SEC. 15. (a) Whoever makes any statement knowing it to be false, or whoever willfully overvalues any security, for the purpose of obtaining for himself or for any applicant any loan, or extension thereof by renewal, deferment of action, or otherwise, or the acceptance, release, or substitution of security therefor, or for the purpose of influencing in any way the action of the corporation, or for the purpose of obtaining money, property, or anything of value under this act, shall be punished by a fine of not more than $5,000 or by imprisonment for not more than two years, or both. (b) Whoever (1) falsely makes, forges, or counterfeits any note, debenture, bond, or other obligation, or coupon, in imitation of or purporting to be a note, debenture, bond, or other obligation, or coupon, issued by the corporation, or (2) passes, utters, or publishes, or attempts to pass, utter, or publish, any false, forged, or counterfeited note, debenture, bond, or other obligation, or coupon, purporting to have been issued by the corporation, knowing the same to be false, forged, or counterfeited, or (3) falsely alters any note, debenture, bond, or other obligation, or coupon, issued or purporting to have been issued by the corporation, or (4) passes, utters, or publishes, or attempts to pass, utter, or publish, as true any falsely altered or spurious note, debenture, bond, or other obligation, or coupon, issued or purporting to have been issued by the corporation, knowing the same to be falsely altered or spurious, or any person who willfully violates any other provision of this act, shall be punished by a fine of not more than $10,000 or by imprisonment for not more than five years, or both. (c) Whoever, being connected in any capacity with the corporation, (1) embezzles, abstracts, purloins, or willfully misapplies any moneys, funds, securities, or other things of value, whether belonging to it or pledged or otherwise intrusted to it, or (2) with intent to defraud the corporation or any other body politic or corporate, or any individual, or to deceive any officer, auditor, or examiner of the corporation, makes any false entry in any book, report, or statement of or to the corporation, or, without being duly authorized, draws any order or issues, puts forth, or assigns any note, debenture, bond, or other obligation, or draft, bill of exchange, mortgage, judgment, or decree thereof, or (3) with intent to defraud, participates, shares, receives directly or indirectly any money, profit, property, or benefit through any transaction, loan, commission, contract, or any other act of the corporation, or (4) gives any unauthorized information concerning any future action or plan of the corporation which might affect the value of securities, shall be punished by a fine of not more than $10,000 or by imprisonment for not more than five years, or both. (d) No individual, association, partnership, or corporation shall use the words "Farmers' Reconstruction Finance Corporation" or a combination of these four words, as the name or a part thereof under which he or it shall do business. Every individual, partnership, association, or corporation violating this prohibition shall be guilty of a misdemeanor and shall be punished by a fine of not exceeding $1,000 or imprisonment not exceeding one year, or both. (e) The provisions of sections 112, 113, 114, 115, 116, and 117 of the Criminal Code of the United States (U. S. C., title 18, ch. 5, secs. 202 to 207, incl.) in so far as applicable, are extended to apply to contracts or agreements with the corporation under this act, which for the purposes hereof shall be held to include loans, advances, discounts, and rediscounts; extensions and renewals thereof; and acceptances, releases, and substitutions of security therefor. SEC. 16. The right to alter, amend, or repeal this act is hereby expressly reserved. If any clause, sentence, paragraph, or part of this act shall for any reason be adjudged by any court of competent jurisdiction to be invalid, such judgment shall not affect, impair, or invalidate the remainder of this act, but shall be confined in its operation to the clause, sentence, paragraph, or part thereof directly involved in the controversy in which such judgment shall have been rendered. The CHAIRMAN. In addition to those bills there have been introduced in the House and Senate amendments to the agricultural marketing act of 1929 for the purpose of incorporating in that act the so-called debenture plan and the equalization fee plan. But these are bills pending before the committee which have been referred to subcommittees in the main that have not been acted on by this committe, and having made reference of these bills to the various farm organizations, it is hoped that they will be able to discuss these matters that the committee may have their opinion concerning the legislation. There has been one difficulty in all the meetings we have had regarding farm relief and that is to bring about a crystallization of opinion among the farm leaders in respect to farm relief and the appropriate legislation.. I think that is one of the reasons why we have seen fit to bring together the representatives we have this morning. Mr. Bestor, do you desire at this time to be heard? STATEMENT OF PAUL BESTOR, FARM LOAN COMMISSIONER FROM MISSOURI, FEDERAL FARM LOAN BUREAU The CHAIRMAN. If you will occupy this seat at the head of the table, Mr. Bestor, giving your full name, address, and the public service that you perform. Mr. BESTOR. Paul Bestor. Farm loan commissioner from Federal Farm Loan Bureau. The CHAIRMAN. Mr. Bestor, you have received from the chairman of the committee a number of suggested plans of legislation. They have been submitted to you for your consideration and advice. You have read them all, I assume, and are prepared to discuss them? Mr. BESTOR. I have read them all, Senator. There are some of them that do not particularly concern the farm loan system. The CHAIRMAN. Well, the one that I think probably does more particularly there has been so much said for and against it—is the so-called Frazier bill, S. 1197. That affects the credit structure of the country and naturally affects your institution. You have read that, of course? Mr. BESTOR. Yes, Mr. Chairman. The CHAIRMAN. Can you discuss that in your own way? Mr. BESTOR. May I say, Mr. Chairman and gentlemen of the committee, that I appeared some time ago before the subcommittee. The CHAIRMAN. Yes. Mr. BESTOR. Senator Frazier was chairman. I spoke very briefly in regard to this particular bill. I think you have, Mr. Chairman, a letter which was written by the Secretary of the Treasury in regard to bill S. 1197. The CHAIRMAN. Yes. Mr. BESTOR. I should like to ask permission to have the Secretary's letter inserted here in the record. Briefly, the bill provides for the liquidation and refinancing of farm mortgages and farm indebtedness at a reduced rate of interest through the farm loan system, the Federal reserve banking system and the postal savings depository system, and would set up machinery for refinancing farm mortgages and other farm indebtedness existing at the date of the passage of the act. I should like to call your attention to the fact that the interest rate provided on farm mortgages at 112 per cent. In the past the lowest rate obtained on Federal land bank bonds has been 4 per cent, and it would not appear how they could possibly be sold to the public at any such rate as 112 per cent. They would, therefore, have to be taken by the Federal Reserve Board and the trustees of the postal savings depository system. Furthermore, if such a low rate were provided, a very large part of the present agricultural debt of the Nation would be refinanced with no margin of security required and no means provided for absorbing the operating expenses and losses incurred by the banks. There is a further provision that: The benefits of this act shall also extend to any farmer, or member of his family, who lost his farm through indebtedness or mortgage foreclosure since 1920 and who desires to purchase the farm lost or another farm. In such cases a new loan would include the principal of the entire original loan plus all accumulations on the loan over a period of years. Hon. CHAS. L. MCNARY, Chairman Senate Committee on Agriculture and Forestry, MARCH 8, 1932. United States Senate. Dear Mr. CHAIRMAN: Careful consideration has been given, in accordance with the request contained in your letter of December 21, to Senate bill 1197, introduced December 9, to liquidate and refinance agricultural indebtedness, and to encourage and promote agriculture, commerce, and industry by establishing an efficient credit system. The bill would provide "for the liquidation and refinancing of farm mortgages and farm indebtedness at a reduced rate of interest through the Federal farm loan system, the Federal reserve banking system, and the postal savings depository system," and would set up machinery for refinancing farm mortgages and other farm indebtedness existing at the date of the passage of the act. This work would be carried on under the supervision of the Federal Farm Loan Board which would be directed "to make all necessary rules and regulations for the carrying out of the purposes of this act with expedition." There would also be created a Board of Agriculture consisting of one member from each State "who shall be elected by delegates selected by a mass convention of farmers in each county or parish within the United States." Immediately following their election and upon call of the Federal Farm Loan Board, the members of the Board of Agriculture would be required to meet in Washington for the purpose of making such rules and regulations as they deem necessary and expedient in carrying out the purposes of this act," and of electing “an executive committee of three" who would receive "a salary of $10,000 per annum, and 5 cents per mile for necessary traveling expenses while on official business, to be paid by the United States Government in the manner now provided for the payment of salaries of Members of Congress." The executive committee would in turn be required to "counsel with and supervise the work of liquidating and refinancing farm mortgages and farm indebtedness by the Federal Farm Loan Board and the Federal Reserve Board." * * Section 3 of the bill provides for the liquidating of existing farm mortgages "by making real-estate loans, secured by first mortgages on farms, to an amount equal to the fair value of such farms and 50 per centum of the value of insurable buildings and improvements thereon *. Such loans to be madeat a rate of 12 per centum interest and 12 per centum principal per annum." Section 4 of the bill would provide for taking up and liquidating existing chattel mortgages and other "farm indebtedness" by making loans at 3 per cent interest per annum secured by first mortgages on livestock. The first sentence of section 5 is as follows: "The funds with which to liquidate, refinance, and take up existing farm mortgages and other farm indebtedness shall be provided by the issuing of farm loan bonds by the Federal farm loan system, through the Federal Farm Loan Board and Federal land banks, as now provided by law, which bonds shall bear interest at the rate of 12 per centum per annum, if secured by mortgages on farms, and 3 per centum per annum if secured by chattel mortgages on livestock used for breeding or agricultural purposes," The farm loan bonds which would be issued under the terms of the bill would be available for purchase by individuals or corporations; Federal reserve banks would be required to make certain investments in such bonds; "the trustees of the postal savings depository system" would be required to invest 40 per cent of postal savings in the same securities; and the Federal Reserve Board would be directed to issue and deliver an equal amount of Federal reserve notes against any such bonds not readily purchased. The bonds which would be provided for by the bill would bear the same rate of interest as the loans which were made, so that there would be no spread with which to absorb operating expenses and losses. Since the realestate loans could equal the "fair value of such farms and 50 per cent of the value of insurable buildings and improvements thereon," no substantial margin of security would be required. Obviously, the interest rates of 12 per cent upon farm mortgages and 3 per cent on chattel mortgages on livestock, which are proposed by the terms of the bill for refinancing existing farm indebtedness, would be very much lower than the rates now available on loans of this character. It would have to be expected, therefore, that there would be an immediate demand to refinance a very large part of the existing agricultural indebtedness under the terms of the bill if enacted, bringing into the Federal land bank system an enormous volume of loans with practically no margin of security required and no means provided for absorbing operating expenses and losses incurred by the banks. The bonds would bear interest at the rate of only 12 per cent per annum if secured by mortgages on farms and 3 per cent per annum if secured by chattel mortgages on livestock. In the past it has never been found feasible to market Federal land bank bonds bearing a rate of interest lower than 4 per cent per annum. In such circumstances it seems obvious that except for the mandatory investments required to be made by Federal reserve banks and trustees of the Postal Savings depository system, it would be necessary that the bonds be taken over by the Federal Reserve Board and that Federal reserve notes be issued therefor. If Federal reserve banks were required to issue Federal reserve notes in exchange for the farm-loan bonds provided for in this act, which might be as much as $10.000,000,000, a much larger sum of gold than is now in this country would be required to provide the necessary reserves against these notes. Furthermore, the assets of the reserve banks, which are the custodians of the reserves of our entire banking and currency system, would be largely tied up in inadequately secured long-time paper. In the circumstances I am convinced that the adoption of the proposed legislation would be ruinous to the Federal land bank system and the Federal reserve system and would imperil the monetary standards of the country. For the reasons stated, the department is opposed to the enactment of the bill S. 1197 into law. Very truly yours, OGDEN L. MILLS, Secretary of the Treasury. The CHAIRMAN. Section 3 of that bill, S. 1197. The CHAIRMAN. Section 3 is as follows: The Federal Farm Loan Board is hereby authorized and directed to liquidate, refinance, and take up farm mortgages and other farm indebtedness, existing at the date this act takes effect, by making real-estate loans, secured by first mortgages on farms, to an amount equal to the fair value of such farms and 50 per centum of the value of insurable buildings and improvements thereon, through the use of the machinery of the Federal farm land banks and national farm loan associations, and to make all necessary rules and regulations for the carrying out of the purposes of this act with expedition. Such loans to be made at a rate of 12 per centum interest and 11⁄2 per centum principal per annum. That is the authority vested in the Federal Farm Loan Board to carry out the principal purposes of the so-called Frazier bill. I wish you would discuss that provision, if you will. Mr. BESTOR. Mr. Chairman and gentlemen, it seems to us that the provisions of this bill are not founded on such business principles as would enable the farm loan system to continue to function, and that the ultimate result of such a law would be to destroy the system. For instance, it has been found by the experience of the Federal land banks that the provisions of the farm loan act, which fixes a maximum loan of 50 per cent of the appraised value of the farm plus 20 per cent of the appraised value of the insurable improvements, have not been sufficiently conservative to prevent large losses in the system. If you extend the provisions of the law to provide for loans to be made on a much more liberal basis to farmers, while it may benefit the farmer for the time being, the ultimate effect upon the system would be to destroy it. I think it is manifest, Mr. Chairman, that in so far as the farmer is concerned, he would undoubtedly be benefited by cheaper money and more liberal loans temporarily but if the agency through which the loan is made should be destroyed' the ultimate effect upon the farmer would be most disastrous. Senator CAPPER. Would making a lower rate injure the system at all? Mr. BESTOR. It is not the rate that would injure the system but rather the basis on which the loans would be made, the failure to provide a proper margin for operations and the privilege of refinancing all present loans. The CHAIRMAN. What effect would the loaning at the rate of 12. per cent have upon the system and as to the banking structure and. to the credit structure of the country in general? Mr. BESTOR. It would appear that all of the farmers who are now paying 5 or 6 per cent as well as those paying more, would demand immediately that their obligations be refunded at a lower rate. Manifestly that would destroy all other loan systems. There would be no way in which you could expect one farmer in the farm loan system to be paying 5 per cent on his loan and turn around and loan money to all the other farmers who desired it at 12 per cent. The CHAIRMAN. Assume that all the farm group are accommodated at 112 per cent under section 3 of this bill, what effect would it have upon the loaning to the other groups of this country in so far as. touching on the rate of interest? Mr. BESTOR. Its effect would be that you would be giving very special rates to the agricultural group that could not be met in other groups. Senator BROOKHART. Mr. Chairman, I have to go at half past 10.. The CHAIRMAN. Yes. Senator Brookhart, go right ahead. Senator BROOKHART. I would like to ask a few questions. You have described this farm loan system as a liberal system. But in Denmark they loan 90 per cent of the value, and they loan the full value of the buildings and stock and things like that, and they havehad almost no losses. Does that not indicate that your system instead of being liberal is a Shylock system that has broken down. land values and helped to put farmers in the condition they are in now? Mr. BESTOR. Well, Senator, there are some other factors in Den-mark that we do not have here. In Denmark they have a stabilized agriculture that has been there for hundreds of years, and a dense population, and a limited supply of land; whereas in this country you have an abundant supply of land. Senator BROOKHART. But they have to depend on their foreign markets for the disposition of their surplus the same as we do for our surplus, while ours is largely at home." Mr. BESTOR. That may be true, and I do not pretend to know all the factors that do exist, but I do know that the situation in Euro |