FARM-MORTGAGE LAWS IN" THE UNITED STATES. 15 



Moreover, they often prefer securities running in even amounts for 

 uniform periods of time and with a convenient means of collecting 

 the interest. Many invest<3rs prefer to be relieved of all concern as 

 to the keeping up of the underlying security. 



All these advantages are secured where the mortgage notes, in- 

 stead of being marketed direct, are held as a collateral trust fund, 

 and bond issues based thereon are placed on the market. To m.eet 

 these requirements, institutions are needed, both to fix reliable and 

 suitable standards for farm-mortgage loans, and to market them in 

 the form of bonds. Such institutions can not be properly established 

 without suitable safeguards. It is necessary to profit by the lessons 

 of past American experience, and avoid the mistakes made by the 

 debenture institutions in this country in the eighties and early nine- 

 ties. The almost complete failure of the farm-mortgage debenture 

 business in 1893 affords ample warning. There is need to take stock 

 of all the factors that contributed to that failure. The granting of 

 loans out of proportion to protection funds, the failure to build up 

 adequate reserves, the basing of loans on boom estimates of land 

 values, the extension of loans on lands of uncertain returns, the sub- 

 stitution of inferior for standard collateral securities, the utter lack 

 of inspection and supervision under State or Federal law — ^these 

 practices quite naturally led to disaster. As a result there was an 

 almost complete collapse of these early debenture companies. 



DESIRABILITY OF STATE AND FEDERAL LEGISLATION. 



In order to establish institutions through which farm mortgages 

 may be properly selected, according to reliable and suitable standards, 

 and through which such mortgage loans may be converted into accept- 

 able securities for the open market, it is clearly necessary to have 

 legislation, both by the individual States and by the Federal Congress. 

 The mortgage paper of any State can not be properly standardized 

 without suitable State legislation governing the validity of land 

 titles and the method of foreclosure. Farm-mortgage capital will 

 not flow into a State whose taxation laws render the investment of 

 farm-mortgage capital in other regions more profitable. Every State 

 needs to husband carefully its resources of investment capital by pro- 

 viding suitable legislation for the creation of local savings institutions, 

 as well as associations among borrowers for credit improvement. 



At the same time it seems clear that, if the farmers are to obtain 

 adequate connections with the outside capital of the open investment 

 market — connections often involving wide areas, reaching across 

 many States — ^the problem involved is one too large to be solved 

 entirely by legislation on the part of any individual State. More- 

 over, a degree of uniformity in supervision and control is needed 



