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Mr. Hart. And later concentrate it?

Mr. HOFFMAN. They are concentrating it all of the time. They do not leave it stored around at all little places.

Mr. Hart. For instance, a lot of cotton that is received to-day is not shipped to-night, is it?

Mr. HOFFMAN. It may not be shipped to-night, but it is shipped to-morrow. The cooperatives have blanket insurance which covers every bale of cotton received by any one of their agents. In many instances last year, for instance in Arkansas, private warehouses could not or did not secure insurance on it, and in one place a thousand bales of cotton were burned, which was a total loss, because it was impossible to secure any insurance. The farmer thought he had paid the Government.

As a matter of fact, we held the receipts only as collateral against that loan, but it was not a discharge of the obligation; and, in other cases, warehouses were closed-small warehouses which were opened up where the farmer stored his cotton and received a receipt, and later when the department checked or inspected the warehouse, the same was closed and the cotton gone. Because of the necessity of immediate action to assist the farmer and further in view of the fact that the department did not have the facilities to make a survey or inspection of every cotton warehouse throughout the cotton States and in order to protect the Government's interests and also that of the farmers', those two classes of warehouses were named; and there have been many instances of where owners of reputable houses have shown us that they had a concrete warehouse, where the insurance rates were sufficiently cheap and the cotton was stored at reasonable rates, they were accepted and cotton is being stored in those warehouses.

Mr. Hart. But you have not made any announcement along that line?

Mr. HOFFMAN. Our field inspectors know it and the people themselves know it, as is evidenced by the fact that we are receiving and accepting cotton every day where they are sending receipts into the offices.

PAYMENT OF FREIGHT CHARGES TO CONCENTRATION POINT BY

FARMERS

Mr. BUCHANAN. Now I want to know something else. The Secretary authorized the collateralizing of those crop-production loans on cotton at 9 cents a pound. In Texas, they are making the farmer pay the freight to the concentration point, or the warehouse. In the case of cooperatives, where they have two such points in Texas, one at Houston and one at Galveston, where the farmer in the interior of the State delivers cotton why he pays the freight down to the concentration warehouse. Are they doing that in the other States?

Mr. HOFFMAN. I do not know whether they are or not.
Mr. BUCHANAN. I just want equal treatment; that is all.

Mr. HOFFMAN. I do not know whether they are or not. In Texas, they do concentrate all cotton in those one or two points; whether or not they will concentrate to the extent of placing all of their cotton in one or two points in other areas, I am not sure.

Mr. BUCHANAN. Anyway, the crop-production loan authorities are requiring them to pay the freight from these interior points to the concentration point and the warehouse that the cotton is destined to from the cooperatives?

Mr. HOFFMAN. They are not requiring them to pay anything. All they are asking them to do in those cases is, if the freight, say, is $2 a bale from where it is grown to the concentration point, they are asking that sufficient collateral be put up at 9 cents to take care of this $2 transportation charge.

Mr. BUCHANAN. Are they doing that in the other cotton States? Mr. HOFFMAN. I do not know, sir.

Mr. BUCHANAN. I wish you would look that up and insert it in the record.

Mr. HOFFMAN. Yes, sir.

NOTE. --The cotton in Texas was collateralized at 9 cents per pound, the same as in all the western territory. The Dallas (Tex.) office used 9 cents as the port price and the collateral plan was applied accordingly.

AGRICULTURAL-CREDIT CORPORATIONS

Mr. JUMP. Now, Mr. Buchanan, at page 430, that language relating to agricultural-credit corporations is simply bracketed as being dropped from the bill. You will recall the amendment last year to authorize the financing of agricultural-credit corporations.

Mr. BUCHANAN. What is done with this fund? Mr. HOFFMAN. That is the $10,000,000 fund? Mr. BUCHANAN. Yes; and you want this provision out of the bill. Has it been transferred to some other department?

Mr. HOFFMAN. That is permanent legislation; the appropriation becomes a revolving fund, and that was the reason for dropping it from this bill. The money was appropriated last year. Mr. BUCHANAN. It is a revolving fund? Mr. HOFFMAN. Yes, sir. Mr. BUCHANAN. And now it has become permanent law? Mr. HOFFMAN. Yes, sir.

Mr. BUCHANAN. Is the Department of Agriculture still administering it?

Mr. HOFFMAN. Yes, sir.

Mr. BUCHANAN. Have you any money in that fund which is available for the organization of these agricultural corporations?

Mr. HOFFMAN. Yes, sir, $10,000,000, for direct loans to individuals to purchase stock in these corporations.

Mr. BUCHANAN. Some of it has been used, has it not?
Mr. HOFFMAN. Only $60,000.
Mr. BUCHANAN. And the balance of it is still available?
Mr. HOFFMAN. Yes, sir.
Mr. BUCHANAN. And will be until when-always?
Mr. HOFFMAN. Always.

Mr. BUCHANAN. What per cent of this stock has to be subscribed
by private individuals and what per cent by the Government?
Mr. HOFFMAN. I am not sure as to the specific amount.
Mr. BUCHANAN. I think that act fixed the amount, did it not?

Mr. HOFFMAN. I do not think it did. The Secretary's regulations require that a specific percentage has to be subscribed by local interests and that he will loan up to a specific percentage amount.

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Mr. BUCHANAN. No, he takes stock. Mr. JUMP. It may be that the provision in the Reconstruction Finance Corporation act prescribes the amount-does it?

Mr. HOFFMAN. I do not know about that.

Mr. JUMP. I know this does not, but I thought maybe the other one did, and was what Mr. Buchanan was thinking about.

Mr. BUCHANAN. An act was passed by Congress, introduced by Mr. Jones, of Texas, on this subject.

Mr. JUMP. This is the act,
Mr. BUCHANAN. And did not it prescribe the amount?

Mr. HOFFMAN. I do not think it did, sir. What is the reference to that?

Mr. JUMP. It is Public Resolution No. 11 of the last session of Congress.

Mr. BUCHANAN. No, it is No. 114, is it not?

Mr. Jump. That is the one that carried the $20,000,000; but Public Resolution No. 11 is the Jones Act, of the last Congress. It is a very short bill.

Mr. BUCHANAN. It seems to me it is 65 per cent of the stock to be taken by the Government in these corporations, and 35 per cent by private individuals. I find some language here:

No loans shall be made to individual stockholders on the capital stock of, or to create, or increase the capital stock of any such company, or organization, in an amount in excess of 75 per cent of the par value of the capital stock of such corporation.

Now, how does that work? Suppose a lot of people out in some community want to form an agricultural corporation, what would they do?

Mr. HOFFMAN. Well, as an example, seven individuals in Texas formed the North Plains Livestock Co. and they applied for loans in various amounts from $900 up to $10,800.

Mr. BUCHANAN. Each individual applied for a loan?
Mr. HOFFMAN. Yes, sir.
Mr. BUCHANAN. For what purpose-to buy stock?
Mr. HOFFMAN. To buy stock in this corporation.
Mr. Hart. How much money did they have to put up?

Mr. HOFFMAN. I do not know in these specific cases, but it has to be a sufficient amount to show enough local interest, to the extent that their paper is acceptable for discount purposes in the Federal intermediate credit banks. In other words, if the Government would subscribe all of the capital to those corporations, the chances are that the Federal intermediate credit banks might discount the paper only once; but if 50 per cent of it, say, was subscribed by the local interests, and 50 per cent of it subscribed by the Government, the chances are that the paper would be subject to rediscount four or five times; because the people who run it would have their own money invested in it and would have an interest in making it a going concern.

Mr. BUCHANAN. If they applied for these loans, suppose the loans were approved and they got the loans and they subscribed to the capital stock in the amount of the loan they secured, would they put any money of their own in there?

Mr. HOFFMAN. Yes, sir; they have to put a certain per cent of their own money in.

Mr. BUCHANAN. How much?

the amount of the capital stock, say $10,000, of that

North Plains Live Stock Co.

Mr. HOFFMAN. As is indicated by that last statement there of the private contribution or subscription to the stock, and the Govern

Mr. BUCHANAN. He would apply for a loan in proportion to his ment would loan him the balance? Mr. HOFFMAN. Loan him the balance.

Mr. BUCHANAN. Would loan each one in proportion to his private of stock with the Secretary of Agriculture as security? Mr. BUCH ANAN. And the corporation would be formed? Mr. HOFFMAN. Yes, sir. Mr. HOFFMAN. Yes, sir. or some local manager? Mr. BUCHANAN. They would elect, I suppose, a board of directors, Mr. HOFFMAN. Yes, sir. Mr. BUCH ANAN. The individual would apply for a loan, and file would approve of that application, then the manager would send that his application, and if the board of managers of the local corporation to the intermediate credit bank and they would advance the money? Mr.HOFFMAN. Yes, sir. Mr. BUCH ANAN. And that process could go on for four or five or

Mr. HOFFMAN. Whatever amount is acceptable to the corporation, to the Federal intermediate credit bank, for discount purposes.

Mr. BUCHANAN. Well they can not go to these different institutions and find out what is acceptable to them?

Mr. HOFFMAN. Yes, sir.

Mr. BUCHANAN. You have formed some of those corporations, have you not?

Mr. HOFFMAN. Yes, sir.

Mr. BUCHANAN. How much did those people put in of their own money?

Mr. HoFFMAN. Sometimes 40 per cent, and the Government 60 per cent.

Mr. BUCHANAN. Now, then, say five people in my community get together and want to form a $10,000 corporation, their total private contribution or purchase of stock in that corporation would amount to $4,000—40 per cent of $10,000—would it not?

Mr. HOFFMAN. Yes, sir.

Mr. BUCHANAN. And the Government then would take up the balance of the stock?

Mr. HOFFMAN. No, sir. We would loan the individuals-Mr. BUCHANAN. The balance on the stock? Mr. HOFFMAN. The rest of the money to buy this stock with, and all of the stock has to be put up with us as collateral for that loan.

Mr. BUCHANAN. And that is the only collateral you require? Mr. HOFFMAN. Yes, sir; and the man, of course, has to submit a Mr. BUCHANAN. Then if four or five people in any community could put up $4,000, they could apply to the Secretary of Agriculture for $6,000, or’ I suppose each one of them would apply for a bien in proportion to his private subscription to the stock;'is that

and they would put up, then, the entire $10,000 worth

financial statement

subscription

six times corporation?

Mr. HOFFMAN. That is correct. Ten thousand

Ten thousand dollars could possibly run up to $50,000.

Mr. BUCHANAN. I understand it has run up to $60,000-six times.
Mr. HOFFMAN. That is right.

Mr. BUCHANAN. There is no reason why it should not run up to nine times, if properly managed, or ten times.

Mr. HOFFMAN. That is right.

Mr. HART. Can the same stockholders in there borrow a second time?

Mr. HOFFMAN. You mean from the department?

Mr. Hart. For instance, if seven individuals formed this stock company and they put up $4,000 and assigned the stock in their company for a loan of $6,000, now say one of those men was Sam Jones, and say he borrowed a couple of thousand, could he make application for a second loan?

Mr. HOFFMAN. You mean to the department?
Mr. Hart. No, to his bank-to the corporation?

Mr. HOFFMAN. I do not know how that would work; I imagine he could.

Mr. BUCHANAN. Yes.

Mr. HOFFMAN. It would all depend on what security he had to offer.

Mr. Hart. He would have to put up collateral, would he not?

Mr. HOFFMAN. Yes, sir; he would have to give security for that loan.

Mr. BUCHANAN. He would have to satisfy the local management. Mr. Hart. And give his note.

Mr. BUCHANAN. Give his note and satisfy his local management that he was financially worthy of the loan and then the local management would indorse the loan and, if the local management indorsed the loan, they would send it to the intermediate credit bank and rediscount.

Mr. Jump. And the local management has such a stake in that itself that it puts on them the burden of using reasonable care to guard their own interests.

Mr. BUCHANAN. As I understand, those local corporations when formed, in loaning money, are not confined to those who actually took stock.

Mr. HOFFMAN. Oh, no.

Mr. Buchanan. But they could take the loan of anybody, if they wanted to.

Mr. Hart. Or take a loan of their own membership.
Mr. BUCHANAN. Yes.
Mr. Hart. There is no inhibition against that.
Mr. BUCHANAN. No.

Mr. Hart. Well that is a pretty good way to pyramid. I think
I could run a farm on that basis with a couple of thousand dollars;
I could take six tenants and make the advance for them of $4,000
and they would be more or less dummies.

Mr. HOFFMAN. There have only been $60,000 in loans made from that appropriation; there have only been formed two companies.

Mr. BUCHANAN. From this $10,000,000 revolving fund, you have only formed two companies?

Mr. HOFFMAN. Yes, sir.

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