corner grocery down there, he does not have any right to be in business because he is on his way out. He is going to be supplanted by somebody else. This fellow carrying on this little repair shop down there, he would be better off if he would leave and go some place else."

I am not going to accept that philosophy, because many of those people have been down there all of their lives, and maybe after they die that place will close up and never be reopened. Maybe their sons will not want to continue that business. But as long as they are willing to stay in that community and to render a service which is a vital service and which is important to the community life in that district, I think that our Government and this Congress is justified in at least being as liberal as possible in making these loans.

There will be some money loss; there isn't any question about that. But any time we do not lose the money in this Small Business Administration, in the Farmers' Home Administration, and all of these other programs, if we do not lose some money, we are not carrying out the purposes for which those agencies were set up, because there is some hazard involved. It is not a gilt-edged loan like you make at the bank. And even the banks lose money on some of those loans which are supposed to be made without anticipation of any loss whatsoever. But this is a type of loan which will, at least, restore some confidence and give a feeling of responsibility to the individual borrower.

It will make money available in the community to the small business which will permit them to continue in business and to render a type of service which is needed and which is vital to those small communities.

As that money gets into circulation it will give a lift to the whole

economy.

I want to say, in closing, one other thing. I still say I am appreciative of everything that the Department of Agriculture and the Farmers' Home Administration, the Small Business Administration, and everybody else has done there, but our people down there are cooperating and they are doing a good job, too.

I think, as Mr. Smith will tell you, if you put him on the stand a little later, that this policy of permitting a depreciation item in the Farmers' Home Administration borrower's budget has worked out much better than we had anticipated.

Our production credit associations down there, are straining themselves right now to give more credit to the people who need it, and more funds are being made available.

Right now, just this week there was a release put out by the Department of Agriculture about some changes in the soil-bank signup and this is pertinent to this, and I think it should be mentioned here.

I think they realize that with this soil bank signup, at least in my area, we are contributing to a more serious economic condition, and this week they have announced that they were going to give the farmer until March 28 to get out of the soil bank, thereby encouraging him to get out and plant cotton. At the same time they have said that the lack of operating capital is frequently given by the farmers as the reason for their interest in the soil-bank program. Many cotton farmers are eligible for emergency loans at 3 percent interest for the production of 1958 crops available through county

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the past, I think they will make some loans in this section but they will be large loans.

Mr. SMITH. I wonder if you would permit me to make a statement now on the insured part of it?

Mr. JONES. I would like to have you do that. I went into that with your counsel down there.

Mr. SMITH. If we understand your bill correctly, the section that has to do with the secured loans, section 3, essentially it would amount to this, that private credit institutions would realize a 2 percent interest on loans that they make and serviced and would take a risk up to 10 percent loss on those loans. The 10 percent risk would mean that even if 95 percent of the advances they made were collected, they still may have a 10 percent loss in the 5 percent leftover. There would have to be 100 percent collection on the loans before the banking institutions would not stand to lose anything. The banking institutions or credit institutions would make and service loans for 2 percent interest rates but they would take the risk over and above the Government's guaranty of 10 percent on the loans. The reason that I merely say here that we doubted that credit institutions would be interested in such loans is that the Farmers' Home Administration now guarantees 100 percent of insured loans, we make and service the loans ourselves.

The banking institution or the credit institution gets 321⁄2 percent net for its funds. Even when interest rates are somewhat unfavorable to that type of loan we have not been able to get too many local banks interested in advancing funds for these loans for those kinds of insured loans.

So this is much less favorable to the banking institution than the insured loans we now have available.

Mr. JONES. May I say to you that I visited two Production Credit offices in southeast Missouri, and it just happened that I was there at one of them when they were having their board meeting and they assured me that they would utilize this type of credit, that they would make loans, realizing that they might incur some losses.

The bankers-and I talked to not many-but to those that I talked to, they said that they would be willing to make that type of loan even realizing that they would lose the money but they felt that the overall effect in the community would justify them and that they had an obligation along with the Government to try to do it.

The fact of your taking the position that they are not going to use this money, I don't think that that should be the thing that would cause you not to want to cooperate with us, to make the money available. If you have done that, then you have done your part. Then if the bank does not want to do it, why then, that is another thing and they will have to go to the Farmers' Home Administration and the Farmers' Home Administration loan will be a 100-percent-guaranteed loan.

We are trying to relieve you of some of the responsibility and, also, to try to maintain and not have the bank or PCA tell us that we were driving people into the Farmers' Home Administration and not permitting them to share their responsibility. That is what I was trying to do.

Mr. SMITH. Mr. Jones, we were not trying to oppose that section of the bill. We were merely trying to be helpful to you to indicate

to you that it would not likely result in many loans being made because of the character of the risk involved to the private lender.

Mr. POAGE. Mr. Jones, do you not think that the answer to that is the rate of interest that the banks can get?

Mr. SMITH. That would certainly help. This bill provides, I think, that the farmer would be paying about 512 percent.

Mr. POAGE. Did you say that the farmer will not pay 8 percent to get the loan and therefore he does not get it? Down in my part of the country they are paying 10 percent now.

Mr. JONES. I would say that there is another feature in this bill. I did not propose to tell this committee that this bill was in perfect form or that I wanted this committee to report the bill out without some changes. And, as I told Mr. Campbell at the time that this bill was drafted, the people would be willing to pay up to 8 percent, if we felt it was necessary to make it that, so we would not get onto the position of the veterans' loan and some of our other housing loans, where loans were ot being made because the interest rate was not high enough to attract the capital, that it is possible that we would be compelled to change the interest rate. What I am trying to find out from you, and I think that Mr. Morse has admitted it in this letter, although he says that they should not make the loans, he has admitted that the need is there.

What I would like for you to tell the committee is where you think this need is going to be met if we do not have some kind of legislation, either this or something similar to it?

Mr. SMITH. Mr. Jones, under your bill, or under the methods that are being employed at the moment, the farmer will still owe the debt. It is a question as to whom he will owe it to.

Mr. JONES. Do you not think that it is better he have his debt consolidated and to know thaat he has a 5-year period in which to pay it rather than have half a dozen creditors over him all of the time and going about as Mr. Poage suggests, trying to feel that he has to duck his head to get around these fellows because he can't pay them and to give him a little more feeling of responsibility, he can say, "I have got these fellows paid off, I have got this one big note to pay." It might be a $500 of $1,000 note, but if he has 5 years or 3 years of a normal crop, he can pay that off.

Mr. SMITH. We do not have any evidence that any farmers are being put out of business because of these unsecured debts that were left over from the 1957 crop year. The Department's loan program plus the loans from private sources are keeping farmers in business.

Mr. POAGE. May I interject right there? Maybe you are not familiar with the way farmers do down in our part of the country. A tenant farmer who gets into this shape where he owes everybody in the community, the classic remedy for that man is to get up and move. That is exactly what he does do in all too many cases.

I think you create more stability when the debt is consolidated and he owes the same lending agency, and I think you will find a whole lot more farmers staying where they are with that stability. But if you just have everybody nagging him, it is just human nature to get up and leave.

Mr. SMITH. The type of loan that the committee has under consideration here, of course, is a far different type of loan than the Farmers Home Administration has ever been making before. The reason our

up the debt of 2 or 3 or 4 or 5 years ago, but only for those essential debts created last year which would have been paid if the fellow had had a normal operation, but which he could not pay because of this disaster which he suffered due to the unprecedented rains and floods. Mr. HARRISON. This would be somewhat of a disaster loan, then? Mr. JONES. Oh, yes; it would be of that type and would only be available in those areas where they had been declared disaster areas because of this flood.

Mr. HARRISON. Thank you.

Mr. POAGE. Are there any further questions. If not, thank you. Mr. JONES. Thank you, Mr. Chairman.

Mr. POAGE. We will hear Mr. O'Hara of Minnesota right now.

STATEMENT OF HON. JOSEPH P. O'HARA, A REPRESENTATIVE IN CONGRESS OF THE SECOND DISTRICT OF THE STATE OF MINNESOTA

Mr. O'HARA. Permit me to thank Mr. Gathings and you, Mr. Chairman. I shall be rather brief.

I want to say at the outset I introduced companion bills after Mr. Gathings and Mr. Jones had introduced their original bills. Mine is similar, identical with the bill which Mr. Gathings had previously introduced. I did so because they had been aware of the disaster area which I had in my own district, and because I think there is a need for legislation for those people who are affected.

Permit me to say that I am asked by my colleague Mr. H. Carl Andersen to ask the chairman for permission to insert a statement in the record in support of this type of legislation.

Mr. POAGE. Without objection that will be granted. (The information referred to is as follows:)

STATEMENT OF HON. H. CARL ANDERSEN A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA

Mr. Chairman, I again want to thank you and the members of your committee for this privilege of testifying on legislation before you for your consideration. I will be brief as I know the interest of every member of your committee in this subject, and I have confidence that you will do what is in the best interests of American agriculture. I also have great confidence in my colleagues who are the authors of the bills before you, and I know they put a lot of time and thought into the development of these proposals.

As you know, I came before you last year to testify in behalf of some kind of general legislation to provide more effective credit assistance in the agricultural areas hard hit by natural disasters. At that time, I suggested the establishment of a revolving fund in the hands of the Farmers' Home Administration with very broad authority for the making of loans in disaster areas. It has been my feeling that we need such authority on a permanent basis because every year, at one place or another, some form of natural disaster strikes farms and farm people. If it is a disaster of major proportions affecting a great many people, the Congress is inclined to act on some emergency legislation for that particular area. On the other hand, if it is a limited disaster affecting only a small area or only a few farm people, it is not always easy to get the Congress to act. My thinking is that a farm, a township, a county, or even several States hurt by a disaster should all be treated alike. An individual whose farm is the only one devastated by rain, floods, hail, etc., is just as much in need of help as he would be if his loss was shared by thousands of other farmers in a widespread disaster. That is why I have urged general, permanent legislation with broad discretionary authority.

The bills before you deal with credit assistance in only those areas designated as disaster areas. This limitation has merit, as I feel that the regular credit

operations of the Farmers' Home Administration should be called upon to take care of the ordinary credit needs of farmers outside these disaster areas. However, some means should be developed to make the more liberal credit available in those individual or localized disasters not covered by the general disaster declarations.

Another point I would like to make, Mr. Chairman, is that any legislation you approve or develop should be liberal enough to meet the needs of these farm people. The people who will apply for this credit are in financial difficulties through no fault of their own. Their property has been destroyed and so has their income. In some cases, even their capacity to produce income will have been temporarily destroyed. Many of them will be bad credit risks and that is why they will be coming to the Farmers' Home Administration for these loans. The repayment record of the Farmers' Home Administration has been outstanding. Through the years, their loss record has been very, very low and any banker could be proud of that record. However, I want to leave one word of caution with you today. No one is more anxious to see these farmers pay back every cent of their loan than I am, but at the same time I expect to see some losses. If we did not have some losses, considering the fact that all of these borrowers are very low or borderline credit risks who cannot borrow from any other regular lending agency, I would think that we had been too stringent in our loan operations. Now, when you come to this disaster type of loan, you should expect a little higher rate of loss. In other words, we do not want to be so liberal in these loans that we destroy the program, but we do want to be sufficiently liberal that we help all of those deserving of the assistance. If we do that, we will have some losses and we should be prepared for them. To illustrate my thinking, let us assume that we have 100 farmers in financial distress as a result of a disaster. Perhaps 50 of them would go under without the credit proposed here today. Then let us assume that we make loans to 80 of them and all but 10 pay out. Instead of 50 farmers going under, only 10 have failed and I think that is a good investment of public funds to keep those farmers solvent and in the business of farming. I do not think it is at all in the national interest to simply stand by and let these people go under if there is any chance at all of saving them by the judicious advancement of credit.

Finally, I am very much interested in the feature of these bills which will enable farmers in the disaster areas to pay their bills at the local stores. I know that in my district a great many farm implement and other rural merchants are about at the end of their rope on credit. They have so much on their books that their credit is, in turn, being impaired and their suppliers are tightening up on them. As a result, they simply cannot extend any more credit and there is a great danger that the entire rural economy may be needlessly in jeopardy. I think it is good business all along the line to make this credit available so some of these farmers can pay their local bills and help not only themselves but also the small-business men who need these payments on account if they are to stay in business. Many of these small businesses in the rural areas have had to close their doors because of the slump in farm income, and I know that in disaster areas such as we have in most of my counties the problem is intensified.

I hope, Mr. Chairman, that your subcommittee will give every consideration to the problem and the proposed legislation before you. It will be a good thing for farmers and their businessmen neighbors if you can bring out a good bill.

Mr. O'HARA. In my particular district we have had 3 floods beginning in 1951, a record flood in 1952, and again last year almost a record flood which seriously affected and created disaster areas in about 6 or 7 of my 14 counties in my congressional district, due to the flooding of the Minnesota River.

Last year the flood came along about the middle of June, and subsequent to that. Some of the crops were in the ground. They were about ready to be put in corn, and some of them or most of them had planted their corn.

As the result of the flooding and the long time which elapsed before the ground dried out so it could be reseeded, the short growing season in that part of Minnesota left them almost hopelessly out of a crop except for what they might put in, in the way of grasses and things like that which some of them may have been able to produce.