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. that? What is the reference to 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. 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? 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 financial statement 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 loan in proportion to his private subscription to the stock; is that right? Mr. HOFFMAN. As is indicated by that last statement there of the North Plains Live Stock Co. Mr. BUCHANAN. He would apply for a loan in proportion to his private contribution or subscription to the stock, and the Government would loan him the balance? Mr. HOFFMAN. Loan him the balance. Mr. BUCHANAN. Would loan each one in proportion to his private subscription, and they would put up, then, the entire $10,000 worth of stock with the Secretary of Agriculture as security? Mr. HOFFMAN. Yes, sir. Mr. BUCHANAN. And the corporation would be formed? Mr. HOFFMAN. Yes, sir. Mr. BUCHANAN. They would elect, I suppose, a board of directors, or some local manager? Mr. HOFFMAN. Yes, sir. Mr. BUCHANAN. The individual would apply for a loan, and file his application, and if the board of managers of the local corporation would approve of that application, then the manager would send that to the intermediate credit bank and they would advance the money? Mr. HOFFMAN. Yes, sir. Mr. BUCHANAN. And that process could go on for four or five or six times the amount of the capital stock, say $10,000, of that corporation? Mr. HOFFMAN. That is correct. 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. Mr. BUCHANAN. One of them was the Dakota Livestock Loan Co. of Rapid City, S. Dak. Mr. HOFFMAN. Yes, sir. Mr. BUCHANAN. Formed by two men. Mr. HOFFMAN. Yes, sir. Mr. BUCHANAN. One of them borrowed $16,500 and the other borrowed $13,500, making $30,000. Mr. HOFFMAN. Yes, sir. Mr. BUCHANAN. Now what amount of their own money did they put in? Mr. HOFFMAN. I do not know in that particular case; I do not know in either one of those cases what amount they contributed, whether 40 per cent, 60 per cent, or higher. Mr. BUCHANAN. The second company formed was the North Plains Livestock Co., of Stratford, Tex., formed by seven individuals and they applied for loans. The lowest loan applied for was $900 and the highest loan applied for was $10,800, totaling in all, $30,000. Mr. HOFFMAN. Yes, sir. Mr. BUCHANAN. Those applications were approved and the money advanced and the corporation formed? Mr. HOFFMAN. Yes, sir. Mr. BUCHANAN. How much did they put in of their own money? Mr. HOFFMAN. I do not know how much they put in of their own money. Mr. BUCHANAN. Have you any records on that in your department? Mr. HOFFMAN. Yes, sir. Mr. BUCHANAN. I wish you would get the record on both of them and put it in in reply to that question. You know, I think there are wonderful credit possibilities in these institutions. NOTE.-Under the regulations of the Secretary dated July 21, 1932, the amount which each individual borrower can obtain is limited to an amount not exceeding 60 per cent of the par value of the stock offered as security. In the two instances of the Dakota Livestock Loan Co. and the North Plains Livestock Loan Co., the individuals put up 40 per cent and the amount loaned by the Department was 60 per cent. Mr. JUMP. Mr. Buchanan, you have in mind one reason, I presume, that we report so few here is the activity under the Reconstruction Finance Corporation act, which was passed subsequent to Public Resolution No. 11, and which has had a great activity in getting started these agricultural credit corporations. You see, there are two ways of forming them; you can either come here or go to the Reconstruction Finance Corporation. Mr. HOFFMAN. Those were the only two commitments and the applications were received after the passage of this act but before the Reconstruction Finance Corporation was set up. Mr. BUCHANAN. Does the Reconstruction Finance Corporation. form the same character of corporation? Mr. HOFFMAN. Yes, sir. Mr. JUMP. Not exactly the same character of corporation. Mr. HOFFMAN. No, not exactly the same character of corporation; there is a difference. The corporation created by the Reconstruction Finance Corporation, are required by the law to be managed by officers and agents to be appointed by the Reconstruction Finance Corporation. Mr. BUCHANAN. Is the amount required to be subscribed out of private funds about the same? Mr. HOFFMAN. I do not know, sir; I am not familiar with the Reconstruction Corporation's requirements. Mr. BUCHANAN. What do they call them-agricultural and livestock corporations? Mr. HOFFMAN. Regional Agricultural Credit Corporations. Mr. BUCHANAN. Does that have any connection with this establishing of the 12 local banks? Mr. JUMP. That is what it is; the banks you are talking about are the agricultural credit corporations. Mr. HOFFMAN. And there will be additional branches of each one of those. Mr. BUCHANAN. Then the paper of those local agricultural and livestock corporations of the Reconstruction Finance Corporation. will be rediscounted with the intermediate credit banks? Mr. HOFFMAN. The Reconstruction Corporation will discount that paper. Mr. BUCHANAN. They do not go to these intermediate credit banks? Mr. HOFFMAN. They may discount their paper with the Federal reserve banks and the Federal intermediate credit banks and any paper they acquire which is eligible for such purpose. Mr. BUCHANAN. Do you know whether or not there have been a good many corporations established under that act? Mr. JUMP. I do not know. Mr. HOFFMAN. I am not in a position to state. Mr. JUMP. It is only recently that the 12 regional banks were formed. Mr. HOFFMAN. I do not believe all of them have been formed as yet; I am not sure. Mr. BUCHANAN. I know they formed them in Fort Worth, Tex. Mr. HOFFMAN. Yes. Mr. BUCHANAN. So it is not necessary for this language to be in this bill, at all? Mr. JUMP. It is permanent legislation. Regardless of the Reconstruction Finance Corporation act, it would have been bracketed. THURSDAY, DECEMBER 8, 1932. SEED LOANS STATEMENTS OF HON. ARTHUR M. HYDE, SECRETARY OF AGRICULTURE; MR. ERNEST HALL, ASSISTANT TO THE SECRETARY Mr. BUCHANAN. Mr. Secretary, this committee does not have a clear understanding of theses last so-called crop-production loans made by the Government through an allotment of money from the Reconstruction Finance Corporation. Of course, we understand it was allotted to the Secretary of Agriculture to make the loans under such rules and regulations as he might prescribe and presumablyalthough the law does not say so, so far as I can find out-the Secretary is to collect these loans. Then we are at a loss as to where the |