Mr. CLARK. Most of that delinquency total, Mr. Chairman, is greatly overdue. I think 70 some percent of that delinquency is 4 years or more delinquent. And most of that delinquency is composed of emergency disaster loans and economic emergency loans that were booked some years ago. If you start writing down those disaster loans, it is a giveaway program.

Senator CONRAD. Well, then, in effect, have you not already lost that money, and you just have not owned up to it?

Mr. CLARK. That is correct. However, you are really intimating a commitment to go on with those farmers by writing down that debt which says we also have a commitment, then, to continue with them with another year's operating funds. And I think that opens up another can of worms of continuing that debt forward.

Senator CONRAD. Well, help me understand further because this I find most interesting. The hard reality is, I think you would agree, FmHA has already lost billions of dollars. By that I mean we look at this $7.6 billion, and, if I hear you correctly, much of this is 4 years in arrears. We have lost that money. We have just not admitted to ourselves that we have lost it.

Mr. CLARK. That is correct.

Senator CONRAD. So S. 1179 which would write-down to current market value in those cases where you would get less if you went to foreclosure or liquidation is not going to lose $7.6 billion.

Mr. CLARK. Again, I think you are intimating a commitment to go on with those farmers, and I am saying we cannot go on with those farmers that are 4 years or more delinquent.

Senator CONRAD. No, I do not think there is any intimation of anything of the sort. I think there is a recognition that we have already lost the lion's share of this $7.6 billion and so when you assert, as you have in your testimony, that if S. 1179 passes we lose $7.6 billion, that is really not a fair statement.

The fact is we have already lost a good chunk of the $7.6 billion. S. 1179 does not lose you $7.6 billion which one would infer from your testimony.

Mr. CLARK. Well, I hope it is not $7.6 billion today. I think there is at least $2 billion in that portfolio that could be written off with the snap of a finger if we get the paper work done today. I hope there is some hope of salvation of the remainder of that debt. And I am saying that S. 1179 would wipe out that hope of salvation for the taxpayers.

Senator CONRAD. Well, again, let us go back so that we fully understand what both of us are saying because, number one, you have agreed that we have already lost significant amount of what is in this portfolio because it is so far in arrears that there is very little hope of full recovery, or even substantial recovery. Is that a fair statement?

Mr. CLARK. True.

Senator CONRAD. So, number one, S. 1179 does not lose you $7.6 billion because you have already lost a good chunk of that.

Mr. CLARK. Well, let us make it $5.6 billion. Is that any better? Senator CONRAD. No. No, I do not think that is probably a fair estimate either. And the reason I would say that is because what this bill does is simply say you write down to market value. Now, market value, if we lost half of market value in the last 6 years,

you would not be losing the whole amount. You would be writing down to current market value, and only in the case where that would lose you less than going to foreclosure or liquidation.

So, again, maybe you can explain to me how you come up with a full loss when we are writing down to current market value unless you are assuming there is no market value in this portfolio at all? Mr. CLARK. In many cases, that would just not be a feasible approach. You write-down to the current collateral value. And normally we would go on and liquidate that account and get out from under that account. But you are saying, again, continue with that farmer, write it down to present value, but go on. I guess I would feel more comfortable if we could approach that situation with a commitment not to go on from the Farmers Home point of view. Senator CONRAD. Let me ask this question. Let me pursue this because I am sincerely interested in attempting to devise legislation here that passes and addresses some of the problems which you yourself, I think, recognize as being out there.

If there was language saying you would write-down if the farmer could then cash-flow, would that make you more amenable?

Mr. CLARK. No, it would not.

Senator CONRAD. So you would not be willing to write-down to current market value even if the farmer could then cash-flow? And even if that would mean less of a loss than going to foreclosure or liquidation?

Mr. CLARK. You are still forgiving debt, Senator, and I think that is wrong.

Senator CONRAD. Well, perhaps that is wrong, but Mr. Clark, if it means the Federal Government gets more than going through foreclosure and liquidation, don't you think that would make good business sense?

Mr. CLARK. That is our difference of opinion. I do not think we would get more. We would go on making loans to borrowers, many of whom have made bad management decisions. Many of whom who outbid values of property that have caused them a debt problem.

Senator CONRAD. Well, Mr. Chairman, that is precisely what this legislation says, though. You would be writing down to market value only in those cases where you would get more by doing so than by going to foreclosure or liquidation. Now, assume with me for a minute that this would be administered properly, and since you would be the administrator, I assume you are willing to make that assumption.

If you could save more, if you would have less of a loss by restructuring, less of a loss to the Federal Government, and the farmer could cash-flow, then would you think it was a good thing to do?

Mr. CLARK. It might look good on paper, Senator, but I tell you the long-term ramifications are wrong. It sends the wrong signals, not only to our borrowers who are not at that stage yet, but I think to all agricultural borrowers who are customers of other lenders. Senator CONRAD. Well, let me say to you that I find that position an impossible position to defend. I mean if what you are saying is you would be unwilling to write-down a loan even if it would save the Federal Government money to do so, and allow farmers who

are out there to stay on the farm, that you would be opposed to that for some punitive reason or some reason I do not understand, then I have difficulty with that.

Mr. CLARK. Senator, I have been lending money to farmers practically all of my adult life. I can tell you from a pure lender's financial point of view that tact is wrong.

Senator CONRAD. Well, I will tell you something. We are going to be hearing from commercial bankers very soon who disagree with you completely. They are doing precisely what we are advocating here, absolutely what we are advocating here. They are doing it. They are doing it because it makes good business sense.

I was a creditor for 6 years as the tax commissioner of the State of North Dakota, and if there is one thing that I learned being a creditor is, that there are some cases, many cases, when you are better off restructuring a debt than to foreclose and liquidate because you, as the creditor, get more money. Would you agree with that?

Mr. CLARK. That is exactly what we have been doing for so many years, restructuring, reamortizing, all of those things. We are up to the point of forgiving the debt and going on.

Senator CONRAD. Well, that is exactly what this proposes. Now you are telling me that there are times when you favor restructuring and forgiveness of debt. What is the difference?

Mr. CLARK. I did not say forgiveness. I said restructuring. There are times when we can do that today. But the borrower is still there on a payoff situation.

Senator CONRAD. Let me ask you this. As a lender, as a lender, have you ever forgiven debt?

Mr. CLARK. Certainly.

Senator CONRAD. And why did you do it?

Mr. CLARK. Well, I think I am going back into my private sector days. There are all kinds of things that are happening there. It could be a death, an estate, serious illness, or whatever. If there was any hope of collecting that debt, you did not do that.

Senator CONRAD. Right. But when there is no hope of collecting, did you ever forgive debt because it made good business sense to do that?

Mr. CLARK. Certainly.

Senator CONRAD. Then why is that not true in the case of farmers?

Mr. CLARK. It is a farm to farm situation. In the private sector, they deal with each individual farmer separately. I do not think they broadcast that around either. They do not tell the world what they have done within a private situation with one borrower. We are telling the whole world here is a new system. We are opening the door, you know, come in, and we will talk to you and forgive your debt. It is a Pandora's box.

Senator CONRAD. Well, if you do not-this is a democracy-if you do not tell people what the policy is, then some people know about it and some people do not. Is that what you are advocating?

Mr. CLARK. The private sector works exactly that way.

Senator CONRAD. Yes, but this is not the private sector. This is the Federal Government. Maybe that is the confusion that we have here. I mean, are you advocating-I am sure you are not-saying

that we have policy, but nobody knows about it except the some who get it and some who do not?

Mr. CLARK. Your question was have I ever given forgiven debt. And I have in my private sector life, not in government to that extent.

Senator CONRAD. Well, again, it seems to me the same logic that would lead you to forgive debt in the private sector, and if we are going to do it it ought to be done with a policy that is clear and open and consistent. Would you agree with that?

Mr. CLARK. We do forgive debt. It is a liquidation. We will forgive the debt. But we do not go on financing him into the next century of production. We do not. We liquidate an account. We do forgive debt.

Senator CONRAD. Yes. But again, let us go back to what the aim of this bill is. The aim of this bill is to allow restructuring in a case where you get more money that way than you do by liquidating or foreclosing. Does that not make perfect sense?

Mr. CLARK. If it would pencil out, certainly it would. I am saying it would not pencil out that way. We have a difference of opinion on that, obviously, Senator.

Senator CONRAD. Well, I am disappointed because what I hear you saying is that logic that would hold in the private sector somehow does not hold in the public sector. And to me it is so clear. When I served as a creditor, as a tax commissioner, over and over I learned, over and over, that in case after case you were better off to restructure than to foreclose or liquidate because as the creditor you got more money, and, at the same time, you allowed the borrower to continue on, especially if, through no fault of their own, they had hit an economic precipice.

Let me give my colleague, Senator Daschle, an opportunity to ask some questions.

STATEMENT OF HON. THOMAS A. DASCHLE, A U.S. SENATOR FROM SOUTH DAKOTA

Senator DASCHLE. Thank you, Mr. Chairman, and I welcome the Administrator here. I look at Vance Clark, and I look at the Farmers Home Administration, and I cannot decide whether-I know he is a contractor. He is a representative of the Federal Government. The question is whether he is a contractor of a construction crew or a demolition crew.

I really do not know when I look at the Farmers Home today whether it is more demolished, or whether it is in better construction than it was when he started. But I really do not put all the fault on him. I put the fault on OMB for not adequately providing him with adequate funding. I put the fault on this administration for not giving him the tools with which to work. I put the fault on many of his top leadership within the Department of Agriculture for not creating a policy through the Farmers Home that is tangible, that is focused, that gives any kind of a coherent approach to lending policies in the time that he has been there. And that is what is disappointing to me.

I think when one would ask today in Washington or in any county in South Dakota what is the policy of the Farmers Home

Administration with regard to lending, no one can say what it is. It is nonexistent. And to that extent, I think there has been a demolition crew at work in the Farmers Home Administration.

I find this somewhat amusing really that we talk about forgiveness and forbearance when we are told by Third World countries they are not going to pay back their debt, we are told by countries all over the world, allies and foes alike, that restructuring of debt goes with the contract, goes with the loan. We just are willing to accept that. It seems to me the farther away you are from Washington, especially if you live abroad, you have a darn good chance of getting forbearance and restructuring of debt. But if you are in some farm outside the capital city in North or South Dakota, there is absolutely no chance of getting forbearance and the kind of restructured debt or forgiveness, and that is what driving people into chapter 12 bankruptcy, more than anything else. Chapter 12 is becoming the panacea, the only way that farmers can get assistance, and chapter 12 ought not be the solution. Chapter 12 aggregates and further complicates lending practices. It does not solve anything.

But that is what our policy is. It is a de facto chapter 12 bankruptcy situation that has to be alleviated. I would hope, I sincerely hope that at some point, we can come together as Democrats and Republicans, as people in this administration, as people in Congress, and say, look, we can reorganize the Farmers Home and provide the kind of forbearance and the kind of latitude that we need in lending practices that we just do not have today.

I would like to ask a couple of questions along these lines. First of all, if you could define in 25 or 50 words or less what the current policy is with regard to restructuring of debt and forgiveness of loans, what would it be? Universally, to a farmer, whether he is in North Carolina or South or North Dakota, they walk in, and they say, all right, we have the expectation that we know that there is such a program. Define it for us.

Mr. CLARK. Our program is universal, Senator. It is no different in your State than it is in Mississippi or California.

Senator DASCHLE. Then why is it not administered that way, Mr. Clark?

Mr. CLARK. I think it is, and you and I have a problem about that solution as well. I am telling you the policy is

Senator DASCHLE. Tell me what it is in 50 words or less.

Mr. CLARK. Our policy is to work with our borrowers to do whatever we legally can to keep them in that operation, to use all of the servicing tools that we have to keep them on that farm, and the last thing is to foreclose on their property. We do not want their farm. And I think you will find us bending over backward

Senator DASCHLE. Why don't you tell your supervisors that? Mr. CLARK [continuing]. All across the Nation to do just that. Senator DASCHLE. You really believe that. Why do your supervisors not carry out that attitude if that is your policy?

Mr. CLARK. I think they do.

Senator DASCHLE. You really do?

Mr. CLARK. I certainly do.

Senator DASCHLE. Then why are so many people going into chapter 12 today?