Seventy-Third Annual Report 1231 



with a debenture issue of something about $12,000,000, and the 

 only cover for these debentures is the equity in city property 

 above the mortgages on the properties which are hekl by banks 

 and institutions. There are all told some thirty such corporations 

 issuing debentures of doubtful value, which are now being taken 

 up by wage earners and small investors. There are frequent 

 failures, and, of course, the debentures in such cases represent 

 a total loss. 



The mortgage bank principle seems to be entirely feasible for 

 our purpose. We could leave it optional with the borrower 

 whether he associated himself with his neighbors in unlimited 

 responsibility, or secured his loan direct from the bank. The 

 society method would be cheapest. Every member is interested 

 to see that the new borrower gets no more than he is entitled to, 

 while the universal sense of fairness with members would secure 

 him a just amount. The other members being responsible for 

 the loan are also interested to see that the payments are made 

 promptly and that the condition of the farm is maintained. 

 These are all gratuitous services, safeguarding the bank without 

 expense to it. On the other hand the bank would have to incur 

 expense in making loans to an individual farmer. It would have 

 to secure an appraisal of the farm, examine the title, and inquire 

 into the moral risk of the borrower, and maintain a system of 

 collection of the interest on the annuities. This expense the 

 individual borrower would have to pay, so that he could not 

 expect to get his loan as cheaply as the member of the society. 



In Switzerland they have a system of their own. The borrower 

 makes out an application, giving a detailed description of the farm 

 and something of his own antecedents and conditions. The appli- 

 cation then goes to the Canton officials. If they confirm it the 

 bank makes the loan. If the borrower fails to keep his payments 

 and the bank loses, it may go into court to prove that the Canton 

 officials deceived it. If it proves the application was not true 

 at the time that it was made, the Canton must make good the 

 bank's loss. The provision is a useful precaution, but in practice 

 it is seldom or ever used. Losses are rare but the method seems 

 to be cheaper and more efficient than the method pursued by the 

 Credit Foncier in France, where the bank obtains the informa- 



