cant. He has used credit of millions, upon $80,000 of capital. Building and loan associations can not do that. They have no place to go. Evidently it was insurance company money.

Now, then, next it is claimed that it would release vast amounts of frozen funds invested by savings banks and building and loan associations in mortgages for the mortgage brokers, Mr. Clark said:

We claim that the Reconstruction Finance Corporation was created for the purpose of releasing present credit assets and affording other assistance to savings banks and building and loan associations, as well as other institutions · needing financial relief, and no additional legislation is necessary.

That, gentlemen, may be out of confidence in the directors of the Reconstruction Finance Corporation, I can't judge, but I do know that the Reconstruction Finance Corporation can not begin to solve the small mortgage problem in America. A questionnaire and credit survey made by the United States Building and Loan League shows that there is needed at this time to unfreeze and to put into normal condition the home financing institutions in this country nearly one-half of the total amount which Congress appropriated for the entire Reconstruction Finance Corporation, and, of course, they have the railroads to look after, and they have the banks to look after, and they have the commercial companies to look after, and they have the depositors in closed banks to look after.

Now, then, if those gentlemen can show us that the Reconstruction Finance Corporation is going to take one-half of the total of $2,000,000,000 authorized by Congress and put it into all the home financing institutions, then I will tell you they can help the emergency situation, but that will still leave the necessity for a permanent institution to prevent the recurrence of the same thing. There is another thing, too, about the Reconstruction Finance Corporation. They have adopted a policy of not making a loan for more than six months. I want to tell you, gentlemen, that the building and loan associations do not need for their use any six months credit. They can not afford it, because, at the end of six months they will be in the same shape that they are in now.

I will tell you something else, that word has gone out that the money which is being loaned to building and loan associations by the Reconstruction Finance Corporation is money to pay back banks. They do it to pay the banks back and not the building and loan associations. They are no better off and their customers are still waiting to get a loan or to make a withdrawal if all of the money that they can get goes to pay back the bank they have borrowed from.

Fourth, it is claimed that such a system would tend to restore public confidence in home buying, thus giving support to a depressed real estate market, and the Mortgage Brokers say:

We claim that confidence in home buying can be restored only by proper selling and sound loaning methods, neither of which would develop from the proposed plan.

Well, no need to discuss that. We agree with him on sound selling, but we do state that where there is known credit and finance, certainly the sale of a piece of property or the purchase of a piece of property, that certainly the extension of that credit will not further depress prices. It certainly will help to stabilize them.

Fifth, it is claimed that it would create a central credit system for mortgage finance which ultimately would bring about standard practices, stabilize conditions and protect home owners' investments. The Mortgage Brokers and the insurance companies say—

We claim that the plan will not provide a workable central credit system for mortgage financing. Its stated purpose is to loan funds to building and loan associations and other institutions.

Now, then, as to whether it would be workable or not workable, we have the word of the building and loan association experts that will appear before you that the plan is perfectly workable. It is modelled after the Federal reserve system and the Federal farm loan bank system, both of which have proved very feasible and workable, and it is true that there are no direct loans. The fact of the matter is that we have a better set-up here than the Federal land bank, because there you had practically making a direct loan to the farmer. Congress had to create a type of building and loan association in the country districts through which to put into effect cooperative financing. You have already got building and loan associations organized and operating, and you have got billions of dollars of assets back of this system, ready to use this system, and for that reason it is workable.

Mr. HANCOCK. May I ask a question at this stage?

Mr. REILLY (presiding). Probably you had better let him finish his statement, Mr. Hancock.

Mr. FRIEDLANDER. Further than that we will state it is perfectly workable in New York State where State land bank reserve system was created and set up by and for building and loan interests and has proven successful now for about 14 or 15 years.

Mr. REILLY (presiding). I think I made a mistake on this ruling. In view of the fact that the gentleman is taking up different points I think if Mr. Hancock has a question he might ask him now.

Mr. HANCOCK. It is perfectly all right to wait. I have been very much interested in the impressive statement made by the gentleman and I am interested to know what his view is with respect to the difference between the operation of that system of banks as proposed by this bill from that of the Federal land bank system, and especially, on this point: What is there about the system proposed in the home loan discount bill that will insure a continuous flow of funds to be used in the financing of homes? I ask that question because you referred just now to the fact that the Federal land banks and jointstock land banks had more than $530,000,000 of outstanding mortgages. You did not state, however, the percentage of foreclosures. I think you stated with respect to the Federal land bank that only about 3 per cent were under foreclosure or had been foreclosed. Mr. FRIEDLANDER. That is correct.

Mr. HANCOCK. Now, you have both systems. You have the Federal land bank system to-day, and you have the joint-stock land bank system, and both are frozen up. Neither one can operate in the interests of agriculture and neither one has a dollar, so far as I understand, available for new loans to farmers. Irrespective of the assurances that they have given us that their policies during this crisis would be liberal, they are continuing daily to put into effect foreclosures, wiping out life savings with its inevitable devastation. Now, what is there about this system, and of course you should know

more about it than I do, and that is the reason I am asking you for information and constructive help-What is there about this system that would insure us against the condition that exists to-day with respect to the Federal land bank system, which you and Mr. Luce claim this system is partially fashioned after?

Mr. FRIFDLANDER. In the first place, the system is partially fashioned after the Federal land bank, and also principally fashioned after the Federal reserve bank system.

Mr. HANCOCK. Yes.

Mr. FRIEDLANDER. The Federal land bank system, as you recall, is one that is composed only of borrowing associations created for the purpose of borrowing money. There is no operating institution with substantial assets. With the Federal land bank system there are only the joint stocks operated there and borrowers, that is, individuals put in 5 per cent and take out an additional 95 per cent in place of it as a loan. Now, we say this is different because it is patterned after the Federal reserve bank. We are operating in this institution upon a base of building and loan associations which intend to use this institution as a reserve credit institution, for both long and short time credit and placing our money there on deposit when we have no need for it in loaning operations.

Mr. HANCOCK. May I ask a question right at that point?

Mr. FRIEDLANDER. Yes.

Mr. HANCOCK. Up to this present crisis, due to restrictions in banking credit and to degeneration in values and as a result of one cause or another, has there ever been a time up to this day, this hour, when a good building and loan association could not secure from its local bank all the funds that it needed at reasonable rates of interest? Mr. FRIEDLANDER. Yes; I imagine those conditions have existed many times every year when they could not do it, depending entirely upon local banking conditions. However, building and loan associations for business reasons ought not to have to depend solely upon rival systems of credit into which there sometimes creeps the danger of competitive feeling, and we do not feel that the home owner should be subjected to that character of feeling.

Mr. WILLIAMS. Let me ask you in that connection if that is not true in our land bank system with reference to the farmer? Mr. FRIEDLANDER. With reference to what?

Mr. WILLIAMS. Being subjected to a competitive system, about the land banks getting into various competition in the country, getting into competition with the local banks and local loan agencies? Mr. FRIEDLANDER. Yes; but they have to depend more or less upon the Federal bank in many respects. The question asked me was whether or not the building and loan associations could not get from the local banks all of the money they need.

Mr. WILLIAMS. Your answer is that the building and loan associations ought not to be dependent upon them?

Mr. FRIEDLANDER. Yes, sir. The home owner is dependent there upon the building and loan association.

Mr. WILLIAMS. That is not exactly the same situation as the farmer.

Mr. FRIEDLANDER. I can not see where the farmer gets tied in with the local bank.

Mr. WILLIAMS. I will tell you where he gets tied in with it, from the fact that the local banks carry 88 per cent of the farm loans of the country. That is where he gets tied in with the banks.

Mr. FRIEDLANDER. Then the Federal land bank has not put the banks out of competition.

Mr. WILLIAMS. And the fact is it has not relieved the situation at all, materially, has it?

Mr. FRIEDLANDER. I would say that it has. I am not a critic of the farm land banks.

Mr. WILLIAMS. Are you willing to place the reputation of this institution upon the record, or are you willing to place it upon the record made by the farm land banks and the Federal joint-stock land banks?

Mr. FRIEDLANDER. You have gone a little beyond it when you talk about the joint-stock land banks. The joint-stock banks were associations made up of private capital at the time of the passage of the farm land bank, and I would not at all want to place it upon the record of the joint-stock land banks. As far as the Federal land bank is concerned, I am quite an admirer of it. Of course, we know agriculture has gone through a grievous session in the Federal land bank case. The Federal land bank is not responsible for that. I call your attention, also, to the fact that Congress has set up a system of intermediate credit banks to relieve the farmer of the necessity of depending upon the local banks. That does not come in in connection with our situation.

Mr. WILLIAMS. I want to ask you about the intermediate credit system, are you familiar with that?

Mr. FRIEDLANDER. Somewhat.

Mr. WILLIAMS. What happened to them after that, that is, to the farmer now?

Mr. FRIEDLANDER. Of course, I am not an expert on farm relief. Mr. WILLIAMS. You referred to that as one of the agencies of the Government for relief of the farmers of the country.

Mr. FRIEDLANDER. I am talking purely about legislative relief. I want to say that I think the security of the home owner in a city or town is probably superior to the type of security which is behind your Federal land bank bonds. I also want to make this point that in this act you have got behind the bonds that will be issued not only the morgage security, which is all you have got behind your farm loan bonds, and the capital of the bank itself, but you have in addition the obligation of the borrowing institution which makes a great big difference.

Mr. WILLIAMS. Getting back to the credit agency, do you know at present that the intermediate credit banks are not able to furnish farmers of this country loans on an interest rate below 9 per cent? Mr. FRIED ANDER. I knew they were limited under the law.

Mr. WILLIAMS. They are in some States, and they can't furnish it, for the reason that they can't furnish it except by violating the usuary laws.

Mr. HANCOCK. Do you know that the farm land banks charge 8 per cent on extensions upon loans to all their borrowers now?

Mr. FRIEDLANDER. I do not know about that, but I venture to say the farmers would be worse off but for its establishment.

Mr. HANCOCK. Do you think that system has encouraged him to borrow more money than he would have borrowed otherwise? Mr. FRIEDLANDER. It may have in cases. I think that is the vice of

the short term.

Mr. HANCOCK. The reason I propounded my question is not to leave the impression that I am unfriendly to the idea incorporated in this bill, but I would like to have you distinguish, if you can, and tell us the difference between the operation of this proposed system and the Federal land bank system and the joint-stock land bank system, because, in my humble opinion, if you have any hope in the world for the success of this bill you had better divorce it from those two systems as quickly as possible. Reference to them would not be calculated to inspire faith in the value and need of the home-loan bank system proposed in this bill.

Mr. FRIEDLANDER. The Federal land bank system, as stated a few moments ago, could not get under way until Congress had passed, of course, at the same time, a bill which provided for the incorporation of national farm loan associations. National farm loan associations are nothing in the world but a group of farmers who want to borrow money getting together and agreeing to put in a nominal sum of money, having agreed to put in a nominal sum of money, which is 5 per cent of the amount they expect to borrow, and if they borrow $2,000, they put in $100. That is all the stock they take, and that is all of the additional collateral that is behind those bonds, is that stock. They come to your Federal land bank and borrow the money. Now, any of these bankers around here will tell you that 5 per cent is not a very high amount to make safe a loan, and they are perfectly willing to borrow just as much as they can get, but when a man comes into this he does not go to the home loan bank and has nothing to do with the operations of that bank. He comes to the building and loan association, he goes to the country bank or the life insurance company, and he borrows $2,000. This law here has nothing to do with that except the effect that it might have upon interest rates by reason of competition. That man has to make a loan with the local loan institutions, just as though this home loan bank system never existed, and it only produces reserve credit by which that institution may borrow 50 per cent or 60 per cent of the face of the note, providing the amount is not in excess of 40 per cent of the value of the security.

Mr. HANCOCK. Is the system as proposed here intended primarily for service to building and loan associations and kindred organizations?

Mr. FRIEDLANDER. We think it is.

Mr. HANCOCK. Your argument may be applicable to the joint-stock land banks in response to Mr. Williams's question, but what about the intermediate credit banks; there is something more behind that?

Mr. FRIEDLANDER. In the intermediate credit banks they have bonds behind them

Mr. WILLIAMS. Pardon me, but do I understand you to say that these Federal land bank loans have not anything but 5 per cent of the stock back of them?

Mr. FRIEDLANDER. Plus the mortgage security.

Mr. WILLIAMS. Undoubtedly; and the Government inspects that and approves it.