or the volume is such as prevents the lending institution from servicing its usual farmer and stockman customers with necessary farm operating credit.

SEC. 4. (a) For the purposes of securing funds for carrying out this Act and administrative expenses in connection therewith, the Secretary is authorized and directed to make and issue notes to the Secretary of the Treasury aggregating not to exceed $ Such notes shall be in such form and denominations and have such maturities and be subject to such terms and conditions as may be prescribed by the Secretary with the approval of the Secretary of the Treasury. Such notes shall bear interest at a rate fixed by the Secretary of the Treasury, taking into consideration the current average market yields of outstanding marketable obligations of the United States having maturities comparable to the loans made under this section. The Secretary of the Treasury is authorized and directed to purchase any notes of the Secretary issued hereunder, and for that purpose, the Secretary of the Treasury is authorized to use as a public debt transaction the proceeds from the sale of any securities issued under the Second Liberty Bond Act, as amended, and the purposes for which such securities may be issued under the Act, as amended, are extended to include the purchase of notes issued by the Secretary. All redemptions, purchases, and sales by the Secretary of the Treasury of such notes shall be treated as public debt transactions of the United States.

(b) The funds made available under section 4 (a) shall be used by the Secretary to make direct loans under section 2, to fulfill the obligations of the Secretary under insurance agreements made pursuant to section 3, to purchase such insured loans prior to maturity and default, for advances pursuant to section 5, and for administrative expenses made in connection therewith. Receipts from insurance charges under section 3, liquidation of obligations and security purchased by or assigned to the Secretary, and repayments of advances under section 5 shall be used by the Secretary for repayments of notes made to the Secretary of the Treasury under section 4 (a).

(c) The Secretary shall report to the Congress fully on each activity under this Act at the beginning of each session of Congress.

(d) There is authorized to be appropriated, or otherwise made available, such additional sums for carrying out this Act as Congress may from time to time determine.

SEC. 5. (a) Upon the application of any approved lending institution and upon the showing by such institution that its cash available for loans is inadequate to take care of the production credit needs of its usual farmer and stockman customers, the Secretary may enter into agreements with any such institutions for advance of cash to the lending institution out of which that institution will make loans to persons eligible, for the purposes authorized, and in accordance with the terms and conditions of section 2 of this Act. Any loans made out of such advances shall be collected and serviced by the institution in accordance with the terms of the notes evidencing such loans.

(b) The agreements with the lending institution shall provide that all sums advanced by the Secretary, all notes and security taken by the lender, and all collections thereon shall be held in trust for the benefit only of the Secretary in accordance with the terms of the agreement. The agreement shall further provide that out of the first collections made on any such loan there shall be repaid to the Secretary interest at the same rate per annum paid by the Secretary to the Secretary of the Treasury under section 4 of the unpaid balance of the advance to the lending institution. The balance of the interest on such loans shall be retained by the lending institution for its own account as a service fee.

(c) After collection and liquidation of loans made by the lending institution, in the manner provided in section 3, if the collections of principal on all loans made by said institutions out of said advances by the Secretary are insufficient to repay said advances in full, the remaining notes and security, if any, shall be assigned to the Secretary upon demand. The aggregate unpaid balances of the loans made out of such advances at the time of such assignment shall be the tentative losses, three-fourths of which shall be borne by the Secretary and onefourth by the lending institution in final settlement for the advance.

SEC. 6. The Secretary is authorized to make such rules and regulations and such delegations of authority as may be appropriate for carrying out this Act. SEC. 7. If any provision of this Act is held invalid, the application of any provision to other persons or under other circumstances shall be valid and remain in full force and effect.

Mr. POAGE. At this time I want to give Congressman Smith an opportunity to say a few words because he has to go to a committee meeting of his own.

STATEMENT OF HON. FRANK E. SMITH, A REPRESENTATIVE IN CONGRESS OF THE THIRD DISTRICT OF THE STATE OF MISSISSIPPI

Mr. SMITH. You will recall earlier hearings we had on this problem about a month or a week ago; it was our hope then that we could get some administrative relief that would perhaps make it unnecessary to have any legislation in the field.

There has been quite a bit of action by the Farmers' Home Administration and by the Farm Credit Administration to improve this problem, but despite all they have done I think it is still essential that we are going to provide the necessary help for the farmers who were caught in this tragic credit squeeze that we should enact legislation along the line as proposed by Mr. Jones, or whatever proposal is or can be worked out that will provide some long-term credit for our farmers.

As you perhaps know, the Farmers' Home Administration has liberalized its loan provisions, to enable some minor payments on certain types of debts that farmers have, but their restrictions are still very rigid in certain fields.

The Farm Credit Administration has made additional capital available to the production credit organizations; at least, the 4 in my district have all been given $250,000 to $300,000 additional capital to make additional loans, but those loans would be made just for the members of that organization who have been participating and have been financed by them in the past.

I would like to call attention to the situation that exists with one of our largest farm financing organizations in my area and in the whole Cotton Belt, I am sure. It is in Greenwood, Miss. They have given notice to their borrowers that states in part :

We enclose check for the first disbursement of your 1958 loan, and in this check desire to call your attention that these funds are advanced to you for the sole purpose of producing a crop in 1958, and not to be used to pay bills or accounts or other past due obligations.

In other words, these past due obligations of the farmers involved are not going to be met, unless there is some arrangement for a longterm loan made available to them. If those obligations remain outstanding there is going to be, no matter what the future holds in the way of our current year's crop or how things develop in the future, there will be considerable trouble for our farmers and considerable turnover in farm ownership unless we get some action along this line.

So I hope that the committee will see fit to bring out Mr. Jones' bill or something similar that will provide some long-term loans for these farmers where they can meet the discretion and obligations that they incurred in 1957 due to the disastrous weather conditions.

Mr. POAGE. We are very much obliged to you.

Are there any questions?

If there are no questions, we appreciate your coming before us.

Mr. SMITH. Thank you.

Mr. POAGE. I am going to ask Mr. Jones, the author of one of the pending bills, if he cares to make a statement at this time.

STATEMENT OF HON. PAUL C. JONES, A REPRESENTATIVE IN CONGRESS OF THE 10TH DISTRICT OF THE STATE OF MISSOURI

Mr. JONES. I would like to speak, Mr. Chairman, directly to H. R. 10954, which is a bill that sets out in specific detail how I think the funds which are needed to take care of emergency credit could be administered.

Recently the Farmers' Home Administration sent an investigator down into southeast Missouri. And prior to the time that he went down there, Senator Symington of Missouri sent telegrams to 31 different people in that area whose names had been given to the representative from the Farmers' Home Administration and whom they contacted on this problem of credit.

Here is the situation at the present time, at least, in southeast Missouri, and I think this might be typical of other sections of the country: We have a good agricultural area and, ordinarily, are not in trouble.

Last year we had approximately 100 inches of rain. The normal rainfall in that area is around 50 inches. That rain came in the spring and interfered with the planting of the crop. It, also, came in the fall and interfered with the harvesting of the crop, particularly cotton. It is estimated in that immediate area that the agricultural income is approximately 45 percent of a normal year. The Farmers Home Administration has recognized the fact that we need credit there. They have been most cooperative in sending people to that area. I want to say that they have been responsive to our requests for more liberal credit terms.

We held some meetings in southeast Missouri last year that were attended by Mr. Henry Smith, from the Washington office, and by Mr. Schwabe, the State administrator of the Farmers Home Administration, and at this meeting which was attended by representatives of banks, gins, implement dealers, oil distributors, and other businessmen, it was pointed out that there was a need for more credit through Farmers Home Administration and a change in the regulations that had been used in the past.

The Farmers Home Administration has done this, for which we are very appreciative.

In setting up the budget for their clients this year they included money to take care of taxes, interest, a payment on the chattel notes, to the extent of up to 15 percent of the present valuation of the equipment on which mortgages were held. That item of depreciation was put in there to try to forestall the foreclosure of farm equipment. While the Farmers Home Administration was reluctant to take that step, they did take it, and it worked out even better than most of us anticipated, because in many instances the farm-equipment dealer and the bank, knowing that the money was available, did not exercise their right to foreclose and in many instances continued to carry those people.

There is another area of credit which is being partially taken care of through the Small Business Administration. The Congress, as you

recall, passed an amendment to the Small Business Administration Act here a few weeks ago, and that bill was signed by the President about 2 weeks ago, I don't recall the exact date.

I had arranged to hold a series of conferences in southeast Missouri and had asked the regional director of the Small Business Administration to come to that area to explain the new regulation and the qualifications necessary to obtain loans from the Small Business Administration.

Those meetings were held this week on Tuesday and Wednesday. There is a tremendous amount of interest in that type of loan for small businesses that have been caught in a squeeze due to the fact that the credit, which they extended last year to farmers to help make their crops, the farmer just did not get any money, he could not pay off.

If all of these businesses were eligible for small-business loans and with the Farmers Home Administration adopting the policy that they have, we could get along very well, but, unfortunately, many of these small businesses are not large enough to qualify for a smallbusiness loan. I am thinking, particularly, of the crossroads grocery, the blacksmith and repair shop, the fellow who distributes bottled gas, the fellow who sells fertilizer, the business which has extended credit in a small way but for the most essential operations of anyone engaged in farming.

Mr. POAGE. May I break in there? Those business people are not able to make the application required by the Small Business Administration, are they?

Mr. JONES. They do not have the facilities to do that. They are

small business.

Mr. POAGE. What do you estimate the cost of making application to the Small Business Administration is?

Mr. JONES. Well, I had experience with one business down there. A fellow started in more than a year ago to try to get a small-business loan, and during the Christmast holidays he had been turned down in the regional office; he had been turned down in the Washington office. Then he had reapplied and they were going to take his application, but they were requiring another audit. And he told me, he said:

Well, the thing about it is I have spent over $700 already with having audits, for legal services in getting this application prepared.

And he said:

I don't know whether I want to put another $200 or $300 into this application without any more assurance of getting a loan, than I have at present.

He did go ahead, he spent the other $200. So he had close to $1,000 in the expense of getting this small-business loan.

The type of business I am talking about is the fellow where he might have outstanding accounts of $2,500 or $3,000 or $4,000, which means that that is the thing that determines whether he is going to stay in business or whether he will be out of business. He may be the fellow at the crossroads that runs a little blacksmith and welding outfit. He welds machinery. He makes adjustments on tractors and things liks that, but he has to get somebody to give him some credit to buy these parts. Last year he got all of the credit he could from every place he could, but he has exhausted his credit.

He may have 20 to 50 customers, and those customers may owe him anywhere from $25 to $50 each. Those people that he extended credit to, would have paid him last year if they had had a normal crop. Those people may not owe over $300 or $500 in all of their debt. Some might be on their grocery account, some might be on bottled gas, or on kerosene or for fertilizer. It might even be a doctor bill, and after all, all doctors are not like the doctors that we think of today, because we still have some country doctors down home that go out and give service on credit. But those people are the type of people that need this credit badly.

This bill that I have introduced, H. R. 10954, would provide for the Secretary of Agriculture to make the money available to banks, to production credit associations, or for loans to be made through the Farmers Home Administration. It would be made only for the purpose of refinancing unsecured indebtedness of farmers or stockmen incurred in connection with the making of the 1957 crop, and so forth, for the cost of feed, seed, fertilizer, machinery, repairs, oil, gas, gasoline, and other fuels for farm machinery and home consumption and for family subsistence in 1957, including food, clothing, medical and hospital expenses.

This bill does not propose to go back and pick up a lot of old debts. It is not introduced for the purpose of bailing anybody out. It is made for the purpose of enabling the farmers, the small farmers who have historically done business with a small-business man to get a loan, to enable them to put all of these small debts in one package, and then would have up to 5 years to pay that debt off.

The original bills that were introduced-and I introduced one of them were to provide funds which would be administered by the Farmers Home Administration for the purpose of picking up open accounts and those type of debts.

Mr. JOHNSON. Would you have them pledge the accounts, the smallbusiness men pledge the accounts?

Mr. JONES. We do not make the loan to the small business, Mr. Johnson. This loan is contemplated to be made to the farmer but it would only be made to him on the presentation of the accounts from these people and with the understanding that the money would be applied for this specific purpose and no other purpose. That means that this money was to be made available, and that it would be loaned through the bank which does carry on the normal credit for that person, through the Production Credit Administration which has its clients or through the Farmers Home Administration for its regular clients.

The reason I put that in there was to try to avoid disrupting the normal business procedure.

Instead of 100 percent guaranteed loan as was contemplated in some of the first bills introduced, this bill would be a 90 percent guaranteed loan. In other words, the bank would have a dime of every dollar of their own money in there and, if the loan was not collected, they would pay that part and the Government would pay the 90. And we put that in there to encourage the bank to at least be interested in the collections, that the Production Credit Company could be interested in the collection. And while it is the most liberal loan, it is an unsecured loan. At the same time it is made to a person who has another loan which is