL years has become almost in.
operative.
Some OF the individual Federal
Land Bank bonds are in better
financial condition than at any
time in the past, and their obliga.
tons. with their tax-exempt fea.
lures. are high-grade investments.
One well-managed bank i'm the sys.
tenn. Tor example. has $4,000, 900
OF bonds outstanding, with over
500 per cent in collateral behind
each bond.
The Federal Land system is
racing the same hardship that all
agencies dependent on the sale of
bonds are confronted with. For.
eign governments, municipal and
state governments, and higa-grade
commercial bonds have ali felt the
radical change in money market
conditions.
industrial corporations. however.
have been able to adjust them.
selves to changing market condi.
tions by selling shares instead of
bonds in order to raise additional
capital.
Besides the three Joint Stock
Land Banks in receivership, there
are 80 in good standing. with out.
standing loans to farmers totaling
1901 100000. These banks are
owned by investors who paid in
$41.745,000 for capital stock and
I.SS7, 900 as paid in surplus. The