LAND CREDIT THE FEDERAL FARM LOAN ACT 181 



investing public never familiarized themselves with them. This 

 new law offers to the investor a debenture known as a farm loan 

 bond standard and liquid, and destined to become familiar to 

 every investor. Underlying the bond is the first mortgage, and 

 underlying the mortgage is farm land worth twice the amount of 

 the mortgage. Hence the farmer is put in the same financial 

 condition, as regards the money market, as the great industrial 

 corporations. Before the World War disturbed credits the farmer 

 was paying five per cent on his loans under this Act, and this was 

 the rate paid by the United States Steel Company on its bonds, 

 and this is the largest business corporation in the world. Fin- 

 ancing the World War embarrassed somewhat the country's early 

 administration of this Act, hence it became necessary to raise 

 the rate. 



The machinery of this Act is very simple. To get the benefit 

 of cheap land credit the law provides that farmers must band 

 themselves together in corporations, at least ten farmers in the 

 group. The federal government located and established twelve 

 land banks, and advanced the original capital to each one, namely 

 $750,000. The government appointed temporary directors to 

 serve the system. The next move was for the farmer to make. 

 They incorporated their local loan associations. They applied 

 for loans, furnishing as security first mortgages on farm lands of 

 twice the value of the loans sought. These mortgages were then 

 deposited in the district land bank and safely placed in the vaults. 

 Against these five per cent mortgages the Land Bank sold 4}/ per 

 cent farm loan bonds, receiving a premium of one and one-eighth 

 for them. Customers for these bonds comprise banks, insurance 

 companies, savings banks, private parties, and any other investor 

 seeking a safe, liquid, tax-free four and one-half per cent security. 

 The District Land Bank thus had a profit of one-half per cent plus 

 any premium received a big profit in all, considering the volume 

 of the business. These two provisions of the law are worthy of 

 note: (1) When the farmers in one district take out loans amount- 

 ing to two million dollars, they take control of the district Land 

 Bank. They choose six of the nine directors, and these six must 

 be actual borrowing farmers. (2) WTien the farmers of the district 

 take out loans amounting to fifteen million dollars, the govern- 

 ment capital must all be paid back. At this writing loans greatly 

 in excess of this amount have already been applied for. Hence, 

 under this Act, the farmers are to own and operate the Land Banks. 

 The government, in short, is simply helping the farmer help himself. 



