Evening star., 1933-11-03
Morgentllau Explains Farm Financing Plan
PRODUCTION

list of purposes In the first place, the
money must be borrowed for an agri-
cultural purpose. This includes the
production and harvesting of crops, the
breeding, raising and fattening Of live
stock. and the production Of live stock
and poultry products.
In making these loans the officers OF
the association will consider not only
the security in the form of liens on
live stock. work stock. crops and imple-
ments, but also the applicants net
worth and personal character, as well
as his ability to repay the loan from
the proceeds of the salable crops and
live stock produced on the farm.
Loan Limit Is Set.
The amount of money which any in
dividual may borrow cannot exceed 20
per cent of the associations capital and
guarantee fund unless the loan is speci-
fcially approved by the Production
Credit Corporation of the district. In
terest charges will depend to a large
extent upon the rate of interest which
the associations have to pay for the
money which they obtain by discount
ing the farmers notes with the Inter
mediate Credit Bank
The IL Federal Intermediate Credit
Banks are selling their debentureS to
the investing public bearing a very low
rate of interest and the rate which
they charge f5- TIE funds which they
loan cannot exceed by more than l per
cent the rate borne by the debentures.
The rate charged by the association can
not exceed the rate paid the Interme-
diate Credit Bank by more than 3 per
cent. This spread Of 3 per cent be-
tween what the association pays for
hi of hn 10
which it loans the money goes to pay
the current operating expenses, to re-
Day any losses to build a reserve to
provide a guarantee fund and to pay
dividends.
At present the Federal intermediate
credit banks are charging from per
cent to 81, per cent. thus making the
rate to the farmer borrowing from
production credit association not to
exceed 6l2 per cent. In most districts
the rate is per cent. 1t is obvious
from the way in which production
credit is to be made available to farm
crS that leans must BE- made on A
sound business basis and not on a
charity basis if the funds are to be OBJ
tanned al low rate OF interest.
Capital to Go to Bonds.
The stock which the Production
Credit Corporation purchases is not the
same kind which the borrower pur-
chases In the production Credit Associa-
ton. The corporation buys what Is
known as class A stock. Funds invested
in class stock of the Production
Credit Association will be used by the
association to purchase high-grade
bonds which will be pledged with the
Federal intermediate credit bank of the
l;etr ~ hoh
the farmers notes discounted by the
intermediate credit bank for the ProdIc
ton Credit Association.
The Production Credit Corporation
will purchase stock in each association
in amounts sufficient TO maintain the
class A stock holdings of the corpora
tion and other investors equal to ap-
proximately 20 per cent of the loans
made or to be made to farmers by the
association. At no time. except
with the consent Of the asso-
citation. will the class A stock be
less than IS O0O. When the stock is so
pledged. the association ordinarily Will
be able to discount notes up to to 6
times the amount Of the bonds pledged
as additional collateral. For example:
$4,000 which it invests in United
States securities and it pledges them
with an intermediate credit bank, it
can expect ordinarily to discount with
the bank farmers notes in amounts
ranging from 100000 to 100000
Glass A stock does not carry a vot-
ing privilege, but it has a preferred
claim on the assets in case of liquida-
ton. Glass B stock is purchased by
the borrower. II does not carry double
liability and the owner is entitled to
only one vote regardless Of the amount
of the stock which he owns. Both types
of stock share equally in dividend tlS-
tribution. The farmer borrower cannot
use this class B stock 10 apply or the
principal of his loan at maturity. He
retains the stock until the following
year if he expects to borrow again, or
II he does not borrow for two-year
period however, he must sell his stock
to another borrower or it will be trans
ferred to class A stock. AT some future
date, if he should wish to borrow again,
has class A stock can be transferred to
class B. Thus the management Of the
association is kept In the hands of the
active borrowers.
Production Credit Associations, of
course must operate on business basis,
and they will be supervised by the Pro-
duction Credit Corporation of each dis
trict with that end in view. II the as
sociations are properly managed they
should be of inestimable assistance TO
farmers in their respective areas.