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Full text of "Investigation of concentration of economic power. Hearings before the Temporary National Economic Committee, Congress of the United States, Seventy-fifth Congress, third Session [-Seventy-sixth Congress, third Session] pursuant to Public Resolution no. 113 (Seventy-fifth Congress) authorizing and directing a select committee to make a full and complete study and investigation with respect to the concentration of economic power in, and financial control over, production of goods and services .."

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Public Resolution No. 113 
(Seventy-fifth Congress) 


PART 28 



FEBRUARY 12, 13, 14, 15, 16, 19, 20, 21, 26, 27, 28, 29, 
AND MARCH 1, 1940 

Printed for the use of the Temporary National Economic Committee 

124491 WASHINGTON : 1940 



(Created pursuant to Public Res. 113, 75th Cong.) 

JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman 

HATTON W. SUMNER S, Representative from Texas, Vice Chairman 

WILLIAM H. KING, Senator from Utah 

WALLACE H. WHITE, Jr., Senator from Maine 

CLYDE WILLIAMS, Representative from Missouri 

B. CARROLL REECE, Representative from Tennessee 

THURMAN ^W. ARNOLD, Assistant Attorney General 

♦WENDELL BERGE, Special Assistant to the Attorney General 

Representing the Department of Justice 

JEROME N. FRANK, Chairman 
*LEON HENDERSON, Commissioner 
Representing the Securities and Exchange Commission jtl' 

GARLAND S. FERGUSON, Commissioner C _ 

•EDWIN L. DAVIS, Chairman 
Representing the Federal Trade Commission H ^'*~' 

ISADOR LUBIN, Commissioner of Labor Statistics ■— 

•A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics fc^ 

Representing the Department of Labor 5^ 

JOSEPH J. O'CONNELL, JH., (Special Assistant to the General Counsel, 

•CHARLES L. KAJDES, Special Assistant to the General Counsel 

Representing the Department of the Treasury 

SUMNER T. PIKE, Business Adviser to the Secretary of Commerce 
Representing the Department of Commerce 

Jambs R. Brackbtt, Executive Secretary 
Theodoeb J. Kreps, Economic Adviser 







Testimony of — 

Aldrich, Winthrop Williams, chairman of the board, Chase Na- ^"E« 

tional Bank, New York, N. Y 15209-15225 

Beebe, Dwight S., vice president and financial manager, Mutual 
Life Insurance Co., New York, N. Y 1528&-15315 

Best, Alfred M., president, Alfred M. Best Co., Ipc, New York 

N. Y 15883-15414 

Buckner, Thomas A., chairman of the board. New York Life In- 
surance Co., New York, N. Y 14726-14760 

Crawford, Lawrence C, insurance broker, Washington, D. C 15366-15373 

Crowley, Thomas R., Crowley and Marr, general agents for the 

Penn Mutual Life Insurance Co., Washington, D. C 15375-T5380 

Bcker, F. W., vice president. Metropolitan Life Insurance Co., 

New York, N. Y 15133-15184, 15315-15329 

Ecker, Frederick H., Metropolitan Life Insurance Co., New York, 

■ N. Y 15170-15182, 15329 

Espinosa, Jose R., accountant, Securities and Exchange Com- 
mission, Washington, D. C 15207-15208 

Greaves, Henry, treasurer, the Equitable Life Assurance Society 

of the United States, New York, N. Y 15234-15244 

Hall, Arthur F., chairman of the board, Lincoln National Life 

Insurance Co., Fort Wayne, Ind 14934-14947 

Howe, Ernest, chief financial adviser. Insurance Section, Securi- 
ties and Exchange Commission, Washington, D. C 14700- 

14725, 14786-14854, 15415-15488 

KraflEt, Harold D., general agent, Provident Mutual Insurance 
Co., Washington, D. C 15362-15366 

Lambert, Denison David, agent. Travelers' Insurance Co., Wash- 
ington, D. C 15358-15362 

Limber, Ralph C, secretary. Farm Mortgage Conference, New 

York, N. Y 14921-14933 

McLaughlin, John G., acting manager, Real Estate Department, 
Mutual Life Insurance Co. of New York, N. Y 15052-15063 

Maloney, James A., agent, Fidelity Mutual Life Insurance Co., 
Washington, D. C 15373-15375' 

Meyers, Alfred H., vice president and treasurer, New York Life 

Insurance Co., New York N. Y 15245-15253 

Murray, William G., professor of agricultural economics, Iowa 

State College, Ames, Iowa 14883-14920 

Polk, Frank L., trustee. Mutual Life Insurance Co. of New York, 

New York 15064-15075 

Rogers, Glenn E., manager, Farm Loan Division, Metropolitan 
Life Insurance Co., New York, N. Y 14948-15080 

Rogers, R. R., vice president. Prudential Insurance Co. of Amer- 
ica, Newark, N. J 15030-15051 

Saylor, George, vice president. Chase National Bank, New York, 
N. Y 15186-15207 

Smith, George W., president. New England Mutual Life Insur- 
ance Co., Boston, Mass 15077-15104 

Stedman, John W., vice president. Prudential Insurance Co. of 
America, Newark, N. J 15255-15287 

Stevenson, John A., president, Penn Mutual Life Insurance Co., 
Philadelphia, Pa 14763-14786 

Van S'chaick, George S., vice president, New York Life Insurance 
Co., New York, N. Y 15105-15131 



Testimony of — Continued. 

Wall, Norman, head of the Division of Agricultural Finance, 

Bureau of Agricultural Economics, Department of Agriculture, ^as^ 

Washington, D. C 14857-14883 

Washington, Lawrence, assistant treasurer, Metropolitan Life 

Insurance Co., New York, N. Y 15225-15234 

Zimmerman, Charles J., president, National Association of Life 

Underwriters, Chicago, 111 15332-15357 

Statement of — 

Henderson, Leon, Commissioner, Securities and Exchange Com- 
mission, Washington, D. C 14695-14699 

Gesell, Gerhard A., special counsel, Securities and Exchange 

Commission, Washington, D. O : 14855-14857 

Schedule of exhibits iv 

Monday, February 12, 1940 14695 

Tuesday, February 13, 1940 14761 

Wednesday, February 14, 1940 14799 

Thursday, February 15, 1940 14855 

Friday, February 16, 1940 14921 

Monday, February 19, 1940 — 14995 

Tuesday, February 20, 1940 15077 

Wednesday, February 21, 1940 , 15133 

Monday, February 26, 1940 15185 

Tuesday, February 27, 1940 15255 

Wednesday, February 28, 1940 15331 

Thursday, February 29, 1940 15381 

March 1, 1940 15433 

Appendix 15489 

Supplemental data 15604 

Index I 


Number and summary of exhibits 

at page 

on page 

2243-2249. Appear in Hearings, Part 31-A 

2249-1 to 2249-5. Letters and tables from the Carnegie- 
Illinois Steel Corporation, re: price 
announcements 1 

2250. Appears as Hearings, Part 10-A .-. 

2251. Chart: Admittedassets, 1938, of 26 insurance companies 

2252. Chart: Types of insurance carried by 26 insurance 

companies, 1938 

2253. Chart: Total premium income, 1929-1938 

2254. Table: Total premium income — 25 largest legal 

reserve life insurance companies for each year 1929 
to 1938 

2255. Chart: New paid-for life insurance, 1913-1938 

2256. Table: New paid-for life insurance — exclusive of 

revivals, dividend additions, and accepted rein- 
surance — 49 U. S. companies 

2257. Chart: Total income and disbursements of 25 leading 

legal reserve life insurance companies, 1929-1938.. 

2258. Table: Total income and disbursements of 25 leading 

legal reserve life insurance companies, 1929-1938. . 

2259. Table: Long-term investments of 26 life insurance 

companies in relation to long-term debts in the 
U. S., 1930, 1934, 1937 

2260. Table: Bonds and debentures of five major oil com- 

panies and four major rubber companies; total 
outstanding amounts held by the 26 largest life 
insurance companies, 1929 and 1938 













14721 15494 

1 On file with committee. 


NuiJiber and summary of exhibits 

at page 

on page 












Appears in Hearings, ;"art 13, appendix p. 7093 

Appears in Hearings, Ph,rt 13, appendix p. 7095 

Appears in Hearings, Part ^3, appendix p. 7096 

Schedule A: Assets of 26 insurance companies 

Schedule B. Investments of life insurance companies 
as of December 31, 1938, in companies whose 
officers or directors interlock with insurance com- 


Schedule C. Arnount and percentage of total assets 
earning less than the interest required for poUcy 
reserves as of December 31, 1938, of 26 insurance 

Schedule D. Policy loans and income therefrom of 
26 insurance companies 

Schedule F. Mortgages o^jv^ned by insurance com- 
panies as of December 31, 1938, delinquent 3 
months or more as to interest 

Schedule G. Interest due and accrued on bonds and 
mortgages of 26 insurance companies 

Table: Farm mortgage debt; total amounts outstand- 
ing as of January 1, and annual interest charges, 

Chart: Cash farm income and farm-mortgage debt, 
1910-39, and value per acre of farm real estate, 
1912-39. - - 

Table: Cash farm income and farm-mortgage debt, 

Chart: Average interest rates on outstanding farm 
mortgages, January 1, 1913, 1923, 1933, and 1939.. 

Table: Average interest rates on outstanding farm 
mortgages, Jan. 1, 1913, 1923, 1933, and 1939 

Chart: Total outstanding farm-mortgage debt and 
amount held by principal lender groups, 1910-39-- 

Table: Farm-mortgage debt; total amount outstand- 
ing and amount and percentage of total held by 
principal lender j .oups, January 1, 1910-39 

Table: Farm-rnoi .^age debt held by life insurance 
companies; total amounts and percentage of total 
farm-mortgage debt outstanding in |,he United 
States and designated regions, January 1, 1910, 
1915 and 1920-39 

Chart: Forced and voluntary sales of farms, 1926-39; 
estimated number per 1,000 farms 

Table: Estimated number of farms changing owner- 
ship by forced and voluntary sales, per 1,000 of all 
farms, by geographic divisions, 1926-39 

Table: Farm foreclosure sales; estimated number per 
1,000 farms mortgaged to each type of lender on 
January 1, 1935, from January 1934 through Sep- 
tember 1939, by j'ear and quarter 

Chart: State mortgage relief legislation, Jan. 1, 1930- 
Apr. 20, 1936 . 

Table: Estimated amount of proceeds of Federal 
Land Bank and Land Bank Commissioner loans, 
May 1, 1933-January 1, 1937, used to refinance 
first and junior mortgages held by life insurance 
companies and by all lenders, and amount of farm- 
mortgage loans held by life insurance companies 
and all lenders, January 1, 1933 - . 

Table: Acquired farm real estate held by leading 
lending agencies, January 1, 1929-39 

























Number and summary of exhibits 

2281. Table: Farm investment of life insurance companies; 

amounts and percentage of total holdings repre- 
sented by farm mortgages and farm real estate 
owned; total farm investment, January 1, 1929-39-. 

2282. Chart: Corporate-owned land of insurance companies 

in Iowa, 1937 - 

Chart: Value of land and buildings in Iowa, by town- 
ships, 1930 

2283. Chart: Farm mortgage foreclosures in southern Iowa, 

Table: Percentage distribution of acreage foreclosed 
in Iowa, by types of mortgage holders, 1915-1936. _ 

2284. Chart: Corporate land foreclosures, mortgage debt 

and land values in Iowa, 1939 
Table: Land holdings in Iowa of corporations 

2285. Table: Relationship of farm mortgage debt to farm 

value as revealed by foreclosures in 5 high and 5 low 
value counties in southern Iowa, 1915-1936, and 
acreage sold and deeded by corporations, 1935-1939. 

2286. Table: Farm real estate under contract of sale as a 

percentage of all farm real estate owned as of 
December 31. 1938, inclusive .. - - 

2287. Chart: Farm Mortgage Conference, amount of farm 

foreclosures commenced, farm real estate acquired, 
cost and selling prices of farm sales approved by 
thirteen companies 

2288. Chart: Total farm mortgage debt, January 1, 1935 

2289. Chart: Ratio of total foreclosures December 31, 1935 

to total farm investment December 31, 1935 

2290. Table: Farm sales as reported by farm conference 


2291. Letter to Julian Price, president, Jefferson Standard 

Life Insurance Co., from Arthur F. Hall 

2291-A. Loan form used by Lincoln National Life Insurance 
Co., Lincoln, Neb 

2292. Chart: Prices paid by farmers, prices received by 

farmers, farm real estate values per acre 

2293. Chart: 1935 drought 

i Intro- 
at page 

2293-A. Chart: 1936 drought. 

2293-B. Chart: Drought— 3 years. 


Chart: Actual farm land values per acre, Missouri 
Valley area versus normal area 

2295. Chart: Average contract rates of interest on farm 

loans outstanding 

2296. Letter from E. H. Lougee, mortgage broker, to G. E. 

Rogers, Asst. Manager, Farm Loan Division, 

Metropolitan Life Insurance Co . 

2296-A, Letter from G. E. Rogers to E. H. Lougee 

2296-B. Letter from E. H. Lougee to G. E. Rogers 

2297. Letter from Leroy A. Lincoln, vice president and 
general counsel, Metropolitan Life Insurance Co., 
to M. L. Bowman, executive chairman, Iowa Farm 
Debt Advisory Committee 

2298. Letter from M. L. Bowman to L. A. Lincoln 

2299. Table: Type of rotation recommended by Metropoli- 

tan Life Insurance Co 
















on page 


J 15509- 
\ 15510 

\ 15512 




l 15515 











~ ' On file with committee. 



Number and summary of exhibits 

at page 

on page 

2299-A to 2299-E. Photographs of farm buildings, before and 
after repair 

2300. Schedule: 10 largest urban real estate properties 
owned by the Mutual Life Insurance Co., December 
31, 1938 


Document: Loan No. 119517, made by Metropolitan 
Life Insurance Co. to Empire State, Inc 

2302. Letter from Thomas A. Buckner, chairman of the 
board. New York Life Insurance Co. to Gerhard A. 
Gesell, General Counsel, Securities and Exchange 

2303. Chapter 40 of the Laws of 1933, State of New York, 

which became a law on March 7, 1933 

2304. Letter from Vincent P. Whitsitt, manager and general 

counsel, Association of Life Insurance Presidents, 
to Gerhard A. Gesell 

2305. Schedule: Metropolitan Life Insurance Company, 
balances carried in cash bank or trust company as 
of December 31, 1938 



2308- A. 



2309- A. 


23 10- A. 


Memorandum from H. A. Kiep, Jr., New Business 
Department, Chase National Bank to Mr. Totton, 
Mr. Shepardson 

Memorandum from F. M. Totton to Mr. Shepardson 
Letter from Samuel Armstrong, vice president. Chase 
National Bank, to Frederick W. Ecker, vice presi- 
dent. Metropolitan Life Insurance Co .... 

Letter from F. W. Ecker to S. Armstrong 

Letter from S. Armstrong to F. W. Ecker 

Letter from W. S. Wing, Pennsylvania Dixie Cement 
Co., to George D. Graves, vice president. Chase 

National Bank 

Letter from L. Van Sant, assistant cashier, to F. W. 

Gehle, second vice president, Chase National Bank. 

Letter from G. H. Say lor, vice president, to L. Van 

Sant, assistant cashier. Chase National Bank 

Letter from F. W. Ecker, vice president. Metropolitan 
Life Insurance Co. to G. H. Savior, vice president. 

Chase National Bank 

Letter from G. H. Savior to f. W. Ecker 

Letter from Earl R. Gafford, second vice president, to 

G. H. Saylor, Chase National Bank 

Letter from G. H. Saylor to F. J. Shay, cashier, Union 

Trust Co., East St. Louis, 111 

Letter from E. R. Gafford to Paul A. Schlafly, chair- 
man of the board, Union Trust Co., East St. Louis, 



Letter from L. Washington, assistant treasurer. 
Metropolitan Life Insurance Co., to G. H. Saylor... 
2310-D. Letter from M. Hadden Howell, vice president, Chase 
National Bank, to H. C. Hartkopf, vice president. 

Union Jrust Co., East St. Louis, 111 

2310-E. Letter from M. Hadden Howell to L. Washington, 
assistant treasurer, Metropolitan Life Insurance Co 
2311. Memorandum from G. H. Saylor to Packer, comp- 
troller of the Metropolitan Life Insurance Co 


















1 15530 




















Number and summary of exhibits 

at page 

on page 







































2311-A. Men\orandum by G. H. Saylor 

2312. Memorandum from H. N. Dettmer, Banking Relations 

Dept., to G. H. Saylor, Chase National Bank 

2312-A. Letter from G. H. Saylor to H. N. Dettmer 

2312-B. Letter from H. W. George, treasurer. Metropolitan 

Life Insurance Co., to G. H. Saylor 

2312-C. Letter from H. W. George to G. H. Saylor .... 

2312-D. Letter from G. H. Saylor to W. E. Purdy, vice-presi- 
dent, Chase National Bank 

2312-E. Letter from G. H. Saylor to H. W. George 

2312-F. Letter from W. E. Purdv to G. H. Saylor 

2312-G. Memorandum from W. E. Purdy to Gilbert 

2313. Memorandum from G. H. Saylor to J. Boyle, First 
National Bank, Riverside, N. Y 

2313-A. Memorandum from J. Boyle to G. H. Saylor 

2313-B. Memorandum from G. H. Saylor to L. Washington.. 

2314. Schedule: District Depositoriesof Metropolitan Life In- 

surance Co. related to Chase National Bank Correspond- 
ents .• 

2315. Documents in support of Exhibit No. 2314 

2316. Schedule: Directors interlocking Chase National Bank 

and Metropolitan Life Insurance Co., January 1, 
1928-December 31, 1939, inclusive .' 

2317. Schedule: Chase National Bank — Credit balances of 10 

lairgest life insurance companies 

2318. Summary schedule: Chase National Bank — Credit bal- 

ances of 10 largest life insurance companies 

2319. Schedule: Directors interlocking Mutual Life Insurance 

Company of New York and Chase National Bank dur- 
ing period January 1, 1928 to December 31, 1938, etc. 

2320. Letter from Ketzer, agent, Metropolitan Life Insurance 

Co., to Philip Licht, Bank of Manhattan 

2320-A. Letter from Raymond E. Jones, vice president. Bank 
of Manhattan, to L. Washington, Assistant Treas- 
urer, Metropolitan Life Insurance 

2320-B. Letter from superintendent of agencies, Metropolitan 
Life Insurance Co. to Ketzer . 

2321. Letter from George A. Rathbun, manager, Equitable 

Life Assurance Society of the . United States, Los 
Angeles, to A. R. Horr, treasurer. Equitable Life As- 
surance Society 

2321-A. Letter from A. R. Horr to G. A. Rathbun 

2321-B. Letter from Cecil Frankel, assocfete agency manager. 
Equitable Life Assurance Society, to Thomas I. 
Parkinson, president, Equitable Life Assurance 

^21-C. Letter from F. H. Richmond, assistant treasurer, 
Equitable Life Assurance Society to Henry Greaves, 
treasurer. Equitable Life Assurance Society 

23!J1-D. Memorandum from F. H. Richmond to H. Greaves.. 

2321-E. Letter from H. Greaves .to Victor H. Rossetti, presi- 
dent, Farmers & Merchants National Bank, Los 

2322. Letter from William H. Fawcett, vice president, First 

National Bank at Pittsburgh to Harold Palagano, 

treasurer, New York Life Insurance Co 

« On file with c.'nmittee. 



Number and summary of exhibits 

at page 

on page 

2322-A. Letter from Roy M. Hexter, president, Continental 
Industrial Bank, Cleveland, to New York Life In- 
surance Co 

2322-B. Letter from A. C. Lansten, treasurer, American Bank, 
Port Clinton, Ohio, to New York Life Insurance Co 

2323. Table: Life insurance plans issued in 1938 

2324. Schedule: Whole time soliciting agents contracts 

made, terminated and in force, 45 companies 

2324- A. Companies included in table entitled "Whole Time 
Soliciting Agents, Contracts Made, Terminated and 
in Force" 

2325. Table: Cost of selecting and training agents 

2326. Table: Compensation of agents for the year 1938 

2327. Table: Compensation of whole time agents for the 

year 1938 

2327-A. Companies included in schedules relating to compen- 
sation of whole time agents 

2328. Table: Highest commissions paid agents 

2329. Booklet: "Purposes of the National Association of 

Life Underwriters" 

2330. Life Underwriter's Code of Ethics 

2331. Table: Connecticut Mutual Life Insurance Co. whole 

time agents under contract, December 31, 1938 

2332. Table: Causes of termination, lapses in 1936 

2333. Document: 1938-1939 objectives of the National 

Association of Life Underwriters : 

2334. Form used for water company confidential report for 
■ insurance companies, year ending December 31, 19-. 

2334-A. Form used for report of insurance companies, year 
ending December 31, 19 

2335. Schedule: New York real estate properties of the Mu- 

tual Life Insurance Co., December 31, 1938 

2336. Table: Policyholders' losses in life company failures, 

period January 1, 1930 to January 1, 1940. i 

2337. Summary schedule of Exhibit No. 2336 

2338. Schedule: Life company retirements, 1930-1939 (in- 


2339. Table: Membership on bondholders' protective com- 

mittees par value of bonds held by 29 railroads rep- 
resented as of December 31, 1938 

" 2340. Schedule: Metropolitan, attendance at meetings, 

board of directors 

2340-A. Schedule: Prudential, attendance at meetings, board 
of djioctors .... , 

2340-B. Schedule: New York Life, attendance at meetings, 
board of directors 

2340-C. Schedule: Equitable, attendance at meetings, board of 

2340-D. Schedule: Mutual Life of New York, attendance at 
meetings, board of directojrs 

' On file with committee. 






























" 15568- 


















Number and summary of exhibits 

at page 

on page 

2341. Table: Total ledger assets by States and countries — 
distribution of life insurance, admitted assets, De- 
cenaber 31, 1938 

2341-A. Table: Total bonds and stocks by States and coun- 
tries — distribution of life insurance, admitted assets 
December 31, 1938 

2341-B. Table: State, grand total (exclusive of Federal taxes) 
by States and countries, — distribution of reserve, 
premiums, and disbursements — life business in- 
cluding disability and double indemnity, calendar 
year 1938 

2342. Letter from Haughton Bell, assistant general counsel, 
Mutual Life Insurance Co. of New York, to Ger- 
hard Gesell, special counsel. Securities and Exchange 

2343. Table: Whole life policies, 20 payment life policies — 

2344. Table: Net cost, policy surrendered end of 20th year_. 


Unnumbered. Letter from Senator Joseph C. O'Mahoney to 
Representative Edward T. Taylor, with copies of documents 
mentioned therein ■ 

Unnumbered. Schedule: Mutual Life's acquisition of rail- 
road securities where issuers interlock directly or indirectly 
with Mutual Life's Board of Trustees ----- 

Unnumbered. Memorandum submitted by John A. Stevenson, 
president, Penn Mutual Life Insurance Co., to the T. N. E. C. 

Unnumbered. Memorandum submitted by Union Central Life 
Insurance Co. in regard to item of $10,954,000 shown for that 
company on page 177 of Hearings, Part 10-A 

Unnumbered. Table: Percentage of total farm-mortgage debt 
held, January 1, 1930 and 1936, etc 

Unnumbered. Letter from Valentine Howell, vice president, 
Prudential Insurance Company, to Senator Joseph C. O'Ma- 

2587. Letter from Leon Henderson, Commissioner, Securities 
and Exchange Commission, with questionnaire 

2588-2604. Letters (signatures deleted) in reply to letter in 
Exhibit No. 2587 

Uiuuimbered. Statement on life insurance signed by some 150 

Uimumbered. Memorandum by Gerhard A. Gesell, in connec- 
tion with the item immediately preceding 





















United States Senate, 
Temporary National Economic Committee, 

Washington^ D'. C. 

The committee met at 10:35 a. m., pursuant to adjournment on 
Tuesday, January 30, 1940, in the Caucus Room, Senate Office Build- 
ing, Senator Joseph C. O^Mahoney presiding. 

Present: Senators O'Mahoney (chairman). King, and White; Rep- 
resentative Williams ; Messrs. Jlenderson, Lubin, Pike, Kades, Kreps, 
and Brackett. 

Present also : Gerhard A. Gesell, special counsel ; Ernest Howe, 
chief financial adviser; and Helmer R. Johnson, attorney, Securities 
and Exchange Commission. 

The Chairman. The committee will please come to order. 

This morning we resume the study of life insurance. It may be 
appropriate to point out that this presentation comes under the pro- 
visions of section 3 (b) of the resolution ^ which created the Tempo- 
rary National Economic Committee. This section reads as follows 
[reading] : 

The Department of Justice, Department of the Treasury, Department of 
Labor, Department of Commerce, the Securities and Exchange Commisssion, and 
the Federal Trade Commission are directed to appear before the committee 
or its designee and present evidence by examination of witnesses or the intro- 
duction of documents and reports. The evidence presented by each of these 
agencies shall cover the subject matter of this inquiry which is within its 
administrative jurisdiction under existing law or which may be assigned to 
such agencies by the committee. 

The study of life insurance was assigned by the committee to the 
Securities and Exchange Commission. 

Commissioner Henderson will open the hearing. 

Mr. Henderson. I have a rather long statement. I offer no 
apology for it. I offer as an explanation, however, that we are 
dealing in this set of hearings with something which affects the 
daily lives of practically all citizens, and is concerned with millions 
of dollars of investments. 

The series of hearings which commence today will be concerned 
with the general subj-ect of investment and operating problems of 
the larger l^gal-reserve life-insurance companies. 

It will be recalled that the President in his monopoly message 
referred to the Securities and Exchange Commission's exhaustive 

» Public Res. No. 113, 75th Cong., 3d sess. Entered in the record as "Exhibit No. 
2" ; see Hearings, Part I, appendix, p. 192. 



study of investment trusts/ which, incidentally, is now in its final 
stages, and stated [reading] : 

The tremendous investment funds controlled by our great insurance com- 
panies have a certain kinship to investment trusts, in that these companies 
invest as trustees the savings of millions of our people. The Securities and 
Exchange Commission should be authorized to make an investigation of the 
facts relating to these investments with particular relation to their use as an 
instrument of economic power.^ 

The President's message is replete with references to problems of 
our economy upon which this study of insurance investments and 
operating results will throw light. Not least of these are the ref- 
erences to concentration and financial controls. 

Unless the T. N. E. C. or Congress assigns additional insurance 
studies to the S. E. C. — and this, Mr. Chairman, is to be noted 
since there is no bid for such assigimient — this presentation is 
almost the last on life insurance, which is the only form of insurance 
which the Commission's staff has studied. Sheer lack of funds has 
forced the Commission to reject all suggestions of inquiry into fire 
and casualty and other forms of insurance. 

A word of caution about the completeness of the present insurance 
inquiry. The S. E. C, makes no pretense that every phase of life 
insurance has been canvassed. There are 306 life-insurance companies 
with assets of $28,000,000,000. We have never had more than 10 men 
in the field, with a limited home-office staff. The present investment 
study covers the 26 leading companies, but no study could be called 
complete which omits review of the investment experience of 280 
smaller companies, having several million policyholders and around 
S^4,O0O,OOO,O00 of assets. 

Mr. Chairman, at the initiation of the insurance presentations 
a year ago, Justice William O. Douglas, then Chairman of the S. E. C, 

No policyholder need have any concern that any fact brought out in this 
inquiry will in any way jeopardize the protection which he counts upon through 
his insurance policy.' 

I am happy at this time to reaffirm this statement — based as it was, 
I believe, on an abiding belief in the institution of life insurance and a 
firm sense of confidence jn the integrity of the inquiry process, so 
essential to democratic government. 

The Chairman. That statement, Mr, Commissioner, ought to con- 
tribute a little to the stability. 

Mr. Henderson. Well, I don't mind your knowing that I have 
arranged within the last few weeks to add to my own insurance 

Senator King. Did you get any reduction in the annual premium? 

Mr. Henderson. No. [Laughter.] 

Though this is almost the last public hearing, the final report of the 
S. E. C. will contain the results of many staff inquiries, conducted 
through questionnaires, correspondence, and interviews with insur- 
ance company executives. 

' S. Doc. No. 173, 75th Cong., 3<1 sess. Entered in the record as "Exhibit No. 1"; see 
Hearings, Part I, appendix, p. 185. 
= Ibid., at p. mo. 
•■"Hearings, Part 4, p. 1161.'. 


May I say a few words here on a strong, vigorous, and, at times, 
overworked topic — that of cooperation. With but a few outstand- 
ing exceptions, those responsible for insurance-company policy 
have gone far beyond the requirements of formal requests for infor- 
mation. Without the volunteer efforts of earnest executives, our small 
staff could not have presented well-rounded pictures of those insur-. 
ance topics we have selected as important. After the current hear- 
ings, the staff will continue its conferences. 

I have already referred to the fact that these hearings will be 
concerned with both investment and operating problems. The two 
are so interrelated they cannot be separated. One example will 
serve to emphasize the point. Supplementary contracts not involv- 
ing life contingencies, that is to say special contracts for the disposi- 
tion of matured policy proceeds, have increased from $241,000,000 in 
1929 to $1,182,000,000 at the end of 1938. These contracts grew partly 
because of management emphasis upon new sales techniques and, 
though admittedly a logical development in the business, have created 
many new investment problems. In fact one life insurance official 
said of these contracts that they — 

are forcing the life companies out of their primary function of writing assur- 
ances and into the investment banking and trust company field. 

This is a subject we will consider. It is cited here only to dem- 
onstrate how closely the investment problem is linked to the operat- 
ing features of the business. 

The problems of insurance operations and investments, of coui^e, 
cover a broad range and have many ramifications. , As the presenta- 
tion proceeds, it will be apparent that we are obliged at least to 
touch upon topics ranging from technical accounting matters on 
one hand to questions of management policy and economic import 
on the other. 

Many aspects of the investment problem have already received 
attention in the insurance hearings which have been held before 
this committee from time to time during the last year. The com- 
mittee has heard, for example, evidence with respect to collateral 
and mortgage loans to "insiders," loans sometimes of doubtful pro- 
priety, and occasionally concealed under the names of dummies who 
had no beneficial interest in the transactions themselves; the use of 
company funds to further outside business ventures of officers and 
directors ; the methods of promoters who pyramid or consolidate life 
insurance companies through holding company stock trades or re- 
insurance and rewriting operations; and, as m the case of recent 
hearings before the special subcommittee, evidence illustrating some 
unusual cases where blatant mismanagement of investments has con- 
tributed to receiverships and to policyholder losses. 

I believe the study of investments will be better illuminated be- 
cause of those hearings. 

The testimony in the hearmgs about to commence, which will be 
concerned primarily with the 26 largest life insurance companies, 
will have an entirely different emphasis, the effort being to con- 
sider and appraise the operations of the business as a whole. Our 
approach to the investment problem will be primarily from an 
economic point of view. In this respect we take a sharp departure 


from the studies of the Armstrong committee which were more con- 
cerned with" an examination of specific abuses. To further an under- 
standing of this broader problem, the Commission secured invest- 
ment and operating figures, many of which were not available in 
public records, by sending out two detailed investment questiopnaires. 
The figures so secured will be presented to the committee' in the 
course of the hearings and will provide a frame of reference against 
which the operation of the business as a whole, as well as that of 
individual companies, may be appraised. 

Cooperation of the companies m furnishing the required informa- 
tion and in conferring with our representatives on related problems 
has been commendable and I should like at this time to acknowledge 
the generous assistance received. 

The investment and operating problems, of the companies have 
admittedly become greater in recent years. In 1938, for example, 
these companies were faced with the gigantic task of finding suit- 
able investments for about $4,000,000,000 comprising $2,500,000,000 
that was returned to them through the maturity, sale, and redemp- 
tion of their old investments and $1,500,000,000 of new money re- 
ceipts. In other words, into the hands of the officials of life-insur- 
ance companies, there was an average daily flow of over $10,000,000 
for which they had to find suitable new investments. The admitted 
assets of the life insurance ■ companies are invested primarily in 
bonds, mortga<Tes, real estate, and m policyholders' loans. The mag- 
nitude of thef e investments justifies the statement so well phrased 
in a recent editorial in the Wall Street Journal ^ to the effect that 
"It would be hardly an exaggeration to say that the assets of the 
life-insurance companies as a whole represent roughly a first mort- 
gage on the country's business and industry." As early as 1906 the 
Armstrong Report stated ^ [reading] : 

No tendency in modern financial conditions has created more widespread ap- 
prehension than the tendency to vast combinations of capital and assets. But 
while in the case of railroads and industrials these vast amounts are mostly 
fixed in particular productive activities, the larger part of the huge accumula- 
tions of life insurance companies consists of assets readily convertible into money 
and susceptible of application to varied uses. It is this fact which has placed 
the oflicers and members of finance committees of life insurance companies in 
positions of conspicuous financial power. ♦ • * 

These comments are even more pertinent today for the size of the 
companies has grown tremendously and the degree of concentration 
within the business has increased. Indeed, the prime importance of 
life-insurance company investment practices in the national economy 
cannot be questioned and as I have indicated it is toward an appraisal 
of the economic effect of these practices that much of the hearings 
will be directed. There are many questions upon which some light 
may be thrown. For example, do farm mortgage and farm real- 
estate policies of life insurance companies benefit or injure the 
farmer? Or again, has the trend of private savings to accumulate 
in insurance companies dried up venture capital and hampered the 
development of new business enterprises? Other similar problems 
will come to focus as the hearings proceed. 

1 December 28, 1939, p. 4. 

' State of New York, Ass. Doc. No. 41, Vol. X, p. 389. 


Before calling the first witness, however, it may be well to reempha- 
size the size and scope of the business and to review developments dur- 
ing the last year. The Association of Life Insurance Presidents re- 
cently estimated that as of December 31, 1939, the total face amount of 
life insurance in force in the United States was $113,000,000,000. This 
amount represents an increase of about $3,000,000,000 during 1939. 
Similarly, the association estimated that the total admitted assets of all 
United States companies had grown to a new all-time high of $29,- 
150,000,000, an increase of over $1,000,000,000 from the previous year. 
With this increase in assets and insurance in force, there was naturally 
an increase in premium income and an increase in disbursements to 
policyholders or their beneficiaries. 

In the hearings which commence this morning, we wish to trace 
in a general way the principal operating and investment problems 
of the business over the last several decades. In this m.anner, prob- 
lems which will be studied in detail in the hearings to follow will be 
placed in better perspective. As in the past, Mr. Gesell will conduct 
the examination on behalf of the Commission. 

The Chairman. Let me add to what Commissioner Henderson said 
that the presentation by the Securities and Exchange Commission of 
this study, or indeed the presentation by any of the agencies of any 
study to this committee, does not in any degree or sense whatever 
imply that the committee has taken any position upon any of the mat- 
ters involved in the hearing. The committee has not. This com- 
mittee sits in a sense as a court or a jury to listen to evidence. I think 
I may properly say that the committee has at no. time discussed any 
recommendation with respect to life insurance in any of its sessions, 
public or executive. No recommendations have been made by the 
committee, and no suggestions have been made to the committee by any 
member of the committee or by any member of the staff.^ 

I am reminded of the fact that in the preliminary report ^ which 
was filed with Congress by this committee this paragraph was included. 
I read it now, because of the apparent dissemination through the 
country of inferences and reports that this committee had some legis- 
lative plans in mind. This is what the Temporary National Economic 
Committee said to the President and to the Congress [reading] : 

The Committee "does not plan legislative hearings in the ordinary sense. It 
has no legislative, jurisdiction. As in the case of its intensive study of the use 
of patents in the automobile manufacturing, the glass container, and the beryl- 
lium industries, it will be content to develop facts and in proper cases to make 
recommendations, leaving to the standing committees of the House and the 
Senate the full jurisdiction and responsibility for drafting and perfecting any 
legislation that may be deemed necessary. 

Of course, in calling attention to the fact that no recommenda- 
tions have been made and that the committee has not at any time 
discussed legislative recommendations, I do not, of course, in any way 
want to foreclose any member of the committee from making any sug- 
gestions, but that will come in due course and long after the facts 
have been developed. Whenever such recommendations are made, if 

' In this connection see also additional material appearing in appendix, p. 15604, et seq. ; 
consisting of (1) letter from Senator O'Mahoney to Representative Edward T. Taylor; 
(2) material released by tBe American Life Convention. See also Hearings, Part lO, p. 
4345 et seq. 

' S. Doc. No. 95, 76th Cong., 1st sess., p. 3. 


they are made, as stated in the report which I have just read, they 
will be submitted to the proper legislative committees of the House 
and the Senate, where they either may be discussed or may be pigeon- 
holed ; I can't tell. 

Mr. Gesell, are you ready to proceed? 

Mr, Gesell. Yes; I am. 

Senator King. I just wanted to add I have noticed in some of the 
press reports that the members of the committee had reached certain 
conclusions which it had expressed with reference to the hearings 
and with reference to remedies which might be suggested. May 
I say that those reports so far as I am advised have been wholly 
inaccurate and without foundation. I think the chairman has propr 
erly indicated the purpose of this committee's work. 

Speaking for myself, I have never expressed an opinion upon any 
subject matter that we have had under consideration except the 
patent matter and I was forced to file a dissent with i:espect to a 
report which was made by the full committee. 

The Chairman. Mr. Gesell, will you call your first witness, or 
do you have a statement? 

Mr. Gesell, The first witness is Mr. Ernest Howe, chief financial 
adviser, Insurance Section, Securities and Exchange Commission. I 
would like to point out Mr. Howe has testified before the committee 
on a previous occasion ^ and his testimony this morning will be 
short and purely for the purpose of presenting general background 
information concerning the companies. Tomorrow he will return 
to the stand and present a more exhaustive analysis of the invest- 
ment and operating performances of these 26 companies over the 
last 10 years. 

WASHINGTON, D. C— Resumed 

The Chairman, You have already been sworn? 

Mr, Howe. I have, sir, 

Mr. Gesell. Mr. Howe, I show you a volume of schedules entitled 
"Operating Results and Investments of the Twenty-six Largest 
Legal Reserve Life Insurance Companies Domiciled in the United 
States" and ask you if you will explain to the committee the methods 
pursued in the assembling of the information contained in this 

Mr. Howe. This volume entitled "Operating Results and Invest- 
ments of the Twenty-six Largest Legal Reserve Life Insurance Com- 
panies Domiciled in the United States" is a compilation of certain 
material which has been received by the Securities and Exchange 
Commission from replies to two questionnaires which the Commis- 
sion has issued, the first under the date of January 31, 1939, and the 
second one under the date of August 11, 1939. The information as 
assembled here has been checked by the Commission for mechanical 
accuracy and prima facie consistency but it has not in any sense been 
audited by the Securities and Exchange Commission. In other 
words, these are the statements of the life insurance companies them- 
selves, summarized to the best of our ability. 

1 See Hearings, Part 4, pp. HM^1233 


The Chairman. May I interrupt, Mr. Howe, please ? Let me sug- 
gest, Mr. Gesell, that at this point, inasmuch as this is the beginning 
of a new hearing on insurance, it might be well for you for the pur- 
poses of the record to develop Mr. Howe's background. 

Mr. Gesell. That is a matter of record. 

The Chairman. I know it is, but just for today's purposes I 
think it would be well for the record very briefly to show what his 
training and experience has been. 

Mr. Gesell. Mr. Howe, will you state what your financial training 
and experience has been for the record? 

Mr. Howe. Well, I was graduated from the Columbia University 
Business School in 1923, after 3 years of post-graduate study in finance. 
Subsequently I went to Wall Street, where I was engaged in the 
so-called buying department of the investment banking firm of Blyth 
& Co., the buying department being the department which analyzes the 
securities which the firm is considering imderwriting. 

Mr. Gesell. That is an investment banking house ? 

Mr. Howe. That is an investment banking house. 

Mr. Gesell. Were you also connected with Lehman Bros. ? 

Mr. Howe. I was connected with Lehman Bros, as an investment 

Mr. Gesell. For what period of time ? 

Mr. Howe. About a year and a half. 

Mr. Gesell. Were you also formerly connected as a special repre- 
sentative of the Federal Housing Administration? 

Mr. Howe. I was, for about 21/2 years. 

Mr. Gesell. And you have been with the S. E. C. since November 
1938, have you not? 

Mr. Howe. That is correct. ^ 

Mr. Gesell. Well, now, Mr. Howe, you were telling us that this 
analysis had not been audited by the Commission but was based upon 
material submitted by the, companies in response to questionnaires. 
Are there any other further matters with respect to these tables that 
you wish to mention? 
• (Senator King assumed the chair.) 

Mr. Howe. There are. The information is largely based on the 
annual statements of the companies and certain collateral analyses 
which the companies furnished us which do not appear in the annual 

Mr. Gesell. Was the material submitted to the companies for correc- 
tion and opportunity given them to correct it ? 

Mr. Howe. Yes. The information was submitted to the companies 
for corrections and opportunity was given them to make any correc- 
tions which they felt needed to be made. 

Mr. Gesell. Those corrections that hare been submitted are in- 
corporated in this document I showed you, are they not ? 

Mr. Howe. They are. All the figures and factual corrections which 
have been submitted have been incorporated in this volume as it now 

Mr. Gesell. Was this material assembled under your direct super- 
vision ? i 

Mr. Howe. It was. « 

Mr. Gese^/L. And to your best knowledge is it correct? 

Mr. Howe. I believe it is. 


Mr. Gesell. I wish to offer this document for the record at this time, 
subject to our regular understanding that if errors in any of the figures 
should appear at any time, they may be corrected. 

Acting Chairman King. It will be received. Do you desire this 
voluminous record to be set forth in extenso in our hearings ? 

Mr. Gesell. I do, Senator; yes. 

Acting Chairman King. All these figures? 

Mr. Gesell. That is my wish. I mignt say arrangements for print- 
ing have been made in that connection with Senator O'Mahoney's 
approval. I think an approach can be made that will not be very 

Acting Chairman King. It will be received. 

(The volume referred to was marked "Exhibit No. 2250" and was 
printed separately as Hearings, Part 10-A.) 

Senator White. Am I to understand this document which T hold in 
my hand and which you have been addressing yourself to, has been 
submitted to the various companies for scrutiny and correction ? 

Mr. Howe. Yes ; it has, Senator White. 

Mr. Gesell. Now, Mr. Howe, turning to the charts behind you 
entitled "Admitted Assets, 1938," have you 

Acting Chairman King (interposing). Let's have that marked as 
an exhibit. 

Mr. Gesell. All right. I customarily qualify it before I offer it. 
I will offer for the record the chart entitled "Admitted Assets, 1938." 

Acting Chairman King. It will be received. 

(The chart referred to was marked "Exhibit No. 2251" and appears 
on p. 14703. The statistical data on which this chart is based are in- 
cluded in Hearings, Part 10-^A, p. 5.) 

Mr. Gesell. Have you any comments which you wish to make on 
that chart, Mr. Howe? , ' ' 

Mr. Howe. This chart ^hiph is ''entitled "Admitted Assets, 1938," 
shows the tc^tal assets as Shown on the balance sheets of the 26 com- 
panies, whose figures have been incorporated in "Exhibit No. 2250." ' 

On page 5 of this exhibit will be seen the aggregate assets at the 
end of 1938; the total assets held by these companies at that time 
was $24,290,000,000, approximately. It will be seen from the chart 
that there is great concentration of assets in the companies at the top. 
There were at the eiTid of 1938, six companies with assets exceeding 
$1,000,000,000. The largest, the Metropolitan, had assets of almost 
$5,000,000,000. Probably by the end of 1939 it exceeds $5,000,000,000 
total assets. The Travelers, which was not quite a billion dollars at 
the end of 1938, probably exceeds a billion dollars at this time. 

Senator White. You had admitted assets — admitted by whom ? 

Mr. HowB; 'Senator, that is a phrase which is used in the annual 
statement. It is an accounting phrase which I will explain tomor- 
row, I hope ; but in general that is the total assets. That is the figure 
that comes at the bottom of the balance sheet. I mean in an ordinary 
industrial concern, that would be total assets. It involves some valu- 
ations, and so forth. 

Senator White, Of course, there are involved in that evaluation of 
securities and properties of all sorts that are held. Now, are you 
accepting the companies' figures as to the value? 

^ See Hearings, Part 10-A. 

Exhibit No. 2251 



1 2 3 

4 5 

1 1 1 1 " 


' 1 




1 1 



1 1 ' 




' 1 











































1 1 L__L 

PS-MO" fKCPAKCD »r sec a excn coum 


Mr. Howe. Oh, entirely so, sir; oh, yes. Those are just the figures 
which were shown on the annual statements of the respective com- 
panies as they were filed Avith the state departments of the States in 
which they are domiciled. There has been no adjustment of those 
figures in any shape, way, or form. 

Mr. Gesell. There will be discussion of those admitted assets and 
problems of valuation asset later on in the hearing. This list of 26 
companies, Mr. Howe, am I correct in saying includes all companies 
with assets in excess of $125,000,000? 

Mr. Howe. Yes; that is the reason for the selection of the strange 
number 26. We wanted all companies with assets in excess of $125,- 
000,000, and at the end of 1938 there were 26 of them. 

Mr. Gesell. How much do they represent of the total ? 

Mr. Howe. The 306 American life insurance companies at the end 
of 1938 had total assets of $27,754,000,000, and these companies repre- 
sented on this chart constitutes 871/0 percent of the assets of the 306 

Mr. Gesell. Now, on December 31, 1938, how many policies did 
these 26 companies have in force? 

Mr. Howe. These companies had 98,054,000 policies in force. That 
is to some extent an understatement, because included in there as 
one policy are master group policies, which really affect a substantially 
larger number of people but complete statistics aren't available on 
that, so we must use the sort of hybrid figure. Nevertheless, that is an 
understatement, a slight understatement. It may be compared with 
124,000,000 policies in force in the 306 legal reserve life insurance com- 
panies. In other words, 78 percent of the policies outstanding were 
outstanding in these companies represented on the chart.^ 

Acting Chairman King. Of course, those are life insurance policies ? 

Mr. Howe. Yes, sir; life insurance policies. 

Acting Chairman King. You don't deal in industrial insurance at 

Mr. Howe. Oh, yes; industrial insurance policies are included in 
that number. 

Acting Chairman King. You call those life insurance, too ? 

Mr. Howe. Oh, yes ; most assuredly so. 

Acting Chairman King. What proportion would be industrial in 
contradistinction to life insurance per se? 

Mr. Howe. Well, I can answer you in just a second here, Senator, 

Acting Chairman King. My recollection is there are approximately 
65,000,0W life-insurance policies — strictly life insurance. 

Mr. Howe. Senator, the estimate is there are about 65,000,000 policy- 
holders. This 124,000,000 is the number of policies, the number of 
pieces of paper, as it were, as distinguished from the number of 

Mr. Gesell. Some people have more than one policy, do they not? 

Mr. Howe. That is correct. Now, of the total 124,000,000 policies to 
which I refer, 61,000,000 policies are industrial policies held by the 
top two companies, that is, the Metropolitan and the Prudential. 

And of the total 98,054,000 policies, 70,309,000 policies are indus- 
trial policies, so that only about 28,000,000 policies are ordinary life 
insurance policies aiid master group policies. 

' "Exhibit No. 2251," suprn, p. 14703. 


Mr. Gesell. Now, I should like to oflfer for the record at this time 
a chart entitled "Types of Insurance Carried by Each Company." 
This chart, Mr. Howe, I think, will aid in answering Senator King's 
question. Can you make any comment on it in connection with tne 
types of business done by various companies? 

Acting Chairman King. The chart will be received. 
(The chart referred to was marked "Exhibit No. 2252" and ap- 
I^ears on p. 14706. The statistical data on which this chart is based are 
included in Hearings, part 10-A, pp. 21, 29, 35, 41, 49, 56, 63, and 68.) 

Mr. Howe. Life-insurance companies are engaged in a variety of 
different lines of related business. About the only generalization 
which can be made about the type of business these companies en- 
gage in is that the risks which they insure are exclusively risks 
relating to persons as distinguished from risks relating to property. 

Now, the annual statements of the companies classify the types 
of business ^yhich they do, as follows : ordinary life, disability, bene- 
fits, individual amiuities, accidental death benefits, group life, group 
annuities, accident and health, and industrial life insurance. 

Mr. Gesell. That is eight different classifications? 

Mr. Howe. That is eight different classifications. 

Mr. Gesell. Now, with further reference to Senator King's ques- 
tion, how many companies of these 26 write industrial insurance? 

Mr. Howe. Four companies write industrial insurance. That is 
the Metropolitan, the Prudential, the John Hancock, and the West- 
ern and Southern. 

There are four more companies which write all types of business 
except industrial insurance. These are the multiple line companies 
of Hartford, Conn. — the Travelers, the Aetna, the Connecticut Gen- 
eral, and the Equitable of New York, which latter company writes 
all lines of business with the qualification that their accident and 
health business is restricted, I believe, to group accident and health. 

The remaining 18 companies write only ordinary insurance and 
individual annuities, except the Lincoln National, which also writes 
group, and the Pacific Mutual, which also writes accident and health 

Mr. Gesell. That makes, if I read correctly from the chart, 4 
companies that write industrial business, 26 which write ordinary, 
26 which write disability, 24 which write double idemnity for acci- 
dental death, 25 which write individual annuities, 9 which write 
group life, 7 which write group annuities, and 8 which write accir 
dent and health insurance. 

Mr. Howe. That is correct. 

Acting Chairman King. All these corporations to which you re- 
ferred have their charters under the States in which they have their 
principal place of business, and they make their reports, annually or 
quarterly or semiannually, pursuant to requirements of the statutes? 

Mr. Howe. They do so. 

Mr. Gesell. They report, do they, not only to the State in which 
they are incorporated but all States* in which they do business ? 

Mr. Howe. That is correct. They file elaborate annual reports in 
all the States. 

Mr. Gesell. Now, Mr. Howe, will you turn to the chart entitled 



Exhibit No. 2252 
[Prepared by Securities and Exchange Commission] 


19 3 8 








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fed X 

Q e- 
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N. Y. Life 
Equitable NY 
Mutual NY 

John Hancock 
Penn Mutual 
Mutual Benefit 

Mass. Mutual 


N. E. Mutual 

Union Central 

Provident Mut. 

Conn. Mut. 
Conn. Gen'l. 
Phoenix Mut. 
Bankers Life 
National Life 

Pacific Mutual 
State Mutual 
Equitable Iowa 
Western & So. 
Lincoln Nat ' 1 . 
Guardian Life 






""■""' ' 














''"' " 


"™™" ' 



















'Included in the accident and health department. 
Based on reports of total Income. 



"Total premium income, 1929 to 1939" ? I would like to offer at this 
time the chart so captioned and the schedule of supporting figures. 

Acting Chairman King. The tendered exhibits will be received and 
marked accordingly. 

(The chart referred to was marked "Exhibit No. 2253" and appears 
on p. 14708. The statistical data on which this chart is based were 
marked "Exhibit No, 2254" and are included in the appendix on 
pp. 15490-15491.) " 

Mr. Gesell. Have you comments yoii wish to make on this chart ? 

Mr. Howe. In order that the relative importance of these various 
lines of business, in terms of the total premium income, may be under- 
stood, a chart has been prepared showing total premium income, 1929- 
38. Now, this chart indicates the total premiums which have been 
paid into these 26 companies, with the exception of the Pacific Mutual, 
for which figures are not available for the period. However, the 
chart should not be taken in any sense as indication of the relative 
importance of the various classes of business to any individual 

Mr. Gesell. These are the assembled totals for all the companies ? 

Mr. Howe. These are the assembled totals for all 25 companies. The 
point I wish to bring out is that in the four industrial companies, for 
instance, their total premium income from industrial insurance in 
each case exceeds their total premium, from ordinary insurance, so 
this chart must be considered only as the aggregate figures. 

During the 10-year period, from January 1, 1929, to December 1, 
1938, the total premium income of these 25 companies was $31,384,000,- 
000. Of this, $18,782,000,000 was received from ordinary insurance. 
I refer to ordinary insurance in this condensed blank as distinguished 
from industrial and other lines. 

Industrial premiums amounted to $7,078,000,000 during the same 
period, while annuities contributed $2,686,000,000. 

Acting Chairman King. That is individual annuities? 

Mr. Howe. That is both individual and group annuities. Individ- 
ual annuities contributed $2,142,000,000, and group annuities $543,- 
000,000 of the premium income. 

Group life insurance provided a total premium of $1,038,000,000, 
while accident and health insurance premiums amounted to $984,000,- 
000 of the 10-year totals. Therefore, ordinary life insurance accounted 
for 59.85 percent of the premium income; disability benefits, 1.72; 
accidental-death benefits, 0.87; industrial insurance, 22.56 percent; 
individual annuities, 6.83 percent; group annuities, 1.73; group life 
insurance, 3.31 percent; accident and health insurance, 3.13 percent. 

Mr. Gesell. Mr. Howe, in the case of the four industrial companies, 
can you tell us, in explanation of the chart, whether or not the^ir 
premium income from industrial policies exceeds or is less than the 
premium they received from their ordinary policies ? 

Mr. Howe. In the case of the industrial companies — I am speaking 
now of the Metropolitan, Prudentialj John Hancock, and Western and 
Southern — the premium income which those companies receive from 
industrial insurance exceeds the premium income which those com- 
panies receive from ordinary insurance. 

Mr. Gesell. Do I read that chart correctly in interpreting that the 
amount of premium income from ordinary insurance has decreased ? 




Mr, Howe. Over the period, the total premium income from ordi- 
nary insurance — that is, including renewal premiums — has increased 
slightly from $1,849,000,000 to $1,903,000,000. However, in terms of 
the total premiums — that is, relatively in percentages — it has decreased 
from 63.86 percent in 1929 to 57.58 percent in 1938. 

Mr. Gesell. Total premium income received from the ordinary in- 
surance is relatively less important in terms of the total premium 
income received by the company ? 

Mr. Howe. It is. 

Senator White. You made reference to ordinary insurance. What 
do you include in the term ordinary ? You don't mean, of course, just 
ordinary life? 

Mr. Howe. I do not. I mean to include all types of policies or 
business which are included in the convention blank under the head- 
ing "Ordinary." That includes in general, Senator, what is referred 
to as ordinary life. It includes term insurance. It includes endow- 
ments. It includes 20-payment life. It is all of these policies which, 
under usual practice, are paid for by annual premiums or quarterly 
or sometimes monthly premiums. I don't mean at all to limit it to that 
one type of policy known as ordinary life. 

Senator White. But the various kinds of insurance you have just 
now catalogued are included in your term "ordinary" insurance? 

Mr. Howe. That is correct. 

Mr. Geseli.. Now, do I also interpret the chart ^ correctly in saying 
that over the period the individual annuities amount to a greater per- 
centage of the total premium income than they did at the beginning of 
the period? 

Mr. Howe. Individual annuities in 1929 produced a premium income 
of $55,000,000. By 1935 that had grown to $392,000,000; and by 1938, 
still remained at the figure of $261,000,000. In other words, indi- 
vidual annuities amounted to or accounted for 1.91 percent of the total 
premium income of 1929, 12.03 percent of premium income for 1935, 
and 7.91 percent of the total premium income in 1938. 

Mr. Gesell. I should like to offer for the record a chart entitled 
"New Paid-For Life Insurance" together with the supporting table. 

Acting Chairman King. The exhibits will be received. 

(The chart referred to was marked "Exhibit No. 2255" and appears 
on p. 14710. The statistical data on which this chart is based were 
marked "Exhibit No. 2256" and are included in thei appendix on 
p. 15492.) 

Mr. Gesell. Now, Mr. Howe, have you any comments which you 
wisht to make with respect to this chart ? 

Mr. Howe. Yes ; I have. This chart is based on a regular statistical 
series, which is published by the Association of Life Insurance Presi- 
dents in New York. It covers, according to their statement, the data 
on 40 United States companies, which constitute 82 percent of the total 
business outstanding in all the United States legal reserve companies 
on December 31, 1938. The schedule excludes revivals, increases, and 
more important still, dividend additions and accepted reinsurance. 

In other words, the chart shows, in a general and broad way, the 
volume of business on which a life-insurance salesman could collect a 

1 "Exhibit No. 2253," supia, p. 14708 
124491— 41— pt. 28 2 


Exhibit No. 2255 


1913 1915 




1935 1938 

# exCLusivc Of KtyiviLS. inceises ahd diviocnd additions - to uNirco STAres 
coMPdmes TH£5£ coMPAwes hao est of the total eusiNCSS in all us lcgau 
nestKi/c couPANics on oeconBO 31. i)}7 


CS-141S PRCPAPCDtr sec 

a ircil I 


commission, and when I say life-insurance business I mean life insur- 
ance and not amiuities. 

Mr. Gesell. And you mean collect the first year's commission ? 

Mr. Howe. That is right. 

Mr. Hendekson. Mr. Howe, just on the face of it, this table ^ might 

seem to contradict the figures I put into the record in my statement, 

which shoAved that there was an increase in the admitted assets 

' and an increase in the total amount of life insurance in force. Now, 

what is the reconcilation between your figures and those that I put in ? 

Mr. Howe. These, of course, are a trend of sales. The previous 
table,^ for instance, on premium income, includes all of the income from 
the policies year after year, not only the first year premium income 
but the continuing premiums which are paid in successive years. That 
is a very much more level curve. 

Now, the continuation of the payment of premiums on lif e-iusurance 
policies, the renewal premiums, year after year, have, along with other 
factors which we will discuss, produced a rather substantial increase 
in the total assets of life-insurance companies ; but the actual sales of 
life insurance during the period from 1929 have shown the trend which 
is indicated by the chart.^ 

Mr. Geseix. Now, see if I can't help you. The total amount of insur- 
ance in force has increased, has it not? 

Mr. HoAVE. The total amount of insurance in force has increased. 

Mr. Gesell. Tlie total amount of new business sold each year, how- 
ever, has been decreasing since around 1929, as shown on that 
schedule ? * 

Mr. Howe. That is correct. 

Mr. Gesell. And the difference is made up in the fact that paid-up 
additions, and other things of that sort, are excluded from these 
figures. but not excluded from the figures Mr. Henderson gave* in 
his opening statement? 

Mr. Howe. That is correct. 

Mr. Gesell. As I gather, this is the actual business sold by the 
agents ? 

Mr. Howe. That is right. 

Mr. Henderson. The agent, however, does not get a commission on 
such things as this, if I let my dividends accumulate and buy more 

Mr. Howe. No ; he does not receive a commission. 

Mr. Henderson. That would be excluded from this' figure? 

Mr. Howe. That is excluded from that figure. 

Acting Chairman King. Does the chart * last exhibited include 
more than the 26 insurance companies indicated on the first chart ^ 
which you presented? 

Mr. Howe. It does, Senator. The reason is we don't have figures 
over a long enough period for the 26 companies. We only have 

1 See "Exhibit ino. 2256," a'ppendlx, p. 15492. 

2 See "Exhibit No. 2254," appendix, pp. 15490-15491. 
= See "Exhibit No. 2255," supra, p. 14710. 

* See "Exhibit No. 2256," appendix, p. 15492. 

" Supra, p. — . 

« See "Exhibit No. 2255," p. 14710. 

' See "Exhibit No. 2251," p. 14703. 


them for 10 years. This is from the statistical series of the Associa- 
tion of Life Insurance Presidents. There is not any great difference 
in the trends. 

Acting Chairman King. This chart then would represent as you 
indicated about 80 percent of the insurance receipts of insurance 
companies ? 

Mr. Howe. Eighty-two percent of the insurance in force, and the 
26 companies represent about 78 percent, I believe the figure is, of 
the insurance in force. 

Mr. Gesixl. Are there any figures on this chart you wish to point 
out particularly? 

Mr. Howe. It is interesting to note the difference in the growth 
of the three principal types of insurance. I speak now of three 
principal types of msurance as classified by the convention form. 
That is the ordinary insurance, the importance of which we saw on 
the preceding chart,^ industrial insurance, and group insurance. 

Now, during the period from 1913 to 1929, it is clearly seen that, 
in general, there was a period of very rapid growth. For instance, 
ordinary insurance in 1913 to 1929 increased, on the basis of figures 
on this chart,^ 422 percent; industrial insurance, 365 percent; and 
group insurance, 5,600 percent. 

Total insurance during that period, 1913 to 1929, increased 456 

Mr. Gesell. What has been the experience since that time ? 

Mr. Howe. Since 1929, as the chart ^ clearly indicates, there has 
been a decline. . New paid-for industrial insurance from 1929 to 
1938 declined 25 percent, and group declined 60 percent. Ordinary 
declined 44 percent. 

Mr. Gesell. Now, are these declines continued if one takes into 
account the estimates of the 1939 figure ? 

Mr. Howe. In comparing 1939 with 1938, we see that ordinary 
insurance has shown an increase of 3 percent; industrial insurance 
has declined 31.9 percent, or a greater percentage than the decline 
during the entire period from 1929 to 1938. 

Acting Chairman King. You mean in that one year? 

Mr. Howe. Yes. 

Acting Chairman King. Thirty-eight percent? 

Mr. Howe. No; 31.9 percent from 1938 to 1939 and group in- 
surance increased 68 percent in 1939, as compared with the previous 

Mr. Geseix. Now, these 1939 figures are based upon estimates, are 
they not ? 

Mr. Howe. I believe so. They are at least the figures which are 
published by the Association of Life Presidents. 

Acting Chairman King. At the close of 1938, referring to the 
group figures, there was no indicating, was there, that there would 
be that large increase during 1939? In other words, there was no 
upturn apparent? 

Mr. Howe. No, Senator ; or perhaps if you look at the figure for 
1937 you might say instead of a big upturn in 1939, there was an 
unaccountable downturn for 1938, because the figure for 1937 was 

1 "Exhibit No. 2253," supra, p. 14708. 
• 'Exhibit No. 2255," supra, p. 14710. 


almost as big as 1939. In other words, the sales of new group in- 
surance are a little more erratic from year to year than the other 
curves which are more stable. 

Acting Chairman King. That would be rather an abrupt increase, 
would it not, in 1939, in the group insurance ? 

Mr. Howe. Yes; a very considerable increase. Probably, you see, 
someone wrote a big contract or a few big contracts, having a big 
effect on the total. 

Mr. Gesixl. Now, I should like to turn to the chart entitled "Total 
Income and Disbursements," which I will offer for the record, and 
the supporting schedule which I would like to offer. 

Acting Chairman King. They may be received. 

(The chart referred to was marked "Exhibit No. 2257" and ap- 
pears on p. 14714. The statistical data on which this chart is based 
were marked "Exhibit No. 2258" and are included in the appendix 
on p. 15493.) 

Mr. Gesell. Mr. Howe, can you explain the chart for the com- 
mittee, please? 

Mr. Howt:. This chart is a summation of the total income of the 26 
companies for a period from January 1, 1929, to December 31, 1938, 
and their expenses for the same period. 

Acting Chairman King. You are coming back now to the 26 

Mr. Howe. Yes ; this is the 26 companies. It will be seen that the 
total premium income during the period amounted to $31,326,000,000, 
investment income during the same period amounted to $8,473,000,000, 
and other income to $2,880,000,QOO. Thus, total incoine, which includes 
some duplications, amounted to $42,679,000,000. 

Acting Chairman King. What other sources would there be of 
income other than investment income and premium income? 

Mr. Howe. Senator, that gets into quite a discussion, but 

Acting Chairman King (interposing). Just in a general way? 

Mr. Howe. One place that other income comes . from is from an 
accounting practice of this kind : If a man dies and has a $10,000 life- 
insurance policy under which the provision is that his beneficiary 
shall be paid not $10,000 in cash but a sum of money over a period 
of years, the accounting procedure is to include the full $10,000 in 
death claims and include it again on the income side, and then the 
disbursements "appear again as the monthly payments go out. So 
that when I say there is some duplication in other income I mean 
there are some accounting adjustments of that sort. 

Acting Chairman King. That accounting system doesn't absolve 
the corporation from any obligation ? 

Mr. Howe. Not in the least. It is merely a matter of convenience 
in accounting. But the thing that I wish to state about this schedule 
of income and disbursements is that probably of all the annual state- 
ment schedules prepared by life-insurance companies, this thing is 
subject to — well, I was going to say the most qualifications, but cer- 
tainly a great many, and therefore we don't want to take the figures 
too seriously as to the minute detail ; but it does correctly convey the 
broad general impression that the income of. these companies does 
substantially exceed their disbursements, 

Mr. Gesell, What happens to the difference, Mr. Howe ? 


Exhibit No. 2257 


«■■■•■ r«aaai 

r ■ a a^a a a a r ~ 




I a a a a a a a a a r^ 
a a a a a a^a a a a 





' dividends to * 
'policyholders : 


> 72.35% 



Ds-nn "KfAnco tr sec a ecu cof" 


Mr. Howe. The difference in this 10 years is that substantially- 

Mr. Gesell (interposing). First of all, how much is the difference? 

Mr. Howe. The difference is $10,585,000,000. 

Mr. Gesell. Can you tell us in a general way what happened to 
that difference ? 

Mr. Howe. Yes. In a general way, that goes to increase reserves — 
that is, life-insurance and annuity reserves; it goes to increase sur- 
plus; it goes to increase contingency reserves; and part of it has 
washed out in asset losses. 

Acting Chairman King. Insurance companies, like all other busi- 
ness activities, have some losses ? 

Mr. Howe. Senator, we will see that they do. 

Acting Chairman King. Decline in values of property which they 
have taiien or upon which they made loans? 

Mr. Howe. That is right ; a very human characteristic. 

Mr. Gesell. Have you any further comments you want to make on 
this chart? ^ 

Mr. Howe. It will be seen that of the disbursements, about 72 per- 
cent are payments which have been made to policyholders in one form 
or another, including death claims (with the qualification that I just 
mentioned about supplementary contracts) , dividends to policyholders, 
and surrender values for the policies which have been surrendered. 
The aggregate of surrender values amounts to about $7,000,000,000, 
the death claims about the same amount, and operating expenses 
$6,859,000,000 during the period. 

Mr. Gesell. Now, Mr. Howe, will you turn to tables 98 and 99 in 
"Exhibit No. 2250," the analysis of the 26 company accounts which was 
placed in the record ? ^ These two schedules represent, do they not, the 
combined balance sheet of these 26 companies? 

Mr. Howe. They do. 

Mr. Gesell. They show an increase of assets of slightly over $9,000,- 
000,000 in the 9 years, do they not? 

Mr. Howe. Yes. 

Mr. Gesell. What percentage increase is that ? 

Mr. Howe. Sixty-three percent. 

Mr. Gesell. Now, turning to certain of the principal asset items 
which have increased substantially, can you give us some idea what the 
percentage increase has been ? The figures are apparent here. 

Mr. Howe. The cash has increased 551 percent. The cash was in- 
creased from $102,188,000 to $665,329,000. 

Mr. Gesell. How much increased? 

Mr. Howe. Five hundred fifty-cne percent. 

Mr. Gesell. What about United States Governments ? 

Mr. Howe. United States Governments have increased 1,394 per- 

Mr. Gesell. Wliat has been the increase in industrial and miscel- 
laneous bonds? 

Mr. Howe. Industrial and miscellaneous bonds have increased 460 

^ Spe "Exhibit No. 2257," supra, p. 14714. 
* Spc Hearings, Part 10-A, pp. 98 and 99. 


Mr. Gesell. Now, coming down to the mortgage and real-estate 
items, have the mortgages increased or decreased? 

Mr. Howe. The mortgages have decreased. They have decreased 
25.03 percent. 

Mr. Gesell. jHas that been offset by an increase in the an;ount of 
real estate held ? 

Mr. Howe. Yes; the amount of real estate held was increased 539 
percent, or from $277,000,000 to $1,775,000,000. 

Acting Chairman King. In part would that be represented by prop- 
erty taken over under mortgage foreclosures or other real estate ? 

Mr. Howe. Mostly foreclosed real estate. The home offices are 
included, as are housing projects, but mostly the figure is foreclosed 
real estate taken in satisfaction of debt. 

Acting Chairman King. So there would be losses there ? 

Mr. Howe. There may be ultimately. They still own it. You can't 
tell yet. 

jMr. Gesell. We will consider some of that tomorrow. 

On the assets you said they had increased 63 percent to the $24,000,000 
figure ? 

Mr. Howe. Right. 

Mr. Gesi LL. Can you compare that with what the increase has been 
in insurance in force over the same period? 

Mr. Howe. The increase in insurance in force over the same period 
has been about 10 percent. 

Mr. Gesell. So that assets have increased 63 percent, whereas insur- 
ance in for ;e has increased 10 percent? 

Mr. Howe. That is about right. 

Mr. Gesell. Now, turnihg to the liabilities side, Mr. Howe, what has 
been the increase in annr.itie. 

Mr. Howe. The increase in reserves for annuities during this period 
has been 565 percent. 

Acting Chairman Kjng. That woulJ be from $400,000,000 to 

Mr. Howe. That is correct, sir. 

Mr. Gesell. What has been the increase in supplementary contracts 
not involving life contingencies? 

Mr. Howe. Three hundred ninety percent. 

Mr. Gesell. Has there been an increase of dividends left with the 
companies ? 

Mr. Howe. Yes; 89 percent. 

Mr. Gesell. And what about the increase of premiums and rent paid 
in advance ? 

Mr. Howe. That has increased 186 percent. 

Mr. Gesell. Well, now, tiirning to one otl>er set of tables, can you 
tell us what the total amounrt oi funds available for investment to these 
companies has been over tlie period, and what the gross investments 
made have amounted to ? 

Mr. Howe. On page 93,^ it will be seen, are displayed the sources of 
funds available for investment by life-insurance companies for the year 
1929. compared with the year 1938. It will be seen that in the year 1929 
these 26 companies had available for investment $2,087,000,000. In 
1938 this figure had amounted to $4,315,000,000. During the entire 

1 See Hearings, Part 10-A, p. 3. 


period of 10 years, $26,856,514,000 was available for investment by 
these companies. 

Mr. Gesell. How much was the investment ? What were the gi'osg 
investments made ? 

Mr. Howe. The gross investments made were $26,189,000,000, and 
if we look at table 95 on page 95,^ we see that in 1929 the companies 
invested $1,989,000,000, whereas in 1938 their investments were 

Mr. Gesell. Now, have you prepared some studies, Mr. Howe, 
which will give some idea of the importance of the life-insurance 
companies in the capital market? 

Mr. Henderson. Before you go on, Mr. Gesell, let me see whether 
I understand something of what you Jiave been saying. In this 
period, '29 to '38 

Acting Chairman King (interposing). Inclusive. 

Mr. Henderson. Inclusive, which included many years of depres- 
sion in which the admitted assets went up but the life insurance in . 
force went up only about one-sixth as much, and in which time the 
new paid-for life insurance was going steadily down, the investment 
problem of the insurance companies, as distinguished from their sales 
problem, had decidedly increased, had almost doubled, more than 
doubled, as a matter of fact. 

Mr. Howe. That is right. 

Mr. Henderson. In other words, in this period where there were 
declyiing opportunities for investment which this committee is study- 
ing, they had an acceleration of the demands on their manageijial 
efforts to find wavs of getting earnings with which to keep insurance 
at a proper level ? 

Mr. Howe. Eight, 

Acting Chairman King. With a decline in the receipts from new 
insurance, their outstanding obligations still existed? 

Mr. Howe. Of course. ---^ 

Acting Chairman King. And, of course, thiey had to obtain revenue 
from those obligations by loans or otherwise dr obviously the day 
-must come when they would have a very serious situation. 

Mr*. Howe. Oh, of course ; but their premium income, as this chart ^ 
shows, I mean their gross income in general, exceeds their outgo 
although the one very great defect of that chart is that it takes no 
consideration at all of the flow of funds into and out of policy loans. 
That is a peculiarity of insurance accounting which I will go into 

Acting Chairman King. These charts indicate that there were in- 
vestments made from which they derived funds to meet their obli- 

Mr. Howe, Very sulpstantially. 

Mr. Henderson. That is, they had $26,856,000,000 available for 
investment and they invested over $26,189,000,000 of it? 

Mr. Howe. That is right; and the difference is the cash account 
which is $665,000,000. 

Mr. LuBiN. Isn't it also true, Mr. Howe, judging by that table,' 
that even if they hadn't got any return on investments, their return 

1 Ibid. 

'See "Exhibit No. 2257," supra, p. 14714. 
3 See "Exhibit No. 2258." appendix, p. 15493. 
12.4131-— 41— pt. 28 3 


on premiums would be enough to meet obligations, death claims, sur- 
render values, and everything else? 

Mr. Howe. That is right, fpr'this period. 

(Senator O'Mahoney resumed the chair.) 

Mr. Gesell. Mr. Howe, I was about to ask you if you had pre- 
pared some studies that would further illuminate the importance of 
these investments in the capital market? 

Mr. Howe. I have. In the period from 1929 to 1938, the total 
assets of the life insurance companies included in this study in- 
creased, as the table ^ will show, from $14,800,000,000 to $24,300,- 
000,000. This is an average of almost a billion dollars a year. 

Mr; Gesell. That is to say, the assets of the companies have been 
increasing about a billion a year ? 

Mr. Howe. That is correct. 

Senator King. Of these 26 companies? 

Mr. Howe, Of these 26 companies. Senator ; yes, sir. From 1936 to 
1937, however, the increase was $1,180,000,000, and from 1937 to 1938 
the increase was $1,290,000,000. 

The necessity of finding suitable investments for these mcreasmg 
amounts of new money has created a frankly difficult problem for 
the life insurance companies. This difficulty has been aggravated by 
reason of the fact that the demands for capital have been extremely 
small from any borrowers, except the United States Government. 
The situation may be comprehended by examining the total amounts 
of long-term debts outstanding in the United States at various times 
during the period. The over-all total amount of long-term private 
debt in the United States in 1937 was $70,355,000,000. This was 
$14,165,000,000 less than in 1930. 

Senator King. Where did you get those figures of 70 billion as 
the over-all indebtedness in the United States? Would that be pri- 
vate indebtedness or corporate, municipal, State, or what? 

Mr. Howe. I will give you the detailed figures in a moment, Sen- 
ator. That involves the railway debt, industrial debt, public-utility 
debt, farm-mortgage debt, and urban-mortgage debt. 

Mr. Gesell. Those are figures from the Department of Commerce. 

Mr. Howe. The $70,000,000,000 figure involves only the private 
debt, you see. The Federal and State debt is $55,867,000,000 on top 
of that, or was at the. end of 1937. 

Senator King. Would that include the obligations of small indus- 
tries, small mercantile establishments? I have received' some infor- 
mation to the effect that the total indebtedness in the United States, 
Federal Sate, county, and municipalities, corporates and partner- 
ships, and individuals, was approximately 200 billion. 

Mr. Howe. Senator, these are the long-term debts only. 

Mr. Gesell. Tliese figures are taken from the long-term debt 
studies in the United States of the Department of Commerce, are 
they not? 

Mr. Howe. They are. 

Mr. Gesell. You were saying that the long-term debt has de- 
creased in the period from '30 to '37 ? 

Mr. JIowE. Yes. 

Mr. GfisELL. How much did you say it had decreased ? 

' See Hearings, pt. 10-A, p. 98. 


Mr, Howe. It had decreased $14,165,000,000. 

Mr, Gesell. During that period how much did the assets of the 
insurance companies increase? 

Mr. Howe. During that period the assets of the insurance com- 
panies increased $16,000,000,000. 

Mr. Gesell. How much did they increase? 

Mr. Howe. I beg your pardon, they increased from $16,000,000,000 
to $23,000,000,000, or $7,000,000,000. 

Mr. Gesell. So that the assets of the life-insurance companies in- 
creased $7,000,000,000, whereas tlie total long-term private debt in 
the country decreased $14,165,000,000? 

Mr. Howe. That is correct. 

Senator King. May I for my own information inquire as to what 
they meant by long-term? Was it a bond issue? 

Mr. Howe. I think in general that is the type of thing they were 
thinking of, I mean like the railroads — they get the funded debt. 

Senator King. The long-term obligations would not indicate the 
total obligations of the Government, State and national, corporations, 
and private individuals? 

Mr. Howe. I think you are correct, sir. 

Mr. Gesell. Now, expressed in percentages, can you tell us how 
much the long-term private debt declined as compared with the in- 
crease in the assets of the insurance companies? 

Mr. Howe. The total long-term private debt, as indicated by these 
figures, has declined 17 percent, while the total assets of these insur- 
ance companies increased 43 percent. In the same interval the loi^g- 
term public debt increased from $31,891,000,000 to $55,867,000,000. 
Most of thi? increase was due to the expansion of the Federal debt 
from $14,454,000,000 to $36,715,000,000. State and local debts in- 
creased from $17,437,000,000 to $19,152,000,000 between 1930 and 1937. 

Mr. Gesell. Now, have you prepared a schedule entitled "Long- 
Term Investments of 26 Life Insurance Companies in Relation to 
Long-Term Debts in the United States"? 

Mr. Howe. I have. 

Mr. Gesell. That is based, is it not, on figures submitted by the 
companies and figures obtained from the Department of Commerce? 

Mr. Howe. That is right. 

Mr. Gesell. I wish to offer this schedule for the record. 

The Chairman. The schedule may be received. 

(The schedule referred to was marked "Exhibit No. 2259" and is 
included in the appendix on pp. 15493-15494.) 

Mr. Henderson. Mr. Chairman, in the document from which the 
long-term debt figures have been taken, prepared by the Department 
of Commerce, I find they say, "For' this particular study, the debts 
included in tlie aggregate may be regarded as maturing a year or 
more from the original date of issue, although not without some 

Mr. Gesell. Now, from those figures, can you point out some of 
the significant developments? 

Mr. Howe. The 26 companies whose figures are included in this 
book in 1930 owned 2.1 percent of the Federal Government debt. 
By 1937 they owned 11.6 percent. Of the State and local debt in 
1930 they owned 3 percent, whereas in 1937 they had acquired 6.7 


Senator King. Their investments, then, in State and Federal 
securities increased? 

Mr. Howe. They did. Their investments in State and Federal 
securities increased from $813,000,000 in 1930 to $5,547,000,000 in 

The Chairman. Mr. Howe, it occurs to me to ask you whether, in 
preparing these figures on the long-term private debt as compared 
with the assets of the life-insurance companies, you have examined 
the figures for the national income in the respective years? 

Mr. Howe. I have not made any comparisons of national income 
and premium income of insurance companies. 

The Chairman. Let me point out what I have in mind. You say 
in 1937 the over-all amount of long-term private debt in the United 
States was $70,335,000,000? 

Mr. Howe. Yes. 

The Chairman. Now, that was in excess of the national income 
for that year? 

Mr. Howe. I believe it was. 

Mr. Henderson. Just about equal to it, Senator. 

The Chairman. This is the significant point. In 1930 the private 
debt, according to your computation, was $14,165,000,000 more than 
the figure for 1937? 

Mr. Howe. Tliat is correct. 

The Chairman. I wonder what the ratio would be between the 
national income for 1930 and for 1937 ? 

Mr. Gesell. We can prepare those figures for you and would be 
glad to submit them.^ 

The Chairman. I was going to suggest you have that informa- 
tion prepared. 

Senator King. May I state, Mr. Chairman, the witness before jou 
came in indicated, as I recall his testimony, that the $70,000,000,000 
did not include a large volume of private individuals, individuals, or 

The Chairman. Yes; I understand that. 

Mr. Howe. That is my understanding, Senator. 

Senator King. That, plus the other indebtedness to which ref- 
erence has been made, might amount to $200,000,000,000. 

Mr. Howe. It might. 

Mr. Gesell. You were telling the committee about the different 
percentages of types of investment held by the companies. 

Mr. Howe. Yes; and I gave the figures for public debt. Federal 
and State and local. With respect to private debt, in 1930 these 26 
companies held 18.1 percent of the railway debt, and in 1937 they 
owned 17.4 percent. 

Mr. Gesell. So their ownership of the railroad debt has decreased, 
has it not? 

Mr. Howe. It has decreased some. 

Mr. Gesell. Wliat with respect to the other tj^pes? 

Mr. Howe. With respect to industrial indebtedness, in 1930 these 
companies held 2.5 percent, and in 1937, 11.7 percent. 

Mr. Gesell. So industrials have gone up from 2 to 11? 

1 The national income for 1930 was $68,300,000,000. and for 1937, $69,800,000,000. See 
hearings, Part 4, "Exliibit No. 220," appendix, p. 1513. 


Mr. Howe. They have ; and public utilities has gone up from 10.5 
to 18.2. Farm mortgages held by these companies, however, have 
declined from 19.2 percent of the total farm-mortgage debt to 10.5 
percent of the total farm-mortgage debt. 

Mr. Gesell. What does that make for the totals? 

Mr. Howe. Including urban mortgages, in 1930 these 26 companies 
held 12.6 percent of the total private debt, and in 1937, 14.4 j)ercent 
of the private debt. Of the total public and private debts, it is a 
percentage of 9.8 and 12.14, for 1930 and 1937, respectively. 

Mr. Gesell. Have you prepared some studies of special cases in the 
oil and rubber industry which show what this increase has involved 
in terms of individual concerns ? 

Mr. Howe. I have. 

Mr. Gesell. Are those studies contained on this schedule which I 
show you ? 

Mr. Howe. They are. 

Mr. Gesell. I snould like to offer the schedule for the record. 

The Chairman. The exhibit may be received. 

(The schedule referred to was marked "Exhibit No. 2260" and is 
included in the appendix on p. 15494.) 

Mr. Gesell. Mr. Howe, turning to those specific cases, will you de- 
scribe for the committee what has taken place ? 

Mr. Howe. We have already considered the great increase in the 
investments of the 26 life insurance companies in bonds of industrial 
corporations. In 1929 these companies held $214,000,000 of industrial 
bonds. In 1938 the bonds in this category amounted to $1,196,000,000. 
The increase in this 9-year period is $982,000,000. Inasmuch as the 
total amount of industrial bonds outstanding was declining through- 
out this period, it is clear that the increased holdings of insurance 
companies represented an absorption of debt previously held by other 
lenders. The steadily increasing amount of mdustrial bonds held by 
the insurance companies has given them a position of greater relative 
importance to industrial corporations. On an over-all basis, it ap- 

Eears that these companies rose from a position in 1930 when they 
eld 2.5 percent of the industrial debt to 1937 when they held 11.^. 
When attention is narrowed to that part of the industrial long-term 
debt which is an appropriate field for life insurance investment, the 
change in the position of the insurance companies appears even more 
striking. In order to show a few illustrations of that change, 5 oil 
companies and 4 rubber companies Avere selected. By combining the 
lists of securities owned by each of the 26 companies, it was possible 
to discover exactly how much of the total outstanding funded debt of 
each of the selected oil and rubber companies was held by the 26 life 
insurance companies as a group. ^ 

This was done for 2 years only, 1929 and 1938. 

Mr. Gesell. The results are contained on this schedule that was 
just introduced? 

Mr. Howe. The results are summarized on the schedule just intro- 

Mr. Gesell. Without regard to the figures which will be on the 
exhibit, will you tell us what the increase has meant in terms of per- 
centage, first starting for the oil companies and taking the years 
1939 and 1938? 


Mr. Howe. In the Gulf Oil Corporation, the increase from 1929 to 
1938 was from 10.8 percent to 100 percent. 

Mr. Gesell. You mean in 1929 these 26 companies held 10.8 percent 
of the total funded debt of the Gulf Oil Corporation ? 

Mr. Howe. That is correct. 

Mr. Gesell. And that by 1938 they held 100 percent? 

Mr. Howe. That is correct. 

Mr. King. Has it decreased during that period? 

Mr. Howe. Yes ; the debt decreased by $15,000,000. 

Mr. Gesell. In the case of the Shell Union Corporation of Dela- 
ware, what do you find ? 

Mr. Howe. In 1929 the companies held 5.6 percent of the debt, 
and in 1938, 38.8 percent. 

Senator King. That might be less in the total amount which they 
held in dollars than the 5 percent of .the first period ? 

Mr. Howe. No; in 1929, Senator, the insurance companies held 

Senator King. Of the Shell? 

Mr. Howe. Of the Shell, and in 1938 tliey held $31,000,000. 

Mr. Gesell. In the case of Socony Vacuum Oil Co. of New York, 
the insurance companies increased their holdings both in terms of 
amount and percentages there, did they not? 

Mr, Howe. They did. The percentage increase was from 8.3 to 

Mr. Gesell. What about the Standard Oil Co. of New Jersey ? 

Mr. Howe. The increase was from 4.1 percent to 26.3 percent. 

Mr. Gesell. In the case of the Texas Corporation it was from 6.2 
to 8.2? 

Mr. Howe. That is correct. 

Mr. Gesell. Turning to the rubber companies, shown on this sched- 
ule, what has been the increase in the case of the Firestone Tire & 
Rubber Co.? 

Mr. Howe. In 1929 these companies owned none of the securities 
of the Firestone Tire & Rubber Co., whereas in 1938 they owned 25.8 

Senator King. Does your investigation show any losses in those 
holdings, do you think, or did they show the securities were valuable ? 

Mr. Howe. The securities were unquestionably valuable. Senator. 
These have been acquired since the depression, largely. 

The Chairman. Do they indicate losses in any of those periods? 

Mr. Howe. No indication of any losses. 

Mr. Gesell. In the case of the United States Rubber Co., just to 
give one further example, the increase has been from 0.8 percent to 
100 percent, has it not? 

Mr. Howe. Tliat is correct. 

Mr. Gesell. Now, Mr. Howe, in further reference to this same 
topic, will you turn to table 125 contained in "Exhibit No. 2250" 
and tell the committee what that table shows? 

Mr. Howe. Table 125, appearing on page 125. In tins case, Sena- 
tor, we have adopted the page numbers for the table numbers in 
order to simplify reference. On page 125 there is a table which is 
entitled "New Corporate Bonds and Notes Issued." These figures 
have been assembled by the research and statistics section of the 
Securities and Exchange Commission over a period of years. That 


is the total amount of rails, public utilities, industrial, and miscel- 
laneous bonds which have been issued by all American corporations 
during the period from 1934 to 1938, inclusive. During this period, 
there were $11,241,000,000 of corporate securities, new corporate is- 
sues, put out. And during this period, the new corporate bonds pur- 
chased by these 26 companies alone accounted for $3,683,000,000 of 
all of these securities which Avere issued, and I must emphasize the 
fact that of these corporate securities, only a portion are eligible for 
life insurance investment because the $11,000,000,000 includes cor- 
porate securities, good, bad, and indifferent. 
Mr. Henderson. You mean a different rate? 
Mr. Howe. Tliat is right, different qualities. 

The Chairman. All these life insurance companies — I assume the 
States in which they were incorporated provide qualifications for 

Mr. Howe. Yes, sir, Senator. We have made an analysis of the 
investment laws of the various States and schedules will be provided 

During this period it is interesting to note the increasing relative 
importance of the purchases by these companies. In 1936 the com- 
panies purchased only 24 percent of all new issues. In 1937, how- 
ever, they purchased 48.9 percent, and in 1938, 47.7 perc ^nt of all new 
corporate issues. 

It is interesting to note that if these 26 compani.s invested the 
increase in their cash account and the increase in their Govern- 
ment account in corporate securities, these .corporate securities over 
this period, they would have had to purchase 68 percent of all the 
secuiities issued by American corporations. That is, I mean bonds 
and notes. 

The Chairman. When you speak about securities, when you speak 
about loans which have been made by corporations, do you include 
onlv the long-term loans, because corporation* frequently loan at par 
fo/30 days or 60 days? 

Mr. Howe. Yes, Senator, only the long-term notes; not the bank 
notes in any sense. 

The Chairman. Will you repeat that statement, pjease, Mr. Howe? 
Mr. Howe. If the -increase in the cash account of these 26 com- 
panies, plus the increase in their holdings of United States Govern- 
ment bonds, had been invested in corporate bonds and notes, in these 
new issues, they would have had to absorb 68 percent of the new 
issues in order to provide a vehicle for the investment of those funds. 
Dr. LuiiiN. Which, of course, Avould have been impossible under 
the laws which restrict the type of investments they make. 

Mr. Howe. I have no exact analysis of the amount of these securi- 
ties eligible for purchase. It is a very complicated problem; but it 
probably is that it is -an utter impossibility. 

The Chairman. But when you arc talking of 68 percent, the fund 
of which you are speaking includes itux-mam^er of securities, so that 
it necessarily would include securities whicn, under the various State 
Inws, Avould be ineligiDle? 

Mr. Howe. That is correct. There is -no question about it. There 
is a large element of inelig-ible securities, especially ir -^e year 1936, 
which is the largest year ot issue. 


The Chairman. So that actually the percentage does not repre- 
sent a correct picture? 

Mr. Howe, No; it is an understatement of the difficulty, I should 
say, of finding corporate investments for life-insurance funds. 

The Chairman. It would be probable that the companies are un 
able to find' suitable investments in corporate securities in which to 
place the savings of their policies, those transmitted to them by 
way of premiums? 

Mr. Howe. That is correct. 

Senator King. And nothing in your testimony would indicate that 
they had accepted ineligible securities? 

Mr. Howe. No, sir; not the slightest, Senator; no such implication. 
I am talking about- the shortage of available investments. 

Mr. Henderson. This means, Mr. Howe, that in this period of 
increasing investment difficulty, to .use the quotation of the Wall 
Street Journal I referred to in my statement,^ -as far as holding 
the mortgage on America is concerned, the insurance companies have 
about a lO-percent mortgage on all the indebtedness of — they have 
about 1114 percent of the Federal debt and 6V2 on the States; they 
have a 17-percent mortgage on the railroads. They have increased 
to the extent that they Jiold over 1 out of every 10 of the industrial 
long-term debt pieces, they have almost doubled on the mortgage 
which they hold on the utility industry so they have almost $1 out of 
every $5 indebtedness. They have stayed about the same as far as 
the urban mortgage is concerned, and they have cut in half the 
amount of mortgage which they hold on the farmers. Tliat does 
not take into account the amount of actual property which they 
have taken by way of foreclosure, which has gone up also. 

Senator King. That sort of indicates they have the very best 
securities ? 

Mr, Howe. I don't think there is. any question about that fact. 

Mr. Henderson, If this trend should keep up so far as the oil com- 
panies are concerned, there is nothing to prevent, and in fact there 
is a likelihood that you would have almost complete ownership of a 
number of the outstanding companies. 

Mr. Howe. A complete ownership for senior obligations. 

Mr. Henderson. Do you know anything at all about the ratio of 
equity ownership to the total capital of these corporations? Did you 
make any studies on that? 

Mr. Howe. I have no figures on that. 

Mr. Henderson. I think it would be interesting to review, in order 
to find out just what the percentage of ownership is. This increase 
in debt, I think it should be pointed out, Mr. H,owe, does not carry 
with it an increasing amount of responsibility or voting power in 
these corporations. As far as you know, none of these oil or rubber 
companies' bonds and debentures and notes carry with th^m any vot- 
ing privileges ? 

Mr. Howe. No, I am very sure they do not, 

Mr. Gesell. One further point in this same connection, Mr. Howe. 
Have you any studies which will show the relationship between the 

1 Sapra, p. 14698. 


increase in assets of the insurance companies and the assets of the 
principal savings institutions during this same period ? 

Mr. Howe. I have. From December 31, 1929, to December 31, 1938, 
the total assets of principal savings institutions, including life-insur- 
ance companies and fraternal associations, time deposits of commer- 
cial banks, assets of mutual savings banks, building and loan associa- 
tions, governmental pension funds and trust funds, Postal Savings 
deposits, and baby bonds, rose from $58,033,000,000, that is of De- 
cember 31, 1929, to $69,077,000,000 on December 31, 1938, or an 
increase of $11,044,000,000. 

Of this increase, 94.7 percent is accounted for by the increase in 
the assets of life-insurance companies and life-insurance fraternal 
associations; and $9,398,000,000, or '85 percent of the increase, is 
accounted for by the increase in the assets of the 26 life-insurance 
companies whose figures are included in "Exhibit No. 2250." ^ 

Mr. Henderson. So it is the outstanding dynamic savings institu- 
tion in this period ? 

Mr. Howe. It is unquestionably the outstanding dynamic institu- 
tion so far as the increase in assets, which means an increase in re- 
ceipts of the savings of the people. 

Senator King. That would indicate, if we are to draw deductions, 
that perhaps the banks, investment companies, and private individ- 
uals have not been alive, if I can use that expression, to the acquisi- 
tion of the securities issued by various corporations, as a result of 
which the insurance companies have been resorting to perhaps in a 
larger degree than they otherwise would have been. Isn t that a fair 
deduction ? 

Mr. Howe. Now, let's see. I can give you a few more figures on 
that, Senator. During this period from the end of 1929 to 1938, for 
instance, the time deposits in commercial banks declined from 
$19,187,000,000 to $14,359,000,000. That is the type of thing you have 
in mind, is it not? 

Senator King. Yes; and generally the failure of the investment 
companies and the banks and private persons to extend credit to 
these corporations and to absorb the various bond issues. As a 
result, the insurance companies became larger purchasers of these 
securities by the corporations than would have been the case if 
the banks and the investment companies and private persons had 
been more generous, if I may use that expression, in extending credit. 

Mr. Howe. Senator, I think a careful study of tlie more recent 
yeajs of this period will show that with respect to the type of secur- 
ities which life-insurance companies may buy there has been the 
greatest competition to acquire them not only among the companies 
themselves but by commercial bank^, trust funds, and other institu- 
tional and private concerns. 

Senator King. But in that cismpetition- 

Mr. Howfe (interposing). The life-insurance companies have got- 
ten the most bonds. Right. 
- Mr. Gesell. I have no further questions of Mr. Howe at this time. 

The Chairman. It is now 10 minutes after 12. Would it be con- 
venient to recess until 2 o'clock? 

• See Hearings. Tart 10- A. 


Mr. Gesell. As the committee wishes. 

The Chairmak. If there are no objections, the committee stands 
recessed until 2 o'clock. 

(Whereupon, at 12: 10 p. m., u recess was taken until 2 p. m, of the 
same day.) 


The committee resumed at 2 : 50 p. m., on the expiration of the 

The Chairman. The committee will please come to order." 

Are you ready, Mr. Gesell ? 

Mr. Gesell. The -first witness this afternoon is Mr. Thomas A. 
Buckner, chairman of the board of the New York Life Insurance Co. 
Mr. Buckner has already appeared before this committee in connec- 
tion with the insurance study,^ and I have asked him to return today 
to discuss major developments in the field of life-insurance invest- 
ments during the last 30 years. 

The Chairman. You may be seated, Mr. Buckner. You have 
already been sworn. 


Mr. Gesell. Mr. Buckner, I would like you, first, to tell the com- 
mittee how the investments which are made by your company are 
supervised and handled by its board of directors. 

Mr. Buckner. Mr. Chairman, I would like to preface my testi- 
mony with a statement which I previously made to Mr. Gesell, that 
I am not an economist nor a financial expert. It was a comfort to 
me to note Mr. Feller's statement at a recent hearing that Justice 
Holmes once said that a page of history was worth a volume of 
logic. My knowledge of investment problems grows out of the his- 
tory of our company and my experience connected therewith. 

I am very glad, Mr. Chairman, to respond to Mr. Gesell's sugges- 
tion that I say a word concerning the make-up of the finance com- 
mittee and the mechanics connected with its operations. I mean the 
finance committee of the New York Life. 

The finance committee consists at the present time of eight direc- 
tors, in addition to the president and the chairman of the board, 
who are ex officio members, and the treasurer who keeps tlie records 
but has no vote. A unanimous vote is required to purchase or sell 
any security, to make any loan, and to sell any property. 

All offerings of bon-ds or stocks which qualify under the New York 
State law as investments for a life-insurance company and whicli 
have passed all the tests of our treasurer and his statistical and 
experienced bond department, are submitted to the committee for 
its consideration. Each offering is accompanied with complete 
details as to the issuing corporation, its financial set-up, its fixed 
charges, and its management. A copy of these cletails is placed in 
the hands of' each committeeman. Tlie assistant treasurer in charge 
of the bond department points out and comments upon the strong 
l)oints and the weak ones, if any, of the security, the probable price 

1 See Ilearinss, Tart 4, pp. 14-17 to 1441. 


at which it can be bought, and the interest yield. The committee 
discusses the offering and votes on the question of the purchase, and, 
if favorable, the amount to be so invested. The finance committee 
meets regularly twice a week. A full and complete report of the 
actions of the committee are presented to the board each month. 

A mortgage loan application after appraisal, is considered by 
experienced men in our mortgage loan department and then if it 
qualifies as a good and sound loan is reported to our real estate 
and mortgage loan committee, which is a subcommittee appointed by 
the finance committee, and if there approved it is then presented to 
the finance committee with a complete statement of facts concerning 
the property, for final action. 

All real-estate sale proposals with recommendations of our aj)- 
praisers and field men, and our real-estate department, take a simi- 
lar course up to the finance committee. 

Mr. Gesell. Now, Mr. Buckner, there are several questions I 
would like to ask you to fill out that statement a little. First of all, 
can you tell us who the members of the finance committee are? 

Mr. Buckner. Oh, yes ; there is Mr. M. N. Buckner. 

Mr. Gesell. Mr. Buckner is a banker? 

Mr. Buckner. Chairman of the board of the New York Trust Co. 

Mr. George B. Cortelyou, ex-Secretary of the Treasury of the 
United States and formerly the head of the Consolidated Gas Co. 
of New York; Mr. Henry Bruere, the President of the Bowery 
Savings Bank; Mr. Robert Dowling, an outstanding realtor in New 
York City of lifelong experience; Mr. Hale Holden, formerly the 
head of the Southern Pacific Railway Co.; Mr. Percy Johnston, 
chairman of the board of the Chemical Bank & Trust Co. ; Mr. 
Charles E. Hilles, in the insurance business, employers' liability; 
and Mr. Arthur A. Ballantine, a lawyer. 

Mr. Gesell. Can you tell me this, Mr. Buckner: How does the 
New York Life find out about investments? How do propositions 
come to it for it to put its money in ? 

Mr. Buckner. Of course we seek through our field representatives, 
salaried men, and also correspondents throughout the country, real- 
estate loans in that way, and they come to us from every section of 
the United States, 

Mr. Gesell. You have either salaried representatives or correspond- 
ents located all over ? 

Mr. Buckner. We have representatives stationed around the prin- 
cipal centers of the United States, and we have correspondents in 
every city, in every community. 

As to bonds, well, they are offered to us usually by bond salesmen, 
by the bond people who have the distribution of the bonds, or else 
our treasurer seeks them, as he sees issues coming out or issues for 

Mr. Gesell. Would it be correct to say that by and large your 
bond investments come to you? 

Mr. Buckner. In the larger measure, yes; they do, except Govern- 
ment bonds. 

Mr. Gesell. Can you give us some idea of what proportion of the 
bond offers that come to you your company takes ? 

Mr. Buckner. Well, that I think our treasurer would be better 
able to answer. I don't think we have ever kept any records. 


Mr. Gesell. I assume there are all kinds of propositions turned 

Mr. BucKNER. Yes, there are many propositions turned down, as 
a rule. Broadly speaking, bonds are not offered to the company 
or sought by the company which do not meet our standards. The 
question then becomes one of price, and that is a matter that is 
negotiated and if the price at which they can be obtained is not 
satisfactory they are turned down by the committee. 

Mr. Gesell. Would you say that the vast proportion of the> bonds 
which come to you, that meet the legal requirements for investment, 
are taken by your company? In other words, you are usually able 
to work out the agreement as to price ? 

Mr. BucKNER. I would say that we do not even get as many as we 

Mr. Gesell. But of those that come to you? You take most of 

Mr. BtJCKNER. We take most we can get if they are favorable as 
to standard and as to price. 

Mr. Gesell. Wlien the committee meets, I assume the staff mem- 
bers bring up to it these proposals for their decision. Are many of 
those proposals turned down? 

Mr. BtJCKNER. Yes; quite a few are turned down, principally on 
the basis of the yield, price yield, and sometimes on the basis oi the 
question as to the security. 

Mr. Gesell. The finance committee then does, fairly frequently, 
turn down offerings ? 

Mr. BtJCKNER. V ery often in the bond field. 

Mr. Gesell. What is the average length of meeting of the finance 
committee ? How long do they sit ? 

Mr. BucKNER. I should say that the average "is something be- 
tween — about an hour, I would say, is the average — although fre- 
quently a full afternoon. 

Mr. Gesell. And you said they meet twice a week? 

Mr. Buckner. Twice a week, Mondays and Thursdays. 

Mr. Gesell. Now, do the members of the committee get material 
in advance to study with respect to the investments that are coming 
before them or decisions made around the table ? 

Mr. Buckner. The treasurer frequently advises the committee that 
there will be coming up offerings of such-and-such bonds, and mem- 
bers of the committee therefore have advance notice so that they are 
able if they desire to do so, to make some little investigation on their 
own account. 

Mr. Gesell. So at least on the important investments the mem- 
bers of the committee are familiar with the general problem they 
are going to have to decide in advance. 

Mr. Buckner. Frequently so. But in every case the members of 
the committee, each member has a written statement concerning the 
issue and everything about it, and they enter into quite some discus- 
sions over the offering. 

Mr. Gesell. Wliat would you say are the principal reasons that 
you turn down bond offerings that come to you ? 

Mr. Buckner. Well, one of the principal reasons is the yield is too 
low, below our levels. 


Mr. Gesell. Do you set from time to time a level below which you 
will not go? 

Mr. BucKNER. I think the treasurer keeps a very accurate account 
of what a bond of a certain standard should yield and what it can 
be bought at, other bonds, I mean of the same standard. 

Mr. Gesell. So one reason you turn them down is that the yield 
is too low? 

Mr. BucKNER. The yield is too low. 

Mr. Gesell. What are some of the other reasons ? 

Mr. BucKNER. Sometimes we think we have enough of them. 

Mr. Gesell. That would be a problem of diversification; you 
already have enough of that investment and you don't want more. 

Mr. BucKNER. Occasionally there are questions about franchises 
and the length of franchises. 

Mr. Gesell. Matters there of legal sufficiency of the security? 

Mr. BucKNER. That is right, and also as to whether or not the 
bond is really of the quality that the price would warrant buying. 

Mr. Gesell. So it is yield, price 

Mr. BucKKER (interposing). Quality. 

Mr. Gesell (continuing). Legal sufficiency? 

Mr. BucKNER. And quality. 

Mr. Gesell. And whether or not you are going to have too little 
diversification if you buy into it? 

Mr. BucKNER. They may think we have enough of that particular 

Mr. Gesell. Now, what is the procedure in the committee when 
investment is proposed into the securities of a concern which may 
interlock with the company through a member of the finance com- 
mittee who is present at the meeting? 

Mr.' BucKNER. That member never enters into the discussion and 
never votes. 

Mr. Gesell. He has no participation whatsoever? 

Mr. BucKNER. No participation whatever. 

IVfr. Gesell. Do opportunities to invest frequently come to you 
through your directors? 

Mr. BucKNER. I would think not. So far as I know, it is very, 
very rarely that they do. 

Mr. Gesell. They don't serve to let you know that such and such 
a concern may -be offering a new issue ? 

Mr. BucKNER. There might be occasionally something of that kind, 
but I don't know about it. 

Mr. Gesell. By and large that isn't true? 

Mr. Bucknef. By and. large that isn't true. 

Mr. Gesell. I didn't mean to interrupt you, sir. Could you tell 
the committee something of the developments that have taken place 
in your company over the last years, the various channels of invest- 
ment which you pursued, and the reasons why your company hns 
gone or has not gone into certain types of securities? 

Mr. BucKNER. You mean over the period that you asked me to 
cover ? 

Mr. Gesell. That I asked you to cover; yes. 

Mr. BucKNER. I will start out by saying that Mr. Gesell has asked 
me to testify concerning our investment problems since 1906. First, 


I would like to say that there exists a close tie-up between the life- 
insurance company's investment policy, its policy as to adequacy of 
reserve, and its dividend policy. Its investments should be sound, 
well diversified, and yield an income amply sufficient to meet the 
reserve requirements. All our reserves for insurance and annuities 
are calculated upon the assumption of 3-percent interest, except recent 
annuities which are on a 2i/2-percent basis. 

We began in 1898 raising our reserves to a 3-percent basis from 
previous assumptions of 4 percent and completed the job as to all 
life-insurance contracts in 1912, and as to annuities at a later date. 
This action in my opinion was one of the wisest moves ever taken by 
our company. 

Following the financial panic of 1897 interest rates began to fall. 
In December 1898 the New York Sun announced that the Bowery 
Savings Bank could no longer maintain the 4-percent interest rate 
and would drop the rate to 3i/^, "there being so much money in the 
bank that it was difficult to invest it all safely at 4 percent." 

During the year 1899 one of the principal New York insurance 
companies — not the New York Life — sent a letter to the leading 
financiers of the day asking their opinion as to what rate of interest 
a life-insurance company could safely count upon realizing upon 
,such securities and mortgages of the kind such an institution should 
hold, during the next 20 years. This company received 57 replies 
from leading financiers. With few exceptions their answer was 
3 percent. Thus the wisdom of our plan of the previous year to 
strengthen our reserves until we reached an oyer-all basis of 3 per- 
cent, was confirmed. 

Mr. Chairman, I may appear to be far removed from the ques- 
tion Mr. Gesell has asked but I assure you I am approaching it, 
and hope you will pardon the length of the approach. There is, 
as I have intimated, the closest connection between our investment 
portfolio, carefully chosen, the interest yield to be relied upon 
for a long period of time, and the -reserve requirements calculated 
upon an assumed rate of interest over a long period of time low 
enough to be reasonably sure of realization. Upon the strength and 
safety of the bridge between these two major factors largely rests 
the security of the policyholders and the dividends that may be 
safely paid. 

Before going into the investment problems and trends since 1906, 
I should like briefly to sketch life-insurance conditions during a few 
decades prior to 1900 which were a lesson to life-insurance manage- 
ment and which justify the conservative position taken by* our 
company in matters of safety and security in investment policy, 
adequate reserves, surplus for general and unknown contingencies, 
and dividend declarations. 

My information as to these earlier years of history of life insur- 
ance is based upon my own research and information gained from my 
father who began the life-insurance business in 1862. During the 
sixties the competition between companies and agents in procuring 
new business was based almost, if not entirely, upon dividends or net 
cost. All companies were comparatively young. Some were con- 
sidered little, some big. At the end of 1860 the assets of the Mutual 


Life were about $7,000,000; Mutual Benefit, $4,000,000; Connecticut 
Mutual, $3,750,000; and New York Life, $2,000,000; Equitable just 

Interest rates were high and statutory limitations upon the kind of 
investments a life-insurance company could make, if any, were mild 
and broad. 

So all other matters back in those early days, safety, security, and 
so forth, having no play in the minds of the insurance public, divi- 
dends or net cost was the all-in-all. Result : Companies entered into 
competition as to dividends with great zeal. "When bank balances 
and surplus margins were too low to declare dividends payable in 
cash, companies, including our own, declared dividends payable in 
scrip to be redeemed with G-jsercent interest in future years if and 
when the financial situation permitted. It took our company many 
years later — long after the mad dividend race subsided — to redeem 
ihese scrip dividend^. 

Well, what slowed down the race? What was the final result? 

The 1870's brought the answer. During the terrible panic and 
financial debacle of 1873, a sizable proportion of all the life-insur- 
ance companies of the United States folded up; many failed out- 
right; other merged or reinsured one another, and in many cases 
again folded up. 

The Chairman. What was that proportion, Mr. Buckner; do you 
recall ? 

Mr. Buckner. I am inclined to think it was about half or all the 
life-insurance companies. I was not able to find a definite percent- 
age so I placed it this way. 

From an address by the llonorable Charles R. Detrick, then 
commissioner of insurance and banking of the State of California, 
delivered at the annual convention of the Association of Life Insur- 
ance Presidents. December 14, 1^28, I quote [reading] : 

The 9 years, 1871 to 1875, were the most trying period in the history of 
American Life Insurance. Forty-six life companies, of which 27 were New 
York's own companies, ceased doing business. Thirty-two failed outright with 
total losses of $35,000,000 to policyholders. 

All companies did not fail. The New" York Life did not fail. 
Why? A more conservative investment management is the answer. 

The mad dividend competition ceased and safety and security of 
company and policy obligations began to be stressed in competition 
for new business. 

The Chairman. Do you know what type of investment these other 
companies purchased at that time? 

Mr. Buckner. I could- have found that out. Senator, but I didn't 
because I didn't think that was of any material point. They are in 
almost everything. They are seeking high interest returns and of 
course all investments in those days yielded high interest returns. 

The Chairman. I wondered if you knew from your study of that 
development whether the comp>anies at that time took more risk? 

Mr. Buckner. They did. 

The Chairman. In their investments? 

Mr. Buckner. They did. Those that failed did; that is one of 
the' reasons the^j, failed. 


The Chairman. In other words they weren't seeking so much 
security of capital and low interest rate as they were seeking a high 
return ? 

Mr. BucKNER. They were seeking a high return in order to pay a 
high dividend. 

Mr. Gesell. There were very few laws governing investments of 
any kind? 

Mr. BucKNER. I stated that there were few laws governing invest- 
ments. Safety and security thereafter began to be stressed in com- 
petition for new business after the seventies. 

The year 1880 was the beginning of the renaissance of the life- 
insurance business and of economic and financial conditions through-- 
out the country. 

Foremost in this epoch of expansion were the railroads, all calling 
for capital. Prior to 1906, railroad underlying bonds were con- 
sidered on all sides as prime investments for life-insurance com- 
panies and all kinds of trust funds. Due to the expansion of 
industry, supply as well as quality were available. By the end of 
1906 more than 50 percent of our assets consisted of railroad bonds. 

The Chairman. What was that percentage? 

Mr. BucKNER. Fifty percent. To be exact, it was 54 percent that 
was invested at the end of 1906 in railroad bonds. 

This large investment probably reflected the ideas then prevail- 
ing that railroad bonds were, in point of security and yield, the finest 
investment f )r trust funds available. That opinion is confirmed by 
subsequent ( xperiences, for with an investment for many years of 
never less than $300,000,000, we practically had no defaults on our 
railroad bonds as to principal or interest until 1931. 

Senator King. You didn't have many investments in the New 
Haven Railroad theij, did you? 

Mr. BucKNER. I presume so, prior to 1931. I think we are in 
most good roads. 
* Senator King. Proceed. 

Mr. BucKNER. After 1906, our finance committee concluded that 
our increasing assets required greater diversification. Demands for 
capital came from many other directions. Our holdings of railroad 
bonds dropped to 20 percent of our assets by the end of 1932, and 
to 10 percent at the end of 1939. 

In 1912 the company set up a municipal bond department and 
secured the services of Mr. Charles F. Cushman, since deceased, a 
man of wide experience in this form of investment, to organize and 
seek an outlet through this form of security. Thus through munic- 
ipal bonds we responded to the call for capital to aid in the build- 
ing of highways, bridges, school buildings, street paving, sewerage, 
and all other kinds of improvements needed by people in towns, 
cities, counties, and States. Our investment in municipal bonds had 
increased by 1932 to $130,000,000 and at the close of 1939 to 

Tlie Chairman. May I interrupt, Mr. Buckner, to ask whether 
that form of security, the issuance of that form of security, was 
stimulated by the companies at that time ? 

Mr. Buckner. I don't think so. Senator. I think that is probably 
stimulated by the people at home. 


The Chairman. I was wondering whether the companies went 
after the bonds or merely took the bonds that were offered. 

Mr. BucKNER. I think the latter is true. 

Thus was a portion of our investment problem being solved. 

In 1913 we entered the farm mortgage investment field and by 
1924 we had invested over $68,000,000 in farm mortgages. Some- 
where around 1926 we decided to withdraw gradually from this 
type of investment. During the war the high prices obtained for 
farm products started a speculative boom in farm lands which, to- 
gether with great increase in available credit, particularly through 
the Federal Farm Loan and joint stock land banks, created a situa- 
tion which we thought no longer made tliis type of investment desir- 
able. We knew that if we wished to successfully compete in the farm- 
mortgage field we would have to follow this high valuation and it 
was decided better not to continue an active participant with such 
competition. Since 192f ve have made a few farm loans but so 
few as to be almost negligiole, and our farm-mortgage investment for 
one reason or another has dwindled to something m the neighborhood 
of $6,000,000. 

During the Great War practically all our investments were made in 
Government bonds. We responded with all available funds to the 
needs of the Government. We even borrowed money to enable us 
to buy more than our available funds permitted. Prior to 1917 no 
Government bonds appear in our assets-. By 1921 our holdings ex- 
ceeded $119,000,000. Our holdings declined thereafter to the low 
point of $14,000,000, but subsequently new purchases were made until 
at the end of 1932 we held $56,000,000. 

Mr. Gesehl. You now hold something like $627,000,000, don't you? 

Mr. BucKNEP. I think a little over $700,000,000. 

Mr. Gesell. I can't keep up with you. Does that tremendous 
holding represent what the company believes is the desirable amount 
that should be placed in Government bonds, _ or is it more a measure 
of the company's inability to invest its funds elsewhere? 

Mr. BucKNEK. I would say, Mr. Counsel, that by and large 
throughout the whole history of investment of life-insurance funds, a 
life-insurance company must follow the trends of the demand for 
capital, and Just now the demand for capital seems to come largely 
from the United States Government. 

Mr. Gesell. Do I understand from that statement that if there 
were bond offerings available of good quality which you could take, 
of industrial, railroads, and public utilities, and so forth, that you 
would still be putting this much money, $700,000,000, into Govern- 
ment bonds ? 

Mr. BucKNER. No; if we had gilt-edged securities offered to us 
of private enterprises,^ of higher yield than Government bonds, of 
absolute security, naturally we would take the higher yield. 

Mr. Gesell. So that the holdings of the Government bonds are 
to some extent a measure of your inability to invest at the yields 
you require in bonds of private institutions? 

Mr. BiTCKNER. I should say that it is due to the slowing down of 
demand for capital by industry as a whole. When the demand for 
capital returns, as it surely will, the Government needs will probably 
quiet down and there will be plenty of investments available for all 
trust funds. 

124491^1— pt. 28 4 


Senator King. As long as the Government is expending approxi- 
mately $7,500,000,000 or eight or nine billion and issuing bonds for 
three or four billions of that amount, do you feel that those bonds 
issues are perhaps more advantageous and certainly more secure 
than some of the less desirable issues of private corporations? 

Mr. BuCKNER. That is true. There is not such a very wide differ^ 
ence in the yield on long-time Government bonds from the yield on 
some of the highest rate industrial bonds. There is not a very wide 
difference today. 

Senator Kino. Would it not be desirable — and probably I am in- 
jecting an element into this that ought not to be considered — if 
that could be the case, to have less Government securities and more 
private securities issued? 

Mr. BucKNER. I would say that both are desirable. I don't see why 
the needs of the Government should be shunned. It is the duty of all 
corporations to support the Government needs. We wouldn t do it 
at great sacrifice, but I don't think we made any great sacrifice. As 
I said, there is a slowing down of the demand for capital by private 
industries at this particular period, but that is a passing phase. 

I am an optimist, and I can't for a minute believe that anybody 
should think that America has reached a standstill and that it has 
reached it^ zenith and from this time on it is going to be nothing 
doing in the way of progress in industry and development. 

Pardon my getting away from the subject. 

The Chairman. That is not getting away from the subject. It is 
the subject, Mr. Buckner. 

Mr. Buckner. After the war there developed a great demand for 
capital for new construction of income-producing city property. We 
responded to this demand thereby increasing our mortgage loans, 
exclusive of residential loans, from $138,000,000 in 1922 to $420,- 
000,000 at the end of 1932. The total was reduced to $330,000,000 
at the* close of 1939. Part of this reduction was due to foreclosures. 

Along in the early twenties the demand for capital by public- 
utility corporations to expand their facilities to meet the ever- 
increasing needs of the public for electricity for use in all phases 
of life resulted in our responding by increasing our investments in 
this field. In 1922 our utility bondholdings amounted to something 
over $20,000,000. At the end of 1932 the amount had increased to 
$147,000,000 and to $298,000,000 at the end of 1939. 

I am going a little beyond the years that you asked me to speak 

In 1922 the company decided to respond to the call for capital to 
meet the housing needs. In that year we set up a residential-loan 
section in our mortgage-loan department. Prior to this our loans 
on real estate had been confined almost exclusively to business or 
income-producing properties and to large cities. In this new field 
of residential loans at the end of 1932 we had an investment of 
$110,000,000, but at the end of 1939 the amount so invested, exclusive 
of F. H. A. insured loans, was reduced to $62,000,000. A part of 
this reduction doubtless reflected the refinancing of distress loans by 
the H. O. L. C. organized for that purpose. The decrease was offset 
by our prompt entry into financing F. H. A. insured residential loans. 

Mr. Gesell. Your company has been one of the most active in 
the purchase of F. H. A. ? 


Mr. BucKNER. We entered immediately upon their making their 
announcement and advised the head of F. H. A. we were ready to 
take all they could offer us. 

Mr. Gesell. In view of the fact that some of the companies shown 
in this schedule haven't any F. H. A.'s in their portfolio at all, Mr. 
Buckner, I think it would be interesting to know whether you went 
into F. H. A. because you thought there was a need there or because 
you felt that it was a desirable and sound investment for a life 
insurance company to make. 

Mr. Buckner. Both reasons. We felt there was a real need there^ 
and we knew that it was a sound proposition for the company. 

Senator King. May I ask, could you break down the loans which 
you made for building purposes, housing purposes, between the resi- 
dential houses and the apartment houses? 

Mr. Buckner. We have in F. H. A. — you mean F. H. A. insured 
loans ? 

Senator Kino. No ; those that 

Mr. Buckner (interposing). We have all that data. We furnished 
everything you can think of almost. If we left out anything at all 
about life insurance, I haven't discovered it. 

Mr. Gesell. Senator King, we have placed in "Exhibit No. 2250" ^ 
an analysis of the loans of each of these companies by classifications 
and properties and types of business. 

Senator King. That meets the inquiry. 

Mr. Gesell. And another representative of New York Life, we 
understand, is going to discuss that later.^ 

Senator King. The reason I made the inquiry was that some com- 
plaint was made to me a couple of years ago about the great loss 
sustained by the builders of apartment houses in New York and 
some of the large cities. I was wohderirig if you had had any losses 
by reason of your apartment-house investments? 

Mr. Buckner. Yes; we have had losses; not only real-estate losses 
but on the other end of the line. I don't know that any man has 
yet been born who can handle two or three billions of dollars and 
jiot have some losses. I think most everybody had losses along about 
1929, and thereafter. 

Prior to 1906 there were no legal restrictions against life-insurance 
companies investing in stocks. However, several years before 1906 
our company decided to discontinue investing in this form of security, 
and gradually disposed of the limited amount of stocks it owned, 
so when the laws of 1906 were adopted prohibiting stock investments 
we had none such in our portfolio. In the year 1928, the New York 
law was amended to permit life-insurance companies to invest in 
preferred stocks, under certain limitations and restrictions. At the 
end of 1939 the market value of our preferred or guaranteed stock 
holdings was $86,000,000. 

The Chairman. And you took advantage of that change of the 

Mr. Buckner. We did, Senator. We took advantage, and are still 
taking advantage to the extent of $86,000,000. 

The Chairman. You stated "preferred and guaranteed?" 

^ S66 El6&riDfCS P&rt 10— A. 

2 See testimopy of Mr, George Van Schalck, infra, p. 16105. 


Mr. BucKNER. Yes ; guaranteed stocks is also included as preferred 
stocks. They mean the same thing, practically speaking. 

Real-estate holdings resulting from foreclosures appearing in our 
portfolio are, so to speak, involuntary investments to be disposed of 
as favorable opportunities arise. At the end of 1932 this item of 
real estate acquired under foreclosure, was carried on our books at 
$22,000,000, and at the close of 1939 i>t about $104,000,000. 

Mr. Gesell. Life-insurance companies in Ncav York cannot pur- 
chase real estate outright, can they, except for purposes of conduct- 
ing their business? 

Mr. BucKNER. No; that is true; except under special laAv they may 
build up multiple dwelling houses for people of low income. 

Mr. GevSEll. You say that this real estate is to be disposed of as 
favorable opportunities arise. The law provides, does it not, that 
special steps must be taken by a company in the event its real estate 
is held more than 5 years? 

Mr. BucKNER. Yes; it requires that we get the approval of the 
superintendent of insurance in holding for more than 5 years. 

Mr. Gesell. You are more or less, in the general run of conditions, 
required to sell within 5 years? 

Mr. BucKNER. We are under pressure to sell within 5 years after 

Policy loans absorb a substantial part of the funds of the company 
which would otherwise be invested. Policy loans are in reality ad- 
vances against policy claims such as surrender values, death claims, 
and matured endowment claims. The policyholder as provided in 
his policy contract, has the right to call for a policy loan at any 
time, and may repay in Avhole or in part at any time, but the com- 
pany cannot call for repayment prior to maturity of the policy no 
matter what its needs may be. 

The rate of interest charged for funds advanced on policy loans 
springs from the nature of the contract. Under the law, the rate 
to be charged must be specified in the policy; the policy may, and 
presumably will, remain in force for many years. The advance may 
be called for at a time when money is scarce and dear, the policy- 
holder having the right to call for an advance at any time to suit 
his own convenience. Tlie funds so advanced deplete the funds left 
for investment for the benefit of all the policyholders and that deple- 
tion must be made good by charging an interest rate sufficient to 
insure a return equal to that which might have been expected to be 
earned on those funds over a period of years. The rate of interest 
which the company thus contracts long in advance to charge cannot 
possibly be compared to current money rates. 

It is an error to assume that a life-insurance management is glad 
to have policy loans increased when interest rates obtainable on in- 
vestments are low. On the contrary, in good or bad financial weather 
we do all we con to encourage those who do borrow to pay off in 
order to maintain the purposes for which the insurance was taken. 

The average policy loan is very small — with us approximately 
$400.^ The interest rate is the same for a $50 or $100 loan, of which 
there are a great many, as for a $1,000 loan. The expense connected 

' Mr. Buckner subsequently stated this figure should be approximately $433. See "Ex- 
hibit No. 2302," appendix, p. 15524, 15525. 


with the making of these loans, collecting interest, changing amounts 
up or down at will of the insured from time to time, reduces the net to 
a fi^re fairly comparable, from a long range view, to average yields 
on mvestments. Life insurance contracts are long-time obligations, 
and long-time investments with their better yield are therefore suit- 
able and desirable. But to be prepared to meet sudden or abnormal 
demands for policy loans, the company must maintain a reasonable 
degree of liquidity in short-term investments and bank balances. 

Senator White. May I interrupt to ask what percentage of policy 
loans are repaid, other than through a final settlement? 

Mr. BucKNER. That figure I haven't got. Senator. I don't think 
the repayment percentage is very large. They may have it in there. 
If not, let's hold the thing for a while. 

Senator White. It is not important. I was just curious. 
The Chairman. It is an interesting phase of this busiiiess. 
Mr. lieseli, may I ask if you have analyzed the figures on that? 
Mr. Gesell. That is one of those figures. Senator, that we wanted 
to get and were told by most of the companies that they didn't have 
it, and as a result we have not got such figures If they are avail- 
able I think they would be very helpful for the record. We found 
in checking around that type of figure was not generally available. 

Mr. BuoKNER. It is a daily occurrence, the repayment of policy 
loans. Sometimes they pay a little and pay a little more the next 
time he pays the premium or whenever he ^las his money. It occurs 
all over the United States. 

The Chairman. The question of Senator White, as I understood it, 
was what proportion of these policy loans are paid off only by the 
settlement of the insurance liability itself, that is to say, upon the 

Mr. BucKNER. That, of course, balances; everything outstanding 
is paid off by the maturity of the premium. 

Senator White. Everything is paid off on the final adjustment 
with the insured or with the insured's estate, but I wondered what 
percentage of the loans were paid in cash by the borrower during the 
life of the policy? 
Mr. BucKNER. That I couldn't answer. 

Mr. Gesell. Is it true that policy loans frequently lead to a can- 
celation of the policy? 

Mr. BucKNER. I would think so. That is one of the great objec- 

Mr. Gesell. In other words, a man with a policy in force, Avith 
the surrender value on that policy, can see it eating up more and 
more, and is liable to surrender or cancel out his loan ? 

Mr. BucKNER. That is true. Many men borrow on their insur- 
ance for no real good purpose whatsoever, to buy a car, to buy some- 
thing they are interested in at the time, expecting to-jepay. 

The Chairman. "What is your opinion of the value of the policy- 
loan provision of the statute ? 

Mr. Bfckner. There are a great many objections but there is 
a great deal to be said in its favor. There are cases, many cases, 
where the need to borrow is an absolute need, to prevent the fore- 
closure of a home, in case of sickness, to pay a school bill for a 
child in college or at school. There are a great many frivolous 


borrowings. I am inclined to think, and this is my own theory, the 
majority of policy loans are for frivolous purposes, and men say 
"Oh, well, I have got a loan; I will take the balance of the cash value, 
I will take another policy the next time the agent comes around, or 
the next time I have some cash." 

Mr. Gesell. I suppose you mean by "frivolous purposes" luxuries ? 
Mr. BucKNER. Luxuries, exactly. 
, Mr. Gesell. Isn't it true that a lot of people borrow on policies 
in order to pay premiums? 

Mr. BucKNER. Yes; that is an advantage. We^ don't include that 
in policy loans, incidentally. 

Mr. Gesell. Tliat is not included in your policy loans? 

Mr. BucKNER. No; that is included in loans of premiums. We 
keep a separate item. I think you will find we do it that way. 

Senator King. I presume this matter which you are immediately 
discussing was the subject of consideration by the New York Legis- 
lature when they have dealt with legislation with respect to insur,- 
ance companies? 

Mr. BucKNER, Definitely so. 

Senator King. And the failure to prohibit loans upon policies 
was the result, I presume, of the investigation which was made and 
it was considered not wise to prohibit loans on policies? 

Mr. BucKNER. Senator, that is just the fact of the case. As I 
have just said, life-insurance contracts are long-time obligations 
and long-time investments, but to meet abnormal demands for policy 
loans the company must maintain a reasonable degree of liquidity in 
short-term investments and bank balances. The loss in yield due 
to the needed liquidity is a further offset to any advantage which 
some may assume exists from policy loans. 

At the end of 1906, policy loans of this company amounted to 
$54,000,000, or 11.5 percent of our ledger assets. During the single 
year 1907 — the money panic year — the loans increased about 25 
percent, causing a great drain on company funds. At the end of 
1932 our policy loans stood at $390,000,000 or 20.5 percent of assets. 
However, the demands for such loans during and subsequent to 
1934, began to subside. At the end of 1939 policy loans amounie:i 
to $300,000,000, or 11 pefcent of ledger assets. 

Mr. Gesell. Now, btefore we go to the next topic, Mr. Buckner, I 
have a few questions on these policy loans. 

First of all, the Iomis are entirely riskless, aren't they? 

Mr. Buckner. First of all, I rather object to the term "loan" being 
applied to them. 

Mr. Gesell. I was simply using the term we have been discussing. 

Mr. Buckner. It is on the policy called a loan. 

Mr. Gesell. With the understanding it is really an advance against 
the final proceeds of the policy, using the word "policy loan." Such 
loans are entirely riskless, are they not ? 

Mr. BucitNER. Yes. 

Mr. Gesell. The company ultimately is always certain of getting 
back what is lent? 

Mr. Buckner. It comes out of the proceeds of the policy. 

Mr. Gesell. Now, can you tell me — you refer to the expense on 
policy loans, of handling these loans— what is the interest you charge 
at the present time ? 


. Mr. BucKNER. Well, that is different in different classes of policies. 
On policies prior to a certain date, the rate of interest is 5 percent. 
On policies in the last 25 or 30 years the rate has been 6 percent, 
until just, about 2. years ago, I think it was, the rate was reduced 
to 5 percent. 

Mr. Gesell. What is the net amount of interest that you earned on 
your policies ? How much of that expressed in terms of percentages 
to the handling of the loan ? 

Mr. BucKNEB. We had some figures on that several years ago when 
the superintendent of insurance got us down to discuss this question, 
and my recollection is that we figured close to about 1 percent.^ 

Mr. Gesell. One percent for handling loans ? 

Mr. BucKNER. Some companies have more, according to the aver- 
age size of the loans. 

Mr. Gesell. Then the amount of interest you are getting on your 
policy loans at the present time, even taking this question of expense 
into account, is greater than that that you are earning on your other 
assets, is it not ? 

Mr. BucKNER. Yes. Four percent is greater than we are earning 
today on average assets, a little, not much. It is not greater over a 
long range. 

Mr. Gesell. According to these figures w-e have in "Exhibit No. 
2250," table 102, shows that policy loans in your company account for 
about 13.19 percent of the assets? ^ 

Mr. BucKNER. That is right. 

Mr. Gesell. And table 9,^ which analyzes the investment income, 
indicates you get 20.75 percent of your income from these assets, 
which accounts for about 13 percent of your portfolio ? 

Mr. BucKNER. I didn't get it. 

Mr. Gesell. Our figures would indicate that you get 20.75 per- 
cent of your investment income from policy loans, which account 
for only 13.19 percent of the assets. In other words, they arc pay- 
ing a disproportionate amount in that sense, are they not ? 

Mr. BucKNER. I think you have the figures a little wrong but I 
am not going to dipuste it because I haven't got them here. 

Mr. Gesell. Let's decide that, Mr. Buckner, first of all, because 
I don't want to have them wrong. 

Table 102 ^ indicates 13.19 percent, the figure I stated, of your 
assets for policy loans as of December 31, 1938. 

Mr. Buckner. That is no doubt correct. You are speaking of 
'38. That is right. 

Mr. Gesell. According to our figures, 20.75 percent of the in- 
vested income comes from policy loans. That is shown on table 
9,^ "Sources of income on investment." 

Mr. Buckner. If you will leave out the question of the extra ex- 
pense, that is right at the present time. 

The Chairman. What is this item of expense? 

Mr. Buckner. There is a great deal of expense necessary in con- 
nection with these policy loans, the making of loans itself and all 
the papers connected with it, and then collecting of the interest, and 
then the changes. 

1 Mr. Buckner subsequently stated this figure should be approximately % of 1 percent. 
See "Exhibit No. 2302," appendix, pp. 1.5.524, 15525. 
» See Hearings, Part 10-A, p. 102. 
» Ibid., p. 9. 


The Chairman. You estimated that a moment ago as 1 percent? 

Mr. BucKNER. Yes; that is right 

The Chairman. So that the net return would be at what rate? 

Mr. Buckner. Well, I think the net return would be 1 percent 
less than the gross.^ 

The ChaJrman. That is 4, is it not? 

Mr. Buckner. That is 4 for the present policy. 

The Chairman. The present rate is 5 so your net would be 4? 

Mr. BucK^^ER. That is right. 

Mr. Gesell. But there are expenses on all your other investments ? 

Mr. Buckner. But very slight, a quarter of 1 percent on our in- 

The Chairman. You mean then policy loans are the most expensive 
to the company of all the funded investments? 

Mr, Buckner. Oh, yes; in hanc^ling details, because there are 
intricate details connected with it. A man may borrow $50 and 
pav back $25, and borrow $100 or more the next year. 

Senator King. Loans are smaller and the bookkeeping and details 
are very much greater? 

Mr. Buckner. Yes. 

Mr. Gesell. It would seem to me, however, that that expense 
would be somewhat offset by the fact that you have a riskless loan 
in this case. 

Mr. Buckner. Well, it hasn't been so very long ago when we had 
what we called a riskless loan, consisting of United States Govern- 
ment bonds, which we bought on 6-percent basis — not a great while 
ago, in my lifetime. 

Mr. Gesell. Is there any similarity between policy loans and Gov- 
ernment bonds ? 

Mr. Buckner. No; I am just showing that over a long range 
policy loans may be on the books for. 50 years. A man can leave it 
there during his lifetime as long as tlie policy is kept in force, so I 
say over a long range period, I think it is a break, about an even 
break between our average yield. The last 10 years' average yield of 
nvestmens has been pretty low. 

The Chairman. This table ^ would indicate, Mr. Buckner (table 
102), that policy loans constitute 13.19 percent of all your assets. 
Now there is no question about that ? 

Mr. Buckner. Not at all. 
• The Chairman. And table 9 ^ would indicate that the interest on 
policy loans constitutes 20.75 percent of your total incom.e ? 
Mr. Buckner, That is true. 

The Chairman. No allowance made for the expense in that item? 
Mr. Buckner. No, I think not. 

The Chairman. If that expense allowance were made, what differ- 
ence would it make in that percent? 

Mr. Buckner. Well, I would have to see the figures on that. I 
don't know. That would be calculation for me. 

The Chairman. Would it make any substantial change? 
Mr. Buckner. I should think it would. 

1 Se« "T^xhibit Xo. 2302." appendix, pp. 15524, 15525. 
2Seft. ffoarings, Part 10-A, p. 102. 
••Ibii , •• J\ 


The Chairman. More than a fourth of this? 

Mr. BuCKNER. Well, not more than a fourth. I think that is about 
where it would head up, 1 percent, it would be less than a fourth, 
about a fifth. 

The Chairman. If that allowance were made, the interest on your 
policy loans would constitute more than 15 percent of your entire 
income ? 

Mr. BucKNER. That is right. 

I rather want to stress this point, that policy loans may be and 
should be — if a man doesn't surrender; and we hope he doesn't — on 
the books for a long time, and you can't compare the yield on policy 
loans to the yield during 4 cr 5 ye^v&. of great depression, when money 
rates are exceedingly and exceptionally low, but if you go back over 
the past 20 years, the returns from policy loans are not so favorable. 

Mr. Gesell. Let's take it this way. tSHiat rate of interest do you 
guarantee the policy holders when you take their money and hold it 
for them? 

Mr. BucKNER. We don't make any guarantees about expense. 

Mr. Gesell. I beg your pardon. Don't you guarantee the policy- 

Mr. BucKNER. Oh, yes, on the policy we did guarantee 3 percent. 
We make it 2 now. 

Mr. Gesell. But you guarantee them 2 or 3 percent on their funds 
and are charging them, when you loan money, 6 percent, so I don't 

Mr. Buckner. I don't think you have it just exactly right. We 
don't loan them their money. But I don't want to take too much 
time in going into a difference of opinion as to what a policy loan is. 

Mr. Gesell. It is their money, it is an advance of their money? 

Mr. JBucKNER. No; it is an advance from the coffers of the com- 
pany, from the fund belonging to all the policyholders, as the ad- 
vance to this particular policyholder. It isn't his particular — it 
isn't like a savings bank where he has a particular amount of money 
in the till for his purposes. 

The Chairman. Mr. Buckner, isn't the amount which a policy- 
holder may borrow measured exactly by what he has paid?- 

Mr. Buckner. It is measured by his policy contract. It is stipu- 
lated by dollars in his policy. It is the price at which the other 
policyholders will buy him out. 

The Chairman. That is right. 

Mr. Buckner. Now, that is the cash value, and he can borrow up 
to t-he cash value. 

The Chairman. Therefore you never loan to a policj'holder more 
than he has paid in, do you ? 

Mr. Buckner. I don't think we ever lend him as much as he has 
paid in because he is buying a life-insurance policy. 

The Chairman. What is the limit on the cash value of a policy? 

Mr. Buckner. The reserve is the limit of the cash value. 

The Chairman. Do you loan to a policyholder more than lie has 
actually contributed in premiums? 

Mr. Buckner. No; we don't lend him as much. Some of the 
money he has paid is to carry the risk. 


The Chairman. That is right, so that actually what he borrows or 
can borrow is limited by what he has paid in ? 

Mr. BucKNER. Yes; it is limited by the figures in his policy, as a 
matter of fact. 

Mr. Gesell. Then isn't it true, Mr, Buckner, that a great percent- 
age of your policyholders borrow money on their policies, a sub- 
stantial percentage? 

Mr. Buckner. Yes; a substantial percentage. I should say one- 

Mr. Gesell. How many loans have you got out now ? 

Mr. Buckner. You have the figures, I haven't, but I should say 
around one-third, $329,000,000, that is, including premium lien notes. 
You have the premium lien notes in there. 

Mr. Gessel. So you have $329,000,000 loaned out, and the average 
loan is $400. It -Wpuld appear that there are around eight or nine 
hundred thousand policyholders who borrow from your company. 

Mr. Buckner. Policies. Yes. 

Mr. Gesfxl. Or almost 50 percent of your policyholders. 

Mr. Buckner. We have 2,700,000, 1 think, of policies. 

Mr. Gesell. Between a third and a half. 

Mr. Buckner. Yes ; I would say about a third,^ but I may be wrong. 
That is my recollection. 

Mr. Gesell. These policyholders are borrowing from an interest 
that they have in the company, aren't they? 

Mr. Buckner. They are borrowing against their policy contract, 
that is right. 

Mr. Gesell. And in that sense is it their own money they are bor- 
rowing ? 

Mr. Buckner. In no sense are they borrowing their own money. 

Mr. Gesell. Whose money is it? 

Mr. Buckner. The money belongs to the corporation. 

Mr. Gesell. Who owns the corporation, the policyholders? 

Mr. Buckner. The policyholders, annuitants, and beneficiaries, and 
so on. 

The Chairman. I think the facts are pretty clear, the matter of 
terminology may not be particularly important. 

Mr. Gesell. I am trying to find out why you charge him 5 or 6V^ 
percent, and yet, when you take his money, guarantee to pay him only 
2 or 3. It seems to me there is a contradiction there. 

Mr. Buckner. It may be. Of course, so far as the management is 
concerned, it doesn't make any difference at all. We are doing what 
we believe to be in the interest of all the policyholders. He partici- 
pated, this very man, but I don't want to get into that. The borrower 
participates, however, in fact 

The Chairman (interposing). It occurs to the chairman, Mr. Buck- 
ner, that the policyholder, to borrow against his policy in most cases, 
probably is able to get it at a lower interest rate from his company 
than he could get it elsewhere, isn't that true? 

Mr. Buckner. Not at the present time. 

The Chairman. Not at the present time? 

Mr. Buckner. I should say that, by and large, over a period of 
years, that would be true. 

1 Mr. Buckner subsequentty submitted additional Information on this point. See "Ex- 
liibit No. 2302," appendix, pp. 15524, 15525. 


The Chairman. You don't know what the banks charge for loans 
out in our country, then. 

Senator King. If a person wanted to borrow $50 on his policy, and 
that was probably as much as the policy would warrant, if he had to 
go to a pawnbroker or to the small investment banker he would pay 
more than that. 

Mr. BucKNER, Eighteen or twenty percent. 

Senator King. In Washington and elsewhere they have to pay that 

I want to ask this one question. This whole subject was thrashed 
out. was it not, before the legislature of the State of New York, from 
which State you obtained your charter? 
Mr.BucKNER. That is right. 

Senator King. And you make your annual report? 

Mr. BucKNER. We do. 

Senator King. Ha^e they made any particular complaint about 
this particular action? 

Mr. BuGKNER. There has occasionally been some bill introduced 
to lower the rate and it has been done on new insurance in the past 
2 years, lowered to 5 percent. 

Now, Mr. Chairman, during the years 1906 to 1932 our board of 
directors and finance committee have responded to the trends of 
capital demands of various industries and political divisions of our 
country, meeting these calls for capital so far as our resources per- 
mitted. We have sought diversity of investments both geographi- 
cally and in classes, kinds, and duration. 

In conclusion, I wish to emphasize that in the diversification of 
our investments, we followed, within the framework of the law lim- 
iting the scope of our investments, the capital needs of the country 
as a whole. 

Our railroad bonds, many of them bought years ago, helped the 
railroads in their expanding period. Our investment in municipals 
helped construct school houses, roads, and other municipal services. 

The company, in its mortgageUoans, helped the farmer and also 
helped satisfy the housing needs of those who live in towns and 

Our investment in utilities and industrial issues helped private 
enterprise obtain capital possibly on more favorable terms by reason 
of our ability to invest in large amounts. 

Our company along with other similar institutions certainly did 
its bit and performed a distinct service to our country in providing 
an immediate and ; larger outlet for Government financing during 
and since the late war. 

To sum up, in this period from 1906 to 1932, this company played 
its part in capital enterprise, both public and private, in responding 
to the investment needs of the country as they presented themselves, 
the first consideration being the security of the investment. 

Mr. Gesell. Now, Mr. Buckner, I want to go back over this a 
little on several points. First of all, can you tell the committee 
who decides what general avenues of investment your company shall 
follow? What I am trying to get at is whether it is done as some- 
thing apart from the decisions which are made from day to day on 
the individual mortgage loans pr bonds which come up for appx'oval 
before the committee. 


Mr. BuoKNER. The general policy, of course, is to follow the trend 
of the demands, within the framework, of course, of what we may 
legally do. 

Mr. Gesell. There is a demand for money out in the farm coun- 
try today, isn't there? 

Mr, BuCKNER. There may be, but the supply is greater than the 

Mr. Gesell. Your company is not loaning in the farm field today, 
and you say there is a demand that exists. Is the decision. of the 
company not to go into that field based upon the fact that they think 
enough money is there from other sources? 

Mr. Buckneb. Our decision to Avithdraw was as I stated in 1926 
because of the expanding credits and the high price of land due to 
the speculation - in farm properties, and the high price of products. 
We then decided to retire. Now we haA^e gone back. We have 
farm-mortgage loans out now, but the amount we get is rather 

The Chairman. What are the standards by which you judge 
whether or not to take a new farm loan? 

Mr. BucKNER. We lend on about 50 percent of the value, accord- 
ing to our own appraisal of the property, of the land. 

The Chairman. And are you finding opportunities now to take 
such loans? 

Mr. BucKNER. Yes, sir; we are out to lend all we can get hold of, 
but we haven't reorganized in the field since we gradually withdrew 
due to the reasons I explained. 

The Chairman. You misunderstand my question, Mr. Buckner. 
In 1926 for what seemed to be perfectly adequate reasons you de- 
cided to withdraw from the field of farm-mortgage investment? 

Mr. Buckner. That is right. 

The Chairman. Now you have gone back to that field? 

Mr. Buckner. Yes, sir. 

The Chairman. Now, of course, there are more opportunities to 
make loans than you are willing to take, but I am curious to know 
what sort of loans you are finding. What has happened to make 
this seem to you now a desirable field again? 

Mr. Buckner. I think it is because the values have come down 
to a reasonable basis and farm products are now more reasonable 
than they were; they are approaching normal, whereas they were at 
fabulous prices back in the era of the tAventies. 

The Chairman. In other Avords, back in 1926 you thought farm 
values had gone too high? 

Mr. Buckner. That is right. 

The Chairman. And you were not Avilling to make tlie loans which 
the farmers asked at the values that tliey asked? 

Mr. Buckner. That is riglit. 

The CiiAiHjUAN. But noAV tlial farm values have drop])ed down you 
find opportunity to go in there? 

Mr. Buckner. And I think that tlio company should ex|)and their 
activities in the farm field, unless "^^ find there are So many m the 
field that it just can't be done; 1 nioau Ave Avouldn't get enough 
business to p^vy. 


The Chairman. Is there much activity now among the insurance 
companies in farm mortgages? 

Mr. BucKNER. Yes; indeed. 

The Chairman. Mr. Gesell, I am sorry ; I didn't mean to interrupt 
the continuity of your own examination. 

Mr. Geselx,. That is all right. 

Mr. Buckner, how many times from the period from 1926 to the 
present time would you say the board of the New York Life gave 
consideration as to whether or not they should go back into the farm 

Mr. Buckner. I think that really has depended upon the officers of 
the company bringing to the attention of the committee the policy 
of going back in the field. The committee have never objected to 
our resuming farm loans. 

Mr. Gesell. So that if the officers of the company brought farm 
loans to the committee, they would approve them ? 

Mr. Buckner. Oh, yes. 

Mr. Gesell. And if the officers of the company felt that farm loans 
were not desirable or that values were too hi^h, the committee would 
raise no question as to why it was not having farm loans brought 
to it? 

Mr. Buckner. I think that is true. We have a farm-loan depart- 
ment and they advise us in regard to that matter. 

Mr. Gesell. Then it would appear to me that the rather crucial 
question of policy is determined by the staff and not by the board of 

Mr. Buckner. Quite naturally, the staff must bring to the board 
of directors their information and their recommendations. 

Mr. Gesell. But that is a pretty big matter of major-investment 
policy, isn't it, Mr. Buckner, whether or not the company shall loan 
in the farm field ? 

Mr. Buckner. Yes. 

Mr. Gesell. I mean, looking at it in the terms of the country and 
all the money you have to invest, it seems to me it is quite an im- 
portant policy determination. 

Mr. Buckner. It certainly is, if there is any fi^ld there that will 
support the expense. 

Mr. Gesell. And in the case of your company 'it has been left to 
the staff rather than to the board to determine that question? 

Mr. Buckner. I wouldn't say altogether that. I think the finance 
committee have several times spoken about, "Can't we get more farm 
loans?" and matters of that kind, but we would have to go to a very 
large expense reorganizing in the farm-loan field if we got any con- 
siderable amount of loans. 

Mr. Gesell. I wondered, for example, whether the board ever 
considered this question as to whether or not it wouldn't be appro- 
priate for the company to loan in the farm field in view of the fact 
that there are so many farmers who are policyholders of vour com- 
pany? i^ ^ J 

Mr. Buckner. That is an argument, there is no doubt about that. 

Mr. Gesell. I am not making the argument. I am wondering 

whether or not it was ever considered by the board as to one of the 


factors that would determine whether or not money should go into 
that particular avenue? 

Mr. BucKNER. That was especially one of the factors when we 
went into its originally. 

Mr. Gesell. It certainly couldn't have been a factor when you 
withdrew ? 

Mr. BucKNER. No ; we withdrew because we were getting to a point 
where it looked as though we probably owned the farms, if we kept 
on at the high values that the farms were selling at, or appraised at. 

Mr. Gesell. You see what I am trying to get at ; I am tr/ing to get 
at why it is the New York Life doesn't loan in the farm field today. 
I gather that as far as the directors are cortcerned, it is mostly because 
these loans haven't been brought up to them for their attention? 

Mr. BucKNER. Very largely that. 

Mr. Gesell. And the staff has felt it is not a good kind of loan? 
., Mr. BucKNER. No ; the staff has felt we can't get them, in sufficient 
quantities to justify the overhead that we would have to pay in farm 
loan agencies throughout the United States. 

Mr. Gesell. And the reason you can't get them to a large extent 
is because of the type of field organization you have, is it not? 

Mr. BucKNER. It is due largely to the competition in the field. 

Mr. Gesell. Wouldn't it be for the board to determine whether or 
not as a matter of pqlicy it wouldn't be desirable to set up an organi- 
zation which would bring farm loans to the company ? 

Mr. Bucp NER. I doubt if the board of directors would know just 
of their own accord the worthwhileness of such a program. You 
have to demonstrate it. 

Mr. Gesell. So that the board is in the position here of an umpire 
rather than to determine this matter of policy? 

Mr. BucKNER. I would say that is largely so in regard to farm 

Senator White. The competition you speak of is largely Govern- 
ment competition ; isn't it ? 

Mr. BucKNER. It is Government agencies, plus several large com- 
panies which have specialized in farm loans lor a great many years 
and have their organization. The field is carefully cultivated by 
them, and, of course, we wouldn't want to go into competition on 
rates and underbidding, and so forth. 

Mr. Gesell. Why not ? 

Mr. BucKNER. Do you think that would be a good thing? 

Mr. Gesell. I just want to know why you don't wani to get into 
competition on farm loans ? 

Mr. BucKNER. We would soon get down to the point where we 
were lending at ridiculous figures on loans that are full of risks. 

Mr. Henderson. Does that happen with other kinds of loans? 

Mr. BucKNER. No; that isn't applicable. ^Vhen you are playing 
with the farmers, you have to play the farmers' game — let him have 
practically what he wants, pay off when he wants, and at such rates of 
interest as he thinks he ought to have. 

Mr. Henderson. I gather you don't have to do that with utilities? 

Mr. Buckner. No, sir. 

Mr. Gesell. You don't have to play the railroad man's game? ^, 

Mr. Buckner. Well, we are playing our own games with railroads 
now, I don't know how succes?^ Uy. 


The Chaikman, Do the railroads know it? 

Mr. BucKNER. I think they have some ideas along those lines. 

Mr. Gesell. Now, this matter of what the board of directors does 
in the field of investment is one that is very interesting. Let me see 
if I can get at another phase of it this way. Does the board at the 
beginning of a period or the beginning of a particular year sit down 
and decide what it wishes the composition of its portfolio to be at the 
end of the year? 

Mr. BucKNER. No; I think not. 

Mr. Gesell. It doesn't say, "We would like to have so much utili- 
ties, so many railroads, so many city loans, so many farm loans"? 

Mr. BuoKNER. No. We have got plenty of money to go into each 
one of them, each of those pockets, and we have to follow the demand, 
the trend of the demand. 

Mr. Gesell. And you do not try to plan in advance what diversi- 
fied portfolio you want, what avenues you want to follow? 

Mr. BucKNER. They want diversification, but you can't pick out 
and say you are going to apportion so much money this year for this 
purpose and so much for that and so much for that. 

Mr. Gesell. Why can't you ? 

Mr. BucKNER. We would be left with a whole lot of the money 
still in our pocket because we wouldn't have the demand. 

Mr. Ge^ell. It is because you have so much to get out, isn't it? 

Mr. BucKNER. We think the United States Government can absorb 
all we need to get out. 

Mr. Gesell. That really isn't an answer to my question, is it? 
You have said here, already, ,that you would put your money else- 
where if you could get a proper yield. 

Mr.; BucKNER. Eight. 

Mr. Gesell. Now, isn't the reason that the board does not determine 
how it will diversify its portfolio primarily the result of the vast 
amount of money that it must invest? I have heard of many smaller 
companies which sit down and say, "We will have so much of this 
and so much of this and so much of this, and that will make a diversi- 
fied portfolio," and they will put their money there. 

Mr. BucKNER. They rniglit be able to do it by apportioning 200 
million for this purpose and 200 million for that purpose and 200 
million for this purpose, but when j'ou got through you would find 
that you had one pocket that nothing went out of. 

Mr. Gesell. That is one of the problems of size, isn't it? 

Mr. BucKNER. No ; because you could use that 500 million that you 
haven't been able to get out of the pocket, over here. 

Mr. Gesell. In terms -of management of this portfolio? 

Mr. BucKNER. I don't think you can manage an investment program 
in the method you have in mind. 

Mr. Gesell, Not within straight- jacket limitations; I don't mean 
the difference between 1 and 2 percent, but you can say the same way a 
man does who is an investment counsel for his clients, we will diver- 
sify this man's holdings in this area so that a particular economic stress 
or change of events in one field of activity won't injure the over-all 

Mr. BucKNER. That is about what we do. 

Mr. Gesell. But you make no allocations? 


Mr. BucKNER. No ; no definite allocations. 

Mr. Gesell. Even in broad limits 1 understand you make none? 

Mr. BucKKER, That is probably true. 

Mr. Gesell. So it is really up to the staff to get the good loans as 
they are offered to them and put them up to the board to approve? 

Mr. BucKNER. That is practically the case, since 1906. 

Mr. Gesell. The failure of the board to take speciHc allocations or to 
make specific determinations in advance of where it is going to put 
the money, is not then the result of any depression experience; it has 
been generally the way the insurance companies have handled it, at 
least your company ? 

Mr. BucKNER. 1 think tlie board has at all times insisted on diver- 
sification, and that diversification has come about largely through the 
trend of the deinands. 

Mr. Gesell. Not because of some set program ? 
, Mr. BucKNER. Not because of any set formula. 

Senator King. You have various staffs, do you, one looking after 
agricultural investments and one after Government bonds and rail- 
roads, and so on ? 

Mr. BucKNER. Right. 

Senator King. So that iii practically every field of industrv, there 
would be somebody in your organization who was more or less lamiliar 
with that field of in4ustry ? • 

Mr. BucKNER. It must be so. 

Senator King. Whether railroads or utilities or what not? 

Mr. BucKNER. Yes, sir. 

Senator King. And those staffs are expected, are they not, to search 
the market and keep in touch with the trends of economic and indus- 
trial development and make recommendations to the board with a view 
to determining what policy they should pursue ? 

Mr. BucENER. That is right, but when you say board, of course you 
mean the finance committee. 

Senator King. Yes. I suppose your purpose is to loan as much as 
you can where you can find good loans at a reasonable rate of 
interest ? 

Mr. BucKNER. Yes, sir. 

Senator King. You have no purpose in hoarding your money? 

Mr. BucKNER. Absolutely not. 

Senator King. You have loaned so extensively, have you not, in 
some instances you have lost money? 

Mr. Buckner. Yes ; that has been true in times of great expansion. 

Senator White. Could it fairly be said that these units of your 
general staff are competitive, one with the other ? 

Mr. Buckner. Oh, no ; not at. all. They all harmonize, they come 

Senator White. If you had a staff dealing with responsibility with 
respect to farm loans, for instance, and it brought no farm loans to 
you for a continued period of time, would you keep that staff? 

Mr. Buckner. Well, if their duty was to get farm loans and they 
didn't get them, we would simply think they are no good. 

Senator White. Then if that is true, if these different units of 
your staff are constantly presenting to you opportunities for invest- 


ment, it occurred to me that you might fairly say that they were com- 
petitive one with another in bringing matters to the attention of the 

Mr. BucKNER. They all know, all our lending divisions in the home 
office, or departments, know that we are seeking loans and investments 
of the character that New York Life should make in every direction. 

Senator White. And are all recommending loans within their 
respective spheres, aren't they? 

Mr. BucKNER. That is rignt. 

Senator King. Has your field of inve&nnent widened with the' tech- 
nological developments in various fields of human activity during the 
past 5 or 6 or 10 years? 

Mr. Btjckner. I gave you the sequence of our branching out here 
and there into the various fields in what I have submitted already. 
Yes ; the field widens. 

Senator King. If the market indicated by reason of technological 
developments, for instance in the oil industry, that there would be a 
good field for investment, though you may not have made investments 
m that field, would that lead you to make an investment in that field ? 

Mr. Buckner. Yes, indeed ; it would lead us to seek it. 

Senator King. I suppose primarily you feel that you are trustees 
for the stockholdlers and that it is your duty to make the investment 
wherever you can at a profit, but at the same time to keep in mind 
the fact that you are guardians of the Urust funds, that you are not 
to squander them or throw them away or gamble with them in ven- 
turesome matters where experience might demonstrate, or has demon- 
strated, that they are unwise investments? 

Mr. Buckjjer. You are quite right, Senator, but instead of stock- 
holders we mayr say policyholders. 

Senator Ejng. Yes; I beg your pardoli. 

Mr. Gesell. Now, on Senator King's point, wouldn't one of the 
things that a board of trustees would want to consider be the desira- 
bility of placing money back in territories' and back into lines of 
endeavor or occupations which represented a cross section of your 

Mr. Bugkner. Yes. 

Mr. Gesell. You have a lot of farmers who are policyholders, 
haven't you? 

Mr. Bugkner. Oh, yes; a large number of them. 

Mr. Gesell. Do the trustees feel that part of their exercise of their 
trusteeship and their function is the placing of money in farming 
communities in order to put the policyholder's money back to aid 
him, so to speak? 

M.r. Btjckner. We would be glad to- 

Mr. Gesell. I am sure you would be glad to. You haven't since 
1926. Now, I wondered whether the trustees considered that phase of 
the situation in making the determination not to loan ? 

Mr. Bugkner. Well, they never made a determination not to loan. 

Mr. Gesell. Loans just weren't given to them to make? 

Mr. Bugkner. They simply couldn't dig them up. I may be 
wrong about this farm business, although my father was a farmer 
and I was more or less raised in my boyhood days in the farm busi- 

124491 — 41— pt. 28 5 


ness. I think practically every farmer has a loan already on his 
property. All we can do is go and lift that loan from another book 
to ours. 

The Chairman. I understood the testimony of Mr. Buckner to be 
substantially that the farm values got out of line and that was the 
primary reason for withdrawing. 

Mr. Buckner. That is right. 

The Chairman. And you are going back into the field to some ex- 
tent as farm values go down ? 

Mr. Buckner. And as opportunity presents itself. 

The Chairman. It is not a question so much of wanting to invest 
in farm mortgages as such, as it is to invest in a sound security which 
will pay a return, a secure return? 

Mr. Buckner. Quite right, Senator. 

Mr. Gesell. May I direct- 

The Chairman (interposing). Pardon me; I just wanted to get 
both pictures. That is my understanding of what you wanted to say. 
Now, Mr. Gesell, what were the viewis that you were seeking to bring 

Mr. Gesell. I simply wanted to direct a line of questions prompted 
by table 161.^ There the New York Life Insurance Co. is shown to 
be in between the Prudential and the Equitable of New York in the 
period there of 10 years that is covered; both of those companies 
hjave loaned millions more of money in the farming area than the 
New York. I was about to ask some questions as to the difference in 
the policy represented by that table which is extremely substantial 
and quite apparent. 

The Chairman. Yes; it is quite interesting. 

Senator King. Perhaps your company^ has loaned millions of dol- 
lars in certain activities where other companies have not? 

Mr. Buckner. Absolutely. 

Mr. 'Gesell. What, for example ? 

Mr. BucHNER. Particularly United States Government bonds. 

Mr. Gesell. Other than Governrnents, what? 

Mr. Buckner. I don't recall right now. I think probably on a 
percentage basis, we hold more municipals in proportion to our as- 
sets than any of the leading companies? 

Mr. Gesell. What about lines of business? 

Mr. Bucener. I think we would about break even on that. 

Mr. Gesell. You are about even with the other companies on that, 
aren't you? 

Mr. Buckner, I would hope so. 

Mr; Gesell. Let me ask you another series of questions that may 
help 'bring this out. Has tne increasing size of your company over 
this period made any, differences in your investment policy or prob- 

Mr. Buckner. I think not. 

Mr. Gesell. You find it equally easy to invest the increasing 
amount of money that your company is called upon to invest from 
year to year? 

» See Hearings, Part 10-A, p. 161. 


Mr. BucKNER. I wouldn't claim that it is altogether easy to invest 
money in either large amounts or even small amounts at the present 

Mr. Gesell. Oh, I understand that. It is quite diflB.cult to invest. 

Mr. BucKNER. It is difficult to invest wisely and with a fair yield. 

Mr. Gesell. Let's take the period up to 1929, the period from 1906 
to 1929. Did you find it more difficult to invest as you had more 
money to get out? 

Mr. BucKNER. No; I don't think so. 

Mr. Gesell. It made no difference in the problem ? 

Mr. BucKNER. Not at all. 

Mr. Gesell. Do you think the degree to which you find it difficult 
now to invest is partly the result of your size and the amount of 
money you have to put out? 

Mr. > UCKNER. I wouldn't say so. I would think if we were one- 
tenth the size we would have the problem just the same. We would 
simply take smaller doses of what did come along. 

Mr. Gesell. I should think that would help substantially. I should 
think it would help a g^eat deal if you might even be able to go out 
in the market and buy up a few bonds. 

Mr. Buckner, Well, yes ; you might buy an occasional one but you 
would put the price up on the bonds if you went there very strong. 

Mr. Gesell. And you really feel there is no difference because of 
the amount of money you have to get out? 

Mr. Buckner. I don't think it would make any difference in the 
long run. It might at some particular juncture. 

The Chairman. Mr. Buckner, let me ask you, what was your mini- 
mum loan 10 years ago? 

Mr. Buckner. Ten years ago? The amount that we had? 

The Chairman. No ; I don't mean the total amount out. Maybe 
you haven't gathered these figures. 

Mr. Buckner. No; I haven't. I know what you mean. The 
minimum amount we would vake from one corporation? 

The Chairman. That is right. 

Mr. Buckner. No ; I haven't those figures, Senator. 

The Chairman. Have you any idea in mind ? 

Mr. Buckner. I don't believe we had any. 

The Chairman. Say over 20 years has there been any change? 

Mr. Buckner. I don't think there has been any change. I think 
we took about our proportion. 

The Chairman. Yes; of course you would take your proportion 
but do you, with your present magnitude, take as small offermgs as 
you did 20 years ago ? 

Mr. Buckner. I am not so sure ,about that. Possibly not. We 
would be glad to take small offerings but we are looking, of course, 
for larger offerings. 

The Chairman. That is what I understood Mr. Gesell was trying 
to develop. 

Mr. Gesell. The bulk of your city real estate owned, for example, 
classified by size, is in the five to ten thousand dollar area, and I 
think it is apparent from these figures that your loans are, on the 
average, fairly large, in the field of city mortgages. 


Mr. BucKNER. They were large at the time of great expansion, new 
construction in New York City particularly, but at the present time 
our average loans that we make are small. 

Mr. Gesell. The F. H. A. has brought them down. 

Mr. BucKNER. We have two kinds, as you know. We are taking 
all we can get of either one. 

Mr. Gesell. Do you believe that the territorial expansion of your 
company — the fact that it has gone into more and more States so 
that now it sells everywhere in the United States — -has made any 
difference in your investment problem? 

Mr. BucKNER. We haven't had any territorial change in the last 
40 years. We have been in every State. 

Mr. Gesell. You have been much more active, as time has gone on, 
in far away States, haven't you, agencywise? 

Mr. BucKNER. I doubt that. I think we have relatively been as 
active in one place as another. Wo were doing business on the Pacific 
coast way back in the seventies. 

Mr. Gesell. Then that has made no difference at all ? 

Mr. BucKNER. No. 

Mr. Gesell. What about the development of new lines of business, 
Mr. Buckner? I have in mind things such as the increasing em- 
phasis on cash values which has taken place over the period, the de- 
velopment of annuities, the development in the field of supplementary 
contracts, settlement options, the development of more premiums 
being paid in advance, more dividends being left with the company. 
Have things of that sort made a diflference in your investment policy ? 

Mr. Buckner. Things of that kind, of course, resulted in a great 
deal more money to invest. That was my testimony a year ago. 

Mr, Gesell. They put an increasing emphasis on liquidity too, do 
they not? 

Mr. Buckner. Well, somewhat. 

Mr. -Gesell. And they brought to you bigger lump sums to handle 
sometimes ? 

Mr. Buckner. Yes; that is trae. 

Mr. Gesell. Now, what has been the effect of that on your invest- 
ment problem? 

Mr. Buckner. I wouldn't say it has very much effect. Annuities, 
for example, brought in a large amount of money and Government 
bonds are very adaptable to annuities ; it is a very simple proposition 
to handle annuities at the rate^ at which we sell them, with Govern- 
ment bonds as securities. 

Mr. Gesell. This change of reserve basis has also obliged you to 
invest more money, has it not ? As you lowered the guaranteed in- 
terest rate you have to invest more to get the same amount? 

Mr. Buckner. We have to invest all the money that comes in. 
What we have to invest is the excess of income over disbursements. 

Mr. Gesell. So that the lowering of that guarantee has increased 
your investment problem. As you build up your reserve you have 
more of an investment problem; as you build up your assets you 
have more of an investment problem; and as you put reserves on a 
more conservative basis that extends it? 

Mr. Buckner. That lessens it. If we carry reserves on a 3 percent 
basis our problem is simplified because you can take gilt-edged in- 
vestments that yield a lower rate. 


Mr. Gesell. But you have more money to invest. 

Mr. BucKNER. Not because of the reserve. We have more money 
to invest because of the income, the excess income is the amount we 
have to invest. 

Mr. Gesell. What about investing in common stocks, Mr. Buck- 
ner ? Does your company want to invest in common stocks ? 

Mr. BucKNER. No ; that hasn't been discussed in the board, but in 
my old age I would certainly — if they take any further advice from 
me, I would say no. 

Senator King. I understood there had been some prohibition in 
the law? 

Mr. BucKNER. It is not permitted in law, but he is thinking of the 
question of amending the law. 

Mr. Gesell. Are there any changes in the investment laws to which 
you are now subject which you think would give you greater outlet 
that you would want to follow? 

Mr. BucKNER. No material changes. I think the law could be 
loosened up a bit. On f)referred stocks the restriction is now quite 
3tiff. The limitation is on how much we can buy in one corpora- 
tion. The provisions under which we may buy must be over-all 
yield for capital for three consecutive years of a certain percent. I 
think a little lightening of those limitations would widen the field 
somewhat, not materially. 

Mr. Gesell. And you have no real quarrel then with the restric- 
tions that the investment law places on you ? 

Mr. BucKNER. Not at all. I think they are wise, by and large 

Mr. Gesell. It is pretty difficult for a small business man or some- 
body setting up a new venture to come to the New York Life and get 
funds, isn't it? 

Mr. BucKNER. Well, you mean on a mortgage loan ? ■ 

Mr. Gesell. No; I mean in terms of a security. 

Mr. BucKNER. No ; we don't make that kind of a commercial loan. 
They have to have a security. 

Mr. Gesell. You want a going concern to loan to, too, don't you? 

Mr. BucKXER. Their corporate bonds. I think if they came around 
and wanted to borrow $25,000, we wouldn't think it Avorth while. 
It would be more or less speculation. 

Mr. Gesell. And you don't make that type of loan? 

Mr. BucKNER. No; we do not. 

Mr. Gesell. Your loans are almost entirely to established going 
concerns ? 

Mr. BucKNER. That is right. 

Mr. Gesell. What you might call venture capital hasn't much 

Mr. BucKNER (interposing). Not much appeal. Common stocks 
haven't much appeal to me. I don't know how it would be with 
other insurance men. 

The Chairman. What latitude would you have under the New 
York law to invest funds in adventure capital ? 

Mr. BucKNER. Really none. We are supposed to have ample se- 
curity for any investment we make. The law is very strict and 
prescribes just what that security is to be in various directions. 

The Chairman. And if you were to make a loan to a small corpo- 
ration or to an individual, you would require ample security, would 
yoj.1 not? 


Mr. BucKNER. We wculd require ample security and we would have 
to have a background of experience ; a going concern, in business for 
a reasonable length of time, a success, with a wise management, and 
with a product that is going to be permanent. 

The Chairman. So what you want by way of industry loans is 
that which is represented by either preferred or guaranteed stocks 
within the character described by the law, or bonds which are well 
supported ? 

Mr. BucKNER. That is right. 

The Chairman. Would you make a loan to an individual at all 
upon any other security than real estate? 

Mr. BucKNER. We could make a collateral loan, but there isn't 
very much in that business, not very much opportunity. 

The Chairman. That would be the banking field ? 

Mr. BucKNER. The banks would do that. 

The Chairman. That would be banking business and you don't 
do much of that? 

Mr. BucKNER. That is right. 

The Chairman. So, actually, the opportunity for those who need 
adventure funds is not to be found with insurance companies? 

Mr, BucKNER. No; nor any other kind of trust funds. 

Mr. Gesell. What is the smallest bond issue you will buy, gen- 
erally speaking? 

Mr. BucKNER. I don't know as to that. 

Mr. Gesell. You usually want something above $100,000? 

Mr. BucKNER. Yes; I should think so. I would say $100,000 

Mr. Gesell (interposing). About the rock "bottom? 

Mr. BucKNER. Well, not rock bottom, but about the limit. 

Senator King. Has it been your experience that persons would not 
take policies from you, who wanted protection for their families, 
if you were a mere banking firm and had venture capital in any 
industry or any enterprise that a good salesman or bad salesman might 
suggest ? 

Mr. Buckner. That is right, and we shouldn't place his money 
with a company like that. 

Mr. Gesell. I have no ^further questions. 

The Chairman. In response to Mr. Gesell, you said just now that 
$100,000 would be about as small a loan as you would consider? 

Mr. Buckner. That would interest us. We have no fixed limit 
below that, but I was taking that as an illustration. 

The Chairman. Could you say how many loans as small as that 
you have? 

Mr. Buckner. No ; I couldn't offhand. Of course, mortgage loans 
or real estate 

The Chairman (interposing). No. I am speaking of industrial 
loans or corporations. The reason I am asking the question, Mr. 
Buckner, is simply this : Congress is always besieged by little business 
men, so-called, for legislation to put the Gov^ernment into the busi- 
ness of loaning money to them for adventure putposes, and that is one 
of the problems before the National Legislature — what to do to pro- 
vide a source of capital to those who desire to enter into business. 
Now, they don't have that source with the life-insurance companies, 

Mr. Buckner. That is true. 


The Chairman. And that, of course, is because of the fact that 
you must seek, primarily, security in your investment. 

Mr. BucKNER. Yes, sir. 

The Chairman. So I was trying to determine as a corollary just 
what type of small loans you do have. That is why I asked you 
how many at $100,000 you might have. What would you say was 
your average industrial loan? 

Mr. BucKNER. The treasurer just advises me that ws don't have a 
part ,of sniall industrial loan outputs. We are confined largely to 
large offerings, the large loans. 

The Chairman. That is to say, your industrial investments are 
practically confined to the offerings of the large corporations? 

Mr. BucKNER. The large corporations. 

The Chairman. In other words, the big business corporations are 
the ones who are your clients and whom you supply with bond 
capital ? 

Mr. BucKNER. That is true. I would think that the small borrower 
should find his money in his own community, the banks and the capi- 
tal that is in his own community, because they know him, they know 
his product, they know his credit. 

Mr, Gesell. But life insurance 

The Chairman (interposing). But unfortunately it doesn't work 
that way. What were you going to say, Mr. Gesell ? 

Mr. Gesell. But life insurance is taking much money away from 
those small communities. It isn't available. 

Mr. BucKNER. It trickles back, the mortgage loan business, the 
residential mortgage loans. 

Mr. Gesell. But it doesn't trickle back to the small-business man. 

Mr. BucKNER. It gets back to the small community. 

The Chairman. When you invest in State bonds and municipal 
and school bonds, and if you do invest in farm mortgages, the money 
has a tendency to go back, but what is the proportion of your invest- 
ment that goes to these big business corporations? That would ap- 
pear on table 9,^ would it not? It is broken down in that table, is it? 

Mr. Gesell. Table 102 ^ shows what percentage of their money is 
in Government bonds, what percentage is in real estate, but there 
is no break-down there as to the size of the loan. We have break- 
downs as to the size of loans only in the mortgage sections of the 

The Chairman. This table groups together under one heading 
other bonds? 

Mr. Gesell. Table 103^ breaks them down. You will find rail- 
roads, utilities, industrials, preferred stocks, commoji stocks, all the 
principal classifications. 

The Chairman. This table 103, Mr. Buckner, shows that with the 
New York Life only 1.31 percent of your assets are in industrial 
and miscellaneous bonds. I would take it that is the business we 
have been talking about? 

Mr. Buckner. Yes. 

The Chairman. Now, other life insurance companies run verT 
nuch higher than that. Of the first five companies in size,*-you are 
V far the lowest? 

'■ See Hearings, Part 10-A, p. 9. 
' Ibid., p. 102. 
■■' Ibid., p. 103. 


Mr. BucKNEK. ^es, sir. 

Tlio Chairman. Is there any special reason for that? 

Mr. BuCKNER. No special reason. We have not sought ve'-y much 
of an outlet through the industrials. When we have been talking 
About industrials, I have had in mind utilities as well. 

The Chairman. All right. There again, in utilities, you are the 
lowest but one in that amount. 

I am impressed bv the fact that these tables ' would indicate, and 
discussion brought out, that of these larger companies the New York 
Life invested tlxe smallest amount in farm mortgages, by far the 
smallest amount. 

Mr.-BucKNEE. That is true. 

The Cha-irman. And now it would appear that the New York Life 
invested the smallest amount of these five large companies in in- 
dustrials. Is there any special reason for that? 

Mr. BucKNER. No ; I wouldn't say so. 

The Chairman. Are there considerations that occur to you now, for 
example, with respect to the farms, that might appear to another 
company as indicating that farm mortgages are desirable? 

Mr. Buckner. Oh, I think, beyond a doubt, they are desirable. 

The Chairman. But they are not desirable enough for yoii to take 
as large a proportion as some others? 

Mr. Buckner. We would have to reorganize. That has been our 
problem, whether we should and whether there is an opportunity. As 
I say, I think the farms are pretty well plastered. Those that borrow 
at all are pretty well covered. It is just a question of taking from 
one book to another. 

The Chairman. I was wondering if you could throw any light on 
the reason for this variation in the importance ? 

Mr. Buckner. It is simply a matter of judgment by the finance 
committee of our company, compared with theirs. 

Senator King. I suppose you had in mind the fact that we passed 
the so-called Lemke bill a few years ago to grant moratorium, and 
then we renewed it again recently, and the appeal was made by a 
large number of farmers who had availed themselves of that lav, that 
there were great losses, or had been very great losses, in farm moH- 

Ir. Buckner. There is no doubt of it. 

Senator King. And you had that in mind in determining your 
policy with respect to farm mortgages? 

Mr. Buckner. That is right. 

Senator King. Do you know the number of farms in the United 
States which are now under mortgage? 

Mr. Buckner. No; I do not, Senator. 

Senator King. Or upon which foreclosure proceedings have taken 
place ? 

Mr. Buckner. Well, I do not know that. 

Mr. Gr.sELL. We will have complete testimony on that Wednes€ttiy 
morning, sir. 

Senator White. The farmers are not only under mortgage, but the 
stocks are under )nortgage, the equipment is under mortgage, and 
their hopes of the future are under mortgage, 

' Ibid., pp. lO.S and 104. 


Mr. Gesell. There you disagree with the witness, do you not, sir? 
The witness said the hopes for the future are not. 

Mr. BucKNER. I part with the future. 

The Chairman. The table on page 161 ^ shows, for example, for 
1938, that New York Life had $6,336,000, in farm mortgages, 
whereas Metropolitan had $70,986,000; Equitable had $71,593,000, and 
Prudential had $167,298,000. You see, that is quite a variation. 

Mr. BucKNER. Yes, sir. 

The Chairman. And my questions were designed to develop 
whether or not there were any special reasons for that variation 
except those which you have already given. 

Mr. BucKNER. I think pot. 

The Chairman. Just a matter of judgment, in your opinion, and 
of choice upon the part of the directors as to the line to pursue ? 

Mr. BucKNER. Right. I hope the Lord is good to those farms 
and that the rains may come and the crop prices be good and so 

The Chairman. Those of us who come from the agricultural States 
feel the same way, Mr. Buckner. 

Dr. LuBiN. Mr. Buckner, it has always been the policy, has it 
not, however, of your company to invest relatively little in farm 
mortgages? I note even in 1929 when the question of the inherent 
value of farm mortgages had not been raised yet, you were still 
the smallest of the five companies, in terms of farm investments. 

Mr. Buckner. That is true, we entered the field long after these 
other companies were in the field, and with great experience in 
that line of investment. 

The Chairman. Are there any other questions to be addressed 
to Mr. Buckner by a member of the committee? 

Mr. Pike. I have one or two. Reverting to this matter of policy 
loans and cash surrender values, it does seem to me — I think you 
brought it out — that in those two items the companies have no option 
as to when they will make the loans or when they will pay off the 

Mr. Buckner. That is right. 

Mr. Pike. The policyholder has a continuing option as a fixed 
rate during the life of his policy so that he can take that sum as 
a loan or a payment, at his choice. I think the figures show — 
you mentioned the 1907 figures and we have in here the figures 
following 1929 — that the policyholder will, in general, call that op- 
tion Avhen other investments are apt to be quite available; in other 
woiTcls, at times of stress, when securities are for sale at low prices. 

It seems to me that that is' a contradiction in terms, really, where 
the investment policies of an insurance company, being based on 
actuarial \figures — ^you have there one set of obligations which are 
absolutely nonactuarial, which cannot be gaged in advance so that 
you must make excess provision, and furthermore, you are most 
likely to have demands when you would really like to be buying 
some bonds. 

Mr. Buckner. Quite right; it has happened often. 

Mr. Pike. You mentioned that briefly. What would be your 
preference? Would you prefer to leave the cash surrender and the 

' See Hearings, Part 10-A. 


loan legal, the ability of the policyholder to demand one of those 
things, leave the law as it is; or should there be some modification 
of that? 

Mr. BucKNER. I think the law should be left as it is, even though 
on the whole, it is a very objectionable part of the life insurance 
policy. There is no question about that, it is destructive, really, of the 
purposes for which life insurance was taken. 
Mr. Pike. It is a contradiction in terms. 

Mr. BucKNER. It ii. a contradiction in itself, but on the other 
hand, it is a feature of the contract which is, to many people, of 
very great advantage and very necessary for them to have. 

Mr. Pike. But it is very disturbing from the investment point of 
view ; if all the insurance business were an investment of funds, from 
that point of view you would like to have it out, possibly. 

The Chairman. I observe from table 106,^ Mr. Buckner, tne table 
on cash, that New York Life's cash balance, or the item which is 
reported as cash, has increased from $8,657,000 in 1929, to $50,466,000 
in 1938, but this figure for 1938 is, however, less than the comparable 
figure for 1935, 1936, and 1937. Can you say anything to explain 
this upward trend of cash? 

Mr. Buckner. Well, I think that in 1929 cash was pretty scarce 

The Chairman. Yes, but I am talking about the increase. Your 
cash on hand is increasing, apparently ? 

Mr. Buckner. Yes; it is higher now than it has ever been before. 

The Chairman. With respect to the New York Life, it was lower 
in 1938 than it was in the three previous years, but considerabl)' 
higher than it was at any time before that, apparently, in its history, 
and the same is true with respect to the total cash on hand of all 
of these companies. The total appears to have increased from 
$102,000,000 in 1929 to $665,000,000 in 1938, and in response to one 
of Mr. Gesell's questions, I think you indicated that for 1939 your 
own cash was greater than it was in 1938. 

Mr. Buckner. Yes, sir. 

The Chairman. What has governed this trend? Why should 
there be this increasing amount of cash which you haven't been 
able to invest, apparently? 

Mr. Buckner. I think there has been a slackening, as I said, of 
the demand for capital. Business isn't exactly at a standstill, but 
there is rather a cessation of expenditures. 

Mr. Gesell. This is more cash than you need tor the day-to-day 
operations of your business ? 

Mr, Buckner. Yes; I think so. We could have put it in Gov- 
ernment bonds if we had been so disposed during the year, but we 
waited for something a little better. 

The Chairman. You see, the importance of this item to me arises 
from the fact *-iat your inco.iie, the income of any insurance com- 
pany, is primarily from the savings of the people. 

Mr. Buckner. Yes, sir. 

The Chatr'man. It is not represented by borrowings. Bank de- 
posits, on the other hand, are sometimes indistinguishable from bor- 
rowings when a note is signed by an individual, or a bond is issued 

1 See Hearings, Part 10-A, p. 106 


by a corporation or by the Government. That debt and deposits 
mean exactly the same thing, but with respect to a life-insurance 
company, your cash does not in any sense at all represent debt, it 
represents the savings of the people, and when the savings of the 
people are not invested, that, it would seem to me, is one of the pri- 
mary reasons for the bogging down or the halting of the economic 

Mr. BucKNER. There might be something in that. Of course, it is 
there to be invested just as soon as we can find an outlet. 

The Chairman. But you haven't been able to find satisfactory out- 
lets for cash, and at the same time your investments in Government 
bonds are increased out of all proportion to investments in industrial 

Mr. BucKNER. Yes, sir; that is true. 

Senator King. What would be the amount of cash you ought to 
retain in your till *o meet the contingencies that arise? 

Mr. BucKNER. I should think with the contingencies we have, and 
in order to be in position to take advantage of any good opportuni- 
ties that come along — these things will come along — I should think 
from 2 or 3 percent of the assets would be a reasonable figure. 

Mr. Gesell. You have now less than 2 percent. 

Mr. BucKNER. Well, I think we have enough. 

Mr. Gesell. Th3n your answer to my previous question was wrong, 
was it not, when I asked you whether or not this amount represented 
more than you needed for it? 

Mr. BucKNER. Just for the day, just for the time being that is true. 

Mr. Gesell. Well, given a situation where you can put all your 
funds out, how much would you want to keep in cash? 

Mr. BucKNER. I should think it would be safe for a corporation of 
our size to be not far away from 2 percent in cash, with our exposure 
and also with the opportunities for investment. 

Mr. Geseljl. There seems to be a big divergence in cash balance. 
Table 102 ^ shows the Metropolitan with 2.2 of assets in cash ; Pru- 
dential, 2.5; New York Life, 1.9;; Equitable, 4.9; Mutual, 4.4. 

Mr. BucKNER. Are we on the favorable side or unfavorable? 

Mr. Gesell. That is what I am trying to find out. I had taken it 
for granted you were on the favorable side. 

Mr. Buckner. We must never lose sight of the fact that we are in 
a great storm right now in this country, with wars on all sides, and 
nobody knows what the future is going to bring forth< We must be 
in a fairly liquid position to maintain every obligation of the cor- 
poration and take advantage of opportunities that come along. 

Mr. Gesell. And you think somewhere around 2 percent is the 
proper amount? 

Mr. Buckner. I would say not far from 2 percent, one side or the 

The Chairman. Any other questions? 

We are vefy much indebted to you, Mr. Buckner. 

Mr. Buckner. Mr. Chairman, may I take this opportunity of 
expressing my thanks and great appreciation for your courteous 
treatment and eminently fair treatment, not only this time but a year 

^ See Hearings, Part 10-A, p. 102. 


The Chairman. We very much appreciate that comment, sir. 

"Do you want to call another witness this evening? 

Mr. Geseix. We have another witness but we could not finish this 
evening. I am sure the witness doesn't mind waiting over, so it 
awaits the pleasure of the committee whether you wish to continue 
now or start tomorrow. The witness is Mr. John Stevenson of the 
Penn Mutual Life Insurance Co. I know we cannot finish with him 
in another hour. 

The Chairman. Suppose we begin in the morning. 

The committee will stand in recess until 10 : 30 tomorrow morning. 

(Whereupon, at 4 : 05 p. m., a recess was taken until 10 : 30 a. m. 
the following day, Tuesday, February 13, 1940.) 



United States Senate, 
Temporaht National Economic Committee, 

Washington, D. C . 

The committee met at 10 : 38 a. m., pursuant to adjournment on 
Monday, February 12, 1940, in the Caucus Room, Senate OflSce Build- 
ing, Senator Joseph C. O'Mahonev presiding. 

Present : Senators O'Mahoney (chairman) and White ; Representa- 
tive Williams ; Messrs. Henderson, Lubin, Pike, Kades, and Brackett. 

Present also : Gerhard A. Gesell, special counsel ; Ernest Howe, chief 
financial adviser; Helmer Johnson, attomev* and Donald Davenport, 
special economics consultant, Securities and Exchange Commission. 

The Chairman. The committee will please come to order. 

The chairman is in receipt today of a letter from the Honorable 
Edward J. Noble, Under Secretary of Commerce, notifying the com- 
mittee that Mr. Clarence Avildsen, who has heretofore been repre- 
senting the Department of Commerce on the committee, has been 
obliged to leave Washington at least temporarily.' Mr. Summer T. 
Pike has been appointed to act in his place. Mr. Pike was with us 
yesterday and is here again today. 

There are also several letters which have been handed to the chair- 
man for publication in the record, in connection with the hearing 
upon steel.^ These letters include one which was addressed to the 
chairman by Mr. Benjamin F. Fairless, president of the United States 
Steel Corporation, commenting upon the significance of showing made 
to the committee by the United States Steel Corporation. 

(The letters referred to were marked "Exhibits. Nos. 2243 to 2249, 
2249-1 to 5" and "Exhibits Nos. 2243 to 2249" and appear in Hear- 
ings, Part 31A.) 

The Chairman. These letters are all presented for inclusion at the 
proper places in the record, except for the last five which are to be 
filed with the committee. 

These letters have all been submitted to the agencies which were 
conducting the hearing. 

(The letters referred to were marked "Exhibits Nos. 2249-1 to 
2249-5" and are on file with the committee.) 

The Chairman. Mr. Gesell, are you ready to proceed? 

Mr, Gesell. Yes ; I am. Senator. 

First, I would like to offer three documents for the record in con^ 
nection with the hearings which have been held previously before the 

See Hearings, Part 31A. 



"Exhibit No. 1348-67" contains the schedule of fees paid by the 
American Conservation Co. of the law firm of Henning & Baker.^ 
That law firm did not continue during the entire period, and Mr. Hen- 
ning has had an interest in only certain fees paid to that firm. He 
has, therefore, requested that this schedule which I now hand to the 
chairman be substituted in lieu of "Exhibit No. 1348-67," if there 
is no objection to that. 

The Chairman. Without objection, it may be so ordered. 

(The document referred to was marked "Exhibit No. 2261" and ap- 
pears in Hearings, Part 13, appendix, p. 7093.) 

Mr. Gesell. Also, I have a letter from Mr. Henning, of the Illinois 
Bankers Life Assurance Co., giving information as to certain officers 
of the Illinois Bankers who converted their policies from the assess- 
ment to legal-reserve basis, and certain officers who failed to do so.'^ 
This information was obtained at the request of one of the members 
of the committee, and is offered for inclusion in the record. Mr. 
Henning has no objection to its being submitted. 

The Chairman. It may be received. 

(The letter referred to was marked "Exhibit No. 2262" and ap- 
pears in Hearings, Part 13, appendix, p. 7095.) 

Mr. Gesell. I should like it printed in the record. 

Similarly, I have here an affidavit from Mr. R. R. Haffner, actuary 
of the department o.f insurance, whose name was mentioned in the 
course of the hearings. Mr. Haffner's affidavit is submitted for the 
record.^ It has no new information, but since Mr. Haffner was not 
here he wished his position to be made clear. 

The Chairman. In other words, he is denying, is he not, certain 
implications that may have arisen from the testimony of another 
witness ? 

Mr. Gesell. That is correct; yes. 

(The affidavit referred to was marked "Exhibit No. 2263" and 
appears in Hearings, Part 13, appendix, p. 7096. ) 

Senator White. May I ask a question, Mr. Chairman ? 

Just for my information, I am curious to know to what extent you 
are including in the record letters or statements by persons who are 
not present as witnesses. Of course, when you embark on this policy 
of allowing anyone to prepare statements, and include them m the 
record, you don't know where you end. 

The Chairman. We haven't embarked on that policy. As a matter 
of fact, nothing is admitted to the record unless it deals directly with 
a question which has been raised at one of the hearings and is in 
response to a question by some member of the committee, or is sub- 
mitted by a witness to amplify or clarify his statement. The one 
exception of that is the exhibit which has just now been offered. 
During the previous hearing upon insurance there was testimony to 
the efltect that upon the check stubs of a witness who was before the 
committee there appeared the name of an official of the insurance 
department of the State of Illinois. This official denies that he ever 
received, directly or indirectly, any money from the person who 
testified. And the Chair felt, and the Securities and Exchange Com- 
mission in presenting the affidavit felt that it was only fair to the 
absent witness to allow his affidavit to be entered. 

1 See Hearings, Part 13, p. 6943. 
"See Hearings, Part 13 p. 6829. 


Mr. Henderson. Mr. Chairman, I think I know about most of the 
material that has been introduced into the record. I think if we follow 
carefully a procedure we laid down early we will obviate the difficulty 
Senator White contemplates. I suggest that the executive secretary let 
him have a memorandum on the procedure which we do follow. 

The Chairman. Yes. 

Senator White. I won't at this late date presume to critcize the 
practice of the committee, but I do know as a general proposition that 
statements by a witness who is not subject to any examination at 
all ought to be accepted with great hesitation. 

The Chairman. The committee feels exactly as you do, Senator 
White, in that matter. 

Mr. Gesell. The first witness this morniing is Mr. John Stevenson, 
president of the Penn Mutual Life Insurance Co. I might say to 
the committee Mr. Stevenson's testimony will trace for the committee 
some of the recent operating problems in the past few years and his 
testimony will complete what I have been calling the background 
testimony. Mr. Howe will follow Mr. Stevenson and analyze "Ex- 
hibit No. 2250" ^ in some detail. 

The Chairman. Do you solemnly swear the , testimony you are 
about to give in this proceeding shall be the truth, the whole truth, 
and nothing but the truth, so help you God ? 

Mr. Stevenson. I do. 


The Chairman. Thank you. You may be seated. 

Mr. Gesell. Will you state your full name, occupation, and resi- 
dence for the record, sir ? 

Mr. Stevenson. John A. Stevenson, president, Penn Mutual Life 
Insurance Co., Philadelphia. 

Mr. Gesell. Mr. Stevenson, can you tell the committee briefly what 
your experience has been in the insurance business, how long you 
have been with the Penn Mutual, and what you did before that? 

Mr. Stevenson. Since 1928 I have been associated with the Penn 
Mutual in one capacity or another. Beginning in 1928, I came to 
Philadelphia to manage their large Philadelphia agency. I took that 
position and held it until 1931. At that time, there was a vacancy 
in the agency department, the agency vice president having resigned 
and I temporarily filled in as agency vice president. It was contem- 
plated that I should do that for a period of 8 months to a year in 
anticipation of bringing, in another vice president. I finally was 
relieved of that in the summer or spring of 1933 when they brought 
another vice president in. 

Then I returned to my agency in Philadelphia and was there until 
1936. I think in June 1936, I was called to the executive vice presi- 
dency of the Penn Mutual, due to the death of the president" ah^ a 
vice president. I was executive vice president from the spring 
of 1936 until January 11, 1939, when I was elected president. That is 
my experience in the Penn Mutual. , ' 

^ See Hearings, Part 10-A. 


Do you wish me to go into my experience before ? 

Mr. Gesell. Prior to that, you had been interested in developing 
training courses for life-insurance agents, had you not ? 

Mr. Stevenson. Correct. In 1919 I left the University of Illinois 
to go to Carnegie Institute of Technology, where was established, I 
would say, the first school of life-insurance salesmanship in a higher 
institution of learning in the United States. I was called to that 
position in 1919 as director. The specific purpose of that school was 
to develop a short, intensive professional training course for agents. 

Mr. Gesell. Coming to the Penn Mutual, Mr. Stevenson, can you 
tell us a little about the company, how large it is, in how many States 
it operates, the types of insurance it sells ? 

Mr. Stevenson. According to your outline as you find it on there, 
the statistical evidence, our business falls under four classifications. 
We do ordinary life business ; second, individual annuities ; third, disa- 
bility coverage; fourth, accidental-death coverage known as double 
indemnitv. The size of the company now is, insurance in force, 
$1,969,568,000. The Penn Mutual does business in 47 States, Texas 
only being excluded. 

Mr. Gesell. How many policyholders does the company have? 

Mr. Stevenson. Four hundred twenty-eight thousand, approxi- 

Mr. Geselv Now, .one of the matters I would like to discuss this 
morning wit i you, Mr. Stevenson, is how new policy forms and new 
policy services are determined upon, what brings them into use and 
what have been some of the types of policy forms developed in recent 

Mr. Stevenson. I should say to extend our life-insurance sjervice 
in meeting the financial needs of prospective insurance buyers, when 
it appears that the adoption of a plan will be to the advantage or 
will be advantageous to our policyholders and also to our representa- 
tives. First, there must be a definite need, as we see it, for the new 
policy. The new policy must serve a new need or a combination of 
needs in one policy. 

Two, it must appear advantageous to the policyholders as a group. 
If it doesn't appear to be of sound practice, or if it is a policy that 
might be criticizable in any way by our actuarial department, we 
don't issue it. 

And third, as I said, it must be of aid to our representatives. 
I mean specifically by that, if it doesn't help our representatives to 
meet the needs of policyholders, the fundamental needs of policy- 
holders, obviously it couldn't be sold or wouldn't be sold easily. 

Mr. Gesell. Now, Mr. Stevenson, how do you determine that there 
is a need for a new policy form? Do you look at it from the point 
of view of a new service which you can sell, or do you try to ascer- 
tain what the specific needs of a group of policyholders may be ? 

Mr. Stevenson. The latter is the dominant motivating principle 
which causes us to stress the possibilities of a new policy. 

Mr. Gesell. You mean letters from policyholders or statements 
from agents or how do you find out that need exists ? 

Mr. Stevenson. First, we have frequent requests from policy- 
holders direct, or we have suggestions from policyholders to the 
agents. They frequently say, "Why don't you get out this lyne o^ 


policy?" Of course, in many instances, it is wholly impossible to 
get out the type of policy that they suggest because not infrequently 
the suggestion is made for a type of policy that isn't actuarially 
sound or would be impossible to issue. The general feeling is that 
they want something to serve oftentimes an individual purpose that 
is too individual, it doesn't meet a class of policyholders. 

Now, that is one. I mi^ht give as an illustration of that — ^I had 
the responsibility of placmg some annuities for a minisiters' and 
missionaries' board, the Baptist Ministers and Missionaries Board. 
The purpose there was to find members of the Baptist Church who 
would buy an annuity and then if there is anything left of the an- 
nuity, to passjt on to this Ministers' and Missionaries' Board, which 
is really^ an insurance company for pensioning Baptist ministers. 
Obviously the board couldn't count on any definite amount, so a policy 
was . ori^nated which would be half straight annuity and another 
half which added to this annuity would make it possible always for 
the Baptist denomination, on the death of the annuitant, to receive 
one-half of the amount orginally put in the annuity. 

Mr. Gesell. I suppose, too, the home office mates studies of the 
insurance market ? 

Mr. Stevenson. Yes. I would say that that is true. 

Mr. Gesell. What about the competitive factor, the marketing 
factor, Mr. Stevenson? Do you develop pplicy forms sometimes be- 
cause one of your competitor companies has come out with a form 
and you want or your agents want to keep up with them? 

Mr. Stevenson. Yes. 

Mr. Gesell. Is that fairly frequent in occurrence? 

Mr. Stevenson. I should say that most companies are alert to 
bringing out policies to meet the competition or a popular policy. 
I think that is rather a common procedure. 

Mr. Gesell. When you say popular policy, you mean a policy that 
is popular with the agents or popular with the policyholders. 

Mr. Stevenson. Largely with the policyholders; that is, meaning 
by that that it seemed to have fitted a specific need. An illustration : 
There is a policy that is gotten out by a number of companies called 
the modified life, which is a combination of term insurance for the 
first 2 or 3 years (the rate is a little above term insurance), and then 
after the period of 3 years, the rate increases. That has as its pur- 
pose the idea of bringing the gross amount of premium to a lower 
figure than would be the case if a straight ordinary life policy had 
been taken. 

Mr. Gesell. That is the kind of policy where they come to a young 
person and say, "Well, you are only making so much this year, you 
can get a broader coverage and as you start to earn more and more, 
you can pay more."? ' 

Mr. Stevenson. That is right. 

Mr. Gesell. Is that one of the newer forms that has been developed 
in the last 20 years? 

Mr. Stevenson. Yes; it has been developed — my guess is that that 
was developed on or about 1926, and it is very popular; it fills a 
specific need. The Penn Mutual competitively, not issuing that type 
of policy, we have a policy that we call a term automatic conversion. 
Instead of having two policies — a term policy and then converting 
that — we have the term automatic part written right in the policies, 

12*491'— 41— pt. 28 6 


SO that you actually go for 1, 2, 3, 4, or 5 years, whichever you elect, 
and then at a certain period it goes into the higher rate and that 
higher rate is the ordinary life rate at that period. But it is in one 

Mr. Gesell. Do I understand you to say that one of the factors 
in the determination of new policy forms is the desire of any com- 
pany to offer the same lines of service and the same type of coverage 
as his competitors? 

Mr. Stevenson. In general ; but there is, of course, wide variation. 
There is wide variation. The general tendency would be toward the 
same type of coverage. 

The Chairman. How frequently do these suggestions for new 
forms of policy come to the executive officers? 

Mr. Stevenson. We are having them constantly. I should say that 
there are always in the offing suggestions for new types of coverage. 

The Chairman. Do these suggestions cover a wide range or do they 
fall into certain well-known categories? 

Mr. Stevenson. In general, within a rather narrow range, because 
there are limitations to what can be accomplished through life 

The Chairman. Could you give us an instance of one or two of 
the suggestions which have been made but which have been rejected? 

Mr. Stevenson. Well, I recall a few years ago the suggestion that 
companies ought to incorporate in one policy varied types of needs, 
so that one policy, the package, would do the whole job rather than 
having three or four policies. For example, this was the general 
broad suggestion: First, when a man is a very young man, he needs 
more coverage, he needs all the coverage he can get, actual insurance 
protection without much of the savings feature, so the suggestion 
was to have a certain period in the beginning of term insurance ; then 
the second period of the operation of the policy to have it on the basis 
of permanent insurance — that is, ordinary life — until the responsi- 
bilities of the family might have been met ; and then provide for some 
sort of a rider to attach to the policy so that on or about the time 
when his family responsibilities are over, he could probably increase 
his premium in order to make it a retirement income for himself 
and for his wife, or a retirement income for either, no matter which one 
survived. That is about as complicated a one, I think, as I could 
mention and yet the arguments for it are sound. We are able to do all 
but that last part. That, I might say, Senator, is today under active 
consideration to see if we could originate or develop that sort of policy. 

Mr. Gesell. Now, perhaps it would help if you would tell the com- 
mittee what some of the principal new policy forms have been that 
have been developed in recent years. You mentioned the modified 
life form. Now, there has been the form of family income and 
family maintenance, has there not ? 

Mr. Stevenson. Yes, sir. 

Mr. Gesell. What kind of a policy form is that ? 

Mr. Stevenson. There is an illustration, I presume, where a policy 
was originated by the president of a company. This original family 
income policy was originated by tlie late Philip Burnett, of the Conti- 
nental American -Life Insurance Co. of Wilmington, Delaware. He 
recognized the fact that men w-ith a family needed more coverage in the 
period in which the family was growing up. Therefore, he would 


purchase, for example, a policy for $10,000 on the ordinary life plan — 
that is the cheapest form of permanent protection insurance that can 
be purchased. 

In addition to that they would tack on an amount of term insur- 
ance. Many times that term insurance would be a sufficient amount, 
such that it would provide $100 a month for a period of years, and 
presumably the period of years in which the family was growing up, 
and in addition to that at the end of that period the $10,000 would 
be available. So that it is a double policy, the term to provide for 
the family in case of premature death of the breadwinner, and "at the 
end of that time, there would be the $10,000 available for the wife. 

Mr. Gesell. Then there has been a retirement annuity or optional 
deferred income policy, has there not ? 

Mr. Stevenson. Yes. 

Mr. Gesell. What kind of a policj^ is that, Mr. Stevenson? 

Mr. Stevenson. That is not a life insurance policy. That is a de- 
ferred annuity usually paid for on an annual basis. May I explain? 
The original deferred annuities were unsatisfactory because you paid a 
certain sum down, a lump sum, say you are age 35, you paid a lump 
sum, and if you lived to the period that the deferred annuity called 
for, say 60 or 65, beginning at that period, you received a substantial 
return on your investment, very large, but there is all that inter- 
vening period in which, if anything happened by death or an emer- 
gency, no return of the money could be made. But it is a very de- 
sirable policy if one can afford the luxury of the loss of borrowing 
ability on the policy or it isn't necessary on his part to pass any of the 
investment to the family. 

Now, to get around that, the new policies were issued. They have 
the same idea of deferred annuity, but you can pay for them on the 
annual basis. For example, if I wanted an annuity, say I am 35 and 
I want an annuity at 65, 1 pay so much a year for 30 years and along 
with that I have cash and loan values, and if I die the whole amount, 
practically, that I have paid after some period of years goes to my 
family — or to me if I wish to borrow on it, 

. But when I get my annuity at 65 on this annual premium basis, 
I obviously do not get as large a monthly income for the total invest- 
ment as I would on the other old single deferred income annuity 
plan because of the hazard of the loss that would come through the 
surrender in case of premature death on the single premium deferred 

Now, that is a very popular policy. 

Mr. Gesell. How many policy forms does your company have, Mr. 
Stevenson ? 

Mr. Stevenson. Well, this is reality in the range of almost a guess. 
I would say certainly over 100 different types, because in working 
out our endowment plans, we have an endowment at every age. You 
can buy an endowment with us beginning with an endowment at 
50, endowment maturing at 51, and right on up. 

The Chairman. What standards do you follow in determining, 
in such a policy as you have just described, the premium that the 
policyholder is to pay? 

Mr. Stevenson. That is an actuarial matter, but before a policy of 
this type is issued, a definite attempt is made to figure out, calculate 
what is the exact liability of a policy of this type. 


The Chairman. What are the factors which you used in determin- 
ingj what the limit is? 

Mr. Stevenson. Two big factors, and even with retirement an- 
nuity, the factors would be the same, but the three main things 
would be, first, our interest return, what we could calculate over a 
long range would be the return, and secondly 

The Chairman, (interposing). You mean the return to the 
company ? 

Mr. Stevenson. That is right. 

The Chairman. The return to the company on the accumulating 
premium ? 

Mr. Stevenson. That is right, on the total accumulations from our 
total premiums. That is where our earnings come from. 

The Chairman. Now, then, you must determine in advance what 
interest you want on that accumulated premium? 

Mr. Stevenson. Yes. We attempt to arrive at what is the mini- 
mum, and that is what we frequently hear of as our guaranteed 
rate, minimum rate, and that in most cases is 3 percent : that is, if 
we have more than that, the policyholders participate in that through 
what is known as the dividends. 

The Chairman. In other words, is it your experience that a 3- 
percent rate would in ordinary circumstances be sufficient to enable 
you to sustain and meet your liability ? 

Mr. Stevenson. Yes; that is correct. 

The Chairman. But what is the average return that you get ? 

Mr. Stevenson. Our average return for '38, which is I think part 
of the record of our statistics^here, is 3.40. 

The Chairman. Now, what are the other factors? That is the 

Mr. Stevenson. That is one. The next is the mortality factor. 
That is, in understandable language, the death rate, and in an 
annuity, when we speak of a loss from mortality, it is not because 
people die prematurely but they live beyond the period of normal cal- 
culation, so that we mustn't get contused when we speak of the 
mortality gains or losses. The ' mortality losses in annuities arise 
because individuals live longer than they should according to the tables. 

The Chairman. In other words, from the point of view of the 
insurance man, the longer they live, the worse it is ? 

Mr. Stevenson. In an annuity that is correct, but if your general 
coverage is balanced through life insurance, you have the compensa- 
tion there by their dying sooner than calculated, or if they live longer 
in life insurance they pay in more premiums. 

Mr. Gesell. You mean that life-insurance policyholders carry the 
annuities ? 

Mr. Stevenson. No. 

Mr. Gesell. That is about what it comes down to, isn't it, Mr. 
Stevenson? You make up the losses from the annuities by the sav- 
ings on the mortality of the regular life-insurance policyholders. 

Mr. Stevenson. No ; I would sr^ that we have to look at this whole 
matter with a long-range view. Life insurance is a long-range busi- 
ness. It is entirely possible that in a period of 4 or 5 years, we 
might have a loss in our annuities, due to the fact that the annuitants 
would live longer than the calculation indicated, or our earnings 
weren't as great as we might have expected. 


Mr. Gesell. How do you make those losses up as they do take 
place ? 

Mr. Stevenson. The losses come from our complete income. 

Mr. Gesell. From the other policyholders. 

Mr. Stevenson. That would be correct. Now may I say that would 
be the case in a period of yeai-s. Then there are times when the 
annuitants have made a substantial contribution to life-insurance 
holders in other times. It is variable. Over a long range, they 
balance off. It is true that in a given period, there may be some 
losses in annuities and gains in insurance. 

The Chairman. Well, the two types of business are absolutely dif- 
ferent, are they not? 

Mr. Stevenson. That is right. 

The Chairman. Life insurance requires the payment to the in- 
sured of a certain sum of money in case of premature death. 

Mr. Stevenson. That is right. 

The Chairman. And the insurer sustains or tends to sustain a loss 
if the insured dies at an early age. 

Mr. Stevenson. That is correct. 

The Chairman. But the contrary is true with respect to annuities. 

Mr. Stevenson. That is right. 

The Chairman. The earlier the annuitant dies the more profit for 
the insurer, and the longer the annuitant lives the more danger of 
loss by the insurer. 

Mr. Stevenson. Correct. 

The Chairman. So that ultimately the annuity business is not life 

Mr. Stevenson. It is not. 

The Chairman. Now to go back to this second factor of mortality, 
how do you determine mortality? 

Mr. Henderson. Mr. Chairman, may I ask a question before you 
get into that second point, or do you want me to wait ? 

The Chairman. As a matter of fact, we were diverted from this 
question by the other, but it is all right. 

Mr. Henderson. I will come back. 

The Chairman. How do you determine the moilality ? The second 
factor was the rate of mortality. How do you determine that? 

Mr. Stevenson. The mortality table is the result of the statistics that 
have been calculated or made available from experience. 

The Chairman. In other words, this is what we call the experi- 
ence table of mortality, is it not ? 

Mr. Stevenson. That is right. That is the result of the statistical 
information that we have, not only in relation to our own company, 
but statistics of all companies are made available. 

The Chairman. Now, then, does each company follow its own 
experience or the experience of all companies ? 

Mr. Stevenson. In relation to the table, the companies use in 
general the same mortality table. 

The Chairman. When was this table prepared ? 

Mr. Stevenson. Our own table was prepared many, many years 
ago. The American Experience Table was prepared at least 60 years 
ago, maybe longer. 

The Chairmajj . Is that still the basis ? 

Mr. Stevenson, That is still the basis. 


The Chairman. The expectancy of life is much greater now than 
it was when that table was prepared, is it not ? 

Mr. Stevenson. Yes, sir. 

The Chairman. Has that increasing longevity of the average per- 
son been taken into consideration now in determining this factor, 
this second important factor? 

Mr. Stevenson. No; the reason being that the return or net cost 
or the final cost to the policyholder is the gross premium minus the divi- 
dend, and any savings that would accrue as the result of increased 
longevity would be reflected in the net cost to the policyholder, so 
it wouldn't have any material difference. 

The Chairman. I don't understand that. What you are testify- 
ing amounts to this statement as I understand it. The table of mor- 
tahty upon which your rates are based was prepared 60 years ago 
upon the basis of conditions that existed at that time. 

Mr. Stevenson. Yes. , 

The Chairman. In the intervening 60 years, life expectancy has 
greatly increased; so that the mortality table of 60 years ago no longer 
accurately represents the conditions as they exist today. 

Mr. Stevenson. That is right. 

The Chairman. But .nevertheless, although an experience table 
prepared today would show a much greater life expectancy, it is not 
desirable to use that table, but it is desirable to use the table of 60 
years ago, is that correct ? 

Mr. Stevenson. I would say it is used. I wouldn't say that we 
would consider that would be necessarily a permanent conclusion. 
It is used at the present time. 

The Chairman. Which is used at the present time ? 

Mr. Stevenson. The old one. 

The Chairman. Now, why should not that table be modified to 
harmonize with present-day conditions? 

Mr. Stevenson. The final test of this, sir, is what the cost to the 
policyholder is after the experience of doing business and the mor- 
tality rate, and the excess interest. Those are the three factors that 
go to determine the dividend. 

If our mortality is high, that is reflected in the dividend. If it is 
low, it is reflected in the dividend, so that 

The Chairman (interposing). So that if your mortality is high, 
your dividend is low? 

Mr. Stevenson. That is right. 

The Chairman. And if your mortality is low your dividend is 

Mr. Stevenson. That is correct, sir. 

The Chairman. But now, that is with respect to life insurance? 

Mr. Stevenson. That is correct. 

The Chairman. Now, how about annuities, the reverse is true 
with respect to annuities, is it not? 

Mr. Stevenson, Yes. 

The Chairman. Now, do you use the same table of mortality in 
your annuity business as you do in your life-insurance business ? 

Mr. Stevenson. No, there is a different table that is used for 

The Chairman. What is the table you use for that ? 


Mr. Stevenson. Special annuitant table. 

The Chairman. And what is that based upon? 

Mr. Ste\^enson. That is based upon the experience that was then 
available from all sources from which any experience could be collected. 

The Chairman. In other words, for the business of life insur- 
ance you use the 60-year-old table, but for the business of annuities 
you use the modern table? 

Mr. Stevenson. Yes. 

The Chairman. And the difference is with respect to life insur- 
ance you use the old table because the sooner they die, the more 
profit for the insurer, but with respect to annuities, the longer they 
live, the greater the loss for the insurer, is that correct? 

Mr. Stevenson. Yes, sir. 

The Chairman. So that from the point of view of the insurance 
company, it is beneficial to use the 60-year-old table on life insur- 
ance, but it is beneficial to use the 1940 table for annuitants? 

Mr. Stevenson. There is no benefit to the company. We want 
to distinguish there. No matter what mortality table we use in the 
life insurance, the net cost would be the same because the cost to 
the policyholder is 

The Chairman (interposing). Now, that is the answer which I 
don't quite understand. Why do you say that the net cost would 
be the s.ame, no matter wliich table is used? Let's discuss first, 
insurance, and then annuities. 

Mr. Stevenson. All right. In the case of insurance, let's assume 
that we have the present mortality table. Let's assume that the 
mortality is very much less now in experience than is indicated by 
that mortality table; that will give a greater fund to use in giving 
a dividend, so the greater the saving, the more dividend will be 
returned. Is that first statement clear? 

The Chairman. That is true of a mutual company ? 

Mr. Stevenson. That is correct. 

The Ch.airman. When you speak of the dividend, you mean the 
return of the policyholder ? 

Mr. Stevenson. That is correct. 

The Chairman. But that dividend, of course, is fixed by the 
company ? 

Mr. STE^^ENS0N. That is correct. 

The Chairman. By the company in its discretion? 

Mr. Stevenson. That is correct. 

The Chairman. You have complete control of the savings of the 
policyholder, and it is for you to determine what the expenses are 
and what the dividend may be ? 

Mr. Stevenson. That is right. 

Now, let's assume that we used a mortality table that was more 
in line with experience. The amount of savings in that case would 
have been a little less because in ca'lculatin^ the premium on the basis 
of this mortality, wt ^orht have had a little smaller premium, but 
we would likewise have had a little smaller dividend, and a smaller 
premium with a small'dividend would match the little larger premium 
minus the little larger dividend. 

The Chairman. But obviously if a smaller premium is charged, 
then the policyholder has control of his own savings and he doesn't 


have to pay for insurance as large an amount as he would if the 
modern table were used, and your statement that the net cost is the 
same depends wholly, does it not, upon your contention that the 
p«licyholder gets it back by way of dividends eventually ? 

Mr. Stevenson. That is right. 

Mr. GESEi:L. It is true, Mr. Stevenson, is it not, that using the old 
table increases your gross premium? 

Mr. Stevenson. Yes. 

Mr. Gesell. And therefore with a larger gross premium, the agent 
gets a higher commission ? 

Mr. Stevenson. There would be a small increase. 

Mr. Gesell. But it is a higher commission? 

Mr. Stevenson. Yes; it is a higher commission. 

Mr. Gesell. And it is also, true, is it not, that in the case of policy- 
holders who lapse, in other words who drop out of the company be- 
fore they have any opportunity to participate in dividends, they have 
had to pay more for their insurance than they would have had to 
pay had the company used the other mortality table ? 

Mr. Stevenson. That is correct. 

The Chairman. The consideration that appeals to me, Mr. Steven- 
son, is this, and it seems to me that it is worth study : The premiums 
which an insurance company receives, whether for the payment of 
life insurance or the purchase of amiuities, are almost exclusively 
savings of the people. 

Mr. Stevenson. Yes. 

The Chairman. And those savings flow into these central reservoirs, 
as it were. The testimony which has been developed here upon the 
statistical situation shows that the savings of the people flow into 
these 26 companies from all over the United States. Your own 
company does business in 47 States. You have, I think you said, 
428,000 policj'holders. They are contributing their savings to you. 
Now, one of the great problems which* the country is struggling with 
is how to get savings invested out in these 47 States. Would it not 
be true that if you used the modern mortality table a large propor- 
tion of the savings would remain at home instead of being sluiced 
down into the central reservoir and then have to be sluiced out again. 

Mr. Stevi^nson. Well, I should say when the dividend is returned, 
the net effect is the same. 

The Chairman. You have to wait until the dividend is returned? 

Mr. Stevenson. Oh, yes. 
- Mr. Henderson. One other thing, Mr. Stevenson, when you have a 
high gross premium, you are collecting a larger amount, and then 
when you are determining what the dividend or rebate shall be, you 
calculate the status of the surpluses and reserves, isn't that correct? 

Mr. Stevenson. Yes. 

Mr. Henderson. Now, your company is one of four, as I recall it, in 
this 10-year period, that finished up on net balance, it really gained 
on annuities.' The other 22 lost in this 10-year period we have under 
consideration. Now, leaving out the long-term adjustment, the balanc- 
4pg as between the annuities and the life insurance is the current 
adjustment that is made through a surplus account, is it not? 

Mr. Stevenson. Yes, sir. 

Mr.. Henderson. Now, if there should be a loss in any one year from 
the annuities, that adjustment would take place in the surplus account,. 


and that would withdraw inevitably some of the accumulation from 
the insurance, would it not? 

Mr. Stevenson. That is right. 

Mr. Henderson. And therefore it would reduce the dividend pay- 
ments that year ? 

Mr. Stevenson. I think that is correct. 

Mr. Henderson. Let me ask you this: In this 10-year period we 
liave under review, if somebody was smart enough to guess the 
trend, he would have taken the annuity rather than the life insur- 
ance, would he not? 

Mr. Stevenson. If we look back 10 years ? 

Mr. Henderson. No; I said, if he were smart enough to guess 

Mr. Stevenson. That is right. He would guess ahead. I would 
say he would have bought more wisely 10 years ago if he had looked 
ahead and at that time 10 years ago knew what the situation would 
be today. 

Mr. Henderson. And, of course, in order to know that, he would 
have to know more than the insurance companies all put together, 
wouldn't he ? 

Mr. Stevenson. That is correct. 

Mr. Henderson, It just happens that you are one of the four com- 
panies that guessed right on the 10-year period. How did you hap- 
pen to guess right on that 10-year period ? ^ 

Mr. Stevenson. May I suggest, sir, that I am not an actuary, and 
a large number of these figures 

Mr. Henderson (interposing). I know you are not an actuary. 
That is one reason you and I can do business. Most of the time when 
we had actuaries here and got right down to the question of policy 
they ran behind the American Experience Table or higher mathe- 
matics, and it was just like pulling teeth to ^et them out irom behind 
that. The actuaries we had here were testifymg that they were sitting 
together, making up what the accommodations of rates should be. 
Every time we got into the question of policy, we found them way off 
somewhere back of mathematical calculation. 

I am just interested to know: Are your rates higher for annuities 
in this period than the others ? 

Mr. Stevenson. I can't give you a definite answer to that. I assume 
that they were relatively comparable. 

Mr. Henderson, Did you guess better? Did you hayb a selectivity? 

Mr. Stevenson. The only answer could be, that wouldn't be any 
question of selection because 

Mr. Henderson (interposing) . It might be in the cost. 
. Mr. Gesell. There you would be selecting people who are going 
to die early. 

Mr. Stevenson. What happens in annuities is this: If you have 
only a few people that select annuities, the curious circumstance is 
that those people live probably a little longer. If we have a few se- 
lected, you get the people that somewhat select against the company, 
but if we go out and push annuities as a sale we might get people to 
take annuities that didn't select annuities themselves and, therefore, 

1 See Hearings, Part 10-A, p. 59. 


we would get some whose mortality would be a little greater and there- 
by would get a little better experience. 

Mr. Henderson. I think that you put it on the basis of your selec- 

Mr. Stevenson. Yes. It is somewhat, but I would say it is prob- 
ably due to the fact that we eliminated, by pushing the sale, the 
antiselection that would come because only a few purchased annuities, 
and with the few who purchased annuities on their own, will, the 
potential losses are greater; or to put it in other words, t]ie general 
rule is that is the trend. 

Mr. Gesell. Is that a matter of conscious managemer i policy to 
offset the antiselection present in the type of policy — to go out and sell 
more of it? 

Mr. STE^^ENS0N. It was not. It was a good policy Our annuities or 
our retirement income served a specific need, as indicated here when we 
discussed that policy, and our agents recognized that it served a spe- 
cific need and sold in rather large quantities. 

The Chairman. Did I understand you to say the person who volun- 
tarily seeks annuities is likely to be more long-lived than the one who 
doesn't, Mr. Stevenson? 

Mr. Stevenson. In general. 

Dr. LuBiN. Mr. Stevenson, why do you continue to use the old 
actuarial table, other than the reasons Mr. Gesell mentioned — namely, 
the figure returns to your agents and the advantages of savings due 
to lapses which do not inure until the policy lapses? What is the 
real reason behind it? 

Mr. Stevenson. You are asking about the use of the old mortality 
table ? The reasons I have given you are all that I know. There - 
are additional reasons that are not necessarily insurance reasons. 

Now, I will go to some reasons that are not insurance reasons. 
The laws of many of the States, including Pennsylvania, still require 
the use of the older table. 

Dr. LuBiN. Has your organization ever attempted to have that law 
amended ? 

Mr. Stevenson. Today the companies and various State insurance 
departments, I think it is fair to say, are studying the whole problem, 
with a view to the possible use of a new table. 

I might call attention to the fact that, of course, 1918 was a rather 
difficult year, but in the year 1918 the mortality exceeded 100 per- 
cent then, due to the influenza ravages. 

The Chairman. Do your actuaries report any difference in the 
death rate for different regions in the country? 

Mr. Stevenson. We have knowledge of various territories that 

The Chairman (interposing). The mortality table, of course, is 
tlie experience of the country as a whole, and that is true with respect 
to the mortality table you use on annuities also. 

Mr. STE^^NS0N. That is right. 

The Chairman. Do you know whether there is any substantial 
variation in the rate with respect to regions in the country? 

Mr. Stevenson. There is no variation in insurance rates. You mean 
the rate of mortality? 

The Chairman. That is right. 


Mr. Stevenson. Not very large. There are certain sections. I 
can't answer that, because I am neither the medical director or the 
underwriting officer, but my information is that there are certain 
territories that we do not care to be very active in developing. 

The Chairman. For which type of business? [Laughter.] 

Mr. Stevenson. Of course, primarily we are in the insurance 

The Chaibman. But those areas in which life insurance would be 
a poor risk would be areas in which annuities would be a good risk. 

Mr. Ste\tenson. Exactly. No question about that. 

Dr. LuBiN. I am still interested in the question I asked. In other 
words, granted that as far as the policyholder is concerned there is 
no difference whether he pay a high rate and get a big dividend or 
lower rate and get a small dividend, why do you continue to do it 
that way ? There are two reasons cited here, namely, that you would 
make more money. At least, the agent would make more money that 
way and the company can make more money because of these lapses. 
Are those the sole reasons you maintain the old table? 

Mr. Stevenson. No; I can't give you any reasons beyond what I 
have indicated. I don't know whether there are any fundamental 
reasons beyond that. I can't answer that. 

Dr. LuBiN. May I ask one other question? If an applicant comes 
to you and asks for a life-insurance policy and after he is examined 
by one of your physicians he is turned down and he should reappear 
the next day and ask for annuity, would you sell him annuity ? 

Mr. Stevenson. Yes. It doesn't necessarily follow that because 
we turn him down it might not be desirable for him to have annuities. 
Sometimes when an individual is turned down he might live at a 
different tempo and the very fact that he is interested in purchasing might lead to that, or might more or less substantiate that 

Dr. LuBiN. In other words, he has added reason for taking care 
of himself? 

Mr. Stevenson. Correct. 

Mr. Gesell. Now, I think we had best, if there are no questions 
from the committee, get back to the outline here. We are a little 
behind time. 

Mr. Henderson. It is a temptation, when you get a witness like 
Mr. Stevenson, to ask everything that has been kicking around in 
your mind during these hearings. 

Mr. Gesell. I wanted to ask you today, Mr. Stevenson, a little 
about the specific purposes of life insurance. 

You sell insurance for inheritance-tax purposes, to enable a man 
to pay off a mortgage that he may have coming due at some future 
date, to enable him to make a bequest to some individual for business 
purposes of one sort or another, for educational purposes, for the 
purpose of cleaning up his estate, for arranging to continue his salary, 
should his salary no longer be paid, and for other purposes of that 
character. Is that correct? 

Mr. Stevenson. That is correct. 

Mr. Gesell. Are any of those eight purposes which I mentioned 
of particular emphasis in your company^- or are they a 11 more or 
less considered in terms of needs of the f^articular policyholder ? 


Mr. Stevenson. It would depend, of course, on what we found, 
after making a contact with a client, the needs of that client were. 
If there is a mortgage on the home, the tendency would be to sell 
insurance to take care of the mt)rtgage. If there are children, the 
agent would undoubtedly make some suggestions in connection with 
policies to guarantee the education. Salary continuance is a phrase 
that is used to highspot the need for an income following the death 
of the breadwinner.' 

Now, you ask, are any of these particularly emphasized? .No; I 
would say each of the eight that you have just mentioned would be in 
the agent's kit, so that if those individual needs, following his analysis 
of the prospect's general need for insurance, any one or a number of 
them, should present themselves, he would sell insurance on that 
basis. Probably the educational policy and the mortgage policy in- 
surance would be the two most popular, with the salary continuance a 
close runner-up. 

Mr. Gesell. Now, having in mind that you said some while back 
why new policy forms are developed, I am interested in the develop- 
ment of the juvenile insurance that you mentioned. Was there a 
crying need on the part of juveniles for insurance? 

Mr. Stevenson. No. 

Mr. Gesell. That was developed, I take it, as a sales proposition? 

Mr. Stevenson. No. 

Mr. Gesell. What were the factors that led to selling insurance to 

Mr. Stevenson.. In many ijistances, I suspect, if what I get from our 
field representatives is an indication of it, that parents frequently say, 
"Well, I would like the idea of starting my child on a program," some- 
times at a very early age, sometimes as early as 2 or 3 or 4 or 5, with 
the idea of a thrift purpose in mind. I would say that it has come 
about as a result of parents interested in insuring their children; 
and secondly, of course, the desirability on the part of our agents to 
get the children as clients of theirs rather early. 

Mr. Gesell. You mean that if an agent sold someone a policy that 
early, he would have more opportunity of following him through 
these various forms? 

Mr. Stevenson. Yes. 

Mr. Gesell. Now, I wanted to ask you some questions about this 
problem of whether or not there is any saturation in the insurance 
market at the present time. 

Senator White. Before you get to that, I want to ask one question 
about the agents. Are there any general rules among insurance 
companies as to the control of the agents in undertaking to sell to a 
prospective purchaser? Is it the policy of companies that the agent 
shall sell what the prospective purchaser wants, or do you encourage 
the agent to advise the purchaser and to sell to the purchaser what he 
thinks the purchaser ought to have ? Is there any general rule among 
insurance companies about that? 

Mr. Stevenson. There is no general rule. I should say that the 
competent, wfell-trained agent, is in a better position to specify what 
insurance would best fit the needs of the client than probably the 
client himself. It is the duty then of the agent to present what he 
considers is as near a perfect service ^f or that need as possible; It 
is finally the policy-holder's right to determine whetlier he wants that 


suggestion coming from the agents or whether he has in mind to 
purchase some other policy. 

Senator White. Of course, if insurance companies encourage their 
agents to educate the purchasers, it furnishes the opportunity for 
the insurance company to push out the particular lines of insurance to 
the exclusion of others. If that policy is followed, of course, the 
insurance company has some degree of responsibility for the results 
as to the different kinds of insurance that are written. 

Of course, if your agents, by and large, are instructed to meet 
the requirements of the purchaser as the purchaser sees them, there 
isn't any great responsibility on the insurance company as to what 
is actually written. That must be so. 

Mr. Stevenson. Yes. 

Mr. Gesell. On this question of the saturation of the market, we 
saw yesterday's table^ showed that there was less and less new busi- 
ness being shown. Does your experience point toward the fact that 
there is any degree of increasing saturation in the market, and have 
you made any studies of that general problem? 

Mr. Stevenson. No. 

Mr. Henderson. What is "no" the answer to? He asked two 

Mr. Stevenson. The fitst one there — Have we made any studies? 
Have we made any definite studies? You are asking the possibility 
of saturation? 

Mr. Gesell. That is correct. 

Mr. Stevenson. Well, first, let me indicate that if we view the 
needs of individuals for insurance there is no quest-ion but that there 
is still a great opportunity for selling more insurance. The needs 
are very much greater than the companies have been able to cover, or 
have been able to persuade individuals to purchase. The needs for life 
insurance are much greater than the coverage. 

Mr. Henderson. That is, if all the unemployed people were draw- 
ing annuities it would be very nice ? 

Mr. Stevenson. If they had the facilities for making the purchase 
of annuities or the purchase of insurance ; but you might be inter- 
ested in a rough and ready measuring rod of how much insurance 
an individual might need* that is, when you say it is an average 
measuring rod, it is probably no good except for the mid-point, as 
we well recognize. 

Generally, it used to be considered that if a man owned 5 times 
his annual income that was a fair coverage for life insurance. If his in- 
come was $10,000 and he owned $50,000 of insurance, that was fair 
coverage. Now, in those days, we used to say, however, that if you 
owned 5 times j^our annual income in insurance your family would 
have to get on with one-fourth of your income, provided you are able 
to invest the insurance at 5 percent. Fifty thousand dollars at 5 
percent is $2,500 a year to the family. That used to be considered 
the minimum coverage. 

The unfortunate thing about that is, those of the lower brackets 
are often unable to have that amount of coverage. 

Mr. Gesell. Then what you say on the first point is that a lot of 
people should be holding more insurance than they are holding if you 
could only persuade them to buy it? 

^ See Hearings, Part 10-A, p. 27. 


Mr. Stevenson. Yes. 

Mr. Gesell. Now, what about the capacity of the people to buy 
more insurance, looking at the saturation of the market from that 
point of view? Is it about sold? 

Mr. Stevenson. At the present time the amount of life insurance in 
force is not quite double the annual income. The annual income in 
1938 was $64,000,000,000. The amount of insurance in force was 
$110,000,000,000. Had the insurance been $128,000,000,000 instead of 
$110,000,000,000, that would have meant on the average that America 
was insured for double the annual income. 

Now, life insurance is in competition with a lot of other expendi- 
tures. The first is the need. Mr. Gesell has asked about the capacity. 
That is a second point. We know that the need for insurance is far 
greater than the insurance companies have been able to place. 

The Chairman, You have made the comparison for the year 1938. 
Po you have that for other years? 

Mr. Stevenson. I can, give it to you, sir, for any year* that 

The Chairman (interposing). Do you have a complete table show- 
ing the national income and the amount of insurance in force for a 
number of years? 

Mr. Stevenson. I haven't it in force, but my table is related to the 
national income for each year with the total premium income for 
each year. That is the same thing. That can be translated into the 
same thing. 

The Chairman. Yes; I think it could. Do you have that, Mr. 
Gesell, this compilation? 

Mr. Gesell. We have not. That is along tlie lines of what you 
suggested yesterday. We are preparing a study along that line to 
put into the record. We will take advantage of Mr. Stevenson's 

The Chairman. I won't ask that it be put in now, but if you will 
be good enough to furnish that to the committee, it can be worked 
into the study later.^ I am sorry. to have to interrupt you, Mr. 
Stevenson. You were about to make additional remarks. 

Mr. Stevenson. We finally have to recognize that we in insurance 
are in competition for the dollar, and we have got to recognize what 
other expenditures are, and in 1937 the total of all premiums paid in 
life insurance was $3,761,000,000. That is the premium income of the 
companies. During that same period, just as a matter of record, it 
would be interesting to know that food and soft drinks were $17,000,- 
000,000 plus; alcoholic beverages, $3,600,000,000, on a par with the 
amount paid for life insurance premiums; tobacco, $1,674,000,000; 
clothing, $7,095,000,000; transportation, $7,803,000,000; home main- 
tenance, $19,000,000,000; and personal appearance, $1,383,000,000; 
recreation, $3,465,000,000. 

The Chairman. Almost as much as for alcoholic beverages. 

Mr. Stevenson. Social cultural activities, $3,884,000,000, which is 
$100,000,000 greater than the premiums for life insurance paid. 

Mr. Gesell. What conclusions do you draw from those figures as to 
whether or not the people can buy more life insurance, which is the 
question ? 

J^Thia information will be found In Hearings, Part 4, "Exhibits Nos. 217 and 220," 
Appendix, pp. 1512 and 1513. 


Mr. Stevenson. Now I come to the third point, when you said 
the possibilities of saturation. The need is greater than the sup- 
ply. The capacity of the public is limited, but it isn't sufficiently 
limited but that they are able to make large expenditures in some 
of these other fields, where we in life insurance feel that we have a 
right to compete actively to get more dollars maybe from some two 
or three of those fields than the dollars already there. That is the 
third point then, sir. The building of the companies to purchase 
our product, to sell it better and even more actively. 

Mr. Gesell. Well, now, let me see if I can get at this a little 
differently. Do you look forward to the Penn Mutual growing in 
the next 10 years, the next 15 years? 

Mr. Stevenson. Yes. 

Mr. Gesell. Do you expect your present management policies will 
result in the growth of the company? 

Mr. Stevenson. I hope so. 

The Chairman. Do you expect to otow at the expense of other 
companies or in the expansion of the field of insurance ? 

Mr. Stevenson. In the expansion of the field of insurance. 

Mr. Gesell. Have you not at the Penn Mutual placed considerable 
emphasis in recent years upon more careful selection of risks, differ- 
ent types of training methods for your agents? You have many 
fewer agents than you used to have. I noticed that in the figures 
you gave us. Do you believe, in spite of all those facts, your com- 
pany will grow? 

Mr. Stevenson. Yes. 

Mr, Gesell. At the rate it grew in the past ? 

Mr. Stevenson. No. 

Mr. Henderson. Will it grow from the standpoint of new sales 
or just the accumulations from the reinvestment of dividends, the 
investment of income from present admitted assets ? 

Mr. Stevenson. We anticipate it will grow as a result of the sale 
of new business. 

Mr. Gesell. Now, how much do you like to grow a year? 

Mr. Stevenson. The minimum — we should have sufficient new 
business to replace at least that which matured or was lapsed or 

Mr. Gesell. You want certainly to sweeten up the risk so-called, 
keep bringing in new life to take the place of the old? 

Mr. Stevenson. Yes. 

Mr. Gesell. How much more do you want to write ^bove that? 

Mr. Stevenson. It is very difficult to state a definite amount. I 
would prefer to say that that amount is probably a range above 
that, roughly any place irom 10 to 25 percent above that would be 
agreeable from my point of view. 

Mr. Gesell. You mean an increase from 10 to 25 percent of the 
insurance in force? 

Mr. Stevenson. No. 

Mr. Gesell. Or in assets? 

Mr. Stevenson. No, over the amount that was : 

(The hearing was interrupted at this point by off-the-record dis- 

Dr. LuBiN. May I ask one question on the last subject so that 
we don't have to come back to it later? Mr. Stevenson, in terms 


of the Statistics you have given us, it appears that the American 
people are 'turning over to the insurance companies something be- 
tween 4I/2 and 5 percent of their gross national income. In other 
words, that amount of money is being saved and turned over, as 
the chairman has suggested, to a group to put it in sort of ,a sluice 
and then put it back into the investment field. 

On the assumption that we continue to increase.-lhis amount that 
is being saved and turned over to insurance compatties, will we not 
ultimately find ourselves in the position where the insurance com- 
panies become the investment organizations of the country? In 
other words, people are saving for investment purj)oses in addi- 
tion to insurance. If they are going to buy more insurance and 
pay more premiums, there is only one of two ways in which the pay 
for it, namely; save still more than they have, or, which means less 
is available for the channels of trade, shift their investment from 
normal channels that, they usually use through the investment bank- 
ers, let's say, to the insurance companies to reinvest for 'them. 

Doesn't one largely have to come to the conclusion that the insur- 
ance companies will be taking over the functions of investment in 
this country if they keep going at a rate that you suggest? 

Mr. Stevenson. I couldn't answer that, sir. I haven't any par- 
ticular opinion on that. I don't know. 

Mr. Gesell. What do you. think is an optimum size of the Perm 
Mutual Life Insurance Co.? Let's get at it that way, Mr. Steven- 
son. What is the biggest it should be to operate efficiently ? 

Mr. Ste^ enson. I cannot give any figure. My feeling is that 
there is probably a range for the total amount" of insurance in force 
that would represent a range which would give to the policyholders 
the maximum of service for dollars expended. There has beeli very 
little of the theory of the optimum developed in this country. One 
man who has made a study of the Penn Mutual with nine other 
companies has stated to me that there is an optimum range of each 
of those 10 companies, a range which .would represent the amount 
in force which would return the most service to the individual. 

Now, that would vary from year to jear because it would be 
established at some one time through statistical information and an 
optimum for the total insurance in force would be set. Obviously, if 
that were set at the one time as an optimum range, new circum- 
stances might change that possible optimum. 

Mr. Gesell, Now, may I interrupt a moment? Is the business 
studying from year to year the question of optimum of size and trying 
to determine whether or not individual companies are growing too 
fast or too slow ? 

Mr. Stevenson. I presume that each company has given considera- 
tion to the question of size and from their own facts, as they view it, 
regard that there isn't much of a problem of optimum size with them. 

Mr. Gesell. Yes, I am sure that is the case in some. We had the 
president of one company here a little while ago who said he looked 
forward to the time when his company would be twenty-five billions 
in size. But I am trying to get down to specific studies or real 
determinations of the problem. What have you done in the Penn 
Mutual to study it. for example? 

Mr. Stevenson. Very little has been done, for the reason that over 
the period of the last 6 or 7 years, at the rate at which we were 


growing, which was a very modest rate, it didn't look to us as if the 
question of optimum, the determination of that, was a very imme- 
diate problem, sir, 

Mr. Gessell, You said in reply to the sales questionnaires that for a 
number of years the Penn Mutual's new business has ranged between 
2 and 3 percent of the total ordinary new business in the United 
States, and it is its immediate objective to maintain this relative 

M. Stevenson.- That is what we are doing now, relatively. We are 
in that same position now, relatively. 

Mr. Gesell. Then you are in the position where if some of your 
fellow companies make a big drive for business, you are going to want 
to make that same drive to maintain your position, are you not, in- 
stead of looking to the particular requirements in your own company ? 

Mr. Stevenson. If by "drive," sir, you mean that we will attempt 
to encourage our agents to work harder and more systematicallyj and 
yet give us the same quality of business that they are now giving 
us at a satisfactory expense ratio, then we would make a drive for 
the business. 

Mr. Gesell. From this discussion, then, am I correct in gathering 
that you have no determinations at the Penn Mutual as to what its 
largest efficient size would be? 

Mr. Stevenson. No. 

Mr. Henderson. Mr. Stevenson, assume that you didn't grow — as- 
sume what you did was, in your own terms, get just about the number 
each year to compensate for the losses through maturities and lapses 
and other sources — would that affect the stability of your compaif^? 

Mr. Stevenson, No. If we would replace — that was your assump- 
tion, wasn'» it, sir? 

Mr. Henderson. Yes. 

Mr. Stevenson, It shouldn't affect the stability of the company. 

Mr. Henderson. Do you see problems generally in the manage- 
ment of companies larger than yours which you do not have? Is 
your problem of investment, do you think, as onerous and pressing 
ft burden as tha t of some of the other companies ? 

Mr, Stevenson, Not knowing in detail their problems, I could not 
appropriately make any comment on that other than to say my 
general observation is that companies usually have an organization 
commensurate with the size of their investment job, and it shouldn't 
be any more difficult with their larger organization to make their 
necessary investments than for a company of medium size with our 
smaller organization, to make ours. It is a question of organization 
and manpower in relation to the specific problem, sir. 

Mr, Henderson. Do you think that a company smaller than yours, 
if it stayed about the same size, would still remain healthy and strong? 

Mr. Stevenson, Assmning that they would get sufficient new busi- 
ness to replace the business terminating, I should like a little more 
new business each year than that which was lapsed in order to provide 
a reserve of new business over lapse for the dips in the general market 
condition. If you would allow that modification of the assumption, 
I would say that it could be healthy, 

Mr, Henderson, Now we have a declining rate of population growth, 
as you insurance companies probably know. Now, assume that you get 
to a place where new lines of business cannot be invented to com- 

12*491— 41— pt. 28 7 


pensate for the decline in the new business written; and assume 
that you either stayed static, or even had a moderate decline over a 
period of years. Would the security of the holders of policies be 
threatened ? 

Mr. Stevenson. If I were president of a company when the trend 
dipped downward, with probably an average drop each year for a 
period until I determined whether it was a variation or a real trend, 
and if it is a real trend downward, sir, then I would say the next 
step would be to reduce expenses definitely in accordance with the 
drop, and that would be absolutely necessary if the security of the 
policyholders was preserved in a company with the declining insur- 
ance-in-force trend. 

Mr. Henderson. Let me make another assumption. I think I get 
that you say you could meet the terms if you knew definitely that 
you were on a declining scale ; you could meet it and you could pay all 
your claims and all your obligations af the time they matured ? 

Mr, Ste\'enson. Yes, sir. 

Mr, Henderson, Now, assume a situation where you got no new 
business and you had, in effect, to go ahead with a policy of each 
year maneuvering your investment account so that you could meet 
your maturities, and so forth ; could that be done ? 

Mr, Stevenson. That to be done would require the elimination of 
almost the entire company and organization overnight. That would 
be a mucli severer cut of personnel than the other. 

Mr. HJENDERSON. Ycs ; but I am looking now at the fundamental 
question of the integrity of what is back of the insurance company 
policy. I gather you say you don't need to grow in order to main- 
tain the integrity of policies now in effect, isn't that a fact? 

Mr, Stevenson. Yes. 

Mr. Henderson. You say the integrity may be maintained if you 
stay level. You can maintain the integrity if you have a declining 
rate of new business. Assume you gage management to meet that, 
and I believe that you said if you had no new business, you would 
have to make an adjustment by cutting down those expenses which 

fo toward the getting of new business and keeping up of certain 
inds of services in force, you could meet all your obligations ? 

Mr. Stevenson. Yes, sir 

Mr. Henderson. I. think that, Mr. Stevenson, is the most construc- 
tive statement, so far as the guaranty of the stability of insurance 
policies is concerned, that has been made in all the course of these 

Mr. Gesell. Though we have tried many times to have it said. 

Mr. Stevenson. You have caught me up on the phrase "Drive for 
new business." 

Mr. Gesell. Have you had any experience with what might be called 
a real drive for new business ? 

Mr. Stevenson. Yes, 

Mr. Gesell. Will you tell us a little about it ? 

Mr. Ste\tenson. As related to my own specific operations of an 
agency, or in relation to the company ? 

Mr. Gesell. Either way — in relation to the company^ preferably, 

Mr. Stevenson. We have had drives at different tynes to honor 
some special officer, and I haven't any objection to that. 


Mr. Gesell. I am talking about a sustained drive. 

Mr. Stevenson. You mean 

Mr. Gesell (interp infr). One where increase in size of the 
company through the iaition of new business is more important 
than the questions of risk, selection, perhaps and distribution of 
policies among classes of policyholders, and matters of that sort. 

Mr. Stevenson. Yes ; I think that we have had. As I look in retro- 
spect from '20 to probably '31, I suspect that in that period 
we had a number of drives. Our eye was on increasing our new 
business each year. We constantly had the quality of insurance, the 
kind of insurance we were putting on the books in mind, but I suspect 
that our company was sort of in the spirit of the time, and entered 
into competition for substantial increases. 

Mr. Gesell, Now such competition has serious dangers, does it not? 

Mr. Stevenson. It is probable. Let me confine any criticism that 
I may have to my own company. 

Mr. Gesell. I certainly think that it is fair. 

Mr. Stevenson. When our objective seemed to be for increase of 
new business in force, our underwriting departments selected indi- 
vidual cases just as well as they do today, but in order to encourage 
a larger volume we did increase our limits of insurance that we would 
permit on a single life, we did encourage the bringing in of larger 
policies, and we likewise encouraged agents other than our full-time 
agents to bring us business. Those are three things that in retrospect 
I might criticize our company for doing. 

Mr. Gesell. Now, that was because you were really out after 
putting business on the books, is that right ? 

Mr. Stevbnson. Yes ; that is right. 

Mr. Gesell. What are the results of such emphasis in terms of com- 
pany management? It results first of all, does it not, in the selection 
of a poorer grade of risk ? You couldn't be as careful about the type 
of risk you are going to take when you are trying to put business on 
the books. Is that true? 

Mr. Stevenson. That, sir, cannot be answered by yes or no. I 
-would say, if the energies of the company are directed toward in- 
crease in business, we have all kinds of, probably all varieties of risk 
submitted to us, and no matter how well an underwriting depart- 
ment that selects the risks operates, if it has a variety or a lot of 
business of a borderline type, it doesn't select the risk as well as if it 
were having submitted to it from the field a little higher type of risk. 

Mr, Gesell. In other words, the more the emphasis upon growth 
for growth's sake, the more apt the company is to fall into errors 
in the selection of cases? 

Mr, Stevenson. If we mean by gnowth for growth's sake that you 
do not exercise the sarne kind of control in getting a quality busi- 
ness that you did before, that would be the logical assumption, sir. 

Mr. Gesell, It is the inevitable result, wouldn't it be, of too great 
emphasis of growth for growth's sake that you would have to aban- 
don standards? 

Mr, Stevenson. That is, if you mean growth for ^owth's sake, 
that it is the motivating purpose of management. 

Mr, Gesell, Other than in the case of mortality, where else does 
the company suffer? Can it give as good service? I don't mean by 


that, meeting claims; I am talking about the services incidental to 
the holding of the policyholder company. 

Mr. Stevenson. I believe that the company would be always mind- 
ful of giving good service. My observation of my own company 
would be that there is no diminution of the service, whether we are 
terrifically active for new business or not, 

Mr. Gesell. Wliat else would be the effect of emphasis upon 
growth for growth's sake? Would there be any other place where the 
management of the company might suffer? 

Mr. Stevenson. No; there may be others. I have tried to specu- 
late on some of those things. I am not so sure but what we haven't 
mentioned most of them, sir. 

Mr. Henderson. I have one more collateral question in the series 
I was asking you. Is there any difficulty that a smaller company, 
one of the small companies, has in maintaining just as sound an in- 
surance service as the big ones? 

Mr. Stevenson. I would say it is just as important for small com- 
panies to render as excellent service as the large companies. I pre- 
sume there might be a very small size that might be a little difficult, 
but my observation has been that the question of size has little to do 
with service. The main factor is the quality of management, whether 
big or small. 

Mr. Henderson. When you say "service," you include protection? 
You mean the integrity of the policy commitment ? 

Mr. Stevenson. Yes. 

Mr. Henderson. I think that this exhibit ^ will support you in that. 
I think by the time this committee has got through-^ — 

Mr. Stevenson (interposing). There is one theory always. It is 
not my own, but it is a theory that a company should be sufficiently 
large that the operation of averages can take place in relation to all 
of" its activities, mortality, investments, and probably management 
in the* home office. 

Mr. Gesell. You feel you have reached that certainly now, don't 
you? You are big enough for the law of averages to work in your 
favor, aren't you? 

Mr. Stevenson. Yes; what we are interested in is for the law of 
averages to operate. We feel that a company of our size is suffi- 
ciently large to operate on the basis of averages. 

Mr. Henderson. Let me ask you this : You have had quite a bit to do 
with the junior personnel, junior executives, over a long period of 
time, as I recall you by reputation. That was one of your special 
emphases. Are there many men in the junior-executive positions row 
of life-insurance companies who are qualified to run insur "je 
companies ? 

Mr. Stevenson. There are in the Penn Mutual, and that is all that 
I would know enough about to comment on. 

The Chairman. You have a pretty good notion, do you not, that 
the men who are in the life-insurance business throughout the coun- 
try are all of pretty high standard? 

Mr. Stevenson. I do, sir. 

The Chairman. And that it is j)robably just as easy to get good 
executives out of this army, I might say, of insurance agents and 
executives now as it ever was, if not more, possibly. 

> Ilearings, Part. 10-A. 


- Mr. Stevenson. I would have to answer that the standard and 
the abilities are far greater. It has been increasing materially in 
my experience of 20 years, and, not to sidetrack or evade your answer, 
my guess . is that in every single large life-insurance company in 
America there are a number of junior executives that are perfectly 
capable. I do not know that; I think it. I know it in the Penn 

The Chairman! Most of those executives come up from the bottom, 
do they not? 

Mr. Stevenson. The general trend today in selection of manage- 
ment for life-insurance companies is to select those who have had 
experience in running or managing certain phases of life insurance. 
The trend is toward picking for management people thoroughly 
sophisticated in all branches or in some special branch of life 

The Chaerman. When you say that is the trend, do you mean to 
imply that it was not the practice in the past ? 

Mr. Stev'enson. I think in the past there may have been instances 
where it seemed probably very advisable from the company's point 
of view at that particular period to place in the headship of the 
company someone other than one who came up through the organiza- 
tion, and it was perfectly proper to do it in those days. In my 
judgment, the demand today is for people who know life insurance 
because the insurance problems are much greater today. 

The Chairman. The management of life insurance companies is 
becoming more and more the job of an expert and the experts are to 
be found among those who have been trained in the business? 

Mr. Stevenson. The job of running a life-insurance company today 
is the job of an expert in insurance operation^. That is fundamental 
in my way of thinking, sir. 

The Chairman. Are there any other questions? 

Mr. Gesell. I have no further questions. If the committee will 
permit my arranging for Mr. Stevenson to submit a memorandum ^ 
on one or two technical matters we were going to cover, I think we 
can excuse him at this time. 

The Chairman. Will you indicate what the technical matters are? 

Mr. Gesell. The question of proper pricing of policies which is a 
matter we were going to discuss at some length would be covered by 
the memorandum ^ and also reference to some of the technics which 
have been used in the case of Penn Mutual in recent years to bring 
some check against over-expansion of business. 

The Chairman. You will recall the suggestion that was made by 
Senator White this morning, that we should be very cautious about 
admitting statements for the record which are not to be covered by 
examination on behalf of the comiuittee. 

Mr. Gesell. Those are two matters tvhich are in the outline here. 
We can proceed with tliem after luncheon. 

The Chairman. Before ruling on the matter, I should like to have 
you, if you will, outlin^ the type of memorandum to Senator White. 

Mr. Gesell. I will. 

The memorandum can be submitted subject to the approval of the 

^ Mr. Stevenson, under date of February 29, 1940, submitted the information requested. 
It is included in the appendix on p. 15626. 


The Chairman. And we will talk it over with Senator White this 

Are there any other questions to be asked of Mr. Stevenson by any 
members of the committee? 

Mr. Stevenson is not to come back then ? 

Mr. Gesell. No. 

The Chaikman. Mr. Stevenson, may I, on behalf of the committee, 
tell you how much we appreciate your generous cooperation and the 
frankness with which you have answered all our questions. 

Mr. Stevenson. I thank you, sir. 

The Chairman. The committee will stand in recess until 2 o'clock. 

(Whereupon, at 12 : 35 p. m., a recess was taken until 2 p. m. of 
the same day.) 


The committee resumed at 2 : 15 p. m. on the expiration of the 

The Chairman. The committee will please come to order. You 
nay proceed. 

Mr. GeseUj. The witness this afternoon is Mr. Howe. I might 
ay, if the committee please, that Mr. Howe will devote the afternoon 
o an explanation and discussion of "Exhibit No. 2250," ^ that is the 
3ig blue statistical analysis, and since some of the matters are some- 
what technical, and we have a great deal of ground to coyer, Mr. 
Howe will make his own presentation without questions fi-om me, 
and the committee can interrupt whenever there is some point that 
they would like to have illuminated. 

The Chairman. Without objection, that will be quite satisfactory. 

The Chair will say it will probably be necessary for him to leave 
very shortly because the Senate is now discussing the increased capi- 
talization of the Export-Import Bank, frequently called the Finnish 
loan, and we are under limitation of -debate beginning at 3 o'clock, 
and there will be a vote at 5, so it will probably be necessary for me 
to bo there. 

MISSION— Resumed 

Mr. Gesell. I believe your discussion starts, Mr. Howe, with a dis- 
cussion of certain accounting practices in the insurance business, and 
an explanation of some of the terms that are used in these tables? 

Mr. Howe. That is correct, Mr. Gesell. This set of tables, it should 
be remarked, is a very great condensation, perhaps even an over- 
condensation, of the figures which insurance companies report in their 
annual statements. An understanding of what is in here may be 
gained from the fact that really there are only about 275 figures in 
this book, multiplied by 10 years, multiplied by 26 companies. That 
comes to something over 70,000 figures in all, but it shows the extent 
to which this may be regarded as an oversimplification. Just by 
comparison, in size [displaying document] is the annual statement of 
the Metropolitan Life Insurance Co. for 1938, which I estimate, 
roughly, without trying to count them, contains something like 50,000 

. ^Hearings, Paii 10-A. 


-figures for that one year. So that the committee will imderstand that 
this is a great condensation, and that a complete qualification of 
every figure which is in here is impossible. 

Mr. Henderson. Is that the Convention Form ? 

Mr. Howe. Yes; this is the Convention Form of annual statement 
which is filled by the companies in the several States in which they 
do business. This happens to be the one which I believe the Metro- 
politan files with the State of New York. I simply show the size of 
these reports in order to emphasize the complications of the problem. 

Now, in order to avoid misinterpretation of some of this informa- 
tion, it seemed desirable to start with a very brief and oversimplified 
statement with respect to insurance accounting, because after all, 
most of these figures tie into insurance accounts. 

It should be emphasized that accounting methods in annual state- 
ments of life insurance companies as prepared in the United States 
are entirely different from those employed by commercial enterprises 
in the United States and vary, even, from statements of life insur- 
ance companies elsewhere in the world. Full double-entrv bookkeep- 
ing, for insfence, has not yet come into fashion for life insurance 
companies and the great bulk of the liabilities of the companies do 
not come into the books of account at all. 

Mr. Henderson. Mr. Howe, do you want this committee to under- 
stand that the great bulk of the liabilities for which the couipanieg 
are responsible do not come into the books at all? 

Mr. Howe. That is, not into the books of account. They are 
naturally matters of record but do not come into the books of account 
and are not subject to accounting control — into the control accounts 
in the extent and manner that they do in an ordinary commercial 

Mr. Gesell. You mean they are computed at the end of the year 
or at various intervals? You cannot tell as you go along what the 
various liabilities are? 

Mr. Howe. That is right. They are not posted as they go along. 
They are inventoried at whatever period the company wishes to pre- 
pare statements for their internal or external use. 

Double-entry is used for the niajor portion of the assets, but for 
the remainder of the assets and for the liabilities, single-entry book- 
Iceeping is usual. The basic principles of the accounting system or 
the annual atement were adopted about 1875, and have not been 
fundamentally changed since that time. It is perhaps easiest to 
understand the method employed by starting with the Statement of 
Assets and Liabilities, Surplus, and Other Funds, which is the life 
insurance substitute for a balance sheet. The asset side of the state- 
ment is divided into three parts. The first of these is Ledger Assets ; 
the second, Non-Ledger Assets; and the third is headed "Deduct 
Assets Not Admitted." 

Ledger assets, generally speaking, represent the cash and invest- 
ments on hand at the date of the statement. The investment assets 
are stated at book values which are not necessarily actual values or 
values which the companies will use in arriving at the final balance 
sheet values. 

Among the investment assets are include'^ policy loans which, of 
course, are technically not assets at all but merely a deduction from 
the liabilities. 


Non-ledger assets are those assets not taken into the accounts of 
the insurance companies but simply inventoried at the end of the 
period and added to ledger assets. Non-ledger assets are principally 
due and" deferred net premiums (which would be more properly 
treated as a deduction from liabilities) due and accrued interest on 
bonds, mortgages, premium notes and bank deposits, accrued rents, 
and so forth. In other words, they are the accrued items on the 
balance sheet which are added all in a lump instead of being allo- 
cated to the particular account to which they apply, as they would 
be in ordinary commercial accounting. 

However, to these accrued items is added any unrealized apprecia- 
tion of which the company may wish to take account among its assets. 
This unrealized appreciation is designated principally as market value 
of real estate over book value, and market value of stocks over book 

Mr. Henderson. Do they get into the books of account ? 

Mr. Howe. No ; they don't get into the books of account. 

Mr. Henderson. If this unrealized appreciation does not get into 
the books of account, it doesn't get into the balance sheet ? 

Mr. Howe. Oh, it gets into the balance sheet if there is such an item 
with respect to the company, but it is adde8l,to the ledger assets in this 
arrangement where they add the ledger assets, the nonledger assets, 
and then deduct the not admitted assets. It doesn't get into the books 
of account. It gets into the balance sheet. You have to distinguish 
all the time between what gets into the balance sheet and what gets 
into the books of account. 

Assets not admitted : These are the assets which are deducted from 
the total of the ledger and nonledger assets, that is, in arriving at the 
total on the balance sheet. They included principally any of the com- 
pany's stock owned or loaned on, supplies, stationery, printed matter, 
furniture and" fixtures, agents' balances — that is, any money which is 
owed by agents to the company — and cash in suspended banks. In 
terms of amounts involved, however, the principal items classified as 
assets not admitted are valuation accounts by means of which insur- 
ance companies show the excess of book or ledger value of bonds over 
investment value, the excess of the book value of stocks over market, 
and overdue interest considered uncollectible, so by the process of 
starting out with the book values, adding the accruals and then de- 
ducting the unrealized depreciation to: oversimplify the process, you 
arrive at a statement of a total admitted asset figure which represents 
the total asFots of the corporation. 

Mr. Henderson. Whet is the custom with other financial institu- 
tions, Mr. Howe, in the treatment of those items? 

Mr. Howe. In ordinary institutions the net value is put right into 
the accounts and when you see "accounts receivable" that figure is the 
amount which the corporation expects to collect on its accounts receiy- 
able. It may be less than the total amount owing to the corporation, 
but the portion of the amount owing to the corporation which they 
expect to collect will be designated as accounts receivable. 

In this case the gross amount would first be stated and later, lower 
down in the balance sheet, a deduction would be made. 

Mr. Henderson. Now, take an investment trust — I don't know 
whether or not you are familiar with this — take an investment trust or 
an investment banking corporation, or any other type of financial 


institutions which have securities, is it customary to treat their ap- 
preciations in value annually and take them into the books of account, 
and thence into the balance sheet ? 

Mr. Howe. There is very little standardization of accounting there, 
but the statements which I have examined for the most part show 
securities at cost and the balance sheet carries a supplementary line 
which shows the market value of the securities at the end of the year, 

Mr. Henderson. Is that in a footnote ? 

Mr. Howe. Frequently it is ; yes. 

Mr. Henderson. So that it doesn't come into the assets vis-a-vis the 
liability statement? 

Mr. Howe. That is right. 

It is interesting to note that under the present system of accounts 
used by life-insurance companies, there are eight different ledger and 
nonledger accounts which affect the valuation of assets. 

The sum of the ledger assets, plus the nonledger assets, less the 
assets not admitted, gives the figure of the so-called admitted assets of 
the company. Therefore, when we speak of the admitted asset value 
of a given bond, mortgage, or piece of real estate, we mean that value 
at which such bond, mortgage, or piece of real estate is ultimately 
stated in the total assets of that company computed as stated above. 

The liabilities of life-insurance companies are mostly policy reserves. 
These are computed whenever a statement is to be made up by the 
actuarial department. They reflect, within an important latitude, 
the opinions of management. Other liabilities, for the most part, are 
also inventoried at annual statement time and are not necessarily sub- 
jected, as are the liabilities of commercial enterprises, to accounting 
control. After the liabilities have been thus computed, the balance 
which remains is surplus, or may be characterized in whole or in part 
as general or special contingency reserves. 

Mr. i^ENDERSON. Let me see if I understand that. Computing the 
liabilities, the actuary presumably would either take all the policies 
and undertake to compute the reserve necessary for that? 

Mr. Howe. Yes. : 

Mr. Henderson. Did I understand you to say that an element of 
managerial judgment other than the actuary comes into that'.? 

Mr. Howe. Well, there is a degree of managerial judgment in- 
volved in the actuarial determination of the amount of the reserves. 
Now, whether there is a degree of other manageriaj judgment 
brought to bear on that fact is something I am not in position to say. 
Certainly there is an element of judgment involved. 

Ml-. Henderson. After that liability has been computed, then the 
difference between tliat liability and the value of the admitted assets 
is the surplus account? 

Mr. Howe. That is right. That is true in the case of a mutual 
company. Of course, in a stock company it would be capital. 

The second important statement issued by life insurance com- 
panies is designated "Income and Disbursements." We had a sched- 
ule for that, or rather a chart for that, yesterday.^ This statement 
is not a commercial income statement in any sense of the word. The 
income statements of commercial businesses take into account all 
changes in assets and all changes in liabilities which affect net worth. 

^See "Exhibit No. 2267,' suprn.-p. 147i4. 


The income and disbursement statement of life insurance com- 
panies takes into account only the changes in the accounts which are 
handled by double-entry bookkeeping, that is, the so-called ledger 
assets, and takes no account whatsoever of nonled^er assets, not ad- 
mitted assets, or the most important liabilities. It is not a full state- 
ment of cash receipts and cash disbursements. Funds expended for 
the purchase of other ledger assets (such for instance as the pur- 
chase of a million dollars of bonds) are not accounted for in this 
statement in any way, and funds received from the sale of ledger 
assets are accounted for in the schedule of income and disbursements 
only to the extent of the difference between the book value of ledger 
assets sold and the consideration received. 

The Chairman. What accounting is there of such items? 

Mr. Howe. Senator, when a million dollars is spent for a million 
dollars of bonds, it does not change the total of the investment assets 
of the company, and on that theory, I suppose, those items are not 
included in any way in the schedule of income and disbursements. 

Mr. Gesell. They do appear in other schedules contained in the 
Convention Form statement, do they not ? 

Mr. Howe. The amount of money which is spent annually for the 
purchase of investments is nowhere scheduled in the balance sheet, 
statement of income and disbursements, or Gain and Loss Exhibit. 

The Chairman. But it is obtainable from scrutinizing of the books? 

Mr. HowB. Of the two balance sheets from year to year or from 
an examination of the schedules supporting the Convention Form. 
You dan see the net result of what has happened but you cannot see 
the turn-over which may have occurred, from the balance sheet. It 
is perfectly possible that on February 1, the company would buy a 
million dollars worth of Government bonds, short-term Government 
bonds, that those bonds would mature or be redeemed in November, 
in which case no trace of them would appear in the two balance sheets. 

The Chairman. The totals are available? The asset values are 

Mr. Howe. They are. 

The Chairman. And upon scrutiny these details of which you 
speak, which do not appear in the income and disbursement state- 
ment, are also available? 

Mr. Howe. Well, some of them are. Senator. That is a very broad 
question indeed. You cannot tell from these statements the turnover 
of assets during the year. 

The Chairman. You are speaking now then of what is to be de- 
duced from these statements themselves. 

Mr.^IowE. That is correct. 

Now, in this book ^ that we referred to yesterday, we spoke of the 
funda available for investments and the gross investments made. 
Those are the figures which reflect 3 turn-over of assets during the 
year. They do not appear in the income and disbursements state- 
ment, but are included only in the voluminous detail of the support- 
ing schedules. 

In years in which there is a large change in the amount of policy 
loans outstanding, the balance of income over disbursements may be 
extremely misleading as to the cash position of the company. In other 

* Hearings, Part 10-A. 


words, increase in the amount of policy loans will not be reflected 
anywhere in the schedule of income and disbursements, so that when 
one looks at income in comparison with disbursements, if he is think- 
ing of it as a cash statement by the extent of the drain for policy 
loans which may or may not have occurred during the year, he will 
be misled by those totals. 

No profit or loss is experienced when policy loans expand, and as 
*the accounts are set up, the income and disbursements schedule does 
not reflect even to the slightest degree the very heavy demands which 
from time to time have been made upon life-insurance companies for 
cash for policy loans. 

As a cash statement, therefore, the scehdule of income and disburse- 
ments is practically valueless. Even as a statement of change in 
total assets from year to year, it is subject to the serious limitation 
that it does not include all assets nor does it exclude those assets and 
valuation accounts which the balance sheet classifies as not admitted. 
Taking practically no account whatsoever of liabilities (except such 
liabilities as borrowed money, the receipt of which affects ledger 
assets) it has no value whatsoever as an ordinary income account 
showing the annual gains or losses of the business. 

In a paper presented before the American Institute of Actuaries, 
Mr. C. O. Shepherd, associate actuary of Travelers Insurance Co., 
said [reading] : 

The True Income statement does riot necessarily imply a complete change in 
the method of company books. 

The Convention Form contains its own confession of inadequacy ; at least 
it seems a fair conclusion that the weakness of the income and disbursements 
schedules was one of the causes of the introduction of the Gain and Loss 
Exhibit ♦ * * in 1895 ♦ ♦ * The changes in surplus schedule intro- 
duced in 1925 may be regarded as a further effort to bolster up tbe defective 
income and disbursements schedules. 

In discussing nonledger assets, Mr. Joseph B. Maclean, associate 
actuary, the Mutual Life Insurance Co. of New York, in the fifth 
edition of his book. Life Insurance, makes the following statement 
regarding the income and disbursement schedule [reading] : 

The true financial position of a life insurance company, or indeed of any 
company, cannot be shown by such a cash-basis statement' 

What he means by "cash basis" is in that case, I take it, a cash basis 
as distinguished from an accrual basis, which takes into account the 
accruing interest and the accruing premiums and all that sort of 
thing. [Reading further:] 

It; would be possible to prepare the whole of the statement, including the 
inooirie and disbursements, on a revenue ba?is. *•>••» 

as ordinary commercial accounts are prepared. 
I continue the quotation [reading further] : 

It is peculiar th;it * * * no separate Information is given in respect to 
premiums for group insurance or for industrial insurance. 

Mr. Victor Roy Smith, M. A., associate of the Institute of Actuaries, 
a British organization, and associate of the Actuarial Society of the 
United States, and a fellow of the American Institute of Actuaries, 
and at the time he made the following statement then president of 

^ Life Insurance, p. 305. 
^ Ibid., p. 306. 


the American Institute of Actuaries, in his address by the president 
made in October 1937, has say [reading] : 

In short, there does not appear to be any single question of importance which 
the man on the street could ask about the profits of a life insurance company 
to which the income and disbursements statement would not give an incomplete, 
If not incorrect, answer or no answer at all. 

The Chairman. What is the opinion of other actuaries, if you know, 
with respect to this matter ? 

Mr. Howe. The literature that I have perused, which has been some- 
what extensive on this subject, would lead to the belief that there is 
an almost complete unanimity of opinion that the schedule of income 
and disbursements is su „j^.. ' le to great misinterpretation by those 
who are not thoroughly familiar with it. 

The Chairman. You have read to us quotations from numerous 
insurance experts who take the same view as you have taken. Have 
you run across any statements by other experts made at the same or 
other times, which take the contrary view ? 

Mr. Howe. I have not found a single one, Senator. 

About 1895, some need was felt for something which approaches a 
commercial profit and loss account, that is an account which takes into 
consideration not only the changes of a part of the assets, but the 
change in all of the assets and the changes in all of the liabilities. 
This appeared in the form of an exhibit which is now known as the 
Gain and Loss exhibit. After about 10 years, and after the Arm- 
strong investigation in New York, the Gain and Loss exhibit was 
generally adopted. The Gain and Loss exhibit was the first official 
attempt in insurance accounting to provide a rough substitute for 
an ordinary profit-and-loss statement taking account of the changes 
of ledger assets, nonledger assets, not admitted assets, and liabilities 
during the year. 

Instead of setting up a statement, however, patterned on commercial 
accounting procedure, the Gain and Loss exhibit was built around an 
actuarial analysis of the business. A large part of its usefulness is lost 
due to the fact that the classification of items is not as detailed as 
the income-and-disbursements statement, and because the actuarial 
analysis requires for its interpretation much information nowhere 
available in the annual statement. 

With reference to the Gain and Loss Exhibit, Mr. Maclean writes 
as follows in his book [reading] : 

No part of the convention blank is more subject to misunderstanding * ♦ ♦ 
than the gain and loss exhibit.^ 

A further defect in the form is that it does not show the gains or losses in 
surplus on different classes of business. * * * ' 

Mr. C. O. Shepherd in his paper comments as follows on the same 
exhibit [reading] : 

♦ * * the Gain and Loss Exhibit ♦ * * is shown to consist of two 
parts : one a pure accounting analysis made indispensible by the inherent weak- 
ness of the Income and Disbursement schedule ; the other a supplemental actu- 
arial analysis. 

Then he comments on the actuarial feature of the exhibit when 
he says: 

The Gain and- Loss Exhibit in its actuarial analysis is a budget of i86r<. 

^ Life Insurance, p. 329. 
* Ibid., p. 337. 


The first actuarial comparison which the Gain and Loss Exhibit 
displays is referred to as "gain or loss from loading." Each life in- 
surance premium is based upon a so-called net premium computed on 
an annual rate of interest and on a certain stated mortality table — 
mostly, as Mr. Stevenson explained this morning,^ the American 
Experience Table which was prepared for 1868. 

To this net premium is added a sum which is known as "loading." 
The total of the net premium plus loading is the gross premium 
charged the policyholder. The items on the Gain and Loss Exhibit 
entitled "Gain or loss from loading" is the difference between the 
actual expenses of operation (other than investment expenses) and 
the aggregate loading in the premiums received or accrued during the 

The second item of importance is the "Gain or loss from mortality." 
This is usually a large figure because of the fact that the mortality 
contemplated by the American Experience Table is substantially in 
excess of the mortality currently being experienced by American life- 
insurance companies. As life-insurance companies often use the 
modern mortality tables in the calculation of their net premium rather 
than the American Experience Table which is generally used in de- 
termining contractual reserves and in computing the Gain and Loss 
Exhibit, the gain or loss from loading, therefore, and the gain from 
mortality are often more appropriately considered as an algebraic 
sum rather than as two separate items. This is especially true in the 
case of nonparticipating companies. 

The third important item of the gain and loss exhibit is desig- 
nated the "gain or loss during the year from surrendered, lapsed, 
and changed policies." This 'is the aggregate of the reserves on 
policies, lapsed, surrendered, or changed during the year, less the sur- 
render values paid. In cases of companies which use the full level 
premium reserve (which is the principal method of reserve calcula- 
tion used by the 26 companies under special consideration) first year 
expenses are such that in order to set up the statutory reserve in the 
first policy year, a deduction from surplus is experienced. There- 
fore, an undeterminable portion of the gain from surrenders is occa- 
sioned by a return to surplus. of funds previously appropriated there- 
from. Although it is undeniably true that in most cases companies 
experience a real gain from lapsed and surrendered policies, the 
method of accounting pursued by the companies is such that the 
amount of such gain cannot be determined with any degree of ac- 
curacy from the gain and loss exhibit. 

One of the features of the gain and loss exhibit is the relation of 
interest earned on investments to interest required to maintain re- 
serves. The balance of interest earned in excess of the amount re- 
quired to maintain i:eserves is referred to as "gain from interest." 

The gain and loss exhibit also shows the gain or loss from sales of 
bonds, stocks, and real estate, and the gain or loss occasioned from 
adjustments in value thereof which the company may elect to make. 

Another important item of information to be gained from the 
gain or loss exhibit of some companies, and not from the gain and 
loss exhibit of others, is the gain or loss due to increase in reserves 
by reason of change in the basis of calculation. That sounds tech- 
nical, but in brief, it is the amount which companies have added to 

' Supra, p. 14769. 


their reserves in order to strengthen them. It is a reflection — or the 
amount of that increase is a reflection — of the conservatism of the 
actuarial department in determining these reserves, and in increasing 
them from time to time. 

A final nondescript item of the gain and loss exhibit is -entitled 
"Increase or decrease in special funds and special reserves." These 
special reserves are sometimes reserves intended to supplement policy 
reserves. Sometimes they are for asset losses unaccounted for on 
the asset side of the statement, and sometimes they are merely an arbi- 
trary earmarking of surplus. It is to be noted that increases or de- 
creases in these so-called special reserves or funds usually include in- 
creases or decreases in liability accounts for estimated taxes, unpaid 
items of expense, and feo forth. The lack of any clear distinction 
between various classes of special reserves or funds is one of the 
great weaknesses of the gain and loss exhibit. Without an accurate 
knowledge of the purposes of these funds, a proper injterpretation 
of the year's operating results is impossible. 

The algebraic sum of the above amounts and other items gives the 
amount of gains from the year's operations available for distribution 
as dividends to policyholders and stockholders. 

One of the great shortcomings of the Gain and Loss Exhibit is that 
it gives only the haziest impression of the operating results of the 
various lines of business in which life-insurance companies are en- 
gaged. The need for information of this type was apparently not 
sufficiently f' It until 1925, when the Exhibit of the Changes in Surplus 
was insertec in the Convention Form. This exhibit, which has been 
familiarly referred to as the "Jackass Exhibit," was the result of an 
obvious need but was very poorly constructed. The main part .of the 
exhibit is simply a division by lines of business of the information 
itemized in much greater detail in the statement of income and dis- 
bursements.- After arriving at a figure of excess of income over dis- 
bursements for each line of business, it successfully avoids a great 
opportunity to be useful by classifying all other items under the 
headings: "Increase in nonledger assets," "Increase in nonadmitted 
assets,' and "Increase in liability." This results in an estimate of 
operating earnings but leaves the reader almost entirely in the dark 
as to the method of allocation which has been adopted as between 
lines of business in regard to asset lossses and in regard to the im- 
portant matter of the strengthening of reserves by change in basis. 
This exhibit also produces the interesting effect of a statement most of 
the items of which are on a cash basis and the end-product of which 
is stated on a revenue or accrual basis. 

In his paper Mr. C. O. Shepherd has this to say about the Exhibit 
of Changes in Surplus [reading] : 

The exhibit is unsatisfactory because it explains the sources of gains and 
losses only to the extent they are covered by income and disbursements, * * * 
the trouble is that income and disbursements do not furnish the information that 
is significant and pertinent in a financial statement. 

In 1939 a new Gain and Loss Exhibit was adopted. It is patterned 
more or less on the Exhibit of Changes in Surplus and all items are 
put on a revenue basis. This statement has the important disad- 
vantage that it is impossible under ordinary circumstances to reconcile 
the figuries contained therein with the elaborate, if inconsistent, classi- 


fication of accounts shown in the income and disbursements statement. 
Furthermore, the statement omits data with reference to the allocation 
of losses by lines of business, leaving the reader entirely at sea as to 
the method of allocation of this important item, which, however dif- 
ficult, is inescapably necessary in order to analyze the company's 
dividend policy with respect to its various lines of business. 

A few examples of a very simple sort wall serve to illustrate the 
unwieldy and mconsistent character of the information in the Con- 
vention Statement. For example, with respect to ordinary business, 
premium income is divided between first year and renewal-premium 
income. No classification, however, is given of single-premium poli- 
cies. In the case of industrial insurance, premium income is not even 
classified as first year and renewal. The policy exhibits showing the 
amount of insurance in force at the beginning and end of the year and 
the various changes throughout the year are given in considerable 
detail for ordinary and industrial insurance. This exhibit shows both 
the number of policies and the amounts of insurance in force. "When 
we turn to group life insurance, however, figures given apply only 
to the master policies in force and only a few companies gratuitously 
give figures on the number of certificates, that is, actual individual 
policyholders under group contracts. This makes it impossible from 
the figures to determine the relatively high lapsation experienced 
among group certificate holders. 

With respect to group annuities, however, both master contracts 
and certificateholderg are given. 

It was not until 1935, 2 years after the first-year premium income 
from individual annuities exceeded the aggregate first-year premium 
income from ordinary insurance, that a policy exhibit of individual 
annuities was included in the convention form. 

Mr.' Henderson. Will you say that again, please? 

Mr. Howe. It was not until 1935, 2 years after the first-year pre- 
mium income from individual annuities exceeded the aggregate first- 
year premium income from ordinary insurance, that a policy exhibit 
of individual annuities was included in the convention form. 

(Representative Williams assumed the chair.) 

Mr. Howe. Confusion of life insurance company annual statements 
is not only contributed to by the archaic accounting system and the 
ponderous nature of the accounts but is rendered still more difficult by 
reason of the fact that there is little standard of accounting within 
the business, and different companies may adopt accounting practices 
so significantly different as to render comparison extremely difficult 
if not impossible. 

It is certainly not too much to say that the comparative interpreta- 
tion of insurance accounts by anyone but careful students is likely to 
lead to nothing but confusion. An example of the differences which 
may be found in insurance company operating statements is clearly 
indicated by the case of the one company in 1936. In that year that 
company was required to prepare four different Gain and Loss Ex- 
hibits based upon four different sets of regulations from four different 
States. It is interesting to compare the Gain and Loss Exhibit as 
prepared in accordance with the regulations of the State of New 
York "With the Gain and Loss Exhibit prepared in accordance with the 
regulations of the Commonwealth of Massachusetts, The gain from 


interest, for instance, sho\Yn in the Massachusetts statement was 
$2,470,000. In the New York statement it was $1,251,000. 

One could go on at great. length on this subject of accounts. In the 
schedule of income and disbursements, which was shown yesterday,^ an 
ordinary person looking at death claims would think that the $7,000,- 
000,000 shown there was actually disbursed by the companies in the 
payment of death claims. That is not correct. Those death claims 
were incurred, but a substantial proportion of that liability is being 
discharged under supplementary contracts. , 

Mr. Henderson. They are taking that out in trade ? 

Mr. Howe. That is right. They are paying that out over a long 
period of time, so that as an aggregate amount of money disbursed 
the income and disbursements statement overstates death claims by 
over $2,000,000;000. 

Mr. Gesell. Those payments are made in accordance with the terms 
of the contract? 

Mr. HdwE. Oh, entirely. I am simply stating the manner in which 
the ordinary individual who is not informed of these facts, seeing what 
is alleged to be a cash statement, might misinterpret it. 

Another factor which it seems desirable for the committee to be very 
briefly informed about prior to the examination of the specific figures 
are a few broad impressions of the various investment statutes in the 
different States undei; which these companies operate. 

Mr. Gesell. Just a moment. 

Mr. Henderson. Mr Gesell and members of the committee, the 
chairman feels that he has to leave to be in the. Senate, and I would 
suggest that we suspend at this time, if the chairman can be here 
tomorrow, particularly if we could start early, rather than go forward 
without this technical analysis. 

(Senator O'Mahoney resumed the chair.) 

The Chairman. Did I overhear you suggesting that we might re- 
cess at an earlier hour this afternoon ? 

Mr. Henderson. I took occasion • in your absence to say very 
earnestly that I would much rather try to catch up the time while 
you are here than to go forward now. 

If I could ask just one or two questions: In order to make very 
clear the nature of your remarks on accounting, you are addressing 
yourself principally to the great difference that exists between ac- 
counting in insurance companies and other more uniform and stand- 
ardized types of accounting in other types of enterprise. Isn't that 
correct ? 

Mr. Howe. Or more usual types. I don't think the other is entirely 
standardized either. 

Mr. Henderson. I say "more standardized." 

Mr. Howe. More usual than this. 

Mr. Henderson. And while the convention form may serve a num- 
ber of purposes in the peculiar set-up of insurance, the policyholder 
or a layman undertaking to read a financial statement would be seri- 
ously bewildered. 

Mr. Howe. I believe that is a fair statement. 

1 "Exhibit No. 2257," eupra, p. 14714. 


The Chairman. Wouldn't the ordinary layman be bewildered in 
examining almost any statement? 

Mr. Howe. That may be true, Senator, but I think you will find 
that our commercial accounts are understood pretty well by a, very 
large number of people who would be likely to be misled by insur- 
ance accounts unless they gave them very careful study. 

Mr. Gesell. This presentation, of course, is quite without regard 
to anything else. It is a way of explaining what these various fig- 
ures are, since we have used the captions used by the insurance indus- 
try in its books of accounts. 

The Chairman. I think that is already made clear by what Mr. 
Howe has said. I merely remarked, because I think the testimony 
before this committee in other hearings has demonstrated that, as 
Mr. Howe has just said, there is really no standard system of ac- 
counting, and I feel that accounting systems for other great corpora- 
tions might also be improved ; if submitted to analysis they might be 
open to similar criticism. 

Mr. Henderson. Mr. Chairman, I was going to remark on that. I 
am not suggesting for one minute that insurance companies ought to be 
brought within the accounting requirements of the S. E. C. in the 
filing of statements. They are excluded at the present time. But 
I do want to say that pretty generally we are w^alking up the ladder 
rather fast on the matter of standardization of terminology and usages 
in accounting. 

The Chairman. The purpose of this preliminary technical expla- 
nation, as I understand it, is to make more clear to the members of 
the committee the analysis of the investment accounts and the finan- 
cial accounts that will later come? 

Mr. Howe. That is correct, Senator, and to, as far as possible, 
guard against the misinterpretation of figures which might seem to 
mean something on a printed page which do not actually carry the 
meaning which they might seem to indicate to a layman. 

The Chairman. Are there any other questions? 

Then, following the suggestion of Commissioner Henderson, the 
committee will stand in recess until 

Mr. Gesell (interposing). I would like it 10 o'clock, if possible. 

The Chairman. If there is no objection, we will recess until 10 
o'clock in the morning. 

(Whereupon, at 3 : 05 p. m., a recess was taken until Wednesday, 
February 14, 1940, at 10 a. m.) 

124491— 41— pt. 2S 



United States Senate, 
Temporary National Economic CoMMirrEE, 

Washington, D. C. 

The committee met at 10:20 a. m., pursuant to adjournment on 
Tuesday, February 13, 1940, in the Caucus Room, Senate Office Build- 
ing, Senator Joseph C. CMahoneyt presiding. 

Present: Senators O'Mahoney (chainnan), and White; Repre- 
sentative Williams; Messrs. Henderson, Lubin, Pike, Kades, and 

Present also: James V. Hayes, Department of Justice; Ernest 
Palmer, Commissioner of Insurance, State of Illinois; Gerhard A. 
Gresell, special counsel; Ernest Howe, chief financial adviser; and 
Helmer Johnson, attorney, Securities and Exchange Commission. 

The Chairman. The committee will please come to order. 

The Chair is advised, that the Government Printing Office is now 
at work on the publication of this exhibit, which has oeen presented 
to the committee, "Exhibit No. 2250."^ It is the report of fhe 
8. E. C. on operating results and investments of the 26 largest legal 
reserve life insurance companies of the United States for 1929 to 
1938. This will be printed as Part 10-A of the proceedings of this 
committee and will be available from the Superintendent of Docu- 
ments at a price which, I understand, is to be fixed at about 35 cents 
per copy. This will be ready for delivery, I am given to understand, 
some tmie next week. 
. Mr. Henderson. Did you say 35 cents a copy ? 

The Chairman. Thirty-five cents is what I have been told. 

Mr. Henderson. Insurance executives told me they would be willing 
. to pay $25,000 for it. 

The Chairman. Perhaps you should have said that before the 
announcement was made. 

Mr. Henderson. It is just another case that proves the Govempient 
is usually a poor businessman. 

Mr. Gesell. Will you resume the stand, Mr. Howe, please? 


Mr. Gesell. On the recess, Mr. Howe, you were about to discuss 
some of the principal investment requirements of the States in which 
these 26 larg;est companies do business. 

^ See Hearings, Part 10-A. 



The Chairman. Before you take that up, may I ask with respect 
to this Convention Form of which you were speaking yesterday, 
whether that is not required by law in some, if not all, of the States? 

Mr. Howe. Yes, Senator. The National Association of Insurance 
Commissioners prescribes a form on which annual statements shall be 
made up. They have no real authority, but then the superintendents 
of the individual States require this form, with certain minor modi- 
fications in different States, so that substantially the form is handed 
to the insurance companies. 

The Chairman. Is it handed with the requirement that that form be 
followed, or is the form merely approved ? 

Mr. Howe. No ; the form must be followed by the companies. 

The Chairman. I see. 

Mr. Kades. Have the companies tried to get the form altered in any 
respect ? 

Mr. Howe. As I testified yesterday, in some of the meetings of the 
Actuarial Society, I believe, certainly sonde of the meetings of the 
American Institute of Actuaries, the form has been criticized. What 
effort any companies have made in a direct manner to get the form 
modified I have no knowledge, but, at any rate, there it is, and it is the 
form which is required, and it is the one which the companies fill out. 

Mr. Gesell. Now, we were about to consider the investment provi- 
sions in the statutes of the various States. 

Mr. Howe. A study of the investment statutes of 11 States, includ- 
ing the principal States in which the 26 companies under review are 
operating, governing the investments of most of the legal-reserve 
life-insurance companies, reveals the wide range of investments per- 
missible in the investment of insurance funds. Some of the States are 
more liberal than others, but in general the legal restrictions are some- 
what similar. Generally speaking. Government obligations of the 
United States and its various political subdivisions are eligible for 
investment and loan purposes, as are the obligations of the Dominion 
of Canada and its provinces. Many of the States permit investment 
in obligations of political subdivisions in Canada, while a few author- 
ize direct investment in Canadian industrials. 

Corporate obligations of domestic companies are legal investments in 
all States under a wide range of restrictions, limitations, and earnings 
requirements. Two ;of the States reviewed — that is, Wisconsin and 
Iowa — prohibit the acquisition of corporate shares of any description, 
while two — New York and Ohio — specifically prohibit investment in 
common stocks. The other seven States permit investments in com- 
mon stocks under various limitations. 

Loans on mortgages secured by real estate in the United States are 
generally permitted, while some States permit loans on mortgages 
secured by real estate in Canada. 

Mortgage loans in all cases examined are restricted to first liens and 
may be made up to various percentages of the appraised value of the 
real estate at the date the loan is made. 

This percentage is 66% percent in all of the 11 State's examined 
except Massachusetts and Iowa, which permit 60-percent loans, and 
Wisconsin, which permits loan only to the extent of 50 percent. In 


-New Jersey, while the general provision is 66% percent, under cer- 
tain circumstances mortgages up to 75 percent of the appraisal value 
may be made. All States permit policy loans. In every instance, 
investment in real estate is definitely restricted with minor exceptions 
for housing projects, to the business needs of the company, although 
real property acquired as the result of foreclosure or in satisfaction 
of debts previously contracted may be held for a limited period. 

Mr. Henderson. Are you going to discuss later what periods the in- 
surance companies have held real estate? 

Mr. Howe. Yes; we have some data on that. The general rule as 
to the len^h of the time which a company may hold real estate with- 
out extension is 5 years. That is only a general rule, however. 

It may be well to review quickly the composition of the portfolio of 
these insurance companies as shown by tables 102, 103, and 104.^ It 
will be seen at first that bonds constitute the largest single investment 
of life-insurance companies. On the- average for these 26 companies 
on December 31, 1938, this accounted for 53.97 percent of the total 
assets. Government bonds accounted for 18.63 percent of total assets. 
Mortgages accounted for 19.17 percent of total assets; policy loj^ns, 
11.62 percent; stocks, 2.17 percent; real estate, 7.30 percent. 
The Chairman. From what table are you reading now? 
Mr. Howe. I was reading from the aggregate totals. Senator, on 
table 102; the table which you have shows only the figures for the 
companies as a whole, but I have here the aggregates. 
The Chairman. The totals do not appear on our chart. 
Mr. Howe. Cash, 2.74. 

Representative Williams. I didn't understand what you said. I am 
simply asking what it was. 

Mr. HoAVE. The table shows only the percentages for the individual 
companies. The figures which I have been discussing are the figures 
which represent the average for the companies, and the figure which 
I just gave Senator O'Mahoney was 2.74 percent, which is the average 
holding of cash of the 26 companies. 

Mr. Gesell. Those tables appear on schedule A ^ of the release which 
has been prepared with respect to your statement, do they not? 
Mr. Howe. I think they do. 

Mr. Gesell. Now, casfi is 2.74 as of 1938 ; is that right ? 
Mr. Howe. That is correct, which is a change from 1929, as schedule 
A 2 shows, of considerable importance. In 1929 cash aggregated 0.69 
of 1 percent of all the assets, whereas in 1938 it was 2.74. 
Mr. Gesell. And Governments are what in 1938 ? 
Mr. Howe. Governments are 18.63 percent in 1938, that is, United 
States Governments. 

The Chairman. May I suggest that you offer schedule A for the 
record ? 

Mr. Gesell. I intended to do that after he discussed it. I will do 
so now, however, to make the record clear. 

The Chairman. The schedule may be rpcoived. 
(The schedule referred to was marked "Exhibit No. 2264'' and is 
included in the appendix on p. 15495.) 

1 See Hearings, Part 10-A, pp. 102, lOS.-and 104. 
= See "Exhibit No. 2264," appendix, p. 15495. 


The Chairman. This shows that in 1929 Governments constituted 
only 2.03 percent of the total assets, whereas today — that, is, of Decem- 
ber 31, 1938 — they constitute 18.63 per cent. 

Mr. Howe. That is correct, Senator. The other principal changes 
are that bonds of the United States political subdivisions have m- 
creased in percentages; railroad bonds have declined from 15.87 per- 
cent in 1929 to 9.38 in 1938 ; public-utility bonds have increased from 
8.73 to 12.22; industrials, from 1.43 to 4.92; whereas mortgages have 
declined from 41.70 percent of total assets in 1929 to 19.17 in 1938. 
Real estate, on the other hand, has increased from 1.87 to 7.30. 

The Chairman. Suppose you make a total right now of the indus- 
trials, public utilities, and railroads, so that we may compare them in 
percentages with the Governments and with other political subdi- 

Mr. Howe. In 1938, according to this calculation I have made here, 
the total of railroad bonds, railroad equipment-trust certificates, 
public-utility bonds, industrial and miscellaneous bonds in 1938 
constituted 27.69 percent of the total admitted assets of the companies. 

Mr. Geseul. What were they as of 1929, Mr. Howe ? 

Mr. HowE. They were 28.41 percfent. 

The Chairman. So that while the United States Governments w^e 
increasing from 2.03 to 18.63, railroads, equipment trusts, utility 
bonds, industrials, and miscellaneous were falling from 28.41 to 27.69. 

Mr. Howe. That is correct. The fall came, of course, primarily in 
the railroad category, and is offset only partially by increases" in utili- 
ties and industrial bonds. 

The Chairman. Well, there was a comparatively notable increase 
in the investment in public utilities? 

Mr. Howe. Yes; and also, in percentage, a remarkable increase in 
holdings of industrial and miscellaneous bonds. 

The Chairman. That was increased almost four times. 

Mr. Howe. Yes; but the decline of- the railroads more than offset 
that. These average changes which have taken place in the composi- 
tion of total assets of the 26 companies are indicative of general trends 
only. In the case of individual companies, however, there have been 
very sharp changes not revealed by the general averages. For ex- 
ample, in the case of Guardian Life, the bonds have increased from 11.4 
percent to 29.2 percent of the total assets, while mortgages have de- 
creased from 62.5 percent of total assets to 33.4. In the case of the 
Western and Southern, bonds have increased from 7.5 percent of total 
assets in 1929 to 39 percent, while mortgages have dropped from 
around 83 percent in 1929 to 43 percent in 1938. 

Mr. Henderson. Isn't that a general characteristic, Mr. Howe? If 
the mortgage field had remained open for investment, that is, if you 
had gotten the prime farm and prime urban mdrtgage loans, there 
would not have been such excursion into other bonds? 

Mr. Howe. I think un(juestionably the economic reasons explain 
the fact that companies virtually stopped expanding their mortgage 
accounts back 10 years ago. There are exceptions to that, of course, 
but the total mortgage and real-estate account has about stood still 
over this period. I don't think that is because of any prejudice of 
companies against mortgages in many cases. I think it is simply that 
the other avenues of investment were the only ones they felt were 
qpen to them during the particular period. 


Mr. Henderson. To meet the terms of security they had to have? 

Mr, Howe. That is right. 

Again, in the case of Lincoln National, bonds have increased from 
1.74 percent in 1928 to 35.37, and in the case of Union Central bonds 
have increased from 1.4 percent to 26.14. 

That further bears out the point we had in mind. 

The Chairman. Have you set those figures forth in an exhibit ? You 
gave us a comparison between 1929 and 1938 for all of the companies ? 

Mr. Howe. Yes. 

The Chairman. And now you have been discussing individual com- 
panies. Do you have a schedule showing that? 

Mr. Howe. No ; Senator. I do not have all the 1929 balance sheets 
of the companies included in this book. 

The Chairman. You selected only those for which you had the 
information ? 

Mr. Howe. I have all the schedules in my three filing cabinets over 
there to give you the balance sheets of any company in 1929. 

Mr. Gesell. Those are simply examples. 

The Chairman. It is not set forth ? 

Mr. Howe. No ; it is not set forth. It would be quite a problem to 
produce the balance sheets for all the years. 

The Chairman. You have done a big job as it is. 

Mr. Howe. We have looked at the composition of the bond port- 
folio — that is, I mean, rails, industrial utilities, and Governments, and 
so forth. It may be interesting to take a look at the ratings, the 
quality ratings of the bonds owned by insurance companies, which are 
shown by table 139.^ 

Mr. Gesell. You are speaking now of table 139, is that correct? 

Mr. Howe. I am speaking now of tables 138 and 139. One is abso- 
lute figures and the other percentages. 

As the committee is doubtless familiar, there are several investment 
publishing houses in New York which publish ratings of investment 
securities. These are Moody, Poor's, Standard Statistics, and Fitch. 
Because of the impossibility of describing in a few words the quality 
of this tremendous fund of $13,000,000,000 in bonds, the only way we 
can get at it is to use the ratings which these publishing companies have 

So that on table 138, we see across the top of various ratings, and the 
United States Government bonds have been segregated -from the other 
Aaa bonds, which is the highest rating that Moody's Investors Service 
gives to a bond.^' Aa is next, and so forth, across the page. 

Mr. Gesell. Those figures are expressed in terms of percentages of 
the individual companies' portfolios on table 139. Is that correct ? 

Mr. Howe. That is correct. 

I should perhaps qualify this by also calling attention to the "Not 
rated" column, which is shown here. It is not necessarily true that 
because a bond is not rated that its quality is under question. There 
are numerous private placement transactions on which these companies 
do not have adequate information to make ratings. 

Mr. Gesell. You mean which the rating companies do not have 
adequate information on? 

^ See Hearings, Part 10-A, p. 139. 
« Ibid., p. 138. 


Mr. Howe. That is right, which the rating companies do not have 
adequate information on to rate, anc^ ■:'efore do not put a rating on. 

Nevertheless, in a broad general *y, these figures indicate some 
irfterestirig facts. 

You will see, for instance, that i.x looking down the Aaa column, 
excluding Grbvernments, that the Penn Mutual shows the highest per- 
centage of the highest quality bonds, that is, 22.64 percent. That same 
company also holds a high percentage of Aa bonds, and the total of 
its Aaa and Aa bonds, excluding Government's, is 41.89 percent, 
which is higher than that of any other company listed there. 

Mr. Gesell. You mean that that is higher than the amount that 
any other company has in Aaa and Aa bonds ? ■ 

Mr. Howe. Other than Government's; yes. 

Mr. Gesell. There are companies with a more substantial amount 
of their investments in Government's^ are there not, such for example 
as the Western and Southern ? 

Mr. Howe. Certainly, the Western and Southern has 91.39 percent 
of its bond investment in United States Government bonds. 

The Chairman. Isn't it true that all bonds which bear a rating of 
Baa up, are regarded as really first quality bonds ? 

Mr. Howe. Well certainly, Senator, that could be said from A up, 
and there might be some difference of opinion with respect to Baa. 

Mr. Gesell. You mean on individual bonds that involve to some 
extent determination as to individual bonds within that classification ? 

Mr. Howe. Yes ; that is right, but Baa bonds are good bonds. 

The Chairman. They are good bonds but it occurred to me that 
qualification ought to be made in any discussion of this list, and 
would it not also be well to add the additional qualification that 
frequently the bonds with the very high rating command a premium 
in the market ? 

Mr. Howe, At least they produce a, low yield. Senator, Whether 
they are selling at a premium or disc6unt is simply a mathematical 
matter after all, to some extent. 

The Chairman. I note that the holdings of all bonds above Ba, 
that is Baa, A, Aa, and Aaa, are greatly in excess for each classifica- 
tion, greatly in excess of the holdings of Ba bonds. 

Mr. Howe. Oh, very much. 

The Chairman, So that that tends to bear out what I have remarked, 
namely that the Baa classification upward is the classification of high 
standard bonds, 

Mr, Howe. That is correct. As a matter of fact, so far as these 
companies as a whole are concerned. Senator, 75.69 percent of their 
bonds are rated A or better, and over 90 percent of their bonds are 
rated Baa or better. So that what you say is true, that the over- 
whelming proportion of the bonds are definitely in' the quality group. 

We have made an anlaysis of the investments of these 26 companies 
in other corporations with which they interlock. 

Mr. Gesell. That analysis is set forth on this schedule, is it -not, 
"Investments of Life Insuaiajice Companies as of December 31, 1939, 
in Companies Whose Officers or Directors Interlock with the Insur- 
ance Companies"? 

Mr. Howe. That is correct. 


Mr, Geseix. I wish to offer that schedule for the record at this time. 

The Chairman. The schedule may be received. 

(The schedule referred to was marked "Exhibit No. 2265" and is 
included in the appendix on p. — .) 

Mr. Howe. The face value of these bonds held by these 26 com- 
panies in companies with which they interlock, is $721,720,100. Book 
value is $674,710,515, and the number of shares involved in those 
cases where stock is involved is 1,726,623 shares of stock. 

Now, of the face value of these bonds of the $721,720,100 face value 
of bonds, $210,000,000 is held by Metropolitan. 

Mr. Gesell. There are some companies which have no such invest- 
ments, are there not? 

Mr. Howe. There are ; Connecticut Mutual has none, Bankers Life 
has none. 

Mr. Gesell. The Connecticut Mutual has some as far as shares are 
concerned, has it not? 

Mr. Howe. They have some shares, no bonds. The Bankers Life 
has none, neither bonds nor stock. 

Mr. Gesell. And the last four companies on the list, Equitable of 
Iowa, Western and Southern, Lincoln National, and Guardian Life, 
have none, either in shares or bonds? 

Mr. Howe. That is correct, 

Mr. Henderson. Mr. Howe, where you compare the book value and 
face value of investments having interlocking directorates, that ratio 
of book to face value is just about the same as it is for the total bond 
holdings, is it not ? 

Mr. Howe. I am not sure of that. 

Mr. Henderson. Will you keep that in mind when you come to dis- 
cuss face and book with the total book portfolio? 

Mr. Howe. We can compute that, but I think probably the prepon- 
derance of rails here has something to do with this ratio. 

The Chairman. Perhaps it might be well to allude to the fact that 
Mr. Buckner, testifying here the other day, said the directors of his 
company did not participate in action upon the purchase of bonds of 
the companies that they represented so that the interlocking char- 
acter of the investment doesn't necessarily carry the conclusion, does 
it, that all of these were sold because of the interlocking arrangement ? 

Mr. Gesell. It is also true, is it not, Mr. Hbwe, that this schedule ^ 
does not purport to show whether these investments took place at 
the time the interlocking directorship existed ? They are investments 
in interlocking concerns as of the date indicated in the schedule only, 
is that not correct ? 

Mr. Howe. That is correct. 

Mr. Gesell. Some of the investments may have been made prior 
to the time that the interlocking director came on the board of 

Mr. HowB. That is correct. It is a perfectly objective study, 
Senator. There is no intimation given that these bonds are better 
or worse than any others or that anything improper took place in 
their acquisition. It is simply a study of the facts, 

1 "Exhibit No. 2235," appendix, p. 15495. 


The Chairman, So that your answer to my question is that the 
presentation of this chart of interlocking directors is not intended 
to imply that the interlocking character of directorships was the 
cause of the condition that you described in this chart ? 

Mr. Howe. No ; there is no intent to carry such an implication with 
the table.^ 

Mr. Henderson. It does show a degree of concentration of mu- 
tuality and interdependence. 

Mr. Howe. Yes ; that is why the table was prepared. 

By looking at table 81, we can get an idea of the income on in- 
vestments.2 Table 81 is net income on investments expressed as a 
percentage of mean ledger assets. 

Mr. Gesell. What do you mean by "mean ledger assets" ? 

Mr. Howe. Those a^e the average assets which get onto the ledger. 
That is the classic ratio in the gam and loss exhibit, and it is taken 
from the gain and loss exhibit of the companies. 

Now, that is the way in which they show the rate of return. Now, 
it will be observed from this schedule that the rate of return ob- 
tained in 1929, for instance, was substantially in excess of the rate 
in 1938.* And as a matter of fact, on the average these companies 
earned on this basis about 5.06 percent in 1929; in 1930 the figure 
was 5.03 ; in 1931, 4.88 ; in 1932, 4.55 ; in 1933, 4.18 ; in 1934, 3.87 ; in 
1935, 3.69; in 1936, 3.70 j in 1937, 3.69; and in 1938, 3.61. 

There is also a considerable variation between companies in the 
yields which they have obtained. For instance, in 1938 the Western 
and Southern had a return of 3.83, while the Mutual Life of New 
York received 3.30. 

It will be noticed that during this period from the aggregate 
figures here, the return from 1929 to 1938 has declined from 5.06 to 
3.61, or 1.45 percent. On Moody's Aaa bond& • 

Mr. Henderson (interposing). Mr. Howe, that is not percent. 

Mr. Howe. That is right, 1.45 points in yield. 

It will be interesting to note that during the period from Decem- 
ber i929 to December 1938, the yield on Moody's Aaa bonds declined 
from 4.75 to 3.08, or 1.67 percent. 

The Chairman. Percent? 

Mr. Howe. Points of yield, that is right. 

The Chairman. So that the decline on Moody's rating of Aaa 
bonds was greater than this decline for all ? 

Mr. Howe. That is correct. On the Aa bonds the decline was 
1.43 points in yield. 

In A bonds the decline was 1.28 points in yield and in Baa bonds, 
.63 of one point. 

The interesting thing to note is the decline which has taken place 
since December 1938, and the Aaa bonds have declined .08 of a point 
in yield, the Aa bonds 

The Chairman (interposing). Are you talking of Moody or this? 

Mr. Hovste. Moody again. The Aa bonds have declined .26 of a 
point in yield; A bonds, .24; and the Baa, .42. In other words, the 
market is so high that even the bonds of lesser security are rising 
more in proportion now than the bonds of highest quality. 

1 "Exhibit No. 2265," appendix, p. 15495. 
s See Hearings, Part lO-A, p. 81. 


The Chairman. What was the decline for Aaa's, that last figure 
you gave? 

Mr. Howe. Eight hundredths of a point in yield. 

Mr. Gesell. Now, there is a table here, is there not, or a series of 
tables, to show what the income has been from the various types of 

Mr. Howe. That is correct. That is table 10.^ 
• Mr. Gesell. That shows the rate of income from the types of assets 
for 1938 only, does it not? 

Mr. Howe. Only 1938. 

Mr. Gesell. Can you tell me how over the period the earnings on 
policy loans have compared with the earnings on the investments 
shown in the table we were just discussing? 

Mr. Howe. Well, policy loans have, especially in the latter portion 
of the period, provided a higher gross yield than the other types of 
assets ; mortgages, for instance, in 1938 provided a yield of 4.74 on the 
average ; bonds, 3.47 ; stocks, 4.95. Policy loans, 5.79 ; foreclosed real 
estate, 1.46; home-office real estate, 4.11. 

Mr. Gesell. Home-office real estate is what? 

Mr. Howe. It is 4.11. 

Mr. Gesell. I don't understand that. What is that, the income 
they have had on their own buildings ? 

Mr. Howe. Yes; that is the income the companies have had on their 
home offices. 

Mr. Gesell. They get that from themselves, don't they, by paying 
themselves a rent? 

Mr. Howe. Well a large portion of it is rent which they pay to 

Mr. Gesell. I see. Will you go on. 

Mr. Howe. So that the various rates of return on this table ^ as 
betweeA companies are dependent to some extent on the scale of rent 
they charge themselves. 

Now, to relate this return on investments to the insurance aspects of 
the company's business, we turn to 

Dr. LuBiN (interposing). May I just raise a question before you 
continue? It is quite evident that for the year 1938 the most.profit- 
able investment an insurance company could make was a loan to a 

Mr. Howe. With respect to the gross rate ; yes. 

Dr. LuBiN. And these funds that were loaned to the', policyholders, 
I take it, are part of the reserves that were set apart, and in a sense 
is his own money ? . 

Mr. Howe. There is an argument about whether it is . his own 

" Dr. LuBiN. Although legally it may be not his, in a sense it is a 
sum set aside against his policy? 

Mr. Howe, It is money which he paid in originally as premiums, 
less expense. 

Dr. LuBiN. And which in the event he does not pay the loan is 
deducted from the policy? 

Mr. Howe. That is right. 

1 See Hearings, Part 10-A, p. 10. 
' Ibid. 


Dr. LuBiN. So in reality it is money he has turned over to the com- 
pany, and the company is holding for him under a certain legal 

Mr. Howe. That is right. 

Dr. LuBiN. And is there any other type of investment an insurance 
company could make that would be as sound as such a loan? 

Mr. Howe. There is no possibility of loss involved in a transaction 
of that sort, so long as the thing is accurately handled mechanically. 

Mr. Gesell. As long as the policyholder eventually dies .or his 
policy matures? 

Mr. Howe. That is right. Or surrenders. 

Dr. LuBiN. So in reality the return is largest on the safest invest- 
ment you can make? 

Mr. Howe. That as right. Now, there are certain elements regard- 
ing that matter which I hope to discuss at the moment when I come 
to policy loans, but to return to the relationship of the earnings on 
the assets to the insurance aspects of the business, we might look at 
table 82.^ That table is designated "Interest required to maintain 
policy reserves." The committee is familiar with the fact that in all 
of the contracts written by insurance companies there is implicit 
some interest assumption, and the gain and loss exhibit combines 
all together at the end of the year the amount of money which is 
necessary to be added to reserve from interest. Those are the figures 
which are shown on table 82.^ 

Now, an interesting thing about this table is that as the contracts 
average out between the companies, the rates which they must earn 
in order to maintain their reserves, that is, the rates which they must 
earn on their assets in order to maintain their reserves, vary some- 
what. In other words, in 1938 the rate which the Travelers Insurance 
Co., of Hartford, Conn., had to earn to maintain their policy reserves 
was 3.55 percent. . On the other hand, the contracts of the New York 
Life were such that they had to earn only 2.78 percent. 

Mr. Henderson. Will you say that again, Mr. Howe? 

Mr. Howe. This rate of interest required to maintain reserves is the 
amount of money which the company figures that they have to put out 
of the investment income into the reserves in order to maintain them 
according to their contracts. Now, in order to determine the relative 
amount of this money, we relate, as they do the net income in the gain 
and loss exhibit — we now turn and relate this to the same base, you see, 
namely, to the mean ledger assets. 

Mr. GrKSELL. Are you now speaking from schedule C ^ of the release, 
Mr. Howe? 

Mr. Howe. I am not speaking from schedule C, although the per- 
centages are shown on schedule C. 

Mr. Gesell. You mean the percentages of interest necessary to 
maintain reserves expressed in percent of the ledger assets can be 
shown on schedule C ? 

Mr. Howe. That is correct. 

Mr. Gesell. And that schedule also indicates, does it not, the 
amount and percentage of total assets earning less than the -interest 
required for policy reserves in the case of these companies? 

Mr. Howe. That is right. 

1 See Hearings, Part 10-A, p. 82. 

- "Exhibit No. 22G6," appendix, p. 15496. 


Mr. Gesell. I would like to offer this schedule for the record at the 
present time. 

Mr. Pike. Wliat year is that ? 

Mr. Howe. Those figures are for 1938. 

Mr. Gesell. As of December 31, 1938. 

The Chairman. The exhibit may be received. 

(The schedule referred to was m"arked "Exhibit No. 2266" and is in- 
cluded in the appendix on p. 15496.) 

Mr. Howe. The purpose of reducing this interest to maintain policy 
reserves to a percentage is to show the way in which the interest 
margin — that is, the interest earned in comparison to the amount 
which must be set up to maintain reserves — has declined; how the 
margin has declined relatively. 

Now, in 1939 the rates of interest required to maintain reserves were 
not greatly different from what they are in 1938, on the average. They 
were some higher but not greatly different. 

The Chairman. Table 83 shows that for all of these companies the 
margin has been maintained at not as large a figure as formerly.^ 

Mr. Howe. Oh, the margin is there, Senator. It has simply declined 
in relation to the amount necessary to maintain reserves. 

The Chairman. I observe also that this margin reached its lowest 
point in 1935. 

Mr. Howe. In terms of absolute dollars ; that is correct. 

The Chairman. And it increased in 1936, and then again in 1937, 
and though there was a falling off in '38, the margin for '38 is still 
about $7,000,000 greater than it was in '35. 

Mr. Howe. That is correct in terms of total dollars. In terms of 
proportions. Senator, you will See on table 84 that in 1929 the margin 
amounted to 56 percent of the amount necessary to maintain reserves.^ 
In 1936 it had declined to 13.65. 

Mr. Gesell. In 1938 it is the lowest shown on that table, is it not? 

Mr. Howe. That is correct. 

The Chairman. Please explain that term which you have used there. 
How did you divide this figure — expressed as a percentage, you say, 
required to maintain reserves? v 

Mr. Howe. From the gain ?ind lose exhibits we get the figure of the 
interest required to maintain reserves — this annual amount of money 
which must be added to reserves on account of the interest assumptions 
implicit therein. 

The Chairman. Am I to as meaning, for example, in 
1938, that the margin; that is to say, the excess over the amount re- 
quired in terms of percentage, is 13.65 percent? 

Mr. Howe. Is 13.65 per.cent of the amount of money which they had 
put into the reserves in the way of interest. In other words, you take 
your investment incpme 

The Chairman (interposing) . In other words, they earned all that 
was required and 13.65 percent more. 

Mr. Howe. That is right. 

Mr. Gesell. That is on the average. 

The Chaikman. And then it would appear that in 1936 that per- 
centage was the lowest for any years shown up to that time, namely, 
15.22, that it increased in '36 and increased in 37. 

1 See Hearings, Part 10-A, p. 83 
»lbid., p. 84. 


Mr, Howe. That is right. 

The Chadiman. That is to say, over '35, but '38 dropped below '35. 

Mr. Howe. That is correct. 

The Chairman. So that in terms of percentage, 1938 is the lowest 
of any of the years, although according to table 83 in terms of dollars 
it is greater than 1935 ? ^ 

Mr. Howe. That is correct. 

Mr. Gesell. And expressed in terms of expense there is a consider- 
able variation ir 1938, pointing both ways from that average, is there 
not? There are some places where the margin is very, very slight and 
some places where it is substantial. What is the range there? 
• Mr. Howe. The range is from 1.05 percent — ; — 

Mr. Gesell (interposihg). And what is the highest? 

Mr. Howe. The highest is New York Life, 30.45. 

Mr. Ptke. Are there any figures yet available — I don't suppose there 
are— for 1939? 

Mr, Ho^vE. There are not. I mean to say that the annual conven- 
tion forms in most cases have not been filed. We have written to the 
companies for them ; they have informed us that they will give them 
to us as soon as they are available. 

Mr. Pike. Then there is no evidence to show whether that downward 
trend continues except just the most general feeling? 

Mr, Howe. We have no specific information on 1939 as yet, except 
what has appeared in the press. 

Mr, Henderson, I think, Mr. Howe, one of the most important things 
about that margin is the wide variation which you ha,ve indicated 
from 1.05 to over 30, and also the fact that there were about 13 or 14 
below the average and 13 or 14 above the average. It is a wide range, 
which also would mean that this number below the average would 
tend to conceal that the experience of some companies is quite different 
from others. 

Mr. Howe, That is right. Expressed in points of yield, Commis- 
sioner, the margin varies from 0.7? of a point in the case of New York 
Life to 0.11 of a point in the case of Travelers, so that a decline in 
yield of those proportions is the margin which they have. 

Schedule C, which was introduced a moment ago, shows that 
there is another factor other than mere decline in yield that insurance 
companies have to contend with in investing their funds ; that is, there 
is a substantial proportion of their total assets which for one reason 
or another they have been unable to invest at rates which are necessary 
to maintain their reserves. 

Mr. Gesell. Will you tell us, Mr. How6, what type of assets are 
included in "Exhibit No. 2266"? 

Mr. Howe. The first is cash, the second is United States Government 
bonds, the third is bonds in default, the fourth is mortgages in de- 

Mr. Gesell. When you say "mortgages in default," you mean mort- 
gages delinquent as to interest 1 year or more? 

Mr. Howe. Yes. 

Mr. Gesell. You have not included in here the 3-month delinquen- 
cies, have you, only the year delinquencies ? 

» See Hearings, Part lO-A, p. 83. 


Mr. Howe. Only the mortgages delinquent 1 year or more are in- 
cluded. Then there is also the foreclosed real estate which on the 
average does not yield a return sufficient to maintain reserves. It is in- 
terestmg to see what proportion of the total assets are constituted 
by assets of the type we have been speaking of. On the average it is 
about 31 percent, and it varies from 55 percent down to 17. 

Mr. Gesell. You mean 35 percent, don't you ? 

Mr. Howe. No ; I mean 55 percent. 

Mr. Gesell. In the case of what company ? 

Mr. Howe. In the case of the Travelers, but that figure is subject to 
the qualification that they have a very large Government account. 

Mr. Gesell. And what is the low ? 

Mr. Howe. The low is in the case of the Connecticut Mutual, if I 
read this correctly, of 17.71 percent. 

Mr. Gesell. And an average of 31.19 ? 

Mr. Howe. An average of 31.19. 

Now, having looked quickly at the character of the composition of 
the insurance companies' assets and a little about the returns they have 
made on them, it is appropriate perhaps to consider the assets one by 
one from the point of view of the management of those assets. Per- 
haps the logical place to begin is on pages 106 and 107, on cash.^ 

Mr. Henderson. Before you get into that, Mr. Howe, this interest 
assumption which the companies have to earn is determined by their 
contracts with the policyholders, is it not ? 

Mr. Howe. That is right, it is stated in the contract. 

Mr. Henderson. And those contracts, many of them, have years and 
years to run ? 

Mr. Howe. Very long periods to run. Now, of course, there are 
many qualifications that can be made on that statement, but that is 
the fact that those are the rates which are stipulated in the contract, 
and if they don't earn them from this source or that source, they have 
to put up money at that rate. 

With respect to cash, on December 31, 1938 

Mr. Gesell (interposing). You are speaking now from tables 106 
and 107, are you not? ^ 

Mr. Howe. I am. The companies had free casji balances totaling 
$665,329,000. In 1929 these same balances amounted to only $102,- 
188,000. In recent years the companies have had a substantial varia- 
tion in the amount of interest earned on their deposits. The best per- 
formance in this regard has been in the case of the Pacific Mutual 
which in a year in which the year-end cash balance amounted to 
$3,856,000, earned $39,944 in interest on deposits. 

Mr. Henderson. Did yoii inquire, Mr. Howe or; Mr. Gesell, as to 
what they did particularly, whether there was anything special about 
what they did ? 

Mr. Gesell. I neglected to bring their letter and I will this after- 
noon,^ I wrote the Pacific Mutual because they are so far out west, 
and we didn't want to bring them on here, and asked them what they 
had done to brin^ about this especially outstanding performance in 
terms of interest income on cash balances, and the company advised 

1 See Hearings, Part 10-A. 

» See Hearings, Part 10-A, pp. 106 and 107. 

3 Infra, p. 14824. 


that they had made this interest on their cash balances and that it 
resulted from the policy of the company to get interest on their ac- 
counts — simply a one-sentence explanation. I will bring the letter for 
the record this afternoon. I haven't much to add to what the figures 
show here. 

Mr. Henderson. In other words, they "planned it that way." 

Mr. Gesell. That is about what they said. 

Mr. Pike. That is the only Pacific coast company in this list, as 
I remember. 

Mr. Gesell. That is correct. 

Mr. Pike. The policy of the banks might very well be different 

Mr. Gesell. The rates may be a little, higher there. 

Many of the companies shown on this schedule, however, as we will 
consider at a later time, have bank balances in the same banks as the 
Pacific Mutual.^ 

Representative Williams. Isn't there a provision now that they 
cannot pay on demand deposits? 

Mr. Howe. Not on demand deposits, but they can on time deposits. 

Representative Whuams. This includes time deposits? ^i? ' 

Mr. Howe. This includes time deposits. 

Representative Williams. In fact, that is the only place where we 
can get interest. 

Mr. Howe. Yes ; in this country. 

Representative Williams. In these Federal Reserve banks, mem- 
bers of the Federal Reserve System, they cannot pay interest on 
demand deposits. 

Mr. Howe. That is correct ; ever since the Glass-Steagall Act went 
into effect. Wasn't that in 1933 sometime? 

Representative Williams. Yes ; '35. 

Dr. LuBiN. May I ask the witness a question? Looking down the 
list here, Provident Mutual with $8,546,000 in cash earned $9,097,^ 
which I think is a better showing than even your Pacific Mutual, 
is it not ? 

Mr. Howe. No; it was not any better. The other people had only 
a 3-million cash balance and made $39,000, and these people had an 
8-million cash balance and made $9,000. 

Dr. LuBiN. I thought it was $90,000 ; I am sorry. 

Mr. Howe. But^ the fact is, as will be seen from the variation in 
the figures here, that some companies have had the policy of putting 
out money on time, and others have apparently restricted their depos- 
its to demand deposits. For instance, out of the total $665,000,000 
in cash balances, the companies have earned in the aggregate $273,000. 
Now, of that, the Metropolitan with a year-end cash balance of 
$108,000,000 collected $112,000 in interest. Of course, thac was col- 
lected on the time deposits, the "time" portion of the $108,000,000. 
Prudential received no interest. 

Mr. Gesell. On a balance of how much? 

Mr. Howe. On a balance of $95,676,000. 

Representative Willlams. That simply means they had all theirs 
on demand? 

' See Hearings, Part iO-A, p. 107. 

» See Hearings, Part 10-A, pp. 106 and 107. 


Mr. Howe. That is right. 

Mr. Gesell. It is a question of different management policy in the 
handling of cash balances, is it not? 

Mr. Howe. That is all. 

The New York Life made $43 on their $50,000,000 in cash, and the 
equitable with $112,000,000 made $42,000. We simply wish to point 
out the differences in management policy with respect to the handling 
of these various assets. 

Mr. Pike. They are all insignificant, however ; except for the Pacific 
Mutual hardly any of them made over one-tenth of 1 percent. ' The 
whole thing doesn't add up to anything. 

Mr. Howe. That is right. 

Mr. Henderson. It doesn't add up, in many cases, to pay the chief 
executive's salary, does it? 

Mr. Howe. Well, I imagin-e" not. 

Mr. Henderson. All right, let's go on. 

Mr. KoWE. Policy loans outstanding December 31, 1929, as shown 
by table 108, amounted to $ 1,923 ,000, 000. ^ By December 31, 1938, 
this amount had increased about $1,000,000,000, to $2,822,000,000. As 
previously explained, policy loans earned the highest rate of interest 
of any class of assets of the company, providing a gross return of 
5.79 in 1938. This return is indicated by table 109 with $163,474,000.^ 
Policy loans, it will be recalled, constituted 11.62 percent of total 
admitted assets on December 31, 1938, helving increased 46.75 percent 
since December 31, 1929. 

Mr. Henderson. And they produced about 20 percent of the income ? 

Mr. Howe. Yes. 

Mr. Gesei^.. The schedule, Mr. Howe, entitled ''Policy Loans and 
Income Therefrom," shows for the 26 companies, does it not, the policy 
loans outstanding at the end of 1938, the percentage of those loans to 
admitted assets, the interest earned on the policy loans, and the per- 
centage of the investment income attributable to such loans? 

Mr. Howe. That is right. 

Mr. Gesell. I would like to offer that schedule for the record. 
■ The Chairman. The schedule may be received. 

(The schedule referred to was marked "Exhibit No. 2267" and is 
included in the appendix on pp. 15496, 15497.) 

Mr. Howe. You will see. Commissioner Henderson, in that table, 
that on the average whereas the policy loans involved 11.62 percent 
of the total admitted assets, they produced 18.66 percent of invest- 
ment income. 

Mr. Gesell. There are some rather outstanding cases on this 
schedule, iare there not, Mr. Howe; such as, for instance, the Pacific 
Mutual, where the policy loans constituted a little over 15 percent of 
the assets, but accounted for almost 30 percent of the investment 

Mr. Howe. That is right. Union Central received more than 25 
percent of its gross investment income from policy loans. 

Mr. Gesell. On the average there is a difference as between 11.62 
expressed in terms of assets and 18.66 expressed in terms of invest- 
ment income. 

1 See Hearlngp, Part lO-A, p. 108. 
* Ibid., p. 109. 

124491-:-^l— pt. 28 9 


Mr. Howe. That is correct. 

Dr. LuBiN. Is there any other type of investment made by these 
companies where the percent of investment income is so much greater 
tlian the percent of admitted assets? 

Mr. Howe. Oh, no. Of course, it is frequently said by life-insurance 
executives that this 5% percent average return is only a gross return 
because of the fact that policy loans in general are made in relatively 
small amounts, and a study which was made of the business of the 
Metropolitan Life Insurance Co. by the New York State Insurance 
Department showed that, on the average, their cost of handling pol- 
icy loans amounted to three-fourths of 1 percent. That is to say, 
il their loans— which I don't think they did at that period— yielded 
them 534-percent gross, that their net yield would be 5. 

The Chairman. But it is also true, is it not, Mr. Howe, that policy 
loans aflFord the policyholder an opportunity for raising money wdiich 
he probably couldn't get any other way? 

Mr. Howe. Well, it is about the only loan. Senator, which a bor- 
rower can obtain at his option. After all, most loans are obtained at 
the request of the borrower at the option of the lender. 

The Chairman. And here it is at the option of the borrower? 

Mr. Howe. That is right. 

The Chairman. And he is not subjected to any duns and he is not 
required to pay upon the day set? This runs as long as he wants to 
allow it to run and pay the interest? 

Mr. Gesell. Both as to loan and interest. 

The Chairman. I say as long as he wants to pay the interest? 

Mr. Howe. As long as he wants to pay the interest. Otherwise it 
would wash out. 

The Chairman. And the interest rate which is charged on these 
policy loans is by and large low^er than the average rate for similar 
loans from any other source? 

Mr. 'Howe. Well, it is lower than you can borrow $20 any place. 

The Chairman. Let us say $1,000 — is it not lower? 

Mr. Howe. Senator, there are numerous cases in recent years in 
which policyholdei-s have been able on the security of their policy to 
borroAv at banks more cheaply than they could borrow at insurance 

The Chairman. That is an interesting fact, of course. How many 
instances of that kind are there? 

Mr. Howe. Well, I can't give you statistics on it, but there are 
organizations in New York who make a business of providing bank 
credit for policyholders on which they obtain loans at lower rates 
than the companies offer. 

The Chairman. Is that a recent manifestation ? 

Mr. Howe. I don't know how recent it is; obviously it was not 
going on in 1929. 

The Chairman. That problem may be a result of the general 
financial condition ; that is to say, other owners of capital who would 
like to get it out on good security see the opportunity of under- 
cutting the rate offered by the insurance companies and therefore bid 
for that business. 

Mr. Howe. They are doing so to some extent. 

Dr. LuBiN. Did you notice the ads in the Washington newspapers. 


in which certain banks are advertising loans on the cash value of 
policies at lower rates than those that the insurance companies give 
to you? 
- Mr. Howe. I haven't seen those. 

Dr. LuBiN. There have been some in local newspapers. One of the 
local banks is advertising they will lend money on cash values and 
the quoted rate, I believe, is less than you can get from insurance 

Mr. Howe. As far as my experience goes, in almost all cases in 
which banks lend on insurance policies, at least in recent years," they 
have loaned at somewhat lower rates than those obtainable from the 

Dr. LuBiN. My original question was raised because I had the im- 
pression — I; wanted you to correct me if I was wrong — that in a 
sense not only is your original loan guaranteed but also the interest 
is guaranteed. As long as that reserve is sufficiently great to cover 
that interest charge, it is automatically deducted from the face value 
of your policy so the company is guaranteed not only its principal 
but its interest. 

Mr. Howe. That is right. 

Mr. Kades. Mr. Howe, have companies in time of stress always 
honored the obligation to make loans ? 

Mr. Howe. I think they have, with the exception of the period of 
the moratoria which we are going to discuss a little later on. I have 
some data on moritoria which I will present later. I would be glad 
to discuss it now. but I thoug'ht I might better put it in orderly se- 
quence, -^side irom a relatively short period, they have always 
honored their obligations, the companies which have not failed. 

Now, it might be useful, just quickly to emphasize the importance 
of policy loan interest to Lhe insurance companies themselves. 

The importance of income from policy loans to insurance companies 
is indicated by the fact that during the 10-year period ended December 
31, 1938, $1,503,048,000 was collected from interest on policy loans. 
That is shown in table 109, $1,503,048,000.1 

The Chatbman. In order to make that a little bit clearer, how many 
policyholders contributed to that interest? Do you know? 

Mr. Howe. How many policyholders? 

The Chairman. In other words, how many individual policy loans 
were there? Do you know? 

Mr. Howe. I have no figures on that, sir. 

The Chairman. You did have the figure as to the total number of 
policyholders for these 26 companies? 

Mr. Howe. Oh, yes. 

The Chairman. That figure was what? 

Mr. Howe. For these, 26 companies the total number of policyholders 
is 98,000,000. 

Mr. Gesell. The total number of policies. 

Mr. Howe. Policies, not policyholders, at the end of 1938 was 
98,054,000 policies. 

The Chairman. But you don't know how many of those policies 
were the basis for loans? 

1 See Hearings, Part 10-A, p. 109. 


Mr. Howe. No ; I do not. 

Mr. Gesell. You will recall Mr. Buckner's testimony to the effect 
that the average loan of his company was around $400 and that it was 
between a third and a half of the policyholders of his company who 
borrowed on policy loans.^ 

The Chairman. Yes. Thank you very much. 

Mr. Gesell. Nearer a third, I believe he said. 

Mr. Howe. The $163,474,000 collected from interest on policy loans 
in 1938 was equivalent to over 55 percent of the total amount disbursed 
as dividends on ordinary insurance in 1938, and was also equivalent, 
just to show the general importance of it, to over 147 percent of the 
aggregate gain from interest during that year. Further indication of 
the importance of this income is obtained from the fact that certain 
companies received more than 25 percent of their total investment 
income from policy loans, as I have already indicated from the table.^ 

Mr. Gesell. The next asset you wish to discuss is bonds. Is that 
correct ? 

Mr. Howe. That is correct. We pay no attention to collateral loans 
because it is too small an item. 

The Chairman. Well, what can you tell us about the type of col- 
lateral loan? Though it may be a small item, on what type of col- 
lateral are these loans made? 

Mr. Howe. They are mostly made on the security of collateral 
which the companies could have purchased for investment in the 
first place. 

The Chairman. This type of business is the type which would be 
in competition with ordinary banks, is it? 

Mr. Howe. Well, the insurance companies don't make brokers' 
loans, for instance, on stock exchange collateral. 

The Chairman. I am not thinking in terms of New York or any 
stock exchange. I am thinking in terms of the small town, the small 
city. The collateral loans mentioned in this compilation are ordinary 
loans on ordinary collateral, are they not? 

Mr. Howe. Most of them are on about the type of collateral the 
insurance companies could have bought in the first place, so it doesn't 
greatly expand their legal ability to invest over a broader field. 

The Chairman. To what type of borrower are these loans made? 

Mr. Howe. Well, so far as I can find, they are mostly favorites 
of one sort or another. 

The Chairman. They are not made to policyholders, as such? 

Mr. Howe. No. 

The Chairman. And they are not made to large corporations as 
such ? 

Mr. Howe. In general ; no. They are made to individuals who put 
up security of these corporations, or other securities which the com- 
pany is entitled to loan upon or to accept as collateral. 

The Chairman. Are these loans made at the home office or to per- 
sons living in and around that area or are they scattered throughout 
the United States? 

Mr. Howe. I can't really answer that question. I think, in general, 
they are not scattered. You will notice that the amount of them alto- 
gether is only some 

I Supra, p. 14742. 

= See Hearings, Part 10-A, p. 9. 


Mr. Gesell (interposing). It is only $2,324,000. 

The Chairman. For all the companies? 

Mr. Howe. For all the companies. 

Mr. Gesell. A representative ^ of the Lincoln National is under 
subpena to appear in connection with these hearings and discuss 
collateral loans made by that company. You will at that time have 
a chance to get a better look-in at it. 

You are about to discuss the bonds. 

Mr. Howe. Yes. The most striking thing about it, of course, is that 
this is the place in which the growth in insurance company assets has 
taken place for the rnost part, in the bond account. That is where 
the expansion has taken place during the 10-year period. 

As we have emphasized previously, Governments have increased 
1,394 percent and industrial and miscellaneous bonds 460. 

Now, from table 122, we see the acquisitions of bonds.^ This in- 
cludes the United States Government bonds and all other bonds, and 
the total for the period is $15,246,000,000. 

Mr. Gesell. That is all bonds of any description that were acquired 
by these 26 companies? 

Mr. Howe. That is right; all bonds of any description acquired by 
these companies during the period from January 1, 1932, to December 
31, 1938. 

Mr. Gesell. And that figure is $15,246,000,000. It that correct? 

Md. Howe. That is correct. 

Mr. Gesell. And bonds in the portfolio at the present time repre- 
sent, on the average, over 50 percent of the portfolio ? 

Mr. Howe. That is correct. Fifty -three percent. The United 
States Government bonds which have been acquired aggregate 
$8,343,000,000 of this amount, and other bonds only $6,903,000,000, as 
shown by the table on page 124.^ 

Mr. Gesell. Have you tables showing the different methods pur- 
sued by the company in the acquisition of these bonds ? * 

Mr. Howe. We have. The methods which were used in the acquisi- 
tion of these bonds were several. Some bonds were purchased at 
public bidding; others were purchased from dealers or bankers, in- 
vestment bankers, as they used to be called; still others in the open 
market; others were purchased privately. We might analyze for a 
moment the various methods by which this was done. 

Mr. Gesell. You are talking with respect to bonds other than 
Government's now — the $6,903,000,000 acquired of other bonds? 

Md. Howe. That is correct. 

Mr. Gesell. How many of those were acquired at public bidding? 

Mr. Howe. $81,025,000, of which $46,807,000 were acquired by the 

These bonds acquired at public bidding, of course, involve both 
equipment trust certificates customarily sold that way, and probably 
some municipals. Table 127 shows "Bonds of new issues purchased 
from bankers."^ 

Mr. Gesell. What do you mean by bonds of new issues? Do you 
mean bonds from dealers? 

' Mr. Arthur M. Hall, whose testimony appears infra, p. 14931. 

» See Hearings, Part 10-A, p. 122. 

3 Ibid., p. 124. 

* Ibid., pp. 126-132. 

Ubid., p. 127. 


Mr, Howe. Yes ; the type of underwriting leading financial houses 
in New York engage in. These are the portions of those underwritings 
whicli have been purchased by tlie companies on this list of 26 largest 
companies within 90 days of the offering date. 

Tlie ChiAiKMAN. When you speak of a new issue do you wish to 
include those which are issued to refinance recalled bonds? 

Mr. Howe. Yes ; I am not going back of the purpose of the issue at 
all, but am speaking of all the new issues. 

So there were $2,537,000,000 acquired in that way. In the open 
market — now that doesn't necessarily mean exclusively the stock mar- 
ket by any means, but in the open market — in the open market 
$2,149,000,000 in bonds were acquired. 

The Chaikman. The difference, then, was just about $400,000,000? 

Mr. Howe. Yes ; about $400,000,000 more acquired from new issues 
than from bonds which were otherwise outstanding. 

The 'Chairman. Well, from new issues purchased from bankers? 

Mr. Howe. Right. But the caption of that table might possibly be 
misleading. Senator. I don't mean from commercial bankers ; I mean 
from investment bankers and dealers and people of that sort. 

The Chairman. Is this intended to reflect the amount of sales pr 
purchases made without competitive bidding ? 

Mr. Howe. The element of competitive bidding has not been con- 
sidered in the organization of these figures. I am very sure that most 
of these bonds have not been purchased by competitive bidding but 
some of them may have been. 

The Chairman. Then this table is of no significance so far as that 
question is concerned ? ^ 

Mr. Howe. No significance whatsoever as far as that particular 
question is concerned. 

Representative Williams. Are there any direct purchases from the 

Mr. Howe. Yes; I was coming to that on table 129.^ We show it. 

Mr. Gesell. What have such purchases totaled ? 

Mr. Howe. Such purchases have aggregated during the period of 
these 7 years 

Mr. Gesell (interposing). That is, from 1932 to 1938? 

Mr. Howe. The beginnmg of 1932 to the end of 1938, $1,850,000,000. 

It is very interesting to notice the concentration of these purchases 
in the largest life insurance companies: For instance, of the $1,850,- 
000,000 of private purchases, $649,000,000, or 35.7 percent of the total, 
were purchased by the Metropolitan Life Insurance Co. 

The Chairman. What is that percentage? 

Mr. Howe. It is 35.7. Nineteen and seven-tenths percent of the total 
was purchased by the Prudential ; 8.6 percent were purchased by the 
New York Life; 18.7 percent were purchased by the Equitable; and 
5.4 by Mutual of New York. 

Mr. Gesell. What is that total for the top five ? 

Mr. Howe. Eighty-eight percent of the total purchased was pur- 
chased by the top five companies. In 1938 the top five purchased 
about the same proportion as they did during the entire period, but 
the relative position of the companies changed greatly due to the very 

• See Hearings, Part 10-A, p. 127. 

* Ibid., p. 129. 


great emphasis which the Equitable put on private purchases during 
that year. 

The Chairman. It would appear from the table that there was a 
general trend among all the companies to purchase bonds in this 
manner, although, as you pointed out, the greatest amount of pur- 
chases by far were made by the larger companies. 

Mr. Howe. The. practice seems to be growing and spreading, as 
you look at this table, although by far the largest amount of it has 
up to the end of 1938 been done by these five great, billion-dollar 

Mr. Gesell. As you look back at 1932, 1933, and 1934, almost half 
the companies participated to no degree at all. and in recent years 
have received some 

The Chairman (interposing). That is to say, there were 14 com- 
panies which in 1932, 1933, and 1934 — that is, the 14 smaller com- 
panies — did not participate at all, and the Equitable and the Mutual 
of New York, Northwestern, Penn Mutual, didn't participate in 
either 1932 or 1933, so it is a new development, isn't it? 

Mr. Howe. That is right. 

Dr. LuBiN. Mr. Howe, in comparing the table on page 128 with the 
table on page 129,^ I get the impression that, at least as far as the 
five leading companies were concerned, the purchase during this 
period of 6 years of securities directly from issuers was far- ig^excess 
in terms of dollar value than the purchases in the open market. Is 
that correct? 

Mr. Howe. That is correct. As a matter of fact, Dr. Lubin, if you 
will look at table 131, it shows that the percentages of the total cor- 
porate purchases — that is, of course, those bonds which might pos- 
sibly be done as private deals, excluding Governments — in other 
words, of the total corporate purchases of these companies, the Metro- 
politan acquired 67 percent in 1938, privately; the Prudential ac- 
quired 64 percent of its corporate purchases privately ; the New York 
Life, 53 percent; the Equitable, 62; and the Mutual, 64 percent.^ 

The Chairman. Of course, as this trend develops, it means that a 
larger and larger proportion of these bonds are being purchased 
directly by these companies, with the premiums or the savings of the 
policyholders, which are transmitted to them, and that opportunity 
to purchase these issues is constantly being withdrawn from the ordi- 
nary investor? 

Mr. Howe. Yes. That is of special significance in view of the fact 
we brouglit out the other day that tlie total debt, the total corporate 
debt, available for purchases during the 10 years has declined about 

The Chairman. And did you not have the figure to show what 
percentage of these bonds have been acquired in recent years by the 
companies, the life-insurance companies? 
Mr. Gesell. Yes; the table on 125.^ 

Mr. Howe. Table 125, Senator, shows the total number of corporate 
issues put out by all American companies of which we have record. 
That is the good, bad, and indifferent bonds and notes. 

' See Hearings, Tart 10-A, pp. 128 and 129. 
"IbM., p. 13]. 
a Ibid., p. 125. 


Mr Gesell. And without regard, I believe you said, to whether or 
not those bonds and notes are legal investments for the •companies. 

Mr Howe That is right, without regard to whether they are legal 
far the companies or whether they are issued publicly or pn/ately, 
the total figures of issues range from $515,000,000 m 1934 to $4,254,- 
000,000 in 1P36, and then reach $2,187,000,000 in 1938. These coni- 
panies purchased respectively, these 26 companies, 23.7 percent m 
1934; 24.8 percent in 1935; 24.5 percent in 1936; 48.9 percent in 193 < ; 
and 47.7 percent in 1938, of all of the new corporate bonds and notes 
which were available. 

The Chairman. Now, inasmuch as the companies naturally re- 
stricted their purchases to the higher grade bonds, it means that the 
52 percent which was left in 1938 for the balance of investors was 
naturally largely made up of lower grade securities. 

Mr. Howe. Certainly, all the lo^v-grade securities were in that 
group, so that the competition for acquisition of these bonds is great- 
est in the highest quality classification. 

The Chairman. Of course, it probably would be proper to say that 
life-insurance companies would naturally try to get the best bonds 
and ought to try to get the best bonds. 

Mr. Howe. They do. . That is right. There is no question about 

Mr. Gesell. Have you some figures on redemptions, Mr. Howe? 

Mr. Howe. Yes ; I have some figures on redemptions. It. will be 
noted quicklv from table 133 that during the period from 1932 to 
1938 these 26 life-insurance companies sold only $2,469,000,000 bonds.^ 
And of this amount $1,702,000,000 were United States Governments, 
so that of other bonds, they sold only $767,000,000. 

Redemptions, on the other hand, that is, bonds which were called 
prior to maturity and bonds which matured, aggregated $4,942,- 
000,000, more than twice as much as the sales, and United States 
Governments accounted for $2.206,000;000 of this total. 

Mr. Gesell. "VVliat is the explanation on table 133 of the great num- 
ber of bonds appearing as sold as against the name of the Equitable 
of New York? ^ That figure, it appears, all during the years shown 
on this table except for 1932 and 1933, is substantially greater than any 
of the other companies, including the companies larger than it. Have 
they been in and out of the market more? Is that the explanation 
of It? ... 

Mr. Howe. Yes; I believe that is the explanation of it. Certainly 
their turn-over of Government bonds has been very much higher than 
other companies'. 

The Chairman. It will be noted from your company table on page 
129, with respect to the Equitable, that from 1932 tp 1937 its purchases 
were comparatively small ; nothing for 1932, nothing for 1933, nothing 
for 1934, $54,000,000 for 1935, $28,000,000 for 1936, $31,000,000 for 1937, 
and then it jumps to $225,000,000,' and that is the same year in which 
you have found the large sale of bonds as reflected in table 133.^ 

Mr. Howe. That is right. 

' See Hearings, Part 10-A, p. 133. 
» Ibid., p. 133. 
'Ibid., p. 129. 


Dr. LuBiN. Isn't it true, on the other hand, that Mutual, which also 
apparently followed policies similar to that of the Equitable in the 
purchase of securities from private issuers, had an entirely different 
experience when it came to redemptions ? 

Mr. Howe. Yes ; I think so, in all probability. Although I haven't 
had an opportunity to analyze it in detail, I think the Equitable has 
probably handled more short-term Government's than some of the 
other companies, and naturally that brings about a higher turn-over, 
whether they sell them or whether they are redeemed. 

Mr. Gesell. This table isn't all Government's P It is Govern- 
ment's and all other bonds, isn't it, Mr. Howe? 

Mr. Howe. Table 133 is Government's and all other bonds. 

Mr. Gesell. Do you account for the $664,000,000 figure as entirely a 
turn-over in Government's in the case of the Equitable, or had they 
been in and out on all issues? 

Mr. Howe. $605,000 of that is sales of Government bonds, as shown 
by table 134.^ 

The Chairman (interposing). I notice a change in the method of 
acquiring industrial bonds and so-called private bonds. Have you 
any comments on the changes of method in acquiring Government's? 

Mr. Howe. Well, of course. Government's are acquired under the 
regulations which the Treasury sets up. 

Mr. Henderson. That is, new issues ? 

Mr. Howe. New issues; yes. 

Mr. Henderson. The rest of it is bought in the open market. 

Mr. Howe. Naturally the rest is bought in the open market from 
banks or large Government traders in New York, but as far as new 
issues are concerned, the offerings are sent to the Treasury and allot- 
ments are made. 

Mr. Gesell. Have you any evidence as to there having been any 
change in the method of obtaining Government bonds or is it simply a 
change in the amounts? 

Mr. Howe. I think it is mostly a question of amounts. There have 
been some slight changes over the period of the last 7 yeai-s in the way 
Government honds have been handled at various times but they are 
matters of detail and not matters of great significance. 

It will be seen from a combination of the sales and redemption 
figures and of the purchase figures that of the $6,903,000,000 of bonds 
other than the United States Government's purchased, by life-insur- 
ance companies since January 1, 1932, $2,736,000,000 efr 39.5 percent 
were purchased to replace bonds which had matured or which had been 
called for redemption. 

In order to get a little clearer angle on the bond account, it may be 
interesting to look at the table on page 155.^ This table compares the 
cost and market value of bonds owned by the various companies. It 
will be seen, for instance, in 1938, that in spite of the amazing recovery 
which the bo^d market has made in the past 7 years and in spite of the 
fact that the level of bond prices is now at almost a world's record 
peak, the aggregate cost of the bonds owned by these 26 companies 
exceeded their market value on December 31, 1938, by $360,000,000. 

• See Hearings, Part 10-A, p. 133. 
= Ibid., p. 134.: 


The Chairman. Where does that figure appear? 

Mr. Howe. And table 155, Senator, in the next to the last column on 
the page. You will see a minus sign, 360,156,000.^ 

Mr. Gesell. That is the difference between the market value and the 
cost value of bonds and stocks held by these companies as of December 
31, 1038, is that correct? 

Mr. Howe. That is correct. 

Representative Williams. Are you going to explain why that is? 

Mr. Ho^vE. I hope to. 

Representative Williams. I was wondering, if the statement you 
made that tlie fact that the bond market now is unprecedentedly high 
is true, how it is they have paid more for them than they are now 
worth ? 

Mr. Howe. That is because of the railroad situation, largely, sir. 

Representative Williams. All right. 

Mr. Howe. Of course, the difference between the cost and the 
market value of a portfolio at a given date reflects, first, the type of 
securities which were purchased for the portfolio, and second, the 
type of securities which were thrown out of it, as a house-cleaning 
proposition as time goes on — because every investment portfolio 
requires constant combmg over no matter how good its initial quality 
was. So that to some extent I have thought of these percentage fig- 
ures, the differences expressed in percentages to market value, as a 
sort of house-cleaning index. 

And it will be seen, for instance, that of the first five companies, the 
Prudential's excess of cost over market is the smallest in percentage 
of any of the companies shown, namely, 0.8 of 1 percent. 

Mr. Gesell. It is equaled by the Western and Southern, is it not ? 

Mr. Howe. It is equaled by the Lincoln National, not the Western 
and Southern. 

The Chairman. And the John Hancock. 

Mr. Howe. The John Hancock; right. 

Now, there are tAvo explanations for that. One is the volume of 
sales which these companies have undertaken, the courage they have 
displayed in throwing out everything that seemed to be weak. It 
is always a hard thing to sell investments for liie insurance com- 
panies because you are always selling the bond that yields 4Vo or 5 
percent and turning around and buying high-grade bonds which 
yield much less. So there is a psychological deterrent except when 
the broad problem of keeping the security paramount is considered. 

The Chairman. Of course, there is another factor, I suppose, 
which ought to be taken into consideration in evaluating these fig- 
ures, namely, that the statutes fixing the legality of issues for invest- 
ment by insurance companies were all drawn before the depression. 

Mr. Howe. Yes; I thnik so. 

The Chairman. So that conditions with respect to the inherent 
value of some types of bonds, which have been descril)ed as legal 
investments for trust funds, are very different now from what they 
were at the time the statute was drawn? 

Mr. Howe. That is right ; there has been a whole new crop of laws 
during the past couple ot years, but these bonds represent purchases 
largely underprevious laws. 

' See Hearings, Pnrf 10-A, p. 155. 


Now, it will be observed that there are some cases in which the 
market value exceeds the cost value. For instance, we get down here 
to the Penn Mutual, the market value of whose portfolio exceeds the 
cost, and then we come down to the Bankers' Life of Iowa, where the 
market value exceeds cost ; the National- Life of Montpelier, Vt. ; 
Equitable of Iowa ; and the Western and Southern. 

Mr. Gesell. These are companies shown on here with a plus 
figure ? ^ 

Mr. Howe. That is right. They are the ones I am pointing to. And 
the interesting point about that is that in the case of the last four 
companies I mentioned, namely, the Bankers' Life, the National Life, 
the equitable of Iowa, and Western and Southern, they own no rails. 
Even in the case of Penn Mutual, which has 8.53 percent of the total 
assets invested in rails, they have been so managing their portfolio 
that their present market value exceeds the cost. 

Mr. Gesell. That is striking. You brought that out in the case 
of National Life, did you not, which^has the highest plus figure on 
this schedule, and, as I recall, is a company that never at arjy time 
bought any railroad securities ? 

Mr. Howe. That is right. 

Mr. Gesell. Even back in 1906. 

Mr. HowTE. That is right — never bought any rails for many, many 

Dr. LuBiN. May I ask one question at this particular point? The 
statement on page 155, which shows the cost value, market value, and 
difference between market value and cost for December 31, 1932, and 
December 31, 1938,^ doesn't in any sense, however, show what has 
happened to the value of investments in the sense that a company may 
have had, say, the difference between cost and market value may have 
been 22 percent at one time and zero at another ; that washing out may 
have been brought about, may it not have, by taking losses on such 
securities as they sold ? 

Mr. Howe. Yes — well, no; I point out that this column is cost value, 
you see. Now, the companies have taken write-downs on bonds, for 
instance, during this period of 10 years in the aggregate amount of — 
I think it is about $605,000,000. I don't remember accurately, but that 
does not show in this cost figure. This goes back to original money 
paid out. 

Dr. LuBiN. In other words, a company tliat happened to have 
bonds that erst a million and which Avere valued at 'half- a million 
sold them, thereby getting rid of all bonds in their portfolio which 
cost them more th"an the current market value they took that loss 
which is not shown in this table ? ^ 

Mr. Howe. That is right. This l^as nothing to do with whether 
the companies have taken losses. Th^ have taken substantial losses. 

Mr. Pike. You could sell and buy again and set up new costs dur- 
ing this period and probably many did? 

Mr. Howe. Oh, yes; there were instances in which high-grade 
bonds were sold and funds invested in substantially the same securi- 

^ See Hearings, Part 10--A, p. 155. 
» Ibid. 
» Ibid. 


Mr. Pike. You could do almost the same thing with low-grade 
bonds to get rid of the losses in the portfolio. You looked over this 
thing in detail, and I think you feel from what you said that, by and 
large, these losses represent losses in railroad securities more than 
anything else? 

Mr. Howe. Overwhelmingly more than anything else. As a mat- 
ter of fact, I think that I have schedules here which show that in the 
Baa bonds the losses in rails are greater than the total losses in the 
group, so there is a profit in the remainder. That is not true. of the 
Ba bonds. 

Mr. Pike. Those are bonds that declined since purchase? They 
wTere not purchased as of that grade? 

Mr. Howe. I believe that is correct. 

The Chairman. We will stand at recess until 2 o'clock. 

(Whereupon, at 12 noon, a recess was taken until 2 p. m. the same 


The committee resumed at 2 : 05 p. m. on the expiration of the 

The Chairman. The committee will please come to order. 

Mr. Gesell, are you ready to proceed? 

Mr. Gesell. Yes. This morning a question came up ^ about the 
Pacific Mutual's cash balances and the interest that it earned on them 
and I advised the committee that I would have the letter that we 
received from them for the record this afternoon. It is addressed 
to Mr. Howe and signed by Mr. Call, executive vice president, stating 
as follows: 

De:ab Sib: This is in reply to your communication of January 23. 

This company had on deposit in banlis on December 31; 1938, the total sura 
of $3,856,000. This is the same sum as is shown in your "Investment Analysis, 
Table 106." Of this amount the sum of $3,403,037.12 was on deposit with var- 
ious California banks, at interest. Most of it was carried in the form of Cer- 
tificates of Deposit, the balance as Term Deposits. The rates of interest re- 
ceived from these deposits vary from 1% to 2%. The interest income received 
thereon in the year 1938 was the sum $39,944, as is indicated in Table 107 of 
your Investment Analysis. 

It has been the policy of this company, as far as practicable, to keep its cash 
balances earning interest, as- above indicated. 
Very truly yours, 

Mr. Howe, will you return to the stand, please? 


Mr. Gesell. At recess, Mr. Howe, we were about to discuss farm 
mortgages and farm real estate. Will you continue your statement at 
that point, please? 

Mr. Howe. From 1929 to 1938 farm mortgages owned by these 26 
companies declined from $1,787,000,000 to $743,000,000. This decline 
was contributed to largely by foreclosures. 

' Supra, p. 14811. 


On December 31, 1938, over 50 percent of the farm-mortgage ac- 
count owned by these companies was owned by the Prudential, North- 
western, Equitable, and Metropolitan. 

Senator White. May I interrupt right there? You say this shrink- 
age in farm mortgages was contributed to largely by foreclosures. 
Have you the precise figures as to foreclosures? 

Mr. Howe. I have the figures, Senator, with respect to foreclosures 
for the 7 years from January 31, 1932, to December 31, 1938. This 
appears on table 165, which indicates that in the case of these 26 com- 
panies, or at least approximately 20 thereof who Engaged in farm 
lending, foreclosures in the amount of $669,559,000 tqok place within 
this period.^ 

Mr. Gessell. That is from 1932 to 1988? 

Mr. Howe. That is from 1932 to 1938 ; yes, sir. 

Senator White. Do you know what part of the whole total of fore 
closures that amounts to ? 

Mr. Howe. I think that is most of them. I haven't figures prior 
to 1932. 

Mr. Gesell. Do you know, Senator, the percentages of foreclosures 
by all classes of lenders ? 

Senator White. As referred to in this statement ? The witness said 
that the decline was accounted for largely by foreclosures. Now, I 
was interested to know, out of that $1,787,000,000, how much was 
accounted for by foreclosures ? 

Now, for a period of 6 or 7 years you give a figure of $669,559,000. 
That is, roughly, a third. 

Mr. Howe. The decline. Senator, has been about a billion dollars. 

Senator White. That is right. 

The Chairman. Let us call the Senator's attention to the table on 
page i61, beginning with 161.^ There is the table of all farm mort- 
gages owned. ,. ' 
. Senator White. I was confused. I thought the decline was 

Mr. Gesell. From $1,787,000,000 to $743,000,000., 

Mr. Howe. I was saying of the farm-mortgage account on December 
31, 1938 over 50 percent of. the farm-mortgage account owned by these 
companies was owned by the Prudential, Northwestern, Equitable, and 
Metropolitan. The Prudential held the largest amount at 
$167,298,000. . 

The Chairman. Perhaps in connection with what Senator White 
was referring to, it might be well to cair attention to the fact that as 
shown by table 161,^ the amount of farm mortgages owned declined 
from $1,787,000,000 in 1929 to $743,000,000 in 1938." 

Mr. Howe. That is correct, Senator. 

The Chairman. That is shown by table 164, beginning with 1932, 
farm mortgages were repaid in full for 1932 amounting to $48,508,000 ; 
$51,290,000 in '?3 ; $198,369,000 in '34; $150,044,000 in '35 ; $106,817,000 
in '36; $87,766,000 in '37; and $63,313,000 in '38.^ 

Mr. Howe. A total of $807,869,000. 

iSee Hea igs, Part 10-A, p. 165. 
= Ibid., p. 81. 
»Ibd., p.. 164. 


The Chairman. While farm mortgages foreclosed, the record is 

. , , . .^» 1 .1 . • aril? A(\A f\f\f\ i^ 'QO. Cil PiA f^zin Ann 

to 1938, inclusive, of $069,559,000.^ 

Mr. Howe. That is correct. 

The Chairman. And then there is another table which shows the 
farm real estate owned by the companies. Wliere does that table 

Mr. HoA\'E. That appears a little later on, Senator. Farm real 
estate owned.^ , . . 

The Chairman. This tells the story of real estate owned rising from 
$81,907,000 in 1929 to $529,392,000 in 1938? 

Mr. Howe. That is correct. 

Mr. Gesell. With that hi^h in 1934 of $456,705,000? 

The Chairman. No; '36 is higher. 

Mr. Gesell. I might say that tomorrow we are going to present in 
detail information on the insurance investments in farm mortgages and 

The Chairman. Yes, I understand. 

Mr. Howe. Of the four largest holders of farm mortgages only 
the Prudential's farm mortgage account has increased in recent years. 
That applies quite ger^erally throughout the entire list of 26 companies, 
that only the Prudential's farm mortgage account has been expanded. 
You can see that on table 161.^ 

Mr. Henderson. Prudential was declining down to 1935 and has 
increased every year since then. 

Mr. 'That is correct. 

Mr. Henderson. And it is the only one ? 

Mr. Howe. I believe that is true. They are the only one active 
enough in the farm-mortgage market so their total account has ex- 
panded during the period. 

Over 25 percent of all the farm mortgages owned by the 26 com- 
panies was secured upon land located in Iowa, and over 55 percent of 
such mortgages were secured upon land located in Iowa, Illinois, Kan- 
sas, and Nebraska. 

One hundred ten million dollars, or 14.71 percent, of farm mortgages 
had interest in default 3 months or more. About $40,000,000 of these 
mortgages, or 36.4 percent, were so-called work-out cases — that is, cases 
in which the lender has taken some steps other than foreclosure to pro- 
tect its interest. 

Twenty-four million dollars, or 21.8 percent, were in foreclosure^ 
This compares with $69,632,000 farm mortgages with interest delin- 
quent 1 year or more. 

The leading owners of farm real estate are in some cases different 
from the leadmg lenders. The largest owner of farm real estate is the 
Metropolitan, with $83,000,000; Equitable follows with $67,000,000;, 
Mutual Benefit, $50,000,000; John Hancock, $49,600,000; Prudential, 
$48,800,000; Union Central, $43,600,000; Northwestern, $25,000,000. 

The Chairman. What was the percentage of mortgages on South 
J)akota and North Dakota real estate? 

• Ibid., p. 165. 
-Ibid., p. 180. 
'Ibid., p. 1(51. 


Mr. Howe. These 26 companies had owned farm mortgages on De- 
cember 31, 1938, in North Dakota to the extent of $4,395,000, or 0.58 
percent of the total mortgage accounts. In South Dakota the invest- 
ment was $18,131,000, or 2.4 percent of the total farm-mortgage 
account of the 26 companies. 

Mr. Gesell. Information as to geographical distribution starts at 
page 167.^ 

The Chairman. Thank you. 

Mr. Howe. The companies listed above sold the following percent- 
age of their farm real estate : Metropolitan, 17 percent ; Equitable, 12 
percent; Mutual Benefit, 19 percent; John Hancock, 29 percent; Pru- 
dential, 58 percent; Northwestern, 46 percent. 

The following percentage of farm real estate has been held 5 years 
or more by the companies indicated : Metropolitan, 64 percent, Pru- 
dential, 46 percent; Northwestern, 39 percent. 

Senator White. May I ask you a question there ? 

Mr. Howe. Mutual Benefit, 48.02 percent. 

Senator White. You say of these companies only the Prudential 
farm-mortgage account has increased in recent years. Then I note 
that Prudential has sold 58 percent of its real estate. 

Mr. Howe. Yes; the mortgage account — I am speaking of mort- 
gages which they own, and when I speak of real estate I am speaking 
of real estate acquired in satisfaction of debt. In other words, they 
have acquired some real estate and 58 percent of it they have sold back 
to the farmers. 

Senator White. This doesn't mean 58 percent oi their mortgages? 

Mr. Howe. No ; 58 percent of the foreclosed farm real estate has been 
resold to the farmer's. 

Of the $18,000,000 gained over adjusted book value received from 
the sales of farm real estate, 14,000,000 was the Prudential's. The 
Prudential and the Union Central are the only ones of the large 7 
holders i>f farm real estate which showed an operating loss on that 
real estate in 1938. 

Now, there obviously is a great deal more detail which can be given 
on this farm real estate but in view of the fact that extended hearings 
are planned on it, I thought perhaps we might economize the com- 
mittee's time and get rapidly along to urban real estate and some of 
these other subjects. 

The Chairman. Very well. 

Mr. Howe. With respect to urban mortgages and urban real estate 
we find, from 1929 to 1938, mortgages declined from $4,418,110,000 
to $3,888,045,000. 

Table 194. From 1929 to 1931 there was an increase from 
$4,418,000,000 to $4,849,000,000 while urban real estate acquired in 
satisfaction of debt increased from $12,000,000 on December 31, 1929, 
to $68,000,000 on December 33, 1931.^ 

The Chairman. May I interrupt and say that the coinmittee is 
fortunate to have present this afternoon Commissioner Palmer of the 
State of Illinois. Mr. Palmer, the committee ^ill be very glad to 
have you ask any questions that may occur to you during the testi- 
mony, if you desire. 

1 See Hearings, Part 10-A, pp. 167-171. 

2 Ibid., p. 194. 


Senator White. May I take occasion, during the interruption, to 
osk a question which may not be of general interest, but it is to me. 
On table 168, I notice there are no farm mortgages owned in the 
State of Maine.' How does that come about ? if^en't there any bor- 
rowers, or does the law prohibit, or has the Federal Government got 
them alH • 

Mr. Ho\m The law does not prohibit it. That is one of the very 
striking features of this whole situation, the concentration of lending 
by insurance companies in the States which I mentioned, primarily 
Iowa, whcli has 25 percent of the entire farm mortgages. 

Mr. Gesell. I believe you said 55 percent of the farm mortgages 
•were in Iowa, Illinois, Kansas, and Nebraska? 

Mr. Howe. That is c6rrect. 

Senator White. I notice neither Maine nor Massachusetts had any 
of these mortgages. The companies had none of the mortgages in those 
two States. I wondered if there were some peculiarity of the law or 
of the people, 

Mr. Gesell. We will get to that when we have the gentleman from 
the companies who have been loaning on the stand. 

The Chairman. That is true of Delaware as well as Maine. 

Mr. Howe. New Hampshire. 

The Chairman. Nevada and New Hampshire. 

Mr. Gesell. I think you will find the loans are rather negligible 
even in New York State. 

The Ch iiRMAN. Rhode Island has none. Vermont has only $1,000. 

Mr. Ho ve. Yes ; a thousand dollars. 

The Chairman. And Wyoming has $50,000. . 

Mr. Gesell. We are going to have on the stand Mr. Rogers of the 
Prudejitial ^ and Mr. Rogers of the Metropolitan ^ — two different Mr. 
Rogers — in charge of the farm loans of those respective companies. I 
think we can get from them some idea as to the factors that have 
prompted this. 

The Chairman. Proceed, Mr. Howe. 

Mr. Howe. On December 31, 1931, the urban mortgages and real 
estate — that is, the total of the two — owned reached a total of 
$4,918,000,000, from which it declined to $4,872,000,000 at December 31, 
1938. During this period, how^ever, mortgages declined $961,000,000, 
while real estate increased $915,000,000; $2,087,000,000 of the 
$3,888,000,000 invested in urban mortgages on December 31, 1938, was 
owned by the Metropolitan, the Prudential, and the New York Life. 
Over $2,552,000,000, or 65 percent, was owned by these companies and 
the Equitable and the Mutual — that is, the five largest legal reserve 
life-insurance companies. 

Of the $905,000,000 of urban real estate, $474,000,000, or 52 percent, 
was owned by the Prudential and the New York Life, and $605,000,000, 
or 67 percent, was owned by the first five companies. 

Of all mortgages and real estate owned by the 26 companies, the 
following percentages are owned by the three leading companies: 
ISIetropolitan, 23 percent of the mortgages; Prudential, 19.6 percent; 
and New York Life, 11 percent. 

> Ibid., p. 168. 
= Ibid., p. 15030. 
' Hiid., p. 16030. 


Of the real estate, the Metropolitan has 26 percent ; the Prudential, 
14; and the New York Life, 11. 

Keal estate accounted for the following percentages of the total 
urban mortgages and real estate account : 

Metropolitan 20 percent 

Prudential 14 

New York Life 20 

Equitable - 27 

Mutual 18 

Penn Mutual : 28 

New England Mutual .. 40 

State Mutual 28 

Massachusetts Mutual 35 

$1,227,000,000, or 32 percent of all city mortgages owned were 
secured upon real estate located in New York City. 

Mr. Gesell. That is 32 percent of all the city moravages? 

Mr. Howe. Thirty-two percent of all the city mortgages owned 
by these 26 companies were secured upon real estate located in New 
York City. Fifty-nine and sixty-five one hundredths percent of all 
mortgages owned were located in the States of New York, California, 
Illinois, New Jersey, Ohio, and Pennsylvania. 

Mr. Geseix,. Now, table 201, Mr. Howe, shows the degree of con- 
centration of these city mortgages in the 10 metropolitan areas, does 
it not ? ^ I was particularly impressed by the figure for the Mutual of 
New York, which shows 93.3 percent of its real estate in those 10 
cities shown. Is that correct? 

Mr. Howe. That is right. 

Mr. Geseix. Of its mortgages. 

Mr. HowB. And 89.17 percent of, the Mutual's urban mortgages 
were secured upon real estate in New York City. 

The Chairman. Where is that shown? 

Mr. Howe. That is shown on table 201, Senator.* 

The Chairman. I don't see that figure. 

Mr. Howe. The 89.17 is a computation, a ratio that I have made, 
but it does not appear on the table. 

- Mr. Gesell. They have under the heading of New York City, over 
$200,000,000 of mortgages in New York City, and in the total of 10 
areas they have only $209,000,000. Is that not correct ? 

Mr. Howe. That is correct, and the total mortgage account is 
$224,806,000 as of December 31, 1938. 

Mr. Henderson. It is a case of putting your eggs in one basket 
and watching the basket. 

Mr. Howe. That is certainly great concentration. 

Senator White. Is there any law, so far as you can discover, as to 
the amount these companies loan on this urban real estate ? Do they 
loan 50 percent of the .assessed valuation or some other fixed ratio? 

Mi*. Howe. In the 11 States in which these companies are domi- 
ciled, 1 State calls for a mortgage loan only to the extent of 50 
percent — that is Wisconsin. Two States call for 60 percent. 1?he 
remainder of the States call for 66% percent maximum loans, with 
the exception of New Jersey, which permits 75 percent under cer- 
tain circumstances. 

1 See Hearings, Part lO-A, p. 201. 
»Ibld. • . 

124491— 41— pt. 28 10 


Senator White. That is loans of assessed value ? 

Mr. Howe. No. The appraised value at the time the loan is 

The Chairman. Does that apply to both farm and urban real 
estate ? 

Mr. Howe. It does. 

Senator WnrrE. That is the appraised value by the company ? 

Mr. Howe. Frequently they have their own appraisers and fre- 
quently they have appraisals made by an independent appraiser at 
the time the loan is made. 

The Chairman. But do the statutes specifically prescribe that there 
shall be a given percentage of appraisal made in a particular way? 

Mr. Howe. There is no — of course, when you figure 48 States, there 
are a lot of laws, but so far as my knowledge goes, I have never seen 
a law in which the manner of appraisal was detailed. 

The Chairman. If the lender is free to make the appraisal, then 
the percentage is not very significant. 

Mr. Howe. The same thought has occurred to me. However, it 
must be said that there is some integrity among appraisers as well 
as there is among accountants and other professional men. 

The Chairman. Oh, yes; of course. 

Mr. Henderson. We will get into that more tomorrow. Senator. 

Mr. Gesell. Now, you have on tables 207 and 209, Mr. Howe, some 
break-down of these urban mortgages in terms of functional types 
and the size of the mortgages held ? ^ 

Mr. Howe. That is right. 

Mr. Gesell. Have you same comments which you wish to make 
on those tables 207 and 209? 

Mr, Howe. It is very interesting to note in looking at these com- 
panies that the policy of companies apparently is quite different with 
respect to the size of loans which they emphasize in the lending 
which* they do. For instance, this classification here shows 

Mr. Gesell (interposing). You are on table 207? 

Mr. Howe. I am on table 207. It shows that in the case of the 
Metropolitan, the largest amount of mortgages held in any one 
group is $135,000,000, in the size group from 1 to 2 million dollars. 
That constitutes 5 percent of the total mortgage account. 

Mr. Gesell. It is under the two to five million dollar class, is it not? 

Mr. Howe. I am sorry ; yes, it is. It is $150,000,000, under the classi- 
fication from two to five million, which is 16.7 percent of the total 
mortgage account. 

Mr. Gesell. How does that compare with the Prudential, for 

Mr. Howe. The Prudential, on the other hand, emphasizing to some 
extent residential loans, has the largest amount loaned in the size 
classification from five to ten thousand dollars, and 21.4 percent of 
the total mortgage account of the Prudential is in mortgages of that 

Mr. Gessell. Is that partly brought about by the fact that the 
Metropolitan hasn't seen fit to go into F. H. A. mortgages and the 
Prudential has been a rather heavy investor in that type of mortgage ? 

1 See Hearings, Part 10-A, pp. 207 and 209. 


Mr. Howe. That may have been a contributing factor. Another in- 
teresting thing is, when you jump to the Mutual Life Insurance Co. 
of New I ork you find that the largest proportion of their mortgage 
account which turns up in any classification here, is $46j436,000 m 
the two-to-five million-dollar classification. This constitutes 20.7 
percent of their total mortgages. 

The Chairman. Of what company are you speaking now? 

Mr. Howe. The Mutual of New York — the last company in the first 
block on the page, Senator.^ 

The Chaerman. Now, the largest aggregate appears to be in the 
classification of one hundred to two hundred and fifty thousand, does 
it not? 

Mr. Howe. Yes ; it does for the companies as a whole. 

The Chairman. And of that also, the Metropolitan appears to 
have the largest amount and Prudential next. 

Mr. Howe. That is correct, in that classification. 

The Chairman. No ; New York Life is next, that is right, in that 

Mr. Howe. In that classification, one hundred to two hundred and 
fifty thousand dollars for 26 companies as a whole constitutes 12.9 
percent of the total mortgage account. 

The Chairman. And the smallest aggregate is in the classification 
of less than two thousand. That amounts to $68,983,000. 

Mr. Howe. 1.77 percent of the total mortgage account. 

The Chairman. And the next smallest aggregate appears to be in 
the twenty-five to fifty thousand classification. 

Mr. Howe. And over five million is a small classification also, of 

The Chairman. Yes; over five million is the next with $212,886,- 
000, and then the twenty-five to fifty thousand group, $219,543,000. 

Mr. Howe. That is correct. 

Senator White. Are there any figures to show the extent to which 
the mortgagors are in arrears either as to principal or interest? 

Mr. Howe. There are no figures with respect to arrearages as to 
■principal. Senator, for the reason that large amounts of mortgages 
are permitted to stay, as they say, open on the books. I mean to say 
a mortgage is made for 3 years, and it is extended and remains open, 
and the fact that the period is extended has nothing to do with the 
value of the mortgage. 

So we have restricted ourselves to interest and tax delinquency. 

Senator White. That is true unless the security itself has de- 

Mr. Howe. That can happen, too, that the security will depreciate, 
but because of that general situation, the fact that large amounts oi 
mortgages are permitted to run open, a statistical tabulation based 
on principal delinquency would be likely to be grossly misleading, 
and that is the reason no data of that sort was included in these 

Mr. Gesell. We do have figures on interest delinquencies, however, 
in Table 211.^ 

Mr. Howe. Yes; we do. 

1 See Hearings, Part 10-A, p. 207. 

2 Ibid., p. 211-. 


Mr. Gbsell. Would you comment on that table, Mr. Howe? 

Mr. Howe. Yes; on table 210, it will be seen that the mortgages 
delinquent 3 months to 1 year amount to $125,000,000; and 1 to 2 
years, $87,000,000; 2 to 3 years, $94,000,000; over 3 years, $101,000,- 
000; and the last column is the total of the mortgages delinquent 
1 year or more, which is $283,000,000. The total of mortgages delin- 
quent 3 months or more is $409,697,000.^ 

Mr. Gesell. And those figures are expressed on a percentage basis 
on 211, are they not? 

Mr. Howe. They are. 

Mr. Gesell. There seems to be discrepancies there between the 
mortgage accounts, the quality of the mortgage accounts of the vari- 
ous companies, ranging from delinquencies under the 3 months or 
more column of as high as 33 percent of the account, down to as low 
as less than 1 percent! 

Mr. Howe. That is correct, shown by the column entitled "Mort- 
gages with interest delinquent 3 months or more." The average is 
10.52 percent. Of the four principal holders of city mortgages, the 
Prudential has the highest ratio of mortgages in foreclosure to mort- 
gages 2 years in default, and the Northwestern has the lowest per- 
centage. The Prudential percentage is 34.4, and Northwestern is 2.79. 

The three largest holders of city mortgages are also the three 
largest holders of city real estate.^ They are as follows : Metro- 
politan, $237,000,000; Prudential, $129,000,000; New York Life, 

The Connecticut Mutual with 51.89 percent held the largest per- 
centage of urban real estate owned 5 years or more" as of December 
31, 1938. 

Mr. Gesell. You mean to say that over half of the real estate held 
by the Connecticut Mutual has been on their books more than 5 
years ? 

Mr.'HowE. That is right. 

Mr. Gesell. Why have you taken the 5-year period? 

Mr. Howe. Because there is, while not absolutely standard, a gen- 
eral rule that after real estate has been held for 5 years, the com- 
panies must obtain special permission of the insurance commissioners 
to hold it for a longer period. 

Mr. Gesell. What are the percentages for some of the other com- 
panies ? 

Mr. Howe. The Metropolitan, 30.08 ; Prudential, 37.44 ; New York 
Life, 27.37; Northwestern, 22.72. 

The following percentages of urban real estate owned December 
31, 1931, and that subsequently acquired had been sold by December 
31, 1938. 

Mr. Gesell. Let me see if I understand before you go further. 
You have tables showing the amount of real estate acquired by years, 
have you not? 

Mr. Howe. That is right. 

Mr. Gesell. And then you have computed the amount of that real 
estate that has been sold over the same period. 

Mr. Howe. That is right. 

Ubld., p. 210. 
« Ibid., p. 217. 


Mr. Gesell. Where do those tables appear? 

Mr. Howe. With respect to urban real estate, on pages 222 and 223.^ 

Mr. Gesell. Now, on page 223, the last column, one can get the per- 
centage of. the real estate held or acquired during this period ? 

Mr. Howe. That is right. 

Mr. GeseLl. Which was sold by the end of the period ? 

Mr. Howe. That is correct. 

Mr. Gesell. In other words, the Metropolitan sold 28.09 percent 
of such real estate and the Prudential 50.08, to use those two com- 
panies ? 

Mr. Howe. That is correct. 

Mr. Gesell. What are some of the other percentages of that per- 
formance ? 

Mr. Howe. The New York Life had sold 13.78 percent; the Equi- 
table, 14.16 percent; the Mutual, 15.92 percent; the Provident Mutual, 
2.95 percent; Massachusetts Mutual, 2.80 percent; and the New Eng- 
land Mutual, 2.27 percent. The total average is 27.11. 

Mr. Gesell. That concludes the discussion of the various types of 
investments, does it not, Mr. Howe ? 

Mr. Howe. Yes ; that does, 

Mr. Gesell. Did you now wish to make some statement with respect 
to problems of valuation ? 

Mr. Howe. Yes ; I do. 

Mr. Gesell. And the factors of safety that relate thereto? 

Mr. Howe. I do. 

Of all American business, life insurance is unique in the number of 
factors of safety which are inherent in its plan of operation. The 
principal factors of safety should be mentioned at this time as pre- 
liminary to the discussions of valuation which are to come. There are 
several of these factors which are particularly outstanding. 

The first is the level of gross premiums. It is well understood that 
mutual life-insurance companies charge policyholders a premium rate 
which is higher than they anticipate to be necessary to fulfill their 
obligations. The difference is later returned to policyholders under 
the somewhat misleading name of dividends. Thus a company from 
year to year takes in more money than in normal circumstances it will 
require, so that in the event unusual conditions arise it has a fund 
which it may use in the protection of the policyholders' interest. One 
of the principal reasons for the liberal gross premiums is the fact that 
rates are computed on the basis of a mortality experience which is 
worse than that being experienced in the country at the present time. 
As the result of this, gains from mortality are experienced almost uni- 
formly, and these gains are available for return to the policyholder or 
for the use of the company in the event circumstances require. 

The second important factor of safety is that the interest earnings 
of com{)anies have to date been in excess of the interest which the 
companies have obligated themselves to earn under their contracts 
with the policyholders. 

To the extent that there is an excess in this regard, it gives addi- 
tional funds which the companies may utilize in the event it is neces- 
sary, but which in the ordinary course are returned to the policy- 
holders with the excess premium.^ 

^ See Hearings, Part 10-A. 


Another factor of safety is the restriction imposed upon the with- 
drawal of reserves by policyholders. Thus in most companies the 
policy must have been m force for at least a year before any with- 
drawal is permitted, and thereafter a surrender charge is made on the 
withdrawal. These surrender charges vary somewhat between com- 
panies but are in the case of most companies substantial. In general 
surrender charges have been increased since the depression. The im- 
portance of these checks on withdrawal is indicated by the fact that 
on the basis of figures submitted to us, the aggregate amount which 
cannot be withdrawn has been estimated at $4,900,000,000, or a sum 
eauivalent to over 20 percent of total assets. 

Mr. Gesell. Now, you have a table relating to that, have you not, 
on the subject of withdrawal? 

Mr. Howe. That is right. 

Mr. Gesell. What table is that? 

Mr. HoAVE. Two seventy-five. 

Mr. Gesell. I think some further discussion of that table would 
be desirable. 

Mr. Ho%vE. The table shows total liabilities to policyholders, includ- 
ing policy reserves.^ Then it shows the gross sum subject to with- 
drawal in cash based on answers to investment questionnaires 
supplied by the companies. Not all of the companies supplied this 
iniormation, but we do have information with respect to companies 
whose liabilities to policyholders constituted $12,105,000,000. These 
companies stated that the aggregate of the cash-surrender values of 
their policies, plus other sums which may be withdrawn by policy- 
holders in cash, amounted to $9,508,000,000. Using this as a basis, 
and assuming that the situation is about the same for the remaining 
companies, and applying this ratio to the total liabilities to policy- 
holders of all the 26 companies which constitute $22,808,000,000 we 
estimate that the amount subject to withdrawal in cash is $17,900,- 
000,000, which being deducted leaves a balance of $4,900,000,000. 

Mr. Gesell. What reasons were given by the Metropolitan and 
the Equitable Life and the New York Life, for example, in not sub- 
mitting this information, Mr. Howe, or were any explanations' given ? 

Mr. Howe. I forget the precise language of the answers to those 
questions, but evidently they thought it was rather a burdensome 
and complicated calculation to determine the aggregate of cash values. 
They apparently kept no records on that matter or did not wish for 
other reasons to supply the information. 

The Chairman. Of course, it is a rather burdensome matter to 
gather all of these statistics, as your own work in preparing this 
report evidenced. 

Mr. Howe. I would be the first to admit that, Senator. 

The Chairman. Now, the amount which is subject to withdrawal 
in cash is prescribed by law, I suppose ? 

Mr. Howe. I think you might say it is limited by law. The amount 
which is subject to withdrawal is a matter of the contracts which the 
companies have made with their policyholders. Now, the law in 
some cases limits the amounts of the surrender charges which may 
be made. 

» See HearlngB, Part JO-A, p. 275. 


The Chairman. Before the Armstrong Committee investigation, 
rhe polic5^holders didn't have the right to demand cash withdrawals ? 

Mr. Howe. It was about that time that cash withdrawals began 
to be manifested. 

The Chairman. And the policy with respect to policyholder's loans 
is also as a result of law requiring the companies to make those loans, 
so that the condition which we find here is by and large the result ot 
statutes which have been passed in the various States, or is that true ? 

Mr. Howe. Well, Senator, that is not entirely in accordance with 
my understanding in the matter, i haven't made anv detailed in- 
vestigation of law with respect to surrender values and policy loans, 
but it is my understanding that the companies have a relatively free 
right of contract within certain latitude which is prescribed by the 
laws of the various States. 

Mr. Gesell. That must be true, must it not, or you would not have 
percentage variations as between companies as to the amounts of money 
subject to withdrawal ? 

Mr. Howe. For instance, there is the New England Mutual here, 
who have a provision — I mean their contracts customarily bear the 
provision that on surrender, the policyholders shall get the full reserve, 
I believe it is beginning with the third year. On the other hand, the 
surrender charges of some of the companies like the Travelers Insur- 
ance Co. of Hartford in some cases run to the twentieth year. 

The Chairman. It will be observed from Table 275, if you glance 
at the column entitled "Policy loans outstanding," you will find that 
that apparently follows a standard curve.^ The amount of policy 
loans outstanding by and large corresponds to the size of the company, 
does it not ? 

Mr. Howe. I think so. We had some figures here this morning which 
show, if you will refer to this other table, the various percentages 
of policy loans in relation to assets.^ 

The Chairman. Just look at this one on page 275 so that I may 
make the point I have in mind. That table seems to follow the curve 
of size of the companies.^ 

Mr. Howe. In a broad general way it does. 

The Chairman. Yes; just in a broad general way. Whereas, that 
is not true with respect to the second column which is labeled, "Gross 
sum subject to withdrawal in cash." So what I am trying to develop 
is whether or not there is any standard that governs this figure, namely, 
the amount subiect to withdrawal in cash. 

Mr. Howe, x ou see, Senator, the situation is complicated by the 
fact that these contracts have been issued over a long period of time. 
There are some policies outstanding today issued mostly before the 
Armstrong investigation, as I understand it, under which the policy- 
holder has no right to obtain cash on surrender. I think that as a 
matter of fact, most companies will pay the policyholders on sur- 
render, but there is no contractual right there. 

During this period 

The Chairman (interposing). Is there not a legal right which has 
been imposed since those contracts were drawn ? 

1 See Hearings, Part 10-A. p 275. 

2 Ibid., p. 102. 
• Ibid., p. 275. 


Mr. Howe. I understand there is not. Senator, but I have not investi- 
gated that point of law. . 

Senator White. I take it, so far as my experience goes, you have 
two methods of getting cash, either by loan or by what I call the cash- 
suri-ender value of the policy ? 

Mr. Howri. Correct. 

Senator Wumi. And does this heading which you have here mean 
the same thing as the cash-surrender value of the policy? 

Mr. Howe, ^subject to minor qualifications, it does mean that that 
is the aggregate cash-surrender value of the policies. 

Dr. LuBiN. Is that cash-surrender value, would that total be greater 
than the loan value? 

Mr. Howe. Well, one may borrow as a general rule on a life- 
insurance policy up to the cash-surrender value. Now, they make a 
certain allowance for interest at the §nd. You can't borrow quite as 
much money as you can get on surrender because^of that difference, 
but as a practical matter the amounts are the same. 

The Chaikman. In other words, interest is computed on the dis- 
count basis rather than on the payment basis. 

Mr. Howe. I am not sure how it is computed, but at least you c£^n 
only borrow an amount, which will permit the company to collect a 
little interest in addition to the sum borrowed for a short period. 

Another aspect of this same problem — you will remember that we 
are talking about factors of safety. This, of course, is a very sub- 
stantial factor of safety, this $4,900,000,000 not subject to immediate 

The Chairman. Yes. Of course, if all were subject to withdrawal, 
then the ability of the company to meet its liability by reason of 
mortality might be impaired. 

Mr. Howe. Yes. 

Another aspect of this same problem 

Dr. LuBiN (interposing). Mr. Chairman 

The Chairman (interposing). Mr. Howe, there is some disagree- 
ment with that conclusion on the part of Dr. Lubin and Mr. Gesell. 

Dr. Lubin. I would like to have that question and your answer 
repeated by the stenographer. 

(The reporter read the question and answer as follows:) 

The Chaibman. Of course, if all were subject to withdrawal, then the ability 
of the company to meet its liability by reason of mortality might be impaired. 
Mr. Howe. Yes. 

Mr. Howe. I mean, it is subject to further qualification. Naturally 
the liability to policyholders as constituted by these reserves is less 
than the total assets of the companies. They nave capital in the case 
of stock companies and they have surplus in the case of mutual com- 
panies in excess of their liabilities to policyholders. They have all 
of these factors of safety, but the point that I thought the Senator 
was trying to establish was that this is an additional source of 
strength to the companies and if they had no surrender charges, some 
other method of protection would probably have to be devised. 

Mr. Gesell. Mr. Howe, I thought the Senator's question was as to 
whether this sum was necessary in order to meet liabilities which 
might be incurred. However, if everybody withdraws, there will be 
$4,900,000,000 left and there would be no liability, isn't that correct? 


Mr. Howe. That is substantially it. 

Mr. Gesell. There wouldn't be any liabilities left if everybody 
cashes in. So it is a margin, isn't it, Mr. Howe, it is a margin of 
safety, a factor of safety? 

Mr. Howe. Yes; it is a margin of safety and a factor of safety. 
It is substantially a surrender charge. 

The Chairman. What is the relation of the surrender value to the 
contract liability ? 

Mr. Howe. We got into a question of reserves there. 

The Chairman. The surrender value is always substantially less 
than the contract liability, the mortality liability. On a $5,000 pol- 
icy, for example, the cash-surrender value is considerably less than 
that, just as the loan value is. 

Mr. Howe. And so is the reserve ordinarily less than five thousand ? 

The Chairman. Surely, but if there were not a limit to the cash- 
surrender value, then obviously there would not be as sound a factor 
of safety. 

Mr. Howe. If you could pay your first annual premium and draw 
out $5,000, you wouldn't have to do any other work. 

The Chairman. Of course, that isn't the question at all. What 
can you withdraw after the first premium is paid, as a rule? 

Mr. Howe. In most cases you can withdraw nothing. 

The Chairman. All right, then, with respect to when the second 
premium is paid ? 

Mr. Howe. There is some variation, but usually then you can with- 
draw nothing. 

The Chairman. In other words, this is all in accordance with law 
in the various States, is it not? 

Mr. Howe. That is right. 

The Chairman. Now, the withdrawal of the first premium, and in 
most cases of the second premium as well, is due, is it not, to the 
feeling upon the part of the legislators that to permit the policy- 
holder to withdraw the full amount of the premium would impair 
the ability of the company to meet its mortality liability? 

Mr. Howe. I don't think it goes quite as far as impairing their 
ability to meet their liability. •' 

The Chairman. Until a company has built up its investment in- 
come, its primary source of revenue is the income from permiums, 
is it not ? 

Mr. Howe. Oh, yes- 

The Chairman. And it still is? 

Mr. Howe. It always is. 

The Chairman. Your testimony showed only the other day the 
income from preniiums is, I would say, three or four times that from 
investments, is it not? 

Mr. Howe. Greatly in excess ; oh, yes. 

The Chah^man. So that it is only natural that there should be by 
law some factor of safety with respect to the cash surrender value as 
well as the loan value. 

Mr. Howe. Yes. 

The Chairman. That is all I am trying to say. 


Dr. LuniN. Does the law specifically prohibit making a loan on 
a policy or having a surrender value on a policy before a year or 
two? *If my memory serves me correctly, one of the witnesses said 
under the Massachusetts Savings Bank, you could get it in 2 months. 

Mr. Gesell. That is correct ; and I know of no law which requires 
a company to make a surrender charge. 

Mr. Ho'wE. A maximum surrender charge is stipulated by law. 
It is my impression that the companies can go as much farther as 
they want in that respect but that may be different in different 

Senator White. Or- they can stop far short of that. 

Mr. Howe. Certainly. They can charge the maximum surrender 
charges pexmitted by law, or a lesser surrender charge. 

Mr. Gesell. Or ho charge at all. 

Mr. Howe. Correct. 

Mr. Gesell. Will you continue witli your statement, Mr. Howe? 

Mr. Howe. Another aspect of this same problem, which like the 
surrender charge may be considered an additional factor of safety, 
is the provision common in most insurance policies issued in recent 
years tliat the policyholder may be delayed a period of 60 days to 6 
months in the event he requests the cash value of his policy. It must 
be stated that there is no evidence that the companies are making 
use of that provision at the present time, but it exists as a check on 
serious cash withdrawals in times of stress. 

Dr. LuBiN. Does this mean, then, in reality, that under these 
newer contracts,. that in times of distress when the probabilities of 
the needs for borrowing are the greatest, the chances of getting your 
mone}' are the least? 

. Mr. Howe. I imagine. Dr. Lubin, that it works somewhat as the 

"■similar provisions against savings banks withdra-wal. I think the 

companies will use them very, very rarely, but the provision is there 

and if a moratorium isn't enacted and they feel they need one, they 

have the legal power to establish one of their own. 

Dr. Lubin. But if you withdraw your money from a savings bank 
you don't paj' the savings bank interest on the money you have 

Mr. Howe. That is right. 

Mr. Gesell. There is no interest charge on the cash surrender of 
a policy, is there, Mr. Howe? 

Mr. Howe. No; there is nothing on cash surrender. 

Dr. Lubin. This refers to loans as well, does it not? 
. Mr. Howe. Yes ; this provision applies, as I understand it, both 
to policy loans and to surrender values, and it is included only in 
policies which have been written in recent years. There are many 
policies on the books to which such provisions do not apply. 

Senator White. But it is designed to prevent runs? 

Mr. Howe. That is right; and of course has been used by other 
financial institutions. 

Mr. Kade?. Mr. Howe, before those new provisions were inserted 
in policies, had insurance companies complied with the obligation to 
make loans at any time? 


Mr. Howe. The paragraph after the next here discusses mora- 
toriums, and I think that will answer your question. 

Another factor of safety is the stability of income from renewal 
premiums. Reference has already been made to the psychological 
and other factors which tend to encourage policyholders to continue 
payment of insurance premiums even in times of stress, and it is, of 
course, a fact that once a policy has been sold, a continued income 
'may be expected over a considerable period. This constant and stable 
income provides a company with cash funds to meet almost any 

During the period of growth which the companies are experiencing, 
income has almost invariably exceeded disbursements, and thus in 
general it has been possible for the companies to meet their commit- 
ments without liquidating assets even in times of stress. 

Not the least of the factors of safety is the essential first lien char- 
atter of life insurance assets. In general they consist of the safest 
bonds and the best mortgages available. Therefore, the investment 
inccHne as well as the value of life insurance assets are less affected by 
fluctuations in economic activity than any other type of investment. 

During the depression, additional factors of safety were created. 
These were in the nature of temporary protective devices which were 
placed upon the business as a whole; regardless of the needs of any 
particular companies for the additional protection. I refer to con- 
vention values and moratorium legislation. 

Mr. White. Will you explain what you mean by convention values? 

Mr. Howe. Yes; in subsequent paragraphs I go into that subject. 

Mr. White. Bring it in in the natural order then. 

Mr. Howe. All right. We will get into that subject. Convention 
values for securities were established by the National Association of 
Insurance Commissioners. These values, which applied to bonds and 
stocks only, were substantially in excess of the depressed market quota- 
tions then prevalent. On December 31, 1932, the use of convention 
values for insurance companies resulted in balance sheet values of 
bonds and stocks for the 26 coiApanies of $6,670,000,000 compared 
with estimated market values as of that date of $5,545,000,000 or a 
difference of $1,124,000,000. In the succeeding years convention 
values have been gradually adjusted toward' market so that at the 
present time there is no substantial difference between market and 
convention values, on the portion of the portfolio to "^hich the con- 
vention values apply. Presumably, the action of the Association of 
Insurance Commissioners was taken not only for the purpose of pro- 
tecting some companies in financial distress but by reason of the 
recognition that the securities held by life-insurance companies were 
in general of high quality and sound character and, therefore, not 
necessarily of an ultimate value as low as that represented by the 
prevailing market prices. The events of subsequent years have given 
further indication as to why it is permissible to cite ths first lien 
nature of the assets as a factor of safety. 

Convention values were simply arbitrary values based in most cases 
on actual market values at periods of time prior to the date of the 
balance sheet, maybe a year or so back. 

Senator White. And were established arbitrarily by the Associa- 
tion of Insurance Commissioners? 


Mr. Howe. Yes. The insurance commissioners of the various 
States are organized in this National Association, and it is my under- 
standing that they appoint a committee and that committee issued a 
volume an inch or inch and a half thick, in which the prices of all 
these securities were scheduled. 

Senator White. What legal signif. ance, if any, did these conven- 
tion values have? 

Mr. Howe. I don't know that they had any legal significance. 
They were simply used as the basis for determining the total assets 
on the balance sheet. 

Senator White. I wondered whether they had any bearing upon 
the authority of a particular insurance company to cpntinu^ business 
in a particular State oy not, and whether they were established pos- 
sibly to avoid the ihipact of some State laws ? 

Mr. Howe. I am sorry; I just can't answer as to the full purpose. 

Senator White. Just what was the reason for establishing conven- 
tion values? 

Mr. Gesell. It is clear, is it not, Mr. Howe — perhaps I can help — 
that these convention values enabled the companies to show a better 
financial value than had they carried their security at market? 

Mr. Howe. Yes ; they showed a better financial condition without a 

Mr. Gesell. In a case where that might have meant the difference 
between solvency and insolvency then they did prevent insolvency. 

Senator White. Then they did have some legal significance. 

Mr. Howe. If that is legal significance, they certainly had it. 

Senator White. I should think that a valuation which kept a man 
out of insolvency had some significance, if a different value headed 
him into insolvency. 

Mr. Hg^ve. That is not true of all companies. -These values had 
different effects on different companies. 

Mr. Gesell. And the use of convention values, I understand, had 
no particular significance as to what the particular situation might 
have been. They were usfl by all companies? 

Mr. Howe. They were usesd by all companies so far as I know. 

Mr. Hayes. You mentioned that the difference between convention 
and market value which existed at the end of 1932 has since been 
substantially, if not entirely eliminated? 

Mr. Howe. That is right, 

Mr. ^ATES. Was that elimination brought about by an increase of 
market values or a writing down of convention values, or both? 

Mr. Howe. Both. 

Mr. Hayes. The different treatment depended upon different policies 
by different companies? 

Mr. Howe. No, I don't think so. Some of the portfolio has appreci- 
ated. Other securities, rails, and so forth, have gone into default and 
have been written down to market, and the combination of these proc- 
esses has resulted in the condition where this morning we found 
that the portfolio on December 31, 1938, had a market value of 
$360,000,000 less than the cost. 

But on the other hand, the portfolio also has a market value of 
$200,000,000 in excess of what it is carried on the balance sheet. 

Mr. Gesell. Now, what about moratorium legislation? 


Mr. Howe. I might make one brief statement about moratorium 
legislation. Moratorium legislation was enacted quite generally 
throughout the country. By virtue of special legislation passed on 
March 7, 1933, the New York superintendent of insurance issued the 
first moratorium regulation for that State under the date of March 
9, 1933. The supermtendent's ruling provided that no cash or loan 
values should be permitted except for the purpose of and to the extent 
of covering payment of premiums or any obligations to the insurance 
companies by the policyholders. 

Mr. Gesell. You mean that a policyholder under that moratorium 
legislation could make a loan or surrender one policy if he needed 
the funds to meet some other obligation to the insurance company, 
but otherwise not ? 

Mr. Howe. That is right. The only exceptions were in cases of 
extreme need in which the company could pay an individual policy- 
holder not in excess of $100 as cash surrender or loan value in the 
aggregate on all policies of ordinary insurance carried by him. 

Mr. Henderson. Mr. Howe, was t^ere any moratorium on the re- 
quirement of the policyholder's contract ? 

Mr. Howe. You mean to pay premiums? 

Mr. Henderson. Yes. 

Mr. Howe. Not that I ever heard of. In fact, this was arranged 
so that the policyholder could borrow on one policy or on his policy to 
pay the premium but there was no moratorium on income. 

The regulations were modified providing for the payment of full 
cash and loan value for pay-roll purposes on March 17, 1933, and a 
further extension of the purposes for which such funds might be 
obtained was made by a regula'tion of April 3. On September 9, the 
moratorium in New York was terminated. 

Mr.'KADES. Mr. Howe, were you here when Mr. Buckner testified? 

Mr. Howe. Only a portion of his testimony. 

Mr. Kades. Were you here when he testified relative to policy 
loans? Do you recall his statement that the policyholder had a right 
to call for a policy loan at any time, and that the advance might be 
called for at times when money was exceedingly scarce and very 
dear ; consequently, interest rates on policy loans ipust necessarily be 
charged without relation to the current money market ? In the light 
of the moratorial legislation in 1933 and the new policy contracts, is 
that statement still substantially accurate ? 

Mr. Howe. Well, it is substantially accurate because the mora- 
torium effectively lasted only a few days, but that is the exception 
that proves the rule, if you want to follow that philosophy. 

Mr. EVADES. Would you care to comment on whether or not there 
might be a more reasonable relationship between current money rates 
or perhaps the average of current investment income rate and the 
rate on policy loans ? 

Mr. Howe. Of course, you know that beginning, I believe it was 
January 1, 1939, there was a reduction on policy-loan interest insti- 
tuted in New York, and I think all of the large companies which are 
operating in New York now carry a 5-percent policy-loan rate in all 
their policies issued in all States — that is, the new policies which they 


are issuing. It has nothing to do with the 6-percent rate which is 
charged on policies issued before that date. 

Mr. Gesell. I might say, Mr. Kades, that I think subsequent wit- 
nesses from the companies will be in better position to talk about the 
problem you have raised, since it is one of insurance management, 
and if you don't mind I think it might be better to pass over it. 

Mr. Kades. It is perfectly all right. 

Mr. Henderson. I think, Mr. Gesell, that committee members might 
well take note of what Mr. Howe is attempting tnd that is to interpret 
the facts as we have developed them and not to give opinions on 
managerial questions. I think we would like very much to have those 
presenting material avoid giving opinions as far as possible. 

Mr. Geseix. Now, this brings you, does it not, Mr. Howe"^ to the 
question of valuation? 

Mr. Howe. This does. 
, Given those substantial factors of safety, it is surprising to find 
thaf the companies have not taken a realistic position in all cases 
in the statement of their assets and income. 

First, with respect to assets, if the bonds owned by the 26 coni- 
panies are classified in accordance with investment ratings it is 
found that the indicated market value of Baa bonds on December 
31, 1938, was $121,000,000 less than the value at which these bonds 
were carried on the balance- sheet. In the case of Ba bonds, the 
market value was $159,000,000 less than the value at which the bonds 
were carried in the balance sheet. In other words Ba bonds were 
carried at 45 percent over their market value. . 

Mr. Gesell. There is a table on that, Mr. Howe. Which table is 

Mr. Howe. That is table 157.^ 

Mr. Gesell. That table shows, does it not, that taking the entire 
bond account as a whole, the market value is some 200 million in excess 
of the admitted asset value? 

Mr. Howe. That is correct. 

Mr. Gesell. The type of bonds which are carried at admitted asset 
value, which is above market, start with the Baa, in the case of com- 
panies as a whole, and run through the Ba and B bonds, do they not? 

Mr. Howe. That is right. 

Senator Wkfte. Were these values at which these securities were 
carried on the books the convention values, or what were they? 

Mr. Howe. Senator, the National Association of Insurance Com- 
missioners still publishes values at which these securities may be 
carried on the balance sheet, but at the present time convention values 
and market values are almost synonymous. They apply, however, 
only to a section of the portfolio. 

Senator White. Then your answer is that these are not convention 

Mr. Howe. I should say that is right. Mostly they are so-called 
amortized or investment values. 

Mr. Gesell. Your ans^ver rather, Mr. Howe, is, is it not, that these 
are convention values but the convention values and the market-values 
are approximately the same since the companies do follow the con- 
vention values still in setting up balance sheets? 

> See Hearings, Part 10-A, p. 157. 


Mr. Howe. That is right. They still publish this book with the 
quotations in it, but at the present time the quotations in it are sub- 
stantially market values. However, those are only used for the valua- 
tion of securities which are rated B or less, or for bonds which are in 

The Chairman. What is the basis upon which the admitted asset 
value is determined ? 

Mr. Howe. The basis on which admitted asset value is determined, 
Senator, depends first on whether a bond is considered to be amply 
secured or whether it is not considered to be amply secured. First, 
in the case of bonds which are considered to be amply secured, those 
bonds are carried at cost, plus or minus an amortization factor which 
is designed to reduce the bond to par, its face amount, by its maturity. 

In other words, if a bond, neglecting minor differences in the table, 
were purchased at 95 and it was to mature in 10 years, the price would 
be advanced a half a point a year until after 10 years it would be at 

If on the other hand a bond were purchased at 105 to mature in 
10 years, the price would be reduced a half of 1 percent a year in 
the direction of par. 

The Chairman. As carried in the admitted asset value table ? ^ 

Mr. Howe. Yes; as carried in the admitted asset value table. 
That is the way the bonds which are classified as amply secured are 

The Chairman. So that the purchase price, the cost, is the deter- 
mining factor plus the amortization charge? 

Mr. Howe. That is correct. ^ 

Mr. Gesell. That is in the case of bonds that are amply secured? 

Mr.^ Howe. That is in the case of bonds that are amply secured. 
That is the only section of the portfolio we are talking about at this 

Mr. Pib:e. The same bond might be carried at a different price by 
two different companies, depending on what their. cost was? 

Mr. Howe. Absolutely. 

Mr. GESELii. And also depending on whether or not the individual 
companies found the bonds to be iamply secured ? . 

Mr. Howe. That is right. 

Mr. Gesell. There is latitude there in that one company may 
declare a bond to be adequately secured and carry it at cost plus 
amortization, and another company, which may hold the same bond, 
may sell it inadequately secured and mark it down. 

Mr. Howe. We have examples of that. 

The Chairman. With- respect to those which ; are regarded as 
inadequately secured, what is the basis on which the admitted asset 
value of such a bond is fixed ? 

Mr. Howe. Bonds which are considered to be inadequately se- 
cured — and I will try to define that a little further— are carried at 
market value. Ihat includes all the bonds that are in default and 
all the bonds which are rated by any one of these four services, at a 
rating of less than Ba (or a comparable rating) or a rating of B oi 
le." In other words, anything less than Ba must be carried at 

See. Hearings, Part 10-A, p. 112. 


The Chairman. So that inadequately secured bonds are carried at 
the market Value? 

Mr. Howe. That is correct. 

The Chairman. Which is a mark-down from cost? 

Mr. Howe. Ordinarily: yes. 

The Chairman. But those which are regarded as adequately se- 
cured are carried at cost rather than at market value? 

Mr. Howe. That is correct; adjusted cost. 

The Chairman. And we are dealing here now, of course, with those 
which are adequately secured? 

Mr. Howe. In part. 

The Chairman. In this table? ^ 

Mr. Howe. In this table we have bonds which are rated all the way 
from Aaa down to C. 

The Chairman. There are no C's in tli. , laV! . 

Mr. Howe. Ca. 

Now, the bonds which are rated B or less must all be carried at 
market, substantially, whereas the bonds which are rated Ba or 

The Chairman (interposing). Are there any bonds in the port- 
folios of any of these companies which are excluded from this com- 
putation ? 

Mr. Howe. Only tbe bonds which are in so-called schedule X, which 
are consid ired to be relatively worthless. 

The Ci airman. Then this table undertakes to reflect a condition 
with respect to the whole bond accounts? ^ 

Mr. Howe. That is right. 

The Chairman. And there is no distinction so far as this table is 
concerned, between bonds which are adequately secured and those 
which are not adequately secured ? 

Mr. Howe. No, except as the ratings tend to indicate that. 

The Chairman. And the excess of market value over admitted asset 
value takes account of the fact that you have already described, 
namely, that with respect to bonds which are inadequately secured, 
they are carried at martet value, which in most instances, I take, would 
be probably less than the cost? 

Mr. Howe. In most cases, I think it would be less ; yes. 

The Chairman. So with that understanding, we have the picture 
in which the excess of market value over asset value is more than 

Mr. Howe. That is right. 

Mr. Gesell. Will you proceed, Mr. Howe. 

Mr. Howe. Yes; I will. 

I was just commenting here on the fact that the Ba bonds in the 
aggregate get into the balance sheet by reason of the fact that they 
are amortized at 45 percent over their market value. You see, the 
Ba is the borderline classification. That is the weakest classification 
of the bonds which are permitted to be carried at cost and, as it shows, 
that particular classification of bonds are carried here at $159,000,000 
more than their market value. 

The Chairman. Suppose you were to eliminate the Governments 
from this computation, what would that show ? 

'See Hearings, Part lO-A, p. 1B7. 


Mr. Howe. Well, the indicated appreciation on Governments, Sen- 
ator, is $193,000,000, and the indicated appreciation on the total port- 
folio is $200,000,000. 

Mr. Henderson. And it also shows, does it not, that there isn't a 
single company of the 26 that does not have an excess of market value 
over admitted asset value in its Governments?" 

Mr. Howe. That is correct. 

Now, speaking again of this question of the Ba bonds and the fact 
that they are carried at 45 percent over the market, betAveen companies 
there was great variation. Western and Southern carried its Ba 
bonds at 7.8 percent below the market, a conservative practice. Aetna 
and Mutual of New York, on the other hand,. carried their Ba bonds 
at over 60 percent above the market. 

Ba bonds which are held by insurance companies in general are 
"has beens" of the quality group. Moody says [reading] : 

Bonds carrying the Ba rating are judged to have speculative elements; their 
future cannot be considered as weU assured.^ 

Standard Statistics designated their comparable grade Bl as "fair"; 
Fitch describes their similar grade designated BB as "medium grade" 
which, in their scale, is one notch below "good." Poor's describes 
bonds of their similar rating B* as "better grade speculation class" 
and states — 

Bonds of this class are borderline issues falling in Group II of the Government 
regulations and therefore are not considered eligible for bank investment. 

On the other hand, the companies have an excess of market value 
over balance-sheet value in the case of bonds rated Aaa, Aa, and A* as 
well as in the United States Government bonds, so that the entire 
portfolio on December 31, 1938, had a market value over $200,000,000 
in excess of balance-sheet value. 

Mr. Henderson. Before you go on with that, will you come back to 
the Ba, table 157 ? ^ I don't know whether you have done anything 
like this or not — the ratio of those minus signs, you might say, to 
the total admitted assets of the different companies — whether or not 
the companies pretty uniformly had these Ba bonds which were below 
in value or whether their experience was just about the same. For 
example. Metropolitan has bonds that are $5,647,000 below. 

Mr. Howe. That is right, $50,647,000. 

Mr. Henderson. But it has a large portfolio ? 

Mr. Howe. That is right. 

Mr. Pike. Ninety-nine million dollars of them. Table 156 shows 

Mr. Howe. Yes. 

Mr. Henderson. I wondered whether you made any calculations as 
to whether or not any, -company showed up extraordinarily well or 
extraordinarily poorly in this relationship to the total accounts? If 
you haven't, it's all right. 

Mr. Howe. I think I have it right here. 

Based on market value and the relationship of that to admitted 
asset value, we find that the percentage varies all the way from the 
Western and Southern, which carried their Ba bonds at 7 percent 

1 "Moody's Bond Record," Key to Moody's Ratings. 
" See Hearings, Part 10-A, p. 157. 
» Ibid., p. 15f. 

12'f491-^l— pt. 28 H 


less than their market value, to the Mutual Life of New York, which 
carries their bonds at 63 percent in excess of market value. 

Now, for the leading companies, the percentages of the excess of 
admitted asset value over market value are these : 

Metropolitan 50. 86 

Prudential 36. 89 

New York Life 51-77 

Equitable 38. 96 

Northwestern 26.94 

Travelers 40. 97 

John Hancock • 47. 16 

Penn Mutual 16. 19 

Mutual Benefit 44. 18 

Aetna 63.09 

Connecticut Mutual 54. 42 

Bankers Life carried their bonds at less than their market value, 
2 percent less, and so forth. So there is a very substantial difference 
between the companies with respect to that. 

In view of the fact that this excess of market value over balance 
siieet value of the best bond is being withdrawn year by year in the 
interest earnings of the companies, through the regular amortization 
procedure, it is a questionable practice to offset it against the depre- 
ciation of lower grade bonds. These latter bonds are of less security 
and may ultimately result in loss. The companies have failed to 
take account of this shrinkage in market value of $280,316,000 in 
the case of Baa and Ba bonds. Further, it is interesting to note that 
there is substantial difference among companies in handling bonds of 
borderline security. In some instances, companies have written such 
bonds down to market. In other instances, companies accounting for 
the same bonds may carry them at their amortized value. For 
example, Baltimore & Ohio Railroad, Southern Division First 5's 
of .1950 were carried by the Aetna, Travelers, and Prudential at 34, 
whereas the Metropolitan and New York Life carry the bonds at 
10034 and 98%, respectively. In the case of Hudson and Manhattan, 
first-lien-mortgage series A, 5's of 1957, the Prudential carries bonds 
at 45 and the Mutual Benefit at 45 while the Aetna and the Equitable 
of New York carry them at 97% and 98^4, respectively. In the case 
of the Florida East Coast Railroad 50-year first mortgages 41/2 'fe of 
1959; Metropolitan, New York Life, and Mutual Life carry the bonds 
at 95% to 98%, respectively. 

The amounts of these bonds held December 31, 1938, by these 
companies varied from over $5,000,000, in the case of one issue by the 
Metropolitan, to $31,000 in the case of another issue held by another 

This difference of treatment undoubtedly results from differing 
interpretations placed upon the rule for bond valuations promulgated 
by the superintendent of insurance of New York. The portion of the 
ruling applicable to these bonds is— I am speaking of these border- 
line bonds— "for all other bonds which are not in default as to prin- 
cipal or interest, which are found by the insurer to be amply se- 
cure" — notice that, "found by the insurer to be amply secure" — ^"and 
which are also rated Bl, Ba, BB, B*, or higher, by any one or 
more of the investment rating concerns referred to in the next pre- 
ceding section, amortized value shall be entered in this column." 
That means the amortized value shall be used. 


Mr, Gesell. Take it another way; it means the companies have 
latitude on what valuations they place upon the borderline securities ? 

Mr. Howe. That is right. 

Thus the commissioner clearly says that only bonds which are 
amply secured, in the opinion of the insured, shall be carried at 
amortized values. 

The Chairman. That makes the opinion of the insurer the standard 
which fixes the value? 

Mr. Howe. That is right. 

Senator White. And there is a variation of a couple of hundred 
percent ? 

Mr. Howe. That is right, a very substantial variation in this nar- 
row borderline area. 

The Chairman. Is there any such variation in any other area? 
You have referred two or three times to this narrow borderline area. 

Mr. Howe. With respect to the well-secured bonds, cost is the ae- 
termining factor. With respect to the bonds at the other end of the 
spectrum, the ones in default, they have to put them at market 

Mr. Gesell (interposing). Of course, when we talk about narrow 
areas, the Ba's alone amount to $159,000,000 worth of securities. 

Mr. Howe. No, the Ba's amount to $358,094,000 at market value 
and are shown on the balance sheet at $159,589,000 more than their 
market value. 

The Chairman. What page is that? 

Mr. Howe. Page 156 and page 157, Senator.^ 

The Chairman. What percentage of the bond account do you s&j 
would fall within that group? 

Mr. HowB. Well, now, lers see here, what percentage of the Ba, 

Mr. Pike (interposing). Twr d a half percent, isn't it? 

Mr. Howe. Yes, 2^ percem . Jie Ba, and a larger percentage in 

The Chairman. So that so far as 971^ percent of the bond account 
is concerned, they are carried without any question, either at cost or 
at market, and it is only in this narrow group of 2l^ percent that 
there is this variation of which you speak ? 

Mr. Howe. That is right. It is only $159,000,000 or something like 

Mr. Gesell. Now, there is a misunderstanding. You are talking 
about both Ba and Baa. Senator O'Mahoney is talking only about 

The Chairman. What classifications fall into the 21/2 percent? 

Mr. Howe. The 21/2 percent would constitute the Ba bonds, $358,- 
000,000, and the Baa bonds constitute) an additional $1,272,000,000. 

The Chairman. Do you find any variation in the values at which 
the Baa are carried? 

Mr. Howe. No, they are almost all carried at amortized value, al- 
though the amortized value is in excess of the market value uni- 

The Chairman. It is the other small group that shows the var- 
iation ? 

Mr. Howe. That is right. 

> See Hearingb, Part 10-A. 


Mr. KLades. How much in excess of the market value is the balance 
sheet value of Ba bonds? 

Mr. Howe. Forty-five percent in the aggregate for these 26 com- 

In spite of the fact that bonds in default are carried at market, no 
similar provision is made for mortgages in default. This table shows 
the amount of mortgages delinquent as to interest 3 months or more 
and the amount of mortgage interest due and unpaid as of December 
31, 1938. 

Mr. Gesell. That is the table I now show you, entitled "Mort- 
gages Owned as of December 31, 1938, Delinquent 3 Months or More 
as to Interest." 

Mr. Howe. Yes. 

Mr. Gesell. I wish to offer this table for the record. 

The Chairman. The table may be received. 

Mr. Gesell. That will be designated "Exhibit No. 2268." 
(The table referred to was marked "Exhibit No. 2268" and is 
included in the appendix on p. 15497.) 

Mr. Gesell. Will you proceed with the discussion of this table? 

Mr. Howe. In spite of the fact that bonds in default are carried 
at market, no similar provision is made for mortgages in default. 
The table which has just been introduced in the record shows the 
amount of mortgages delinquent as to interest 3 months or more and 
the amount of mortgage interest due and unpaid as of December 

It will be seen that the mortgages amounting to over $520,000,000 
were delinquent; as to interest, over $47,000,000. In other wor4*f 
the delinquent interest amounted to $47,000,000. 

Mr. Gesell. On 520 millions of mortgages ? 

Mr. Howe. Yes. The question as to whether it is conservative 
pcrlicy to carry these mortgages in the balance sheet at their full 
unpaid principal amount is one which merits serious consideration. 
This is the next table. 

Mr. Gesell. That is the table entitled "Interest Due and Accrued 
on Bonds and Mortgages," is it not? 

Mr. Howe. That is right. 

Mr. Gesell. I wish to offer the table for the record. 

The Chairman. It may be received. 

(The table referred to was marked "Exhibit No. 2269" and is 
included in the appendix on p. 15498.) 

Mr. Howe. The table which has just been introduced in the record, 
shows the amount of interest due and accrued on bonds and .nort- 
gages on December 31, 1938. 

Mr. Gesell. What is the amount of such interest, Mr. Howe? 

Mr. Howe. The amount of delinquent interest on bonds in default 
is $118,000,000; the m -tgage figure is $47,000,000; the total delin- 
quent interest on bonds and mortsrages as of December 31, 1938, was 

Mr. Kades. Mr. Howe, is it possible for you to give us a per- 
centage of the amount of assets of the leading life-insurance com- 
panies which is carried at other than market value, which is sub- 
ject to a market valuation? 

Mr. Howe. Well, so far as market values are concerned, the only 
assets which are carried precisely at market values are bonds in 


^- default and bonds below rating. The other bonds are carried at 
an adjusted cost, which at the present time, is less than their market 
value, and mortgages are carried at the unpaid principal amount, 
and real estate is carried at whatever values they may elect. So 
that a very small proportion of the assets are carried exactly at 
market value. 

Since the valuation of real estate is left almost entirely to the dis- 
cretion of management, it is not surprising to find that great differ- 
ences exist among the companies in the standards adopted for valuation, 
and in many cases an overstatement appears to exist. 

(Off-the-record discussion.) 

Mr. Howe. In the case of farm real estate, for instance, there 
was great variation between the companies as to the relationship 
between the value at which it was carried on its books, and the 
face amount of the mortgages which the companies had held on 
this real estate before foreclosure. This ratio varied from 78.71 
percent in the case of New York Life to 119.17 in the case of the 
Union Central. 

Urban real estate showed a somewhat similar condition in that 
the book value of the real estate varied from 85 percent, the face 
amount of the mortgage which the companies had held on this 
real estate before foreclosure in the case of the New York Life 
Insurance Co. to 120.66 percent in the case of the New England 

Further evidence of the extreme difference in the relative level 
of values at which city real estate was carried by different com- 
panies is indicated by the fact that the real estate of the New- 
York Life was carried on its books at 5.8 times gross income, whereas 
in the case of the Union Central such real estate was carried on 
its books at 18.23 times gross. In cases where an overstatement of 
assets exists this has also caused a corresponding increase in income 
over the period during which the overstatement has taken place. 
One of the important forms in which this overstatement of income 
has occurred in a few companies is the form of capitalization of 
accrued and uncollected interest income on mortgages. 

Mr. Henderson. What do you mean by that term "capitaliza- 
tion"? Ordinarily that means that you take an interest rate of, 
say, 5 percent, and multiply the income by 20, and put it on your 
books at that ; is that what you mean by this ? 

Mr. How^E. No; it is not, commissioner. The capitalization of 
interest arises, really, in three ways. It always arises out of a situ- 
ation where a borrower is not able to meet his interest charges. If 
a borrower has been unable to meet his interest charges and an 
accumulation of interest or taxes or other charges on the mortgage 
has occurred, the company may sit down with the borrower . and 
draft a new mortgage for a larger amount, taking into account 
all the accrued interest and all the accrued taxes, and so forth, 
adding that on to the face of the mortgage and starting afresh. 

Mr. Henderson. Is that known in the insurance business as capital- 

Mr. Howe. That is one of the ways i • which interest is capitalized. 
There are three ways. The second type of capitalized interest occurs 
in the case where a borrower is unable to meet his interest and the 
lender says to the borrower, "All right, you don't have to pay us the 


full rate, shall we say 5 percent, on the mortgage, but only 2 percent. 
The remaining 3 percent we will accrue and you can p"ay that after 
10 years, shall we say." Now, the 3 percent in that case, in some 
instances, is taken into income right along, just as fully as the 2 
percent, which is fully paid. 

Mr. Henderson. Now, wait a minute. It is taken into income, 
although they don't get it? 
Mr. Howe. That is right. 

Mr. Henderson. Wait a minute. I want to get this straight. You 
mean that some insurance companies take into income account ijiterest 
that is not received? 

Mr. Howe. Certainly. Not received in cash; it is simply added 
to the book indebtedness of the borrower. 
Mr. Henderson. But that is adding to the principal amount. 
Mr. Howe. Sure. 

Mr. Henderson. That isn't income, I mean in the ordinary sense 
of the word. 

Mr. Howe. I am inclined to agree with you. 

Mr. Gesell. I doubt if it is income in the extraordinary sense of 
the word. 

Mr. Henderson. Yoa are sure of what you are saying ? 
Mr. Howe. I am as confident as I can be of it, sir. I have made 
quite a study of this phase of the situation. 

Mr. Gesell. Can you give us an example, Mr. Howe, of what 
this capitalization of interest means in a specific case ? 

Mr. Howe. Yes; I can. Now, may I just say there is a third way 
of capitalizing interest, and that is just simply writing it down with- 
out reference to any arrangement with the borrower. Those are 
the three ways. 

Mr. Gesell. May we have an example of it? 

Mr. Howe. Yes. This is table 177.^ This table has the disad- 
vantage that it refers only to farm real estate, except in certain cases, 
and I can read the amounts of capitalized interest which occurred in 
the cases of certain companies, if the committee is interested. 

Mr. Gesell. You mean this would be capitalized interest for city 
as well as farms? 

Mr. Howe. That is right. 
Mr. Gesell. That doesn't show in the exhibit. 
Mr. Howe. It shows, but to get it- out would require the com- 
bination of two tables, 177 and 214,^ 

Mr. Gesell. Table 214 shows the urban and 177 shows the farm 
and you now have the total amounts that you wish to read? 

Mr. Howe. That is right. In the case of Prudential, the amount 
so capitalized during the period 1932 to 1938 amo.unted to $3,253,000. 
In the case of the New York Life Insurance Co., the amount was 
$2,389,264. In the case of the Equitable Assurance Society of the 
United States, the amount was $481,000. 
Mr. Gesell. The Metropolitan you did not mention. 
Mr. Howe. The Metropolitan did not capitalize any interest during 
that period. 

The Chairman. Explain this capitalization of interest again, 

' See Hearings, Part 10-A, p. 177. 
« Ibid., p. 2ll. 


- Mr. Howe. It occurs in three ways, Senator. First is where there 
is a mortgage which is rewritten. The borrower get in trouble; he 
is delinquent' on his mortgage ; he is in arrears either with respect to 
taxes, interest, or other charges. The lender sits down with him and 
says, "Now, if we reorganize this debt and make you pay your interest 
monthly, instead of semiannually, and all these things, perhaps we 
can get out of this hole," so that we will write a mortgage for an 
increased amount, taking into account the interest which has not been 
paid and the taxes which the insurance company may have had to 
advance on behalf of the borrower, and so this new mortgage for the 
larger amount is put upon the books. 

The Chairman. Now, then, the difference between the original 
mortgage at its face value and the new mortgage at its increased value, 
which includes the unpaid interest, must be accounted for in some way ? 

Mr. Howe. Correct. 

The Chaibman. Now it is accounted for as income ? 

Mr. Howe. That is correct. 

The Chairman, Is there any other way to account for it ? It is an 
increased asset, assuming that it is to be paid, technically? 

Mr. Howe. Yes ; assuming the mortgage is as good as it was before 
for the increased amount, it is all right. 

The Chairman. The mortgage, of course, is sustained by real prop- 

Mr. Howe. That is right ; but at the time that a recomposition of a 
mortgage of this sort is made it is not necessary to sit down and 
appraise the property and determine that the new mortgage is less 
than two-thirds of the appraised value of the property. 

Mr. Gesell. This is just added on ? 

Mr. Howe. Yes; it is just added on. 

The Chairman. But there is no other way of making the book- 
keeping entry, is there ? 

Mr. Howe. No ; if you are determined to put the new mortgage on 
the books at the higher figure, it has got to affect tl e income account. 

The Chairman. The question is whether a mortgage of this kind 
should be carried upon the books at its full value, or whether it should 
be carried on the books at a depreciated value because it wasn't paid ? 

Mr. Howe. That is right. 

The Chairman. And that judgment might depend upon the char- 
acter of the real property which sustaihs the mortgage ? 

Mr. Howe. I should think it would very much depend. If the mort- 
gage is already a very full mortgage, the capitalization of interest un- 
der tliose circumstances is very different from what it would be if the 
mortgage was a 20-percent mortgage, for instance. 

Mr. Geseix. There is more to it than that, isn't there, Mr. Howe, in 
that capitalizing the interest? The company is showing that it has 
received interest which has not been paid ? 

The Chairman. Well, it hasn't received it in cash but it has received 
a promise for an increased payment. 

Mr. Gesell. Yes ; but it has not received it in cash, is that not cor- 

Mr. Howe. Yes ; that is correct. 

The Chairman. That of course is obvious, but it is merely a ques- 
tion of whether this increased asset should be regarded as income or 


not. I suspect that in the computation of the income tax, an accrual 
of that kind would be subject to taxation on the part of an individual. 

Mr. Howe. Well, if he keeps his books on a cash basis it would not. 

The Chairman. But it is a thing of value that is received and any- 
thing of value that is received is income. 

Mr. Howb'. All right. 

Mr. GeselIv. But your question suggested, Senator, that there was 
no other way of accounting for this accrued but unpaid 

The Chairman, (interposing). I asked whether there was any 
other way. 

Mr. Gesell. There is another wa}^, and that is, to be realistic about 
it and not count it as income. 

Mr. Howe. Metropolitan has ipitalized no interest. They must 
have made some deals with some of their mortgage-holders. You 
can't hold tremendous mortgage accounts like theirs without having 
occasionally to make some adjustment. 

The Chairman. That might be a matter of judgment as to whether 
or not the real property should be carried at its real value, at its 
original value. 

Mr. Howe. Absolutely. 

The Chairman. What other method of capitalization were you 
speaking of? 

Mr. Howe. The second method of capitalization occurs in a case 
like this. The mortgage becomes delinquent, shall we s£^y as to 
interest. The lender sits down with the borrower and the borrower 
says, "I can only pay you 2 percent. You can have the property or I 
will pay you 2 percent," or for some other reason he can only pay 
2 percent. The borrower says to him, "All right; we will take 2 
percent for the next so-many years, but the balance of the contract 
rate will accrue against you and at the end of this period you will 
have to pay it.'' So that as that interest accrues it is also taken into 
income just to the same extent that the 2 percent which was fully 
paid and cash was taken in. 

The Chairman. You mean as it accrues though not paid? 

Mr. Howe. As it accrues, though not paid. 

The Chairman. Because it becomes an obligation to be paid later 
on? It is an account receivable to be handled at some future time? 

Mr. Howe. That is right. 

Mr. Gesell. The theory there is -that maybe no demand has been 
made for the interest and so that even though it is delinquent, it 
has still been received because it hasn't been defaulted on, isn't that 
the theory being expressed? 

Mr. Howe. Yes; there has been no demand and it can't be in 
default, and therefore it is good and they take it in. 

The Chairman. What I see is the difference between cash income 
and income in another form, and I can understand why some ac- 
countants might call it income. 

Mr. Henderson. You couldn't make a policy loan with it, or 
you couldn't pay an officer's salary, and you couldn't pay rent with it. 
It looks to me like that old saying, you know, Mr. Chairman, of 
:-iomeone who signed a note for a debt and said, "Thank God, that 
is paid !" 

Mr. Howe. The third method, Senator, is simply a variation of the 
second. Here is a case, shall we say, in which a, mortgage is totally. 


delinquent as to interest, no interest is being paid. Well, it is ac- 
cruing, you see ; the debt is being increased, and so it is income and 
we will take it in as income. If the value of the property is such 
that the thing all washes out and we get the ^terest and everything 
back, it is all right, but it seems like a practice which could be a little 
more conservatively handled. 

The Chairman. Does it appear in the statements as indistinguish- 
able from cash income? 

Mr. Howe. Extremely indistinguishable. 
Mr. Gesell. Entirely indistinguishable. 

Mr. Pike. How did you get these figures of capitalized interest? 
Mr. Howe. By asking for them. 

Mr. Henderson. You didn't get them out of the Convention Form? 
Mr. Howe. No; I did not. 
The Chairman. What is the total amount? 

Mr. Howe. The total amount of interest which has been capitalized 
by these companies during this period is $25,463,000. 
The Chairman. Wliere does that appear? 

Mr. Howe. That is really the total of tables 177 and 214, Senator.^ 
Here the tables are divided between farm and urban, and I have made 
a consolidated table. 
Mr. Gesell. About half of that rests with one company ? 
Mr. Howe. That is right. 

Mr. Gesell. Will you show what that company is and what the 
effect of that capitalization item is ? 

Mr. Howe. Outstanding in this connection is The Union Central 
which company has capitalized interest to the extent of $10,954,000 
since 1932.^ This is an amount which is in excess of the surplus and 
contingency reserves of the company. The company is a stock com- 
pany, however, and has capital in excess of surplus and contingency 

The Chairman. What is the explanation of that method from the 
point of view of a company which follows it ? 

Mr. Howe. The explanation I tjiink is the one that you have given, 

that — well, after all 

The Chairman (interposing). I am not an accountant. 
Mr. Howe. I mean, the. theory of it is that if the company recovers 
and be made whole from the security, there iS no harm; I mean the 
real property security, there is no harm in capitalizing their interest 
because they will be paid back anyhow, ultimately. 

Mr. Gesell. How does their real estate carry on their books from 
a vf^luation point of view in relation to the others ? It is the highest, 
is it not, 18.23 times? 

Mr. Howe. That is right. The Union Central urban real estate is 
- carried at 18.23 times gross. 

Mr. Pike. They also have probably the highest ratio of real estate 
owned to total assets? 
Mr. Howe! Yes ; they have a higher ratio. 

Mr. Gesell. In a way you might say it was a symptom of difficulty 
in the real estate, would you not ? 

1 See Hearings, Part 10-A, pp. 177 and 214. 

2 In this connection see also memorandum regarding this item, subsequently sub- 
mitted by W. Howard Cox, president, The Union Central Life Insurance Co., which appears 
in appendix, pp. 15629-15631. 


Mr. Howe. Well, it is a symptom of something; yes. The Union 
Central has the highest percentage, or one of the highest percentage^, 
at least, on real estate of any of the companies, as shown by table 
.104, 11.66 percent of total admitted assets is in farm real estate,^ and 
0.66 percent in city real estate. 

The Chairman. Wliat is the geographical distribution of the mort- 
gages of this company ? 

Mr. Howe. Thev have a rather wide geographical distribution, 
Senator. My recollection is that they are m 32 States, or 33.- They 
have property in Alabama 

The Chairman (interposing). What page? 

Mr. Howe. Page 167.^ I am speaking of farm mortgages. We don't 
need to review the urban account because it is relatively small. The 
Union Central has 910,000 of mortgages in Alabama; none in Ari- 
zona; 958,000 in Arkansas; 1,041,000 in California; 1,833,000 in Colo- 
rado; none in Connecticut; none in Delaware; none in District of 
Columbia; one in Florida. 

In Georgia they have 1,202,000; Idaho, 1,220,000; Illinois, 1,861,000; 
in Indiana, 3,788,000; Iowa, 4,255,000; Kansas, 3,867,000; Kentucky, 
505,000; Louisiana, 1,048,000; none in Maine; none in Maryland; 
none in Massachusetts. In Michigan, 633,000 ; in Minnesota, 2,862,000; 
Mississippi, 1,763,000; Missouri, 3,482,000; and then as we skip along. 
Senator, unless you want me to read all of these, you will see that in 
Wyoming they have 50,000. 

The Chairman. Well, Nebraska carries 3,829,000. 

Mr. Howe. That is right. 

The Chairman. And South Dakota, 1,523,000; North Dakota has 
1,401,000, indicating that their difficulties were in the agricultural 
States where the farm problem was the greatest. 

Mr, Gesell. Does that complete the comments that you have, Mr. 
Howe, up to a discussion of the operating results and lines of 
business ? 

Mr. Howe. Yes ; that completes that. 

Mr. Gesell. Then unless the committee has some C[uestions, that 
completes the presentation today. I would like to bring Mr. Howe 
back at some auspicious occasion to discuss lines of business after 
the committee and Mr. Howe have had a little rest. 

The Chairman. Are there any other questions now to be asked of 
Mr. Howe? 

Mr. Henderson. I think in view of its importance I would like to 
go back to this capitalization — sometime, not now — of the gross income 
that you mentioned. I think that ties right into this last item, and 
when we pick up again let's have a little more information on it. 

Mr. Gesell. I might say that tomorrow we will begin a considera- 
tion of life insurance company investments and farm real estate 
and farm mortgages, and the first witness will be Mr. Norman J. 
Wall, head of the Division of Agricultural Finance, Bureau of Agri- 
cultural Economics. 

The Chairman. The committee will stand at recess until 10:30 
tomorrow morning. 

(Whereupon at 4 : 05 p. m., the committee recessed until Thursday, 
February 15,. 1940, at 10:30 a. m.) 

1 See Hearlnja, Part 10-A, p. 104. 
•Hearings, Part 10-A. 


thursday, february 15, 1940 

United States Senate, 
Temporary National Economic Committee, 

Washing on, D. G. 

The Committee met at 10:40 a. m., pursuant to adjournment on 
Wednesday, February 14, 1940, in the Caucus Room, Senate Office 
Building, Senator Joseph C. O'lVtahoney, presiding. 

Present: Senator O'Mahoney '(chairman), Representative Wil- 
liams, Messrs. Henderson, Kades, Pike, and Brackett. 

Present also : Senators Guy M. Gillette, of Iowa ; George Norris, of 
Nebraska ; Robert La Follette, of AVisconsin ; and Clyde L. Herring, 
of Iowa ; Representatives Vincent F. Harrington, of Iowa ; John W. 
Gwynne, of Iowa; and Henry O. Talle, of Iowa; James V. Hayes, 
Department of Justice; Gerhard A. Gesell, special counsel; Ernest 
Howe, chief financial adviser, and Hollis Black, attorney, Securities 
axid Exchange Commission. 

The Chairman. The committee will please come to order. Mr. 
Gesell, are you ready to proceed? 

Mr. Gesell. I am. Senator. I have a short statement. 
During the next 2 days we will consider life insurance company 
farm investments. The committee will recall that the statistical sum- 
mary entitled "Operating Results and Investments of the Twenty-six 
Largest Legal Reserv^e Life Insurance Companies Domiciled in the 
United States" ^ which is in evidence discloses that the 26 companies 
held at the end of 1938, $743,961,00O of farm mortgages and $529,392,- 
000 of farm real estate. In addition, they owned $81,755,000 of farm 
real estate under contract of sale making a total farm investment of 
$1,355,108,000. The Prudential is the most active company in the 
field of farm mortgages and farm real estate. Its holdings of $167,- 
298,000 of farm mortgages are over twice that of an^ of the other 
26 companies. In the case of all but 4 of the 26 companies who do 
not -own farm mortgages, farm investments represent a substantial 
portion of the portfolios ranging as high as 17 percent in the case of 
the Equitable of Iowa. 

At the end of 1929 the 26 largest life insurance companies owned 
$1,787,000,000 worth of farm mortgages. During the next 10 years 
this amount (decreased until at the end of 1938 it stood at $743,000,000. 
During this -period the amount of farm real estate owned has risen 
from $81,000,000 to $529,000,000, with another $81,000,000 worth 
owned under contract of sale. From the beginning of 1932 to the end 
of 1938 the companies acquired $430,000,000 of farm mortgages. 

> See Hearings, Part 10-A. 



The Chairman. It might be interesting, Mr. Gesell, to remark at 
that point that while the value of farm mortgages held by the insur- 
ance companies was declining, beginning with 1929 and 1930, the 
value of farm mortgages held by the Federal land banks and the 
Fai-m Credit Administration under the Land Bank Commissioner was 
steadily increasing, so that there was a transfer of these farm mort- 
gai^es from tlie life insurance companies to government agencies. 

Mr. Gesell. That is correct, and we will present figures through 
the first witness with respect to that matter. 

Of farm real estate owned December 31, 1931, and that acquired 
between that date and December 31, 1938, 32.66 percent had been sold 
by the latter date. The percentage of such farm real estate sold 
ranged, for individual companies, from 4.6 to 70.3 percent. Net in- 
come on farm real estate owned in 1938 averaged 0.93 percent before 

Of mortgages owned December 31, 1938, $195,000,000 at book value 
was on farms in Iowa and $91,000,000 was on farms in Illinois. At 
the same time $2,000,000 was on farms in Alabama and $2,000,000 on 
farms in South Carolina. The 26 companies reported no farm mort- 
gages in several States, among them Maine, New Hampshire, and 
Massachusetts. Relatively few loans were made in many Southern 

The bulk of farm mortgages owned by the insurance companies is 
from $5,000 to $25,000 in size. As of December 31, 1938, 14.7 percent 
of farm mortgages were delinquent as to interest 3 months or more. 
In 1938 the average interest rate on farm mortgages owned by all 
companies was 4.7 percent. 

Because of their huge investments in farm real estate, life insurance 
companies are an important factor in the agricultural economics of 
the country. Difficulties with these investments have placed them 
among the largest landowners in the country. The economic and 
social consequences of insurance companies as creditors of farmers 
and owners of farm land pose many interesting and difficult questions, 
some of which cannot yet be answered and others to which the answers 
can only be suggested. 

In the period between the war and 1929, insurance money in liberal 
amounts flowed into the agricultural country. In their efforts to 
secure good mortgages the insurance companies entered into active 
lending competition with one another and with local financial insti- 
tutions, making farm credit comparatively easy to be had in some 
parts of the country. What were the effects of this generous credit 
upon agriculture? Will the insurance companies resume lending 
on the same scale as formerly? What will be the results if they fail 
to do so? 

In some parts of the country in which farm real estate did not 
api>ear to be as attractive a security as in other parts, the insurance 
companies made few farm mortgages. What has been the effect of 
this policy upon those sections? Has this policy served to enhance 
the difficulties of farmers in these areas? Has the result of insur- 
ance operations been a drawing off of capital from some sections, 
particularly from the farms of the South? And why have some 
companies not loaned money on farms at all ? 

During the depression thousands of farmers came into financial 
difficulties and the insurance companies, as well as other lendei-s, were 


forced to foreclose their mortgages in order to protect their invest- 
ments. As landlords, these companies have become farm managers^,. 
What effect has this absentee ownership had upon the agricultural 
communities of the Middle West? Has it encouraged the rehabili- 
tation of these communities or has it resulted in an uprooted popu- 
lation ? 

In recent years the Federal Government, through the Depart- 
ment of Agriculture, has undertaken an extensive farm program. 
What has been the effect of this program upon the insurance com- 
panies' investments? Has it helped or hindered the insurance com- 
panies in their efforts to work out the problems which unprecedented 
numbers of foreclosures forced upon thein? And conversely, what 
has been the effect of insurance-company ownership upon the Gov- 
ernment's farm program? 

These are not new questions. It is hoped the testimony will, how- 
ever, throw further light on the problems raised and contribute to 
their solution. I might point out to the committee that the informa- 
tion on farm mortgages and farm real estate will be found, com- 
mencing on table 161 of "Exhibit No. 2250" and continuing to table 

The first witness will be Mr. Norman Wall, of the Bureau of 
Agricultural Economics. 

The Chairman. Mr. Wall, do you solemnly swear that the testi- 
mony you are about to give in this proceeding shall be the trutli, 
the whole truth, and nothing but the truth, so help you God? 

Mr. Wall. I do. 


Mr. Gesell, What is your official title, Mr. Wall ? 

Mr. Wall. Head of the Division of Agricultural Finance. 

Mr. Gesell. Of the Bureau of Agricultural Economics? 

Mr. Wall. That is correct. 

Mr. Gesell. How lon^ have you been connected with the Bureau 
of Agricultural Economics? 

Mr. Wall. Sinc^ 1925. 

The Chairman. And the Bureau of Agricultural Economics is in 
the Department of Agriculture? 

Mr. Wall. That is right. 

Mr. Gesell. Since 1925? 

Mr. Wall. Yes. 

The Chairman. Are you a civil-service employee? 

Mr. Wall. Yes, sir. 

Mr. Gesell. I want to show you first, Mr. Wall, a table entitled 
"Farm-Mortgage Debt," and ask you if that was a table which was 
prepared under your supervision? 

Mr. Wall. That is correct, sir. 

Mr. Gesell. I wish to offer the table entitled "Farm-Mortgage 
Debt" for the record. 

The Chairman. The exhibit may be received. 

' Hearings, Part 10-A, pp. 161 and 192. 


(The table referred to was marked "Exhibit No. 2270" and is 
included in the appendix on p. 15498.) 

The Chairman. May I interrupt to say for the record that the 
committee has the pleasure of having the attendance this morning 
of Senator Herring, of Iowa. It is only natural that Iowa should 
be represented in a study of farm mortgages according to the sta- 
tistics already presented here. 

Mr. Gesell. Mr. Wall, with respect to the table entitled "Farm- 
Mortgage Debt," will you point out some of the significant figures 
shown on that table and make any comments which you wish? 

Mr. Wall. As one looks at the table on total outstanding farm- 
mortgage debt, one is impressed with the very rapid rise of this 
indebtedness from the pre-war period to the early twenties.^ From 
1910 to 1923 the total farm-mortgage debt more than tripled, in- 
creasing from around $3,200,000,000 to $10,786,000,000 in 1923. 
, There were several factors accounting for this rapid, rise in the 
indebtedness. In the early period, say from 1910 to 1916, the in- 
crease in debt reflects primarily a continuation of the upward trend 
in indebtedness that had been occurring since almOst the beginning 
of the century. During that period farm-land values had been Hs- 
ing almost continually, farm income was on the upward trend, there 
was an expansion in the number of banks serving agricultural com- 
munities, and we can consider that whole period as one of credit 

Mr. Gesell. That is the period up to '23? 

Mr. Wall. No; I am speaking of the period up to 1916. Begin- 
ning with 1916 and continuing to 1920, we began to get the influences 
of the very rapid rise in agricultural prices associated with the war- 
time demand and with our own entry into the World War. 

The Chairman. Let me interrupt again. May I add to my pre- 
vious statement that we also have with us Senator Gillette, of Iowa, 
and Congressman Harrington, of Iowa. On behalf of the committee 
I want to invite each of these gentlemen to participate in the exami- 
nation of the witnesses. 

Mr. Gesell. You were talking about the period 1916 to 1920, Mr. 

Mr. Wall. During this period, as I have already indicated, it 
was evident that the war-time expansion in prices and in income 
was being reflected in an expansion of farm-mortgage debt as well 
as in the short-term debt of the farmers. From aoout 1914 to 1920 
the short-term loans, that is, personal and collateral loans, obtained 
from commercial banks had more than doubled. It was in 1919 
and 1920 that the largest expansion in mortgage indebtedness 

In addition to this war-time influence, there was a substantial 
increase in the volume of land transfers, particularly in the Mid- 
west. We have found from past experience that there is a very 
close correlation between the volume of transfers, that is farm trans- 
fers, and the demand for farm-mortgage credit. 

1 See "Exhibit No. 2270," appendix, p. 15498. 


The Chairman. Mr. Wall, in preparine; this exhibit which has 
just been handed in, have you made any enort to compute the total 
interest, or the avt ge interest on the average indebtedness? 

Mr. Wall. In 1 j second column. Senator, you will find a series 
that shows the total amount of interest j)ayments on mortgage debt. 

The Chairman. Well, this first exhibit shows two columns, first 
the total debt outstanding and next the total interest charges, and 
I wondered if you had computed the relation of the two so far as 
the average is concerned. 

Mr. Wall. Yes. For 1913, for instance, the average interest rate 
was 6.1 percent. It increased to a high level of 6.4 percent in 1923, 
and by 1939 that had decreased to 5 percent. 

We shall have a chart a little later in which I shall go into these 
interest rate variations a little more in detail.^ 

The Chairman. What was it in 1913? 

Mr. Wall. It was 6.1 percent. 

The Chairman. Thank you. 

Mr. Wall. The increase in indebtedness in 1921, '22, and '23 
reflects to a very large extent the shifting over of loans that had 
pre viouslyt been held by commercial banks and the refinancing of other 
short-term loans for equipment purchases and other miscellaneous 

In the period following 1923 there was a gradual reduction in the 
total amount of indebtedness and, as indicated in the chart, farm 
income was maintained at a relatively stable level, although farm 
land values were declining during this entire period.^ 

Following 1930, you had somewhat the same factors showing up 
as occurred following 1920 ; that is, there was the effort on the part 
of short-term creditors and commercial banks to obtain greater se- 
curity' for their outstanding advances, and there was some increase 
in mortgage debt for this purpose. On the other hand, the forces 
of the depression were so great that the dominant niovement during 
that period was one of debt liquidation. This continued at a very 
rapid rate until '33 and '34. Beginning with the refinancing program 
of the Farm Credit Administration there was a rapid shift of loans 
from the various other agencies to the Federal land banks and 
the Land Bank Commissioner. As a matter of fact, from 1933 to 1936, 
71 percent of the proceeds of Federal land bank and Land Bank 
Commissioner loans were used for refinancing mortgage indebtedi iss 
to other agencies. 

The Chairman. What was the experience prior to 1933 ? 

Mr. Wall. Well, there was great difficulty in obtaining credit from 
the usual agencies from about 1929 until the Farm; Credit Adminis- 
tration was organized. 

The Chairman. Well, the land banks were established in the first 
instance during the administration of Woodrow Wilson, as I recall. 

Mr. Wall. In 1917. 

The Chairman. Have you followed the trend from that year on 
of the expansion of government credits ? 

' See "Exhibit No. 2272," infra, pp. 14863-15500. 
2 See "Exhibit No. 2271," Infra, p. 14862. 


Mr. Geseix. That is shown in a subsequent chart, I believe.^ 

Mr, Wall. We will take that up a little later. 

Mr. Gesell. That is scheduled third on the list. Now I notice, Mr. 
Wall, that the figures on this table are estimated.^ What is the source 
of these figures? 

Mr. Wall. At each census period the Bureau of the Census ob- 
tains information on the amount of indebtedness on owner-operated 
farms. The Department of Agriculture has made surveys to indicate 
the relationship of the indebtedness on farms of other tenures which 
are used to raise the data obtained through the Bure^a of the Census 
on owner-operated fanns, so that at census dates we obtain a total 
efitimate of debts for owner operators, managers, and tenants. 

For inter-censal yearg, we have used the data on outstanding loans 
of some of the leading lending agencies, and in 1936 and '37 there 
was a Nation-wide W. P. A. project which obtained data on farm 
mortgage recordings and releases. From this material we have com- 
puted changes in the outstanding debt for the other lending agencies 
which then have been adjusted to the census periods. 

Mr. Gesell. So these are, in effect, a composite of the figures 
obtained from these various sources? 

Mr. Wall. That is correct. 

Mr. Gesell. Have you completed your comments on this schedule? 

Mr. Wall. I have not given much consideration to the last 4 or 5 
years, ^ r. Gesell. Would you like to have me take that up? 

Mr. (esell. Yes; if you will. 

Mr. Wall. You will note that the decline in indebtedness was 
quite rapid up until about 1935 or '36, and while it has continued 
to decline during the last few years, it has not been nearly as marked 
as in the early depression period. There has been some increase in 
the recordings of life insurance companies and commercial banks, 
indicating that they are reentering the field. The decrease in indebt- 
edness has been intensified in certain regions where we have had 
recurring drought for a nuniber of. years, which has made it very 
difficult for farmers to meet their obligations. 

The Chairman. How does that affect the debt? Do you mean 
that because of the inability <i the farmers to meet their obligations 
they have been foreclosed? 

Mr. Wall. There are two factors in operation there, Senator. 
To the extent that the farmer is able to retain ownership of his 
farm, he has his interest extended and there is a gradual increase. 
The major factor that works in the area has been a heavy rate of fore- 
closures which has extinguished debt. 

The Chairman. So this reduction in recent years, which was noted 
on this chart, is not due to the payment of mortgages by farmers 
but to the foreclosure of those mortgages by the mortgagee? ^ 

Mr. Wall. That varies between different areas of the country. In 
certain regions agricultural income has recovered fairly satisf actc • ily, 
and there has been an increase in the repayment of loans in those 
areas, so that you h^ve actually the formal repayment process pro- 
ceeding together with the forced liquidation. 

1 See "Exhibit No. 2274.' appendix, p. 15501. 

2 See "Exhibit No. 2270," appendix, p. 15498. 
= "Exhibit No. 2271," infra, p. 14862. 


The Chairman. These two factors then have operated to reduce 
the debt? 

Mr. Wall. That is true. 

The Chairman. Which is the major factor? Do you know? 

Mr. Wall. It would be a little bit difficult to indicate exactly 
which is the more important because it varies so between regions. 
Then there is a third factor that comes in toward increasing indebted- 
ness. Some of these farms that were acquired earlier are being 
transferred back to the farmers. 

The Chairman. These figures which have been presented lo us 
indicate, for example, that the farm land owned by the life insurance 
companies back in 1929 was valued at about $81,000,000 or $82,000,000, 
whereas they are now valued at about $529,000,000, indicating a very 
striking increase in foreclosures.^ 

Mr. Wall. The life insurance companies hold more real estate in 
relation to their acquirements during the period than almost any 
other group of lending agencies. Federal land banks have followed 
a policy of rather rapid disposition of their farms. 

The Chairman. The land banks have also not pursued a policy 
of foreclosure. They have been withholding and have endeavored 
to permit the mortgagor to remain on the farm. Isn't that so? 

Mr. Wall. They have acquired a fairly substantial amoup.t over 
a period of years. 

Mr. Gesell. Those figures, too, Senator, are scheduled for specific 

The Chairman. Very well. I will wait until that time. 

Mr. Gesell. You referred, Mr. Wall, to a chart. I take it you 
mean the chart entitled "Cash Farm Income and Farm-Mortgage 
Debt, 1910-39," which is in front of the committee. Is that the 
chart you refer to? 

Mr. Wall. That is true. 

Mr. Gesell. I would like to offer this chart for the record at the 
present time. 

The Chairman. It may be received. 

(The chart referred to was marked "Exhibit No. 2271" and ap- 
pears on p. 14862. The statistical data on which this chart is based 
are included in the appendix on p. 15499.) 

Mr. Wall. I might make a few comments on the chart, in order 
to bring out regional differences. You will notice there has been 
a gradual decline in outstanding debt from 1923i to 1930. By 
geographical regions, however, you get a different picture. 

In the New England States you had practically a rising trend, 
not only during that period but up to the present time. 

In the West South Central States, the indebtedness continued 
up until about 1932. The same is true for the Pacific States. The 
amount of indebtedness in the West North Central States is so 
large that a very sharp declining tendency influences the national 
series of mortgage debt. 

Mr. Gesell. Now, the chart which you wish to discuss is the chart 
showing change in interest rates, is it not? 

Mr. Wall. That is right. 

1 See Hearings, Part lO-A, p. 180. 
1244»l^-ii— pt. 28 12 



Mr. Gesell. It is entitled "Average Interest Rates on Outstanding 
Farm Mortgages, January 1, 1913, 1923, 1933, and 1939," is it notY 

Mr. Wall. Yes. 

Mr. Gesell. I wish to offer this chart for the record. 

The Chaibman. It may be received. 

(The chart referred to was marked "Exhibit No. 2272" and appears 
on p. 14863. The statistical data on which this chart is based are 
included in the appendix on p. 15500.) 

Mr. Gesell. The Chairman referred to changes in. average inter- 
est rates which have taken place in the period covered by the first 
exhibit.^ This chart that is now before you shows those changes 
both for the country at large and by individual States for the period 

Exhibit No. 2271 







Index offarm- 










indicated, does it not? Is that true? Have you some comments 
which you wish to make on that chart? 

Mr. Wall. These four maps give you a graphic picture of the 
change that has occurred in interest rates from 1913 to 1939. In 
the first map you will note the wide area marked by black which 
represents the avergige interest rate on farm mortgages of 7.8 percent 
and oyer. The next area varied from 7.3 to 7.7 percent, and the 
very lightest area is under 5.3 percent. You will notice there is a 
very small amount of that. 

The Chairman. When you are discussing interest rates with rela- 
tion t-o this map, you are talking of the interest rates paid to all sorts 
of lenders? 

Mr. Wall. On the farm-mortgage real-estate debt. 

The Chairman. And ;you are not discussing the interest rate paid 
to life insurance companies alone? 

» See "Exhibit No. 2270," appendix, p. 15498. 




Mr. Wall. No; this is all mortgage debt. As we approach 1923. 
you will note a decrease in this intense area, indicating a lowering of 
the intei-est rates over most of this area (heavy dotted). As we pro- 
ceed, in 1933 that becomes even more apparent, and in 1939 you see a 
gi-eat inci-ease in the area representing an interest rate of less than 5.3 

The Chairman. I observe from the map that it wasn't until 1933 
that the interest rate in Wyoming dropped below 7.8 permit. 
Mr. Wall. That has always been a high-interest-rate $tate. 
Mr. Henderson. Is that because of the value of the land out there, 
or the risk of the borrower? 

Mr. Wall. There are three major factors involved, I think, in4his 
graphic reduction in interest rates, particularly in the West and 
Southwest. One is the risk factor. In the earlier period it was still 
very much of a pioneer country in many parts of those areas, with 
a gradual aging of those regions somewhat similar to that which 
occurred in the Midwest from 1880 to 1900. In the 1880's, in the 
Midwest, you had high interest rates and by 1900 those had gone down 
to fairly reasonable levels. 

Mr. Henderson. Was that on account of the increase in the value 
of tlie land? 

Mr. Wall. That is partly it. The greater development of the areas, 
more stable income, and greater financial resources within the areas 
themselves all contributed to that particular phase in the reduction 
of interest rates. 

Mr. Henderson, Are you going to discuss somewhere the relation 
between the total value of farm property and the mortgage debt? 

Mr. Wall. In 1935 the total mortgage debt represented about 24 
percent of the value of farm lands and buildings. That compares 
with a ratio of about 9 percent in 1910. 

Mr. Henderson. How about the period of the highest amount of 
farm debt, in the mid-twenties? 

Mr. Wall. That was about 20 percent around 1923. 
Mr. Henderson. Would you say that a decline in the value of 
farm lands has been somewhat responsible for the decline in the 

Mr. Wall. Yes; I would say that was certainly an important 
factor because it reduced the security behind the loans, and of course 
the declining land values— to the extent that they reflected decreased 
farm income — in turn reduced the amount of funds available to the 
individual farmers for paying the mortgage interest. 
(Representative Williams assumed the Chair.) 
Mr. Gesell. Taking this reduction of interest rates that has taken 
place over this whole period from '13 to '39, can you tell us what the 
principal factors have been for that period ? 

Mr. Wall. I started to develop the point that there had been an 
agjng of the high risk areas, and in addition to that, there have been 
two other important factors. One of these is the increase in the 
volume of loans held by centralized lending agencies which have 
made loans at a lower interest rate. I am speaking here primarily 
of the land banks in the Western areas and Southe-m areas. In other 
words, as the land banks took over a larger proportion of the total 
mortgage debt at a rate of interest lower than that available from 


-Other lenders, it had the effect of reducing the average rate of 

Then in more recent years, there has been a third factor, an actual 
reduction in the rate of interest charged by practically all lending • 
agencies. This is in part reflected by the reduced interest rates pro- 
vided by Congress on Federal land bank and Land Bank Commis- 
sioner loans, which brings the rate for Federal land banks down to 
31/2 percent, and for Land Bank Commissioner, to 4 percent. 

So that in this whole period of lower interest rates, you nave 
the three factors at work: the aging of the Western and Southern 
communities, particularly the Southwest; the increase in the amount 
of loans held by the centralized lending agencies, Avhich as a rule have 
lower interest rates than local lending institutions ; and, since 1933, 
an actual reduction in interest rates Charged by all principal lenders. 

Mr. Gesell. Have you information, Mr. Wall, which will show 
the amount of the farm-mortgage debt held by the principal lender 
groups over the period from 1920 to 1933 ? 

Mr. Wall. If you will turn to the next chart 

Mr. Gesell (interposing). Is that the chart I show you now? 

Mr. Wall. Correct. 

Mr. Gesell. I wish to offer this chart for the record. 

Acting Chairman Williams. It may be received. 

(Tlie chart . referred to was marked "Exhibit No. 2273" and ap- 
pears on p. 14866.) 

Mr. Gesell. Have you some comments which you wish to make 
on that chart? 

Mr. Wall. I would like to suggest that we consider the next table 
in connection with this chart, giving the figures on which the chart 
is based. 

Mr. GesbJvL. I would like to offer that table. 

Acting Chairman Williams. It may be received. 

(The table referred to was marked "Exhibit No. 2274" and is in- 
cluded in the appendix on p. 15501.) 

Mr. Wall. The black bars reflect the total mortgage debt which is 
the same series that we considered in a previous chart. ^ 

Mr. Gesell. That is just a graphic representation of the figures 
whicli are on tlie very first table that we put in ? ^ 

Mr. Wall. That is correct, Mr. Gesell. 

You will note that in this earlier period these four groups of lend- 
ing agencies held a relatively small proportion of the total mortgage 
debt, whereas in the period during the twenties, the four groups of 
agencies held a considerable portion, and this proportion has been 
increased in later years. ' 

Mr. Gesell. That means that back in 1910, Mr. Wall, tlie debt was 
held mostly by individuals, does it, or people in the locality? 

Mr. Wall. That is connect, the local individuals within the com- 
munities, and private investors in other sections of the country. At 
that time there was quite an extensive system of mortgage brokers 
who would obtain loans in their local territories and. through sales- 
men or other outlets, dispose of them in areas of surplus funds. 

iSee "Exhibit No. 2271." su'nra, n. 14862.. 
= See "Exhibit No. 2270," appendix, p. 15498. 



Mr. Gesell. So that as you proceed across the period of years, and 
the relative amount held by these individuals decreases, it means a 
rise in institutional holdings of mortgages. 

• Mr. Wall. Yes; I think that is one of the outstanding character- 
izations we can make of this whole period, the shift in the mortgage 
indebtedness from local individuals and small investors into the port- 
folios of large specialized lending institutions. 

(Senator O'Mahoney resumed the Chair.) 

Representative Williams. But there still remains a substantial 
part of those loans in the hands of private individuals or local institu- 
tions; isn't that true? 

Mr. Wall. That is correct. I would say, in 1939, that about 40 
percent would be in the hands of individuals and others and 60 percent 
in the hands of specialized lending institutions. 

Exhibit No. 2273 

Total Outstanding Farm-mortgage Debt and Amount Held by 
Principal Lender Groups; 1910-39 

i OlPARTUtNT Of * 

1930 1935 


Mr. Gesell. The table supporting that chart would indicate that 
in 1910 individuals held aroimd 75 percent and at the present time 
they hold only about 40 percent.^ 

Senator Herring. That was a part of the purchase price of farms 
that were sold ; it wasn't a loan. Those farmers sold at a big price and 
the seller retained that amount of the purchase price. 

Mr. Wall. That is particularly true in that period of 1919 and 

Senator Herring. Yes. 

Representative Williams. During the twenties there was a very 
substantial part of it owned by individuals, according to your table, 
perhaps we could say 60 percent? 

Mr. Wall. It was as high as 70 percent. 

If I may take up this period from 1910 to 1923, which was a period 
of increase in mortgage indebtedness, I might point out that at the 
beginning of the pericil you had only life insurance companies and 
commercial banks as your major institutional lenders. 

' See "Exhibit No. 2264," appendix, p. 15501. 


The Chairman. Have you made any segregation of the interest 
charges required by the various types of lenders ? ^ 

Mr. Wall. We have, Senator. 

The Chairman. You are going to develop that later on ? 

Mr. Wall. Unfortunately I don't have them with me. I can put 
them in the record if you wish. 

The Chaieman. I think it would be very interesting because, as this 
chart indicates, from 1910 to 1917 commercial banks and life insur- 
ance companies were practically the only lenders upon farm real 
estate.^ That is to say, they were the only lenders of sufficient 
amounts to get into this chart. 

Mr. Gesell. Only institutional lenders, you mean, Senator. 

The Chairman. Yes ; that is what I mean ; exactly. 

Then begiiming in 1917, the joint stock land Banks and the Fed- 
eral land banks came into the picture, and it would appear from 
the chaxt that, although a large new- source of farm mortgage funds 
had appeared, there was not any substantial diminution, if indeed 
any, for several years, of the amount of mortgages held by com- 
mercial banks and life insurance companies; isn't that correct? 

Mr. Wall. That is correct. That was a period of wide-spread 
credit expansion in all lines. 

The Chairman. So that from 1917 until some time after, or at least 
until 1930, the operation of the Federal land banks and the joint 
stock land banks were really not in competition with life insurance 
companies and commercial banks, so far as actual results were con- 
cerned. They weren't taking any business away from them, in other 

Mr. Wall. There was some shifting which I will develop in just a 
moment as I go along. 

In 1913, the Federal Reserve Act provided authority f^r National 
banks to make loans on farm mortgages, so that in this earlier pieriod, 
it was primarily State and private savings banks that held these farm 
mortgages, and as a matter of fact, national banks didn't increase 
their real estate loans appreciably, until after 1920. 

Of course, as has already been mentioned, in 1917 you had the 
lending operations of the joint stock land banks and the Federal land 
banks, but you will note that until 1921 there was no appreciable 
increase. From the latter part of 1919 to 1921, the constitutionality of 
the Federal Farm L#oan Act was in question and there was very little 
lending activity by these two group of institutions. 

However, beginning in 1921, '22, and '23, there was a very substantial 
increase in the demand for mortgage loans. The applications to the 
Federal land baaiks, joint stock land banks, and life insurance com- 
panies increased tremendously, and at that time there began the shift 
of some loans from the commercial banks to life insurance companies, 
Federal land banks, and joint stock land banks. 

Mr. Gesell. During what period did that shift start? 

Mr. Wall. The peak of mortgage loans by commercial banks was 
reached in about 1922, and the increase in commercial bank loans in 
1920 and '21 represented primarily the taking of additional security 
on loans that had been contracted as short-term loans when the price 

1 See table on "Interest charges payable on farm mortgages held by various lender groups, 
United States, for selected years," which was subsequently supplied for the record and appears 
in appendix, p. 15500. 

a See "Exhibit No. 2273," supra, p. 14866. 


level had been much higher. Gradually these were either foreclosed, 
liquidated, or refinanced with other agencies. During the period up 
to 1928, you had life insurance companies expanding their loans very 
nepidly, as well as both the Federal and joint stock land banks, yet 
the total mortgage indebtedness was going down from '23 on, so that 
obviously was a period in which vast amount of mortgage indebtedness 
was being shifted from privat-e individuals and commercial banks. 

The Chairman. You don't mean to a'ay the total farm indebtedness, 
or at least institutional indebtedness, was going down. That didn't 
begin to go down as far as institutions were concerned in 1923. 

Mr. Wall. No, the total mortgage indebtedness reached a peak in 
1923, but from that p lod on, the amount of indebtedness held by the 
institutional lenders increased, which obviously means that a portion 
of the outstanding- indebtedness was being shifted to the institutional 

The Chairman. In other words, you are having' a shift from indi- 
vidual lenders to corporate lenders or institutional lenders, of one kind 
jr another ? 
Mr. Wall. That is correct, sir. 

Representative Williams. Is that rapid rise in farm indebtedness 
iTom '20 to '23 due to the fact that a number of new mortgages were 
nade or an increase of existing mortgages ? In other words, was there 
an increase in the number of mortgaged farms in the country during 
that period ? 

Mr. Wall. Yes, there was. There were several factors at work 
during that period. 

As I mentioned earlier, there was considerable refinancing of short- 
term loans obtained from commercial banks. At the end of 1920, com- 
mercial banks held personal and collateral loans to farmers of around 
$3,800,000,000 and by the end of 1923 that had been reduced fully a 
billion dollars. While mortgage indebtedness was rising from '20 to 
'23, we can't draw from that the conclusion that the total indebtedness 
of farmers was increasing because there was this refunding of short- 
term indebtedness into long-term indebtedness. 

Representative Williams. There was an actual increase in the 
number of farms mortgaged during that period? 
Mr. Wall. That is correct. 

Representative Williams. What is the number now; what is the 
percentage of farms in this country mortgaged now? 

Mr. Wall. The total percentage of farms mortgaged is around 
34.5 percent. 

Representative Williams. What was it back in that period — in the 
twenties, '20 to '23; have you that figure? 

Mr. Wall. We don't have those figures for alj farms, but we do 
have them for owner-operators, and the percentage of farms mort- 
gaged by owner-operators is much higher than for all farms, because 
there is a greater frequency of indebtedness on owner-operated farms 
than on tenant farms. 

The Chairman. The percentage of owner-operators is steadily de- 
clining, is it not? 

Mr. Wall. Yes; there has been a slight decrease in that. 
The Chairman. Isn't it more than a slight decrease? 


Mr. Wall. In some areas it has been quite appreciable. For the 
country as a whole, if I recall my figures correctly, the percentage of 
tenancy in 1930 was about 42.3 or 42.4, and in 1935, 42.1. 

The CiLviRMAN. You could go back further than that. If I re- 
member correctly, in 1880 more than 70 percent of all farm operators 
were owners of their own farms. 

Mr. Wall. That is quite true. There has been a very marked 
increase in tenancy over a long period. 

The Chaibman. Whereas in 1930 that had been reduced, you say, 
until it was considerably less than 50 percent. 

Mr. Wall. In a certain area. 

The Chairman. For tlie country as a whole. 

Mr. Wall. The data supplied by the Bureau of the Census show 
that the United States percentage of tenant farms in 1935 was 42.1. 
Subsequent surveys made by the Department show that there has not 
been a great deal of change since that time, although that is, in a 
sense, a fictitious figure. Inasmuch as there has been a shift, par- 
ticularly in the South, from cropper farmers to laborers, which auto- 
matically puts that land into the ownership category, it doesn't depict 
the true situation. 

The Chairman. These facts that we are now discussing emphasize 
the steady increase of the problem of the tenant farmer. They also 
emphasize the fact that a larger and a larger percent of lands which 
have been mortgaged are coming into the ownership of the institu- 
tions which have made the loans, in some instances into the owner- 
ship of life-insurance companies and in other instances into the 
ownership of the Federal agencies which are administering the Farm 
Credit Administration program. 

Mr. Wall. I think that will be quite obvious when we take up 
one of. the latter tables, which shows a total investment of over 

The Chairman. So that while you are showing a reduction in this 
chart of the amount of money loaned on farms to individuals and 
a shift to institutional loaning, we are also showing a shift of owner- 
ship from individual operators to landlords of one kind or another? 

Mr. Wall. That is true, and it is particularly marked in certain 

Representative Williams. As I understood from the figure — am 
I correct? — you gave me a while ago, it was 34 perceijt of all farms 
in the country that are now mortgaged. 

Mr. Wall. That is right. 

Representative Williams. In arriving at that figure, what do you 
consider a farm, what area, what size? 

Mr. Wall. The definition that is usually followed is that adopted 
by the Census for defining a farm. I believe it is 3 acres or more, 
with an income of $300, that is, approximately. 

Representative Williams. Approximately 3 acres? 

Mr. Wall. It must have a farm income of at least $300. 

Mr. Henderson. Getting back to that period after 1920, Dr. Wall, 
you say that part of the increase in the farm mortgage indebtedness 
was due to the conversion of short-term loans to mortgage debt. I 
think you gave a figure of about $3,800,000,000. 


Mr. Wall. That is approximately correct. 

Mr. Henderson. Well, was there any conscious fiscal policy at that 
time that was responsible for that conversion? 

Mr. Wall. With the sharp drop in farm prices following 1920, 
commercial banks in agricultural areas were faced with a very 
stringent position. There was a big reduction in the income flowing 
into agricultural areas, yet prices and fixed charges were quite high, 
which caused depleted reserves, forcing them to borrow very ex- 
tensively from correspondent banks and from the Federal reserve 
banks. There was every pressure on their part to liquidate these 
loans by having the borrower refinance with some other agency, and 
that was one of the major factors causing individual borrowers to 
refund those loans into long-term mortgage loans. 

Senator Gilllite. Mr. Chairman, may I ask a question? 

I wish to amplify just a little on the question that Mr. Chairman 
O'Mahoney asked a moment ago. This chart shows, of course, a 
substantial increase in the percentage of farm-mortgage indebtedness 
that is handled by the Federal land banks, the Land Bank Commis- 
sioner, and what is left of the joint stock land bank.^ The previous 
chart showed substantial interest rate reductions in substantially the 
same period.^ Have you now with you any information by which 
you can enlighten us as to whether these interest reductions reflect 
only the entrance of tlie land banks and similar agencies in the field, 
or whether there was a corresponding reduction in the rates charged by 
the insurance companies and commercial banks ? 

Mr. Wall. I would say that the major factor is the injection of 
the Federal land banks into the picture, taking over a portion of the 
mortgage debt at a lower rate of interest. 

Senator Gillette. Undoubtedly that is true, but do you have any- 
thing to show us whether there was any corresponding reduction in 
the interest rates of the commercial institutions? 

Mr. Wall. Just a very slight reduction, not very large, Senator, 
except since 1933. There has been a reduction in the rates of most 
lenders, of practically all lenders, during that period. 

Senator Gillette. Do you have any information by which you can 
help us to know whether or not there is increased competition on the 
part of this type of agency in securing the cream of the farm loans 
at the present time as against the cooperative credit institutions? 

Mr. Wall. That problem varies a great deal from area to area. 
Life insurance conipanies, of course, concentrate their lending activi- 
ties primarily in a restricted area. In the State of Iowa, for instance, 
they held approximately 42 percent of the total mortgage debt in 1929, 
whereas in Montana they held only 6 percent. Land banks, on the 
other hand, in the same year held only 6 percent of the debt in Iowa 
and in Montana they held ITi^ percent. 

Mr. Gesell. Now, Mr. Wall, we have still the last period shown 
on this chart to consider, do we not? ^ 

Mr. Wall. That is correct. 

Mr. Gesell. The outstanding thing there seems to be the decrease in 
the amount of the debt held by life insurance companies and the sub- 

' See "Exhibit No. 2273," supra, p. 14866. 
2 See "Exhibit No. 2272," supra, p. 1486.3. 
' See "Exhibit No. 2273," supra, p. 14866. 


stantial increase in the amount held by the Federal land banks and 
the joint stock land banks. 

Mr. Wall. Beginning in 1933, when the Farm Credit Administra- 
tion was set up, you had a somewhat liberalized basis of lending. 
There was a very marked shift in the loans to the land banks, not 
only of life insurance companies and commercial banks, but of indi- 
viduals and all others as well. In the period from 1933 to about 
1939, the financing by the Land Bank Commissioner and the land 
banks accounted for about 33 percent of the reduction in life in- 
surance company loans during tliat sajne period. The effect of a 
larger proportion of the total debt in the hands of the land banks 
and the Land Bank Commissioner, particularly with the low interest 
rate authorized by Congress, has had a tendency to reduce the total 
interest charges very materially. If you will refer to that first table, 
you will see that annual interest payments have decreased from a 
peak in 1922 of $680,000,000 to $357,000,000 in 1938, a decrease of 
around 471/2 percent.^ 

The commercial banks in recent years, from about 1936, have 
shown a slight increase in their outstanding loans. This has been 
characteristic primarily of banks in the Midwest, whereas in other 
sections of the country they have not shown any material increase. 
The amount of recordings by life insurance companies, or the actual 
amount of loans purchased as indicated by the surveys presented yes- 
terday, I believe, show an increase in the amount of life insurance 
loans actually made, although the total amount outstanding has de- 
creased slightly in the last couple of years. 

Mr. Gesell. You referred to the fact that life insurance com- 
panies have been particularly active in only restricted areas of the 
country. Those figures are percentaged in the table entitled "Farm 
Mortgage Debt Held by Life Insurance Companies." Is that cor- 

Mr. Wall. That is correct. 

Mr. Gesell. I should like to offer that at this time. 

The Chairman. The exhibit m?iy be received. 

(The table referred to was marked "Exhibit No. 2275" and is 
included in the appendix on p. 15502. ) 

Mr. Gesell. As I read that table, it would, appear that the low 
area is in the North Atlantic States. Is that right? 

Mr. Wall. That is true. 

Mr. Gesell. There is no instance where the farm mortgage held 
by life insurance companies is as much as 1 percent of the total 
for ithat area. Is that correct ? 

Mr. Wall. Correct. 

Mr. Gesell. And the high appears ,to be in the West North Central 
~ States. 

Mr. Wall. In the East North Central and West North Central 
States together, in 1928, about 78 percent of the total life insurance 
company fartn loans were on real estate in that region. My 1939 that 
proportion had decreased to about 72 percent. 

Mr. Gesell. I notice that in the West North Central States in 
the years 1933 and 1934, for example, the insurance companies held 

I See "Exhibit; No. 2270," appendix, p. 15498. 


well over a third, or somewhat over a third, of the entire farm 
mortgage debt of that area. 

Mr. Wall. That is right. 

It may be interesting to note that about 62 percent of all life 
insurance companies hold farm real estate loans in some amount or 
other, although the bulk of those loans is concentrated in a relatively 
small numl)er of companies. 

The Chairman. That table would indicate, as for the West North 
Central, that the insurance companies started in 1910 with 19.9 
percent of the total farm mortgage debt, and from 1927 to 1934, 
inclusive, they held more than one-third of the debt in that area, 
but that since 1938, and for 1939, too, their proportion now is lowej- 
than what it was in 1919. 

Mr. Wali,. That is true. During nearly the entire period of the 
twenties, the life insurance companies were increasing their ix)sition as 
the leading institutional holder of farm mortgage loans, and for the 
country avS a whole, held about 22 percent of the total mortgage debt 
in 1928. From that period down to about 1933, their holdings of farm 
mortgages declined about as rapidly as the total indebtedness declined. 
From that period on. with the shifting of loans to the land banks, 
and with the conversion of loans into acquired farms, their pro- 
portion of the total debt in the United States has decreased to 
about 12.6 percent. 

Mr. Gesell. Of course, it is true that in comparing figures for 
1910 and 1939, although the amount of farm mortgage debt held by 
the companies is approximately the same, the interest of the com- 
panies in the farm picture, so to speak, is much greater by reason 
of the substantial increase in their holdings of farm land. 

Mr. Wall. That is true, and eventually that will increase their 
volume of outstanding loans, so that it is possible that the proportion 
of their farm mortgage debt will increase as the acquired farms are 
transferred into individual farm ownership. 

The Chairman. It is always interesting to note, I think, if I may 
interrupt, that in 1910, when for the whole United States the life 
insurance companies held 12.1 percent of the entire farm mortgage 
debt, their total holdings amounted to $386,961,000, whereas in 1939, 
when their holdings were 12.6 percent, only one-half of 1 percent 
more than they held in 1910, their total holdings amounted to $887,- 
336,000. or almost — well, it is considerably more than twice as much. 

Mr. Gesell. Now, the Chairman raised a question, Mr. Wall, with 
re-spect to tenancy. Taking these areas, in which areas has there 
been the greatest increase in farm tenancy over the period covered 
here? In other words, what I am trying to get at is, is there any 
relation between where the life insurance companies invest, and an 
increase or decrease in farm tenancy? 

Mr. Wall. The life insurance companies, as well as other lending 
institutions, have acquired more farms in the West North Central 
States than they have in any other region, and there has also been 
quite an appreciable change in the tenancy situation in that particu- 
lar region. 

Mr. Gesell. Has it gone up or has it gone down ? 

Mr. Wall. From 1930, when the percentage of tenancy was 39.9 
there has been an increase to 42.6 percent. 


The Chairman. What are those figures again? 

Mr. Wall. 39.9 as compared with 42.6, an increase of about 10 
percent. There has also been an increase in the East North Central 
States and the Middle Atlantic States. 

Mr. Gesell. Now, what is the increase for the country at large as 
compared to this increase of about 10 percent in the West North 
Central States? 

Mr. Wall. Tliere has been rather a slight change — about 42.1 
percent in 19?5. and l r 1930 it was approximately 42.4 percent. That 
is accounted " ^-r in part by an increase in the number of owner- 
operated farms m the New England ai-ea and in some other sections 
of the country, where farms have been sub-divided near large urban 

Mr. Gesell. It would appear from what you say that farm ten- 
ancy has incre<!e^('<i the sharpest in the area^ where the life insurance 
companies have been lending the heaviest. 

Mr. Wall. You can say it in that way, or you can say it is in the 
areas where there has been the heaviest acquisition of farms by lend- 
ing agencies. It has occurred with agencies other than life insurance 

Mr. Gesell. You mean there have been other institutional lenders 
in this same West North Central area, and that the increase in ten- 
ancy can't be attributed entirely to the insurance companies? 

Mr. Wall. That is true. 

Mr. Gesell. I understand that. You say then that would be a 
result of institutional lending service that has brought about a sharp 

Mr. Wall. I think, if we cffn consider the next chart in that con- 
nection, we might be able to bring out some of the points that we are 
now discussing. 

Mr. Gesell. That is a chart entitled "Forced and "^.^oluntary Sales 
of Farms, 1926-39"? 

Mr. Wall. That is right. 

Mr. Gesell. I wish to offer that chart for the record. 

The Chairman. The chart may be received. 

(The chart referred to was marked "Exhibit No. 2276" and appears 
on p. 14874. Statistical data on which this chart is based are in- 
cluded in the appendix on p. 15503.) 

Mr. Gesell. -All of these charts and papers were prepared under 
your direction with the figures indicated on the chart ? 

Mr. Wall. Yes; that is right, or within the department. 

In considering this chart, which deals with forced and voluntary 
sales of farms during the period from 1926 to 1939, one of the im- 
portant factors to bear in mind is the difference in the intensity of the 
agricultural distres's between the different regions. If you will take 
the middle area there, for instance the West North Central States, 
you will note that there is a much higher ratio of forced sales as 
compared with the United States averages. 

There are two factors that account for this high rate of forced 
sales in this group of States. In this area the percentage of farms 
mortgaged prior to the depression and the ratio of debt to value on 
mortgaged farms was much higher than for the United States as a 
whole. With the impact of the depression and the sharp drop in 



income, it was a very logical development from this set of circum- 
stances that there would T)e more debt distress in these areas. That 
is characterized by a much higher rat€> of acquirements of farms by 
lending agencies in this particular Midwest region as compared with 
other areas. 

Mr. Henderson. This is the area within which there was the great- 
est amount of resistance to foreclosure, is it not? 

Mr. Wauj. I think that is right. 

Mr. Gesell. Have you any other comments you wish to make on 
this chart? 

Mr. Wall. I think we can pass on. 

Mr. Hates. I noticed that, except in the North Atlantic States, 
there is a decided drop iti other regions in the percentage of total debt 
held by life insurance companies. Would you say the chief contribut- 
ing factor, recognizing there are others, to that decrease has been the 

Exhibit No. 2276 


I all classes 

\ Voluntary 

192630 34 38 



acquisition by the insurance companies of land through forced sales ? 

Mr. Wall. That, plus the shift of their loans to the Federal land 
banks and the Land Bank Commissioner. 

Mr. Hates. Which of those three elements would you say is the 
greatest factor? 

Mr. Wall. I don't have exact information on that point, but they 
are roughly equal, I would say. 

Mr. Hates. Thank you. 

Mr. Henderson. Seldom do v have at the committee table some- 
one who is responsible largely for turning down the line of a chart. 
I think you will probably find that in the West North Central States 
that line turned down at about the time Governor Herring issued 
his proclamation. Isn't that right. Governor? 


^ Senator Herring. That is when it started down the line. [Laugh- 

Mr. Gesell, Now, the next table you wish to discuss is the table 
entitled "Farm Foreclosure Sales"? 

Mr. Wall. Yes. 

Mr. Gesell. I wish to offer this table for the record. 

The Chairman. The table will be received. 

(The table referred to was marked "Exhibit No. 2277" and is in- 
cluded in the appendix on p. 15504.) 

Mr. Wall. In connection with this table, I would also like to have 
you bear in mind what I have just said about the regional variations 
in forced sales. You will note that this table shows a rather high 
rate of acquirements or foreclosures by life-insurance companies as 
compared with other groups of lending agencies. However, we must 
bear in mind that the life insurance holdings are primarily concen- 
trated in the Midwest, in the region where you have had a large 
volume of forced sales resulting from a high ratio of debt to value in 
the earlier period and a higher percentage of farms mortgaged than 
is to be found elsewhere in the country. I believe that 

Mr. Gesell (interposing). I assume some of those factors you have 
mentioned are possibly the results of the lending policies of the insur- 
ance companies in the first place, are they not ? 

Mr. Wall. To the extent that they have loaned a large amount 
per acre or in relation to value, that is probably true. I think it is 
equally true to say that all lenders in that period were fairly liberal 
in their loan valuations and, particularly, many of them tailed to 
make distinctions as between the quality of land in a given area. 

Mr. Gesell. What I was trying to discuss with you was whether 
or not these high rates of foreclosures for insurance companies, as 
shown on this table, are purely the result of the area in which the 
companies have to lend or the result of their lending policies ? 

Mr. Wall, I presume that both factors are involved, but taking the 
other lending agencies who have their loans in all areas of the coun- 
try — including certain regions where the rate of foreclosure is low — 
you get a lower average than you would get if you took the same 
States for those lenders that represent the chief landing field of the 
life insurance companies. 

Mr. Gesell. Would insurance companies still show the highest in 
those areas ? Supposing you had this table prepared for. the State 
of Iowa, for instance, would the insurance companies show the 
highest ? 

Mr. Wall. I don't have any exact figures with me as to that. 

Senator Herring. May I say private owners would show the 
highest. Farm Credit Administration would show' second. 

Mr. Gesell. Have you prepared figures which would show for in- 
dividual States what the rate of foreclosure of these various loaning 
groups has been ? ^ ' " , 

Mr. Wall. I would, be .very glad to get the, -records for you. 

1 See table entitled "Percentage of total farm-mortgage debt beld, Jantiary 1, 1930 and 
1936, and percentage of total distress farm transfers accounted for, 1930-35, by various 
lender groups, for selected States" subsequently submitted for the record and appearing 
In appendix, pp. 15631, 15632. 


Mr. Gesell. I think it would be good to have the exact figures. 

The Chairman. Well, there is nothing to indicate, is there, that 
any of the lenders, including the insurance companies, really desired 
to foreclose. The acquisition of these lands was not a matter of 
choice, was it, on the part of any of these lending agencies.? 

Mr. Wall. No; it reflects the severe economic changes that took 
place in the agricultural areas. Ii^ many cases the farms were artu- 
ally abandoned by the owners. In other cases the owners became too 
old, and couldn't carry on. In order to conserve the investment of 
the lender it was necebsary to take it over. In other cases they had 
simply borrowed mor*- than they could hppe to repay, and it was 
probably a better thing inv them to let it go and start out with a 
lower burden of debt. 

Representative Williainis. Is there anything in these figures here 
to indicate that there was one of these groups. more liberal in their 
flttitude toward the owners, the mortgagees and others, to indicate a 
lenient tendenc}' to extend tlie time and give them more consideration, 
perhaps lower the rate of interest, in order that, the farm owner 
might save the farm? Is there anything in that to indicate, among 
these groups, that there was any difference in the manner in which 
they treated the farmer? 

Mr. Wall. There have been great diffeiences in the policies of 
different lending agencies, and it is probably unfair to make any 
broad generalization* for as diverse a gi'oup of lendej's as tlie life 
insurance companies, for instance. In many cases they haA^e granted 
extensions as liberal as the Federal land banks. Certain companies 
may not have followed that policy, and it vtiried amongst individual 
companies. You find some individual lenders who have been very 
lenient, others who have adopted a rather arbitrary policy in 
handling them. 

Representative Williams. That would depend on the individual 
in each group rather than these intititutions as groups'^ 

Mr. Wall. I think that is correct,, except where you have definite 
authorization to the Federal land banks and Land Bank Commis- 
sioner to follow certain policies in the way of extensions and of 
granting funds for extending the loans as provided by Congress. 

The Chairman. Congressman Williams will recall that table 176 
in the i-ejjort. on operating results shows that, as far as the 26 largest 
life insurance companies are concerned, there was a total of 
$40,777,000 worth of defaulted farm mortgages in what was denomi- 
nated as work-out cases; namely, cases in which an <4:>portunity was 
being given to the defaultmg mortgagor to retain his faiin.^ 

Mr. IiEN"T>ERSON. Dr. Wall, in these areas wliere the life insurance 
companies concentrated their lendint^, was there any difference in 
the loan policy of insurance companies as against, for example, the 
Federal land banks and Land Bank Commissioner and the commercial 
banks? Did they have a more liberal policy? Was there greater 
competition between insurance company loans, or between all insur- 
ance companies and all commercial banks and the Federal land banks? 

Mr. Wall. In the twenties the life insurance companies were 
able to maintain their volume of loans in the choice area; that is, 
the Middle West, and even increased it, and the Federal land banks 

» See Hearings, Part 10-A. p. 176. 


did not get a very large portion of the total debt. For instance, in 
the State of Iowa, -the Federal land banks in 1929 held only 6 per- 
cent of the total mortgage debt, whereas insurance companies held 
41.7 percent. 

I think it is very interesting to draw certain general conclusions 
relative to the mortgage movement in the twenties. With the rapid 
expansion of Federal land bank loans, a larger part of that took 
place in the Southern and Western States in the twenties, and the 
life insurance companies were able to maintain and even expand 
their holdings in the Midwest. 

Now, in this refinancing period that followed 1933, the Federal 
land banks made a much larger increase in taking over the debt in 
the Midwest as compared with the South and West. Of course, the 
life insurance companies were reducing their holdings. 

Mr. Henderson. Did that . represent a change in policy on the 
part of the Federal land banks and the Land Bank Commissioner? 
Mr. Wall. Of course, the Emergency Farm Mortgage Act of 1933 
authorized the making of Land Bank Commissioner loans which pro- 
vided for loans up to 75 percent of the normal value of the property 
including personal property, which was a higher percentage in rela- 
tion to actual sales value 

The Chairman (interposing;. That was a result of the policy of 
Congress to provide opportunity for the owner to work out his 
Mr. Wall. That is correct. 

The Chairman. These figures also do indicate that the Farm 
Credit Administration came in to save the farm operator or owrier 
where his cause was most desperate, and that the life insurance com- 
panies were holding on, so far as they could, in the areas where the 
farms had traditionally been of a higher value. 

Mr. Wall. That is true. There was virtually no sort of mort- 
gage credit in '32 and '33 until the Farm Credit Administration 
came into the picture. 

The Chairman. No more loans were being made, and the farmer- 
operator who wanted to hold on to his farm had to turn to the 
Government ? 
Mr. Wall. That is correct. 

ITie Chairman. Because private individuals and so-called private 
institutions were not loaning any more money when the farm prob- 
lem had become so acute. 

Mr. Gesell. The next chart, Mr. Wall, is entitled "State Mort- 
gage Relief Legislation," is it not? 

Mr. Wall. Tliat is a continuation of the same picture that.A^e are 
discussing of the acute distress in agricultural areas. 

Mr. Gesell. I would like to offer the chart for the record. 
The Chairman. It miay be received. 

(The chart referred to was marked "Exhibit No. 2278" and ap- 
pears on p. 14878.) 

Mr. Wall. I don't believe it is necessary to spend much time dis- 
cussing this exhibit except to point out two or three developments. 
During this period moratorium legislation was passed by various 
State legislatures. It generally took the direction of either a post- 
ponement of the foreclosure for a definite period of time, or it repre- 

124491— 41~pt 28 13 



sented the power delegated to the courts to fix selling prices on 
foreclosed lands, or to extend the redemption period. In some cases 
there was definite legislation prohibiting or modifying the legal pro- 
visions relative to deficiency judgments. 

The Chaikman. This was all the result of an attempt by Govern- 
ment — States, in this instance — to protect the farm owner? 

Mr. Wall. That is quite obvious. 

Mr. Gesell. The next table is a table which is entitled "Estimated 
Amount of Proceeds of Federal Land Bank and Land Bank Com- 
missioner Loans, May 1, 1933 — January 1, 1937, Used to Refinance 
First and Junior Mortgages Held by Life Insurance Companies and 
by AH Lenders, and Amount of Farm-Mortgage Loans Held by 
Life Insurance Companies and All Lenders, January 1, 1933." 

Mr. Henderson. Is there any mistake. Dr. Wall, in the chart ? Aren't 
there any figures on Wyoming ? 

Exhibit No. 2278 . 



The Chairman. I mi^ht say for the information of Commissioner 
Henderson that Wyoming had a State farm loan act long before 
the Federal Government act. 

Mr. Wall. This refers only to legislation enacted in that period. 
Some States already had certain provisions that took care of that. 

Mr. Gesell. I would like to offer this schedule. 

The Chairman. It may be received. 

(The table referred to Avas marked "Exhibit No. 2279" and is 
included in the appendix on p. 15505.) 

Mr. Gesell. This table, Mr. Wall, shows the amoimt of loans of 
these various agencies used to refinance loans held by life-insurance 
companies and other lenders; is that correct? 

Mr. Wall. That is correct. 

Mr. Gesell. I notice that some 20 percent, 20.3 percent, of the 
funds were used to refinance loans held by life-insurance companies. 


Mr. Wall. That is correct. 

Mr. Gesell. That should be taken mto consideration, I presume, 
in relation to the figure showing that the insurance companies held 
21.6 percent of the loans? 

Mr. Wall. Yes. In other words, a slightly smaller percentage 
of the proceeds of Federal land bank and Land Bank Commissioner 
loans was used for refinancing life insurance company loans than 
the proportion of the total debt that insurance companies held. 

Mr. Gesell. Have you any comments which you wish to make on 
this exhibit? 

Mr. Wall. I think in general the table shows quite clearly the 
concentration of life insurace companies in certain regions, and 
also breaks that down into the States which have the largest amount 
of life insurance investments in the lower half of the table. At the 
right side of the table there is a column entitled "Percent Which 
Loan Proceeds Used to Refinance Mortgages of Life Insurance 
Companies and All Lenders Are of Mortgages Held January 1, 1933." 
There again the life insurance companies have a slightly smaller 
percentage than all lenders. 

Mr. Geseli>. Have you any figures as to the kind of mortgages 
which were refinanced, life-insurance cpn,ipany mortgages which were 
refinanced and included within this table? Were they good loans, 
were they loans in distress, or what kind of loans were they? 

Mr. Wall. The type of loans that Were taken over represented 
primarily loans in distress, and yet at the same time a large propor- 
tion of those loans were very high-quality investments. The f^ct 
that the life insurance companies were concentrating in what had 
been considered a high-grade loan area would indicate that the 
increase in the proportion of debt held by the Federal land banks in the 
West North Central States would mean that they really had increased 
the quality of their loans through the system as a whole. 

Mr. Gesell. Do you know what percentage of the loans taken over 
were loans in distress? 

Mr. Wall. I have no figures on that point. 

Mr. Gesell. Now, if that completes your comments wi that table, 
the next table is entitled, "Acquired Farm Real Estate Held by 
Leading Lending Agencies," is it not ? 

Mr. Wall. That is correct. 

Mr. Gesell. I wish to oflfer this table for the record. 

The Chairman. The exhibit may be received. 
(The table referred to was marked "Exhibit No. 2280" and is 
included in the appendix on p. 15506.) 

Mr. Gesell. Have you some comments you wish to make on this 

Mr. Wall. The table shows a very rapid increase in the farm 
real estate holdings of leading lending agencies following 1929, 
and particularly heavy rates of acquirement in 1933 and 1934. In 
comparing the data for the five different groups of agencies shown 
there, certain significant points should be brought out, I believe, 
at this time. First is the difference in policy of the lending agencies 
in disposing of acquired real estate. For instance, the Federal 
land banks and the Federal Farm Mortgage Corporation have fol- 
lowed a policy of disposing of farm real estate as quickly as they 


can, so that their total real estate in relation to total acquirements 
is not nearly as large as that shown for life-insurance companies. 
In connection with joint-stock land banks, these institutions have 
been in process of liquidation since the Emergency Farm Mortgage 
Act of 1933, and they have made every effort to reduce their real-estate 
holdings quite rapidly. You will note that the peak of their holdings 
was in 1934, at which time they were approximately 86 million, and 
they have been reduced to 54 million in 1939. 

Data for insured commercial banks, which are available only 
since 1936, show a policy of rapid disposition. 

The three State credit agencies, involving South Dakota, North 
Dakota, and Minnesota, have had an extremely high rate of acquire- 
ment, and these three agencies are in process of liquidation. Thej' 
are making every effort to dispose of their properties, although you 
will note that the total is still continuing to increase, although at 
a relatively slow rate in recent years. 

Now, the refinancing program of the Farm Credit Administra- 
tion has made it possible for other agencies to sell some of their 
properties, and where borrowers are in position to obtain a loan 
from the Land Bank Commissioner 

The Chairman (interposing). In other words, the smaller insti- 
tutions are liquidating, but the life insurance companies and the 
Federal Government are increasing their holdings. 

Mr. Wall. Well, the three State credit agencies 

The Chairman (interposing). I included them as among the 
smaller organizations because they are obviously State organiza- 
tions and are smaller. So those three State credit agencies are in- 
creasing, not liquidating, aren't they? 

Mr. Wall. They are in the process of liquidating their. organiza- 
tions. They are not making new loans. 

The Chairman. But their holdings are increasing. 

Mr. 'Wall. That is correct. 

The Chairman. So that the holdings of the three State agencies, of 
the Federal Government, and of the life insurance companies are in- 
creasing, whereas commercial banks are disposing of their real estate 
as are also the joint stock land banks. 

Mr. Wall. I might call your attention to the fact that in the last 
year life insurance Qompanies have shown the first decrease in their 
outstanding holdings sine© this series began. 

The Chairman. In 1938 and '39 both there has been a decrease. 

Mr. Wall. That is correct. 

The Chairman. That is true. 

Representative Williams. Is there anything in your studies to indi- 
cate tlie size of the farms that have been acquired by the life insurance 
companies and that are being held and operated by them ? 

Mr. Wall. I believe that information is available in the compre- 
hensive survey prepared by the Securities and Exchange Commission. 

Mr. Gesell. We have no classification in "Exhibit No. 2250" of the 
size of the farms held. We do have a classification of the size of the 
mortgages which have been made, Congressman, and that may indi- 
cate, to some extent, what you want. 

Representative Williams. It has frequently been charged — at least 
I have heard it — that they have acquired a grea<^ number of very large 


farms and are holding and operating those, and I was wondering 
whether the record showed that. 

Mr. Wall. We have some information relating to 1934 which shows 
the average size farm held by life insurance companies to be around 
234 acres, as I recall it. 

Mr. Gesell. Table 172 of "Exhibit No. 2250'' ^ shows that of farm 
mortgages owned, classified by size, the greatest amount of mortgages 
of the 26 companies rests in the classification 10 to 25 thousand. 

Has that completed your comments on this table ? 

Mr. Wall. Yes. 

Mr, Gesell. The next' table is entitled, "Farm Investment of Life 
Insurance Companies", is it not ? 

Mr. Wall. That is correct. 

Mr. Gesell. I wish to offer this table as an exhibit. 

The Chairman. The exhibit may be received. 

(The table referred to was marked "Exhibit No. 2281" and is in- 
cluded in the appendix on p. 15506.) 

Mr. Wall. I might mention at this point . 

Mr. Henderson (interposing). Before you go any further, this 
table Mr. Gesell has referred testable 172, shows that, according to 
size, the insurance-company holdings are greatest in the 10 to 25 
thousand dollar mortgages.^ That would mean — what is the average 
value of farms in the United States ? Do you have that ? 

Mr. Wall. I don't have that point right at hand, but I might have 
a comment to make on that particular point that you have raised. 

Mr. Gesell. Mr. Howethas just called my attention to the fact that 
we do have the figures that Congressman Williams wants in "Exhibit 
No. 2250." At table 190 we show the farm real estate owned, classi- 
fied by size, of the 26 largest companies. It shows there that the com- 
panies own a total of $544,960,000 of real estate, table 190, and that 
$260,000,000 « 

The Chairman (interposing). Won't you qualify that, Mr. Gesell— 
the 26 largest — ^because the figures which the witness is giving us 
apply to all insurance companies. 

Mr. Gesell. Yes. For the 26 largest companies, out of $544,000,000 
of farm real estate" owned, $260,000,000 is in farms of the 10 to 25 
thousand dollar classification. That would indicate that both the 
mortgages and the farms held are greatest in that 10 to 25 thousand 
dollar classification. 

Mr. Henderson. You had a comment? 

Mr. Wall, in answer to your question on the average value of ill 
farms, in 1935 it was $4,823. That would probably be about $5,000 
according to present values, dnd the point I was going to make in 
response to your question was that the life-insurance loans, on the 
whole, have been quite a bit larger than, say, the average Federal land- 
bank loans, because they have been concentrated in an area where 
land values were higher. 

Mr Henderson. And they did, in the twenties, loan a larger amount 
than the government agencies would loan. That is, their appraisals 
were higher, isn't that true ? 

' See Hearings, Part 10-A, p. 172 

2 Ibid. 

3 Ibid., p. 190. 


Mr. Wall. That would probably be true in certain areas. 
Mr. Henderson. Doesn't that account for the fact that the Fed- 
eral agencies had such a small percentage as against the insurance 
companies in Iowa and States like that? 

Mr. Wall. There were a number of factors that influenced that 
particular s'ituation. The life insurance companies preferred the 
larger loans and the Federal land banks made loans in all areas, areas 
where the values of farms were small and where the loans would 
naturally be small. That would affect your national average. 

Mr. Gesell. You were about to discuss the table entitled, "Farm 
Investment of Life Insurance Companies," "Exhibit No. 2281." 

Mr. Wall. As the chairman has already indicated, this table refers 
to all insurance companies in contrast to the S. E. C. study which 
deals with the 26 largest companies. This brings out the very rapid 
reduction in debt from $2,139,000,000 in 1929 to a total of $887,000,000 
in 1939, and on the other hand, a substantial increase in the am#unt 
of real estate owned from $88,000,000 in 1929 to a peak of 713,000,000 
in 1937. 

Now, the real estate at the present time is about equal to 33 percent 
of the loans held in 1929, and the increase in such holdings since 19p3 
is about equal to 39 percent of the decline in the loans from 1933 at 
which time the refinancing program of the Farm Credit Administra- 
tion came into the picture. I think that probably will bring out and 
answer the question that you raised earlier, whether 33 percent repre- 
sented Federal land bank loan refinancing and 39 percent of the decline 
reflects the increase in real estate holdings. 

The Chairman. Both of these tables, this one^ to which you are 
now referring and the preceding one ^ in which was shown the ac- 
quisition of farm real estate by the Federal land banks as well as 
by the life insurance companies, all tend to demonstrate quite clearly 
that the individual farmer is being swallowed up by organized gov- 
ernment and by the organized institutions engaged in the lending field. 

Mr. Wall. Insofar as that refers 

The Chairman (interposing). In other words, life insurance com- 
panies and the Federal Government through its various agencies are 
rapidly becoming the largest owners of farm lands to the disadvantage 
of the individual. 

Mr. Wall. It is a development following the adverse economic 
conditions affecting the farmers. 

The Chairman. Oh, yes, I am not trying to seek the causes, or 
attributing any cause to any desire upon the part of the Federal 
Government to take over farms, or any desire upon the part of the 
insurance companies to take over the farms. This is a condition that 

Mr. Wall. That is perfectly true. 

Representative Williams. What percent of the farms do they own ? 

Mr. Wall. Taking four groups of lending agencies, the Federal 
land banks, life insurance companies, joint stock land banks and the 
State credit agencies, at the beginning of 1938 they had about 
28,000,000 acres of land, which represented not quite 3 percent of 
all acres in farms, but for individual States and regions that per- 


1 See "Exhibit No. 2281," a'ppendix, p. 1!)506 

2 See "Exhibit No. 2280," appendix, p. 15506 


a?entage is higher. For instance, in the West North Central region the 
percentage of acres held by these agencies was about 6 percent, and 
in South Dakota it went up to about 11 percent. 

Representative Williams. Have you got that in value as well as 
in number? 

Mr. Wall. Yes. 

Representative Williams. What percentage in value do they own 
of farm lands of the country? 

Mr. Wall. Let me correct myself, I do not have those figures in 
values. They could be computed and put in the record, however.' 

Mr. Henderson. The percentage of value would be, of course, 
much higher. 

Mr. Wall. Yes ; that is true. 

The Chairman. Could you get those figures for us? 

Mr. Wall. Yes, I would be glad to. 

The Chairman. If you will do that, we will put them in the 

Mr. Wall. The average investment is about $35 an acre for these 
4 agencies. 

Mr. Gesell. That completes the presentation of Mr. Wall, and I 
think perhaps it is a good time for adjournment. 

The Chairman. I wonder if any members of the committee would 
desire to question Mr. Wall this afternoon. 

Apparently you have illuminated the problem quite thoroughly, 
Mr. Wall. We are very much indebted to you, sir. 

The committee will stand in recess until 2 o'clock. 

(Whereupon, at 12:20 p. m., a recess was taken until 2 p. m. of 
the same day.) 

afternoon session 

The committee resumed at 2 : 30 p. m. upon the expiration of the 

The Chairman. The committee will please come to order. 

Mr. Gesell. Mr. Murray, will you take the stand, please? 

The Chairman. Do you solemnly swear that the testimony you 
are about to give in this proceeding shall be the truth, the whole 
truth, and nothing but the truth, so help you God ? 

Mr. Murray. I do. 


Mr. Gesell. Will you state your full name, your address, and 
3^our occupation, please? 

Mr. Murray. William G. Murray of Iowa State College, Ames, 

I am at the present time professor of agricultural economics, Iowa 
State College. 

Mr. Gesell. How long have you been there, Mr. Murray? 

1 See table entitled "Acquired farm real estate held by leading lending agencies, by 
Farm Credit districts, January 1, 1939," which was subsequently submitted for thf> 
record and appears in appendix, p. 15506. 


Mr. Murray. I have been there at different times since 1925. 

Mr. Gesell. Will you state what your experience has been in the 
field of farm mortgages and farm land? 

• Mr, Murray. In the fall of 1925 when I went to the Iowa State 
College, the first job they gave me was to go to the courthouse and 
look into the farm-mortgage situation. I have been looking at it 
ever since, and it continues to be as fascinating as it was that first 
day. Unfortunatelyj we have had a lot of bad experiences in the 
meantime. My studies in farm credit have included not only farm 
mortgages but farm appraisals, and a year out with the Farm Credit 
Administration in their economic work in farm credit, and at dif- 
ferent times I have made special studies on appraisal and farm 
management for some of the insurance companies. 

Mr. Geseix. You mean you have been employed specially by in- 
surance companies for studies of that kind ? 

Mr. Murray. Yes. 

Mr. Gesell. "What degree do you hold ? 

Mr. Murray. A bachelor's degree from Coe College, in Cedar 
Rapids, a master's degree from Harvard University, and a doctor's 
degree from the University of Minnesota. 

Mr. Gesell. Well, now, I want to ask you some questions tliis 
afternoon with respect to the Iowa farm problem, particularly as 
it relates to problems arising out of the lending policies and farm 
management policies of institutional holders. First of all, ,can you 
give us some idea of how important the life insurance companies are 
in the general Iowa mortgage and farm land picture? 

Mr. Murray. For the majority of the years since 1920, they have 
had the largest volume of farm mortgageis of any institutional 
lender. As you have heard, Iowa has been the center of farm-mort- 
gage investment by insurance companies. At one time, in 1928, they 
had about $500,000,000 invested in farm mortgages in Iowa. That 
represented about one-fourth of all the life insurance company farm- 
mortgage investments, and it represented approximately 40 percent 
of all the farm mortgages in the State of Iowa. 

• So the insurance companies have been a big factor in the farm- 
mortgage picture in Iowa, and the farmers of Iowa are very much 
interested in the policies of the insuranct^ companies as a result. 

The Chairman. To what do you attribute the fact that the insur- 
ance companies occupy so large a place in the Iowa farm-debt 
picture ? 

Mr. Murray. There are two reasons. One of them is a little bit 
of pride, I guess, we in Iowa claim to have the largest amount 
of grade A land in the United States. Another one is that insur-* 
ance companies like to make large loans, with^ a relatively short 
distance between those loans ; that is, if they can make a $15,000 loan 
6 miles from town, it is much better than having to drive 15 or 20 
miles to make a $2,000 loan. 

The Chairman. Then the factor of the efficiency with which these 
loans can be served is an important one in this concentration in 
Iowa? ' 

Mr. Murray. I would say so. After all, making farm loans is a 
profitable business if you can make a large volume at a low expense. 


Mr. Gesell. Now, Mr. Murray, could you trace for the committee 
how the life insurance companies went into the farm mortgage field 
in Iowa, taking the period of acquisition up to 1928 and giving 
some idea of the methods and practices pursued? 

The Chairman. Before the question is answered, may I ask that, 
at the suggestion of Senator Norris, you make clear whether you 
are referring to life insurance companies only, when you use the 
words "insurance companies"? 

Mr, Murray. Life insurance companies are the majority of the 
lenders, when I refer to insurance companies. There are some addi- 
tional companies which are lending besides the life insurance com- 

Mr. Gesell. Additional insurance companies? 

Mr. MuBRAY, Yes. We have other insurance companies, but they 
are a small percentage. Our figures have not distinguished between 
life insurance and other insurance companies, because the other 
insurance companies were such a small portion of the total, but 
your point is well taken that we do include all insurance companies. 

Mr. Gesell. Now, with respect to this period of acquisition, Mr. 
Murray ? 

Mr. Murray. Starting about 1921, after the drop in farm prices, 
there was a large amount of available financing to be done in the 
State of Iowa, because people who had bought land in the land 
boom were anxious to refinance that indebtedness. At that time 
the insurance companies were finding that their investment funds 
were expanding and they had money to invest. There were also 
in the State of Iowa local correspondents and local mortgage brokers 
who were also interested in finding outlet for farm mortgages and 
they made contact with the insurance companies. The result was 
a big increase in farm-mortgage lending by insurance companies 
during "the period of about 1921 to 1928. 

Most of the mortgages that went East went East through loan 
correspondents or mortgage brokers. 

Mr. Gesell. Tell us a little more about how the loan correspond- 
ents or mortgage brokers operate? 

Mr. Murray. I will have to give you my observations of that 
from a distance. I have never been employed by a loan corre- 
spondent and I don't know exactly how they operate, but we do 
have the records that they charge commissions, and that the larger 
the loan, of course, the larger the commission. ; 

The Chairman. How did you obtain these records? 

Mr. Murray. The records we got from the courthouses and by. 
of course, asking farmers. 

The business that we found on the^books included those mortgages 
" that were made by local mortgage brokers and sold to eastern insur- 
ance companies. The mortgages were first made out to this local 
mortgage co^npany and they in turn assigned the mortgage to the 
insurance company. In that way the insurance company, if it was 
a company down East did not have to have any staff to speak of in 
the State. 

The Chairman. That system is now being followed by the R. F. C. 
with respect to some of its financing, isn't it? 


Mr. Murray. I couldn't tell you as to that, Mr. Chairman. 

I will say that that praciice of using loan correspondents has 
largely diminished, and that a good many of the insurance companies 
are now putting branch offices and their own field staff out to get 
loans rather than to buy loans directly from the correspondents. 

Mr. Gesell. What was the reason you mentioned these correspond- 
ents? You said they received a commission based upon the size of 
the loan. What was the effect of that on the general situation ? 

Mr. Murray. Well, from our observation, the charging of commis- 
sions was not sound. 

Mr. Geselx.. Why not? 

Mr. Murray. The temptation lo loan money on commission is to 
loan as much as you can, and if I drive out to see John Jones and 
get him to take a loan, and if he is interested in getting a $10,000 
loan and my commission is II/2 percent, that is $150, if I can get him 
to take a $20,000 loan and build a new house or something of that 
kind, I can earn $150 extra by talking him into that larger loan. 

Mr. Gesell. WTio made the appraisal of the lands in the case where 
the loan was made through the correspondent? 

Mr. Murray. I may be getting into difficulty because I don't know 
enough about the practices of all the insurance companies. This 
much is true. The insurance companies were not taking as much 
interest in appraisals in those years when they were expanding as 
they are now. We have noted a very healthy change in attitude on 
the part of insurance companies and other lenders, including the 
Federal land baixk and private investors, in making more examination 
of the fundamental security underlying the mortgage loans. 

Mr. Gesell. Well, now, what terms were these mortgages made at 
during this period of acquisition? Were they long-term mortgages 
or short-term mortgages? 

Mr. Murray. The majority of loans made by insurance companies 
during this period of the twenties were 5-year loans. 

Mr. Gesell. Is that short or long for out in that area? 

Mr. Murray. Those are short-term loans, of "course, and they are 
traditional for our part of the country. Since the frontier days, the 
farmer in Iowa hoped that he could pay off his mortgage in 5 years. 
Up until 1890 or 1900 he could do that, but after 1900 he couldn't 
do it in 5 years. 

Mr. Gesell. I should imagine these short-term loans were to the 
advantage of the correspondent. 

Mr. Murray. They were, in that every time the 5-year period ex- 
pired, another visit to the farmer and the renewal of the loan, or 
placing the loan with some other insurance company, meant another 
commission. I want to say, however, that that situation has changed. 
As you gentlemen noted this morning on the interest rate map,^ there 
is another thing that happened. That is that not only are the farmers 
today getting the advantage of a lower rate, but the companies them- 
selves in many cases are absorbing the commission. 

Mr. Gesell. That is because of their branch office sj'stem? 

Mr. Murray. It is because of the competition in order to get 

Mr. Hayes. Dr. Murray, does the rate for renewals vaiy at all 
from the rate for the original loans? 

i See "Exhibit No. 2272," supra, p. 15500. 


Mr. Murray. That depends on the competition. 

Mr. Hayes. I am speaking of the time during the early expansion, 
in the twenties. 

Mr. Murray. As far as we can gather, and the files of the cor- 
respondents were not available to us, the farmers had to pay a com- 
mission regardless of whether they were making a renewal or new 
loan. In fact, I know of one loan where only an extension was 
granted, but to get that extension for 5 years, the man had to pay 
2 percent. 

Mr. Hayes. Is that the usual commission? 

Mr. Murray. No. At that particular time, however, money was 
scarce. That was 1931. 

Mr. Gesell. What further comments have you to make about this 
period of acquisition? 

Mr. Murray. One thing that we found that we feel was wrong 
about the situation, looking back — and this is hindsight — was that 
there was a tendency to put a lid on the top loan of, say, $100 an acre, 
but that that maximum became pretty widespread, and everybody 
was making $100 loans on land in some cases that didn't merit the 
$100 an acre loan. 

The Chairman. When you say "we," whom do you mean ? 

Mr. Murray. I mean the men who are engaged with me in study- 
ing the farm mortgage situation in Iowa, and to some extent I may 
be reflecting the attitude of farmers in the State; that is, at the 
agricultural experiment station, wh^n we say "we," we often mean 
the State in terms of the farmers. 

The Chairman. Was this a study carried on by the university? 

Mr. Murray. These studies which I am using as a basis for my 
testimony were made by the Agricultural Experiment Station at 
Ames, lowa.^ We went to different . parts of the State and gath- 
ered this material from court-houses and from information we could 
gather from correspondents and other people who were willing to 
give us information. 

The Chairman. How large was the sample from which you make 
these deductions? 

Mr. Murray. We — I shouldn't say "we" again 

The Chairman (interposing). That's all right, as long as we un- 
derstand what you mean. 

Mr. Murray. I went to the courthouse in Story County and I 
took a record of every mortgage that had been recorded there from 

1 iQwa Agricultural Experiment Station Bulletins : 

Murray, W. G. — Corporate land, foreclosures, mortgage debt, and land values in 
Iowa, 1939. Research Bulletin 266. Ames, 1939. 

Murray, W. G., Englehorne, A. J., and Griffin, R. A. — Yield tests and land valuation. 
Research Bulletin 252. Ames, 1939. 

Murray, W. G. — Farm mortgage foreclosuTe in Southern Iowa, 1915—36. Research 
Bulletin 248. Ames, 1938. 

Murray, W. G., and Bitting, H. W. — Corporate-owned land in Iowa, 1937. Bulletin 
362. Ames, 1937. 

Murray, w. G., and Meldram, H. R. — A production method of valuing land. Bui 
letin 326. Ames, 1S35. 

Murray, W. G., and Brown, W. O. — Farm land and debt situation in Iowa, 1935 
Bulletin 328. Ames, 1935. 

Murray, W. G., and Bentley, R. C. — The agricultural emergency In Iowa — IV Iowa 
Farm mortgage situation. Circular 142. Ames, 1933. 

Murray, W. G. — Prospects for agricultural recovery — II. Refinancing farm mort- 
gages In Iowa. Bulletin 311. Ames, 1933. ' 

Murray, W. G. — An economic analysis of farm mortgages In Story County, 
Iowa, 1854-1931. Research Bulletin 156. Ames, 1933. 


the beginninjz: of the courthouse until 1931. That included some 
25,000 mortgages. That was one study that we made. We included 
every mortgage made in that county. Then we wen^ into 5 other 
counties in the State and studied the mortgages in selected town- 
ships, and then we went to every courthouse in the State and gath- 
ered information on the location of land owned by institutional 
lenders, so that we have a complete check which we have made every 
2 years since 1933 of the location of all land owned by institutional 

The Chairman. The reason that I queried you. about the meaning 
of the word "we" as you used it was that frequently we have noted a 
disposition to attribute to the committee conclusions which are 
reached by the witnesses, and I wanted to make it clear that by 
"we" you didn't m6an the Temporary National Economic Committee 
or the Securities and Exchange Commission. 

Mr. Murray. I understand 

Mr. Gesell. I might say there is before each member of the 
committee some of these reports which Mr. Murray refers to, that 
will give some idea of the scope and character of the studies that 
were made. 

Mr. Murray. I want to go back again to the fact that a limitation 
of $100 an acre was put on loans in Iowa by insurance companies 
and the Federal land bank, and I think also by the joint-stock land 
banks. This resulted, with the competition of lending, in loans at 
too high a value on some of the lower valued land in the State. 
There had been too much of a feeling that all of the Jand in lawa 
was of the same quality. That fact, or that disposition to think 
of that, is being dissipated gradually and I think most of the in- 
surance companies as well as the Federal land banks are very con- 
scious of that. 

In fact, in the last 3 or 4 years there has been an amazing revolu- 
tion in the attitude of lenders toward their problem. We have found 
the insurance companies and the Federal land bank very receptive, 
very anxious to get all the information they can, on the income- 
paying possibilities of the land in various parts of Iowa. They 
are interested in new types of appraisal that will bring out those 
facts. They have profited by the experience that they have had. 

They have, however, not yet found a way, a solution for the maxi- 
mum loan on the best land. I would like to see a maximum loan on 
the lower-valued land rather than on the high-valued land. 

Mr. Gesell. What were some of the other problems of this period 
of acquisition? 

Mr. Murray. Well, as I have said, there was sharp competition. 
There was a tendency for loan correspondents to go out and get 
loans from each other if possible, to go to the courthouse and find 
out what the interest rate was on the loan and go out and tell the 
man he could refinance with some other company if he want':^d to by 
getting a loan from them at maybe a lower rate. 

We can say, I think, that the correspondent system which pro- 
vided for a commission on the basis of the amount loaned put a 
pressure to get money out. Anyone whose job it was to place loans 
made money in terms of his commissions. 

Mt. Gesell. Most of the loan correspondents were wiped out in 
the depression, were they not? 


Mr. Murray. Yes. I should qualify that. They weren't wiped 
out exactly but the insurance companies in many cases found that 
they needed to have branch offices rather than correspondents if they 
were to look after their work in the territory. Some of them still 
retain correspondents, I believe, to look after their work, bu<^, in the 
main, our observation from the college is that the correspondents, 
have been replaced in many instances by branch offices, and that 
brings out what we think is a desirable change in that the men who 
put out the money should be on a salary basis and the business of 
appraising and putting out money should be a salaried, professional 
type of activity. 

Mr. GESEMi. Was the use of this correspondent system such that 
frequently insurance companies away from the scene had to depend 
pretty largely upon the correspondent, both for the quality of loan 
and all the other factors involved? They have very little way of 
checking themselves? 

Mr. Murray. I couldn't answer to that exactly, but I would say 
this, that I don't think the companies who bought from the corre- 
spondents had thought much about the problem except that they were 
buying these mortgages from this loan correspondent who was located 
right out in the territory. 

Mr. Gesell. Was there a tendency for the loans to concentrate in 
certain areas in a State? 

Mr. Murray. Yes; there was. Very few loans were put in the 
lowest valued area of the State. We have an area along the east 
and in the southeast where there is a considerable amount of timber. 
In some of those areas the insurance companies Were not interested 
in placing loans, but on land 'that in some cases was just as good, 
in fact, land that was not as good as some of this rough land, they 
would be willing to make loans, but on this timber and rough land 
they preferred not to enter those particular areas. 

The Chairman. Was there local competition for these loans? 

Mr. Murray. In many cases there was local competition "ior the 

The Chairman. What was the degree of it? 

Mr. Murray. Particularly in the eastern part pf the State there 
were families who had funds to invest, there were banks who had 
money, and either the individuals themselves made the loans or the 
banks would m'ake the loan and assign the loan to older people in 
the community who had funds. 

The Chairman. What was the circumstance that led to the ex- 
pansion of the loans by the life insurance companies rather than by 
individuals or commercial banks? 

Mr. Murray. After 1921, the State was hit pretty hard by the 
depression from the land boom of 1919-20 and private individuals 
and commercial banks in the State had, ^11 they wanted, and more. 
And they were anxious wherever possible to get outside funds. 

Mr. Gesell. In fact, the insjirance companies refin winced the loans 
of commercial banks and other lenders during the period from '22 
to '28, did they not? 

Mr. Murray. They did. 

The Chairman. So in a sense it might, be said that the life in- 
surance companies were bailing out the individuals and the com- 
mercial banks during that period, is that right? 


Mr. Murray, lliut would be substantially correct ; and then dur- 
ing 1933 and '34, Congress provided an agency to come in and bail 
out the insurance companies. 

The Chaibman. And the Farm Credit Administration performed 
the same service. 

Mr. Hknderson. Who is going to bail the Government out? 

Mr. Murray. That is a question I don't exactly have the answer to. 

Mr. Henderson. To put it less facetiously, basically the product 
of the lands is going to bail out the debt, isn't that it? Doesn't it 
rest on the question of whether the farmer gets an adequate return 
for what he produces ? 

Mr. Murray. My answer to that question might be along these 
lines. I was engaged by the Farm Credit Administration last fall 
to make a special study in Nebraska. I went out to Nebraska and 
found that a lot of the loans out there by the Federal land bank and 
I^and Bank Commissioners were in a position where the man couldn't 
pay. There was under way a movement to work out some arrange- 
ment for those men. There was no agency available to bail out the 
Federal land bank and the Land Bank Commissioner so the Federal 
land bank and Land Bank Commissioner arranged themselves to work 
out a w^ay to bail themselves out by means of a scale of payments for 
the farmer that were in line with what the farmer was able to make. 

The Chairman. In other words, an effort was made to allow the 
farmer to "< ork out his loan. 

Mr. Mui^ray. That is right. 

The Chairman. So that the Farm Credit Administration has been 
endeavoring to keep the farmer on the land and to make it easy for 
him to pay out the loan. 

Mr. Murray. In fact, the Farm Credit Administration practically 
Jiad to do that because there was no agency to come and take over 
their loans. 

Mr. Henderson. Getting dow^n to the fundamentals of the thing, 
with the level of debt now oh farm, property, and with the interest 
rate at the present low level, given a satisfactory agricultural situation, 
the mortgaged property can bail itself out, isn't that correct ? 

Mr. Murray. Except in certain areas, and I don't believe you can 
generalize on the situation except to say that in many areas the situa- 
tion is satisfactory but that in other areas it is not. 

Mr. Henderson. Let me see if I understand what you mean. Even 
if you have what some of the farm organizations are contending 
for — I am not going to try to take any sides as between the different 
groups — do you mean that there are still some areas so debt-ridden 
that they couldn't meet their terms? 

Mr. Murray. I mean that there is land in some of those areas 
where the debt at the present time is too heavy. 

Mr. Henderson. It just can''t be supported by a reasonable price 
level for agricultural commodities? 

Mr. Murray. Largely because those areas have been particularly 
hard hit. 

The Chairman. You don't mean to assent to what Commissioner 
Henderson just said, that these debts couldn't be paid off at a reason- 
able price level. What you mean is that at the present price level 
they can't be paid off. 


Mr. Murray. That would be a question of the interpretation of 

The Chairman. The farm income has not yet been raised to the 
level at which it was before the depression, has it ? 

Mr. Murray. That is right. 

The Chairman. That is correct. Is it not possible that if we suc- 
ceeded in raising the farm income to the level prior to the depression, 
that this problem would gradually work itself out? 

Mr. Murray. Yes. 

The Chairman. Fundamentally, as Commissioner Henderson says, 
it is a question of production at proper prices which will have to be 
solved before the Farm Credit Administration can be bailed out. 

Mr. Murray. That is right. 

Mr. Pike. Isn't there more than that to it? You say they have 
been hard hit? You must include by that the physical deteriora- 
tion, erosion of land. No price of farm products is going to bail out 
an area Avhere the soil has been ruined by one method or another. 

Mr. Murray. I want to allude to that problem a little later in 
one section of Iowa where I think there still is a definite problem, 
because that area has depreciated because of erosion, and because the 
insurance companies and other lenders still own a large percentage 
of the land in that area. They own a larger percentage than they 
do in other areas. 

Mr. Pike. Worn-out land isn't going to be bailed out by a reason- 
able price of farm products. More has to be done than that 

Mr, Murray. A special problem area is what it is. 

The Chairman. Do you think I would be justified in saying that 
the life insurance companies,* holding as they do a perfectly tre- 
mendous amount of farm land in complete ownership, and holding 
mortgages upon a very much larger amount, are more deeply inter- 
ested than probably any other institution except the Farm Credit 
Administration in helping the farmer to solve the farm problem? 

Mr. Murray. I believe you are right, and we have had indications 
of that from the insurance companies who come to us for informa- 
tion and are anxious for us to help them. 

Mr. Gesell. Well now, if that completes what you had to say 
on the period of acquisition, can you tell us a little of what hap- 
pened in recent years, during the period of liquidation, we might 
call it? ■ 

Mr. Henderson. Before we get there, I don't think I got a satis- 
factory answer, or a complete one — we will put it that way — Mr. 
Murray. Let me see if I can phrase it another way. At the pres- 
ent time the level of farm income is below that of the rest of the 
community relative to 1929. Assuming that we got back to the 
1929 farm income, with a pretty general dispersion and diffusion of 
that income, in your opinion even with the lower amount of farm debt, 
the quite drastically reduced interest rate, and the more favorable 
terms of the mortgages that exist, there are some lands in Iowa which 
would still need to have some attention paid to the principal- amount. It 
would have to be reduced. In other words, the burden of debt would 
still be too heavy. 

Mr, Murray. In answer to that question, I would say that there 
would be very little land that would come under that classification. 


It would be more a problem of selling and reconditioning those farms 
that had deteriorated during the time when they were held by cor- 
porate lenders or private investors who had to take them over, during 
the time when tenants were on those farms. 

Mr. Henderson. That would mean, in another way, then, if the 
Government continues its general policy toward farm credit, and 
if other things that I gather you are going to speak about later 
are done, and there is time to work it out, pretty generally the 
product of the land, with a satisfactory price out there, will bail 
out the mortgage debt. 

Mr, Mt71{ray. That is right. 

Mr. Henderson. That is what I was getting at. 

Mr. Murray. And we have had a terriflfic liquidation at that. 

Mr. Henderson. I am trying to find out whether, with reason- 
ably good conditions for farmers, the liquidation, the drastic liquida- 
tion, is at an end. 

Mr. Murray. I can say that in the State of Iowa, in 1938, our 
study showed only 550 foreclosures, whereas in 1937 there were 1,375, 
indicating that the liquidation was practically complete. This year 
there will be a few more foreclosures, that is in 1939, excuse me, 
because the moratorium ended in March of 1939, but the liquidation 
in general is practically complete. 

We still have, however, as I said earlier, some problems left with 
land which has depreciated during the process of foreclosures- 
Mr. Gesell. You are talking particularly, I suppose, about the 
land in the drought areas? 

Mr. Murray. The land in those sections of the State, yes; which 
has suffered from either erosion or drought. 

Representative Williams. Do I get the impression from what 
you have said that there are a number of loans in Iowa on farm 
lands valued at $100 an acre, a loan of $100 an acre ? 

Mr. Murray. Yes, sir; and there were loans at $100 an acre 
on which the interest was paid right through the depression period. 

Representative Williams. Are those general farm loans, cover- 
ing general farming conditions? 

Mr. Murray. Yes, sir. 

Representative Williams. Covering what area? 

Mr. Murray. I have a chart here. This chart shows the value 
of land in different sections of the State, and this general area is 
the better area of the State in terms of land values. 

Mr. Gesell. That is about the central area you are pointing at ? 

Mr. Murray. I recall a loan when I was on the Debt Conciliation 
Committee of $100 an acre right in here, and that man never had any 
delinquency at all on his loan, and he was getting all his income from 

Representafive Williams. How many acres would a loan of that 
kind cover? Was it a very small body or an extensive body? 

Mr. Murray. I would say it was an average loan on 160 to 240 
acres in that territory. It wasn't in the best territory, as we will 
show a little later, where the companies had their trouble. It was 
in the areas that were not quite as good. 

Mr. Gesell. Well now, will you discuss this period of liquidation, 
in order that we can <- 


Representative Williams (interposing). I am not clear about this 
yet in my own mind and I want to make it clear, because I think 
it is a matter of some importance. Now, those loans are made at 
$100 per acre; upon what percentage valuation do they figure them? 

Mr. Murray. Insurance companies and the Federal land bank, 
who made those loans, were making them on the basis of a 50-per- 
cent valuation. The land was worth $200 an acre, and from the 
period 1922 to 1930 there were a great many loans made on that 

Representative Williams. And those loans didn't have any 
trouble ? 

Mr. Murray. Many of them did, but therfi were, as some of the 
insurance companies I think can testify, many of those loans that 
came through. 

Representative Williams. What percentage of them, would you 
say, did come through, of that character of loan? That is a rather 
remarkable statement to me — is the reason I make that inquiry. 

Mr. Murray. We have no check on the percentage of the loans 
that came through, because w^e don't know in every case just how 
many loans were made. But let me give you this picture: In the 
State, with about 45 percent of the land mortgaged and with the 
mortgaged land mortgaged on the average for about $80 an acre, 
there was only a relatively small percentage of the State that actu- 
ally went through foreclosure. 

I think I can get those figures, as to the actual number of farms 
that went to foreclosure. 

I will have to give you the figures in this form : 12 percent of die 
land in Iowa owned by corporations as of January 1, 1939, whereas 
in 1930 about 45 percent of the land in the State was mortgaged 
for $80 an acre. 

Senator Herring. Dr. Murray, would you not say there is much 
less distress in the $100-an-acre loans than there was in the $30-an- 
acre loans? 

Mr. Murray. Yes. 

Representative Williams. What kind of mortgages were those 
back in the twenties? Were they just straight direct mortgages 
covering a period of 5 years, not amortized in any form ? 

Mr. Murray. No. 

Representative Williams. What form are the mortgages in now? 

Mr. Murray. There are stiU some of the 5-year mortgages, but a 
good many are made/ for longer t^rms of years. I should change my 
statement to say that the Federal land-bank loans that were made 
during those years were for longer terms, of course. 

Representative Williams. Yes; I (Understand they were all made 
for 30 or 35 years, but it was not the practice in those days for the 
banks or the insurance companies to issue or accept an amortized 
mortgage ? 

Mr. Murray. The farmers, according to many of the lenders, and 
I think maybe supported by the facts, didn't prefer the longer term 
loans in all cases. 

Representative Williams. It was simply not the practice at all, 
was it? 

Mr. Murray. That is right; and whether or not it was because 
the lenders preferred it or the borrowers preferred it, I cannot say. 

124491^1— pt. 28 14 


Representative Williams. Wlien did that form of mortgage come 
into general use? 

Mr. Murray. The 5-year mortgage? 

Representative Williams. I mean the longer term amortized mort- 
gage. . 

Mr. Murray. There are a few illustrations of it back before the 
Federal land bank was started in 1917, but very few. Since the 
Federal land-bank introduction into the field, the long-term amor- 
tized loan has grown in popularity. Some of the insurance com- 
panies are offering this type of credit at this time. 

Representative Williams. Is it true that most of them are in 
that form now? 

Mr. Murray. No. 

Representative Williams. Still the straight 5-year mortgage? 

Mr. Murray. Yes. 

Mr. Gesell. Now, with respect to this period of liquidation. Dr. 
Murray, can you tell us a little about what has happened since 1928 
or 1930? 

Mr, Murray. To give you a little impression of what happened 
in Iowa in 1930, there were estimated to be 1,500 foreclosures in 
Iowa. In 1931, as you will recall, the price of corn began to ^o 
down and difficulties increased. There were 3,400 foreclosures in 
that year. In 1932 it went to 6,400 foreclosures. In 1933 there 
would have been more, but in February of that year a moratorium 
on foreclosures occurred and the result was in 1933 the total number 
of foreclosures was only 3,700. It dropped from 6,400 in 1932 and 
since that time it has dropped off until, in 1938, as I will repeat, 
there were only 5^0. 

You might be interested in who was foreclosing. Our estimate 
for 1930 showed that 27 percent of all the foreclosures were made by 
insurance companies. In 1931, 38 percent were made hj insurance 
companies; in 1932, 46 percent; in 1933, 51 percent; in 1934, 67 
percent of all the foreclosures were by the insurance companies. 

Representative Williams. That seems to be a kind of progression, 
increasing all the time. The question is : What percentage of mort- 
gages did they own? 

Mr. Murray. They owned 40 percent of the mortgage debt in 1928, 
or thereabouts. ; 

Representative Williams. These percentages are given in numbers, 
as I understood it, 

Mr, Murray. This is the percentage of all the foreclosures that 
were put through the courts. 

Representative Williams. In number? not in amounts. 

Mr. Murray. Yes, 

Representative Williams. What percentage of them in numbers 
did they own ? 

Mr. Murray. I can't give you those figures. I have never broken 
them down, but I would say substantially they would agree. 

Mr. Gesell. Agree with what? 

Mr. Murray. They would agree with the percentage of the debt, 

Mr. Gesell. Oh, you mean they held about 40 percent of the 
farms ? 

Mr. Murray. They had about 40 percent of the debt and in 1934 
their foreclosures in numbers were 67 percent of all foreclosures. 


The reason for that is that the insurance companies were late in 
starting foreclosures, because most of them were first mortgages. 

Representative Williams. The point I have in mind and was mak; 
ing inquiry about was whether they were more rapid and more ruth- 
less in their foreclosures than others. 

Mr. Murray. It is difficult, of course, to say anything about that, 
with this exception : You can say that since they held first-mortgage 
security it was not until 1931 that most of their mortgages would 
come into difficulty, so it was logical that their foreclosures would 
not start until the depression deepened. 

We found in working with the moratorium cases that you couldn't 
generalize about insurance companies. We found that the companies 
that had home offices in the Corn Belt, for example, were quicker to 
realize the situation than the ones that were farther away, which was 
natural, because the ones in the East who had bought their loans from 
correspondents were not nearly as well acquainted with the situation, 
whereas we had to write to the home offices in some cases in the eastern 
companies and have their executives come out and see what the situa- 
tion was — as members of the Debt Conciliation Committee, I am 
speaking now. 

With the companies who were located locally in the Com Belt, 
generally speaking, there was very little cause for moratorium, be- 
cause most of those companies were acquainted with the problem. 

Mr. Gesell. Do I understand you to- say there wouldn't be any 
need for moratorium if the mortgages were held by the local 
companies ? 

Mr. Murray. I think that is a rather broad statement. I cafi't 
quite agree with all of it, but I can say that the circumstances would 
lead to a conclusion approximating tTiat. 

Mr. Pike. You mean a legal moratorium. There would have been 
a sort of classic, private moratorium. 

Mr. Murray. That is right. Each insurance company realized 
that there was no use of its taking over the land. Why take over 
the land if you have a good operating farmer on there? He is the 
best bet you have if you can keep him in ownership. The idea of the 
moratorium was that it was a receivership period in which the man 
had a chance to get back on his feet. 

Representative Williams. Did the insurance companies get into any 
worse condition than the others? Did they have a poorer grade of 
loans V 

Mr. Murray. No; they didn't have a poorer grade. I think in 
some cases they probably had a better grade of loan. Of course, that 
is tied up with the amount they loaned per acre. 

Mr. Gesell. I understood you to say in those figures that the in- 
surance-company foreclosures expressed in percentage of all fore- 
closures increased even during the period of moratorium. 

Mr. Murray. That is right. 

Mr. Gesell. Did you find the insurance companies were agreeable 
to the moratorium and cooperated with it, or were they opposed to it ? 

Mr. Murray. That changed over time. I think a great many of 
them were on the fence at first. Some of them were probably hostile. 
At least they indicated as much. But after a year or two, most of 
them were coming over. In fact, some of them hated to see it go 
because it dumped a lot of farms iiito their laps they would have 


been able to work out maybe if the moratorium had not ended in 
1939 — the moratorium principle has worked out so well in the re- 
ceivership period because the farmer has a chance to come back, 
has an opportunity, with good prices and good crops, to get back on 
his feet. 

Mr, Gesell. I gathered from what you said that the local companies 
were giving the farmer that opportunitv without foreclosing on the 
land and that many of the companies from outside, not being as , 
familiar with the situation, were not adopting that practice. 

Mr. Murray. They were not as quick to adopt that practice. 

Senator HEiiRiNG. Let me say at this point that when the original 
proclamation was issued forbidding farm foreclosures, three insurance 
companies disregarded it. All the others accepted it and stopped 
foreclosure, as Dr. Murray will recall. 

Mr. Gesell. Do you recall that, Mr. Murray ? 

Mr. Murray. Yes, I recall the fact we had some difficulty with some 
of the companies in getting them to accede to the moratorium in 
our work with debt conciliation cases, and I ought to add probably 
for the record at this point, I was chairman for a brief period of the 
Debt Conciliation Committee in the State. 

Mr. Geslll. Did the companies cooperate with the work of the Debt 
Conciliation Committee ? 

Mr. Murray. Again I will say that it was a question of time in some 
cases, to get them to come around to see what we felt was the proper 
attitude to take with respect to working the cases out. However, I 
want to say that in some companies the cooperation was exceedingly 
fine. We had some of the best possible cooperation. 

Representative Williams. As I understood the figures you gave, 
there was an increase in the percentage of foreclosures on the part of 
the insurance companies. 

Mr. Murray. That is right. 

Repi-esentative Williams. Ranging from the years 1932 to 1937. 

Mr. Murray. 1932 to 1934. Excuse me. My figures I gave you 
were from about 1930 to 1934, our last figures on the percentage of the 

Representative Williams. Now the plain question is whether the 
other lending institutions, whether their percentage of foreclosures 
increased in the same^manner. 

Mr. Murray. The private investors ; no ; because they in many cases 
were out of the picture earlier. Some of the private people had sec- 
ond mortgages and they had been cleaned out, so to speak, earlier. The 
Federal Land Bank during this period was so busy with their refi- 
nancing plan, that their foreclosures in many cases were held up. I 
think the figures for recent years would show that the Federal Land 
Bank foreclosures have increased relatively to what they were in that 
period that I quoted. 

Mr. Gesell. Now, during this period, was there quite a bit of scaling 
down of the debt by the various lending groups? 

Mr. Murray. The Federal land banks, of course, were doing the 
refinancing and did not scale down at all ; that is, they didn't enter 
in as a party to any scale-downs. Therein was the difficulty because if 
we had a man with a Federal land-bank mortgage who needed a 
scale-down, there was no way of getting it. Congress provided 


jone remedy by reducing the rate on his loan to 3l^ percent, which 
helped out. The insurance companies, by and large, on many of their 
loans in Iowa were not willing to scale, and not willing to scale because 
they said the land value in Iowa would come back, and it did, and in 
many cases it was only a question of time. We had banks and private 
investors, on the other hand, who were willing to scale and were much 
more cooperative in the scaling down process because they were inter- 
ested in getting cash. The insurance companies naturally were not 
interested as much in getting cash. 

Mr. Gesell. Now, are there any other general observations which 
you wish to make about this period of liquidation ? 

Mr. MuRRAT. I believe that covers that period, unless there are 
some other questions.' 

Mr. Gesell. Now, I want to show you, Mr. Murray, some charts 
and tables which, it is my understanding, were prepared under your 
direction or with your cooperation, and ask you if you will identify 

Mr. MuERAT. I do. 

Mr. Gesell. First, with respect to the series relating to corporate 
land, foreclosures, mortgage debt and land values in Iowa, have you 
some comments which you wish to make ? 

Mr. Murray. I would like to make some comments on that, because 
it shows the large interest that the insurance companies have in the 
State of Iowa. The material is included in the first bulletin, on page 
310.^ It shows the heavy concentration of corporate holdings in 
insurance companies. 

Mr. Gesell. I think I might at this time offer these schedules and 
charts for the record, all three of them at this time, as "Exhibits 
Nos. 2282, 2283, and 2284." 

(The charts referred to were marked "Exhibits Nos. 2282, 2283, and 
2284" and are included in the appendix on pp. 15507 to 15512.) 

Mr. Murray. On January 1, 1939, the insurance companies owned, 
according to the records in the courthouses, 2,752,000 acres in the 
State of Iowa, an acreage which is slightly more than 8 percent of 
all the land in the State of Iowa, or represents about 8 counties out 
of our 99. That is the reason, gentlemen, why we are interested 
in the policies of the insurance companies in Iowa. 

You will notice also that the next largest holder of real estate in 
the State of Iowa of the coDporate lenders are deposit banks which 
only hold 1 percent. That gives you some impression of the fact that 
the insurance companies are the largest single group of institutional 
lenders in our State. 

Mr. Gesell. One percent for the deposit banks compared with 
what for the insurance companies ? 

Mr. Murray. 8.1 percent. 

Now I would like to bring you up to date by turning to page 312 
in that same bulletin, and to show you where the increase in corporate 
land has occurred since 1937.^ You will notice that the corporations, 
including the insurance companies, have increased their holdings in 
western and southern Iowa, and you will also notice on the opposite 

^ Murray, W. G., Corporate land, foreclosures, mortgage debt, and land values in Iowa, 
1939. Research Bulletin 266. Ames, 1939. 
=> Ibid. 


page that is the area where erosion is a particularly serious problem 
in our State. Consequently we have a problem tnere-of that land 
being resold to owner-operators on a basis where they can operate 
that land successfully. 

Numerous representatives of insurance companies have told me that 
they have had little difficulty in selling their oetter land, but it is the 
land that has been eroded or is in bad shape for other reasons, which 
has become the real problem in the State. 

This area in the West and the South is not only the one of heavy 
erosion, but it is also the area where the drought has taken its heaviest 

The Chairman. May I interrupt, Professor Murray, to ask, what 
is the character of the land investment and • mortgage companies 
shown in this exhibit that you have handed in ? ^ 

Mr. Murray. Those companies represent a miscellaneous group, 
including companies formed by men in banks to take land out of the 
asset columns of the bank statements. They include some private 
companies formed by men who thought they could make some money 
in lands. They organized and bought some land under a name like 
the Corn Belt Investment Co., or the Home Investment Co. 

The Chairman. Would it be fair to assume that most of these were 
local Iowa corporations ? 

Mr. Murray. That is right. 

The Chairman. Owned and operated by Iowa citizens ? 

Mr. Murray. With a few exceptions. I know of some investment 
trusts back East that for a long time have owned land in Iowa as an 

The Chairman. Now, with respect to the deposit banks, are those 
also primarily or. in most instances owned in Iowa ? 

Mr. Murray. Not entirely. We find every once in a while a bank 
from Vermont or Massachusetts, a savings bank, or some banks in 
Illinois or other places back East that have invested money in Iowa 
mortgages and have had to take over the land later. 

The Chairman. Exclusive of the insurance companies, what pro- 
portion of these landholdings would you say was held by non-Iowa 
corporations ? 

Mr. Murray. Probably not more than 25 percent, excluding the 
Federal land bank and the joint-stock land banks. 

The Chairman. Of course, the Fedferal land bank could also be 
regarded as an absentee owner. 

Mr. Murray. Not entirely, in that we feel out there that our stock 
in the National Farm Loan Association represents an interest in the 
Federal land bank. 

The Chairman. So that, you think, makes it a local institution? 

Mr. Murray. Partially. We have hopes that* the Federal Land 
Bank system will eventually work out so that it will be owned by the 

The next exhibit I would like to present has to do with the location 
of the insurance companies' holdings in the State of lowa.^ As I 
said previously we have gone to each courthouse in the State of 
Iowa and taken off a record of where the insurance company land is 

1 "Exhibit No. 2284," appendix, pp. 15510-15512. 
' "Exhibit No. 2282," appendix, pp. 15507, 15508. 


v-held. You will find that located in Bulletin 362, on page 101.^ You 
will also see that on the top one of the maps which are on the easel. 

Mr. Gesell. I am afraid that will have to be nearer if we are to 
see the dots. 

Mr. MuERAT. Those who have the bulletins can see it by looking at 
the chart on page 101. 

I wanted to have that chart of the location of insurance companies 
compared with the chart which shows the value of land in Iowa. 
From that you will observe that the insurance companies own the 
largest proportion of their holdings not in the best territory, but in 
the twilight zone between the best territory and the poorest territory. 

They own a large proportion of their holdings in southern Iowa, 
in parts of western Iowa, and in northern Iowa. Those are areas 
which are not as good as the best land, and not as poor as the lowest- 
value land. 

Tliis same picture can be presented for other lenders. The in- 
surance companies are not the only ones that have learned the lesson 
of the variation in income paying power, but they had the largest 
volume of loans so they were the ones that were most extensively 
engaged in taking over real estate in those sections. 

Next, I would like to present charts showing the foreclosures in 31 
southern Iowa counties. 

Mr. Gesell. That appears in Research Bulletin 248, does it not? ^ 

Mr. MuBRAY. That is in Bulletin 248, on page 256. We went to the 
courthouses in the 31 counties in southern Iowa and we took a record 
of every foreclosure that had occurred in those counties from 1915 
through 1936, and that first chart shows how the foreclosures in the 
beginning were largely by private investors, and how later they were 
largely by insurance companies. 

I was unable to give you the figures for Iowa as a whole, but here 
are the figures for the 31 southern Iowa counties, indicating the per- 
centage which the insurance companies foreclosed. 

After 1934, you will notice, the proportion which the insurance 
companies had was reduced somewhat. In 1936 they had 39.3 of all 
the acres foreclosed in that territory. 

I would like to bring your attention to a situation in southern 
Iowa which I think is important. The last chart on that bulletin 
is on page 259. It is the middle chart on page 259, and it shows 
the heavy concentration of foreclosures in one area of southern Iowa, 
an area of lower land values.^ 

I would like to suggest a comparison between five counties in that 
low-value area, and five counties to the west of that area in a better 
land area. 

Mr. Gesell. That is shown on this schedule which is before the 
committee, entitled "Relationship of Farm Mortgage Debt to Farm 
Value as Revealed by Foreclosures in 5 High- and 5 Low- Value 
Counties in Southern Iowa 1915-1936, and Acreage Sold and Deeded 
by Corporations, in These Same Counties January 1935 to January 
1939," is that correct? 

1 Murray, W. G., and Bitting, H. W., Corporate-Owned Land In Iowa, 1937. 

=> Murray, W. G., Farm Mortgage Foreclosures in Southern Iowa, 1915-36. Ames, 1938. 

" See "Exhibit No. 2283," appendix, pp. 15509. 15510. 


Mr. Murray. That is correct. 

Mr. Gesell. I should like to offer this schedule for the record at 
the present time. 
The CHAIRMAN. The schedule may be received. 
(The schedule referred to was marked "Exhibit No. 2285" and 
is included In the appendix on p. 15512.)' 

Mr. Murray. I would like to point out the five low-value counties 
are located directly in the southern part of Iowa, and the high-value 
counties are located in the southwestern corner of the State. The in- 
surance companies loaned an average of $94 an acre on those five 
high-value counties, or thereabouts, as revealed by the foreclosures 
which they had in those high-value counties. They had an average 
debt per acre of $63 in the low-value counties, but the point to bear in 
mind is that they loaned, evidently, more in proportion to the value in 
the low- value counties. 

Mr. Gesell. In other words, they overloaned in those low-value 
counties ? 

Mr. Murray. If you consider the correct loan as made in the high- 
value county, they were too high in the low-value counties. For 
example, comparing the 1925 values according to the census, they 
loaned 55 percent of the value in the high-value counties and 68 
percent in the low-value counties. 

Now, the result of that was this: In 1939 the corporations owned 
9 percent of the land in the high-value counties and 25 percent of 
the land in the low-value counties. 

Mr. Gesell. So that as the result of the lending policy of over- 
loading on the low-value lands they have come to be the principal 
owners of the low-value property? 

Mr. Murray. I should add to that statement 

Mr. Gesell (interposing). Is that correct? That was supposed 
to be a question. 

Mr. Murray. I would add to that statement that they have over- 
loaned in that territory and have had to take over a larger proportion 
of land in that territory than the other territory, but that they are 
not the only ones that have experienced that situation. The Federal 
land bank and the joint-stock land banks had the same experience. 
And that leads up to another problem which is current in the State of 
Iowa, and that is the fact that the land in those low-value areas is 
not selling as rapidly as the lands. in the better areas, even though 
those five high-value counties are in the drought area. 

Mr. Gesell. That as a result gives you in effect more absentee 
ownership of the land that needs the closest attention and has the 
greatest need of an owner-operating relationship? 
Mr. Murray. That is correct. 

Mr. Henderson. Is that necessarily so? I mean, it might seem 
that what that land needs is someone who can put some additional 
money in there. Certainly insurance companies are in better shape 
to put money in than someone who goes in and operates it right on 
the margin. 

Mr. Murray. That is right; the insurance companies have put a 
lot of money into that land. They have fixed up the buildings and 
in many cases the tenants are anxious to have the insurance companies 
continue as the landowner, but the difficulty if that the insurance 


companies have those farms for sale. Every year the tenant on one 
of those farms is subject to termination of the agreement. 

The farm may be visited by anybody at any time to determine 
whether or not it is to be sold, and the farmer who is operating that 
farm is constantly under possibility of having to move the next year, 
and that means that land where there is erosion, and where there are 
dijficulties in handling it, is not under stable ownership in terms of 
a long-term program. 

Mr. Henderson. What is your Iowa insurance law with relation 
to an insurance company holding property? 

Mr. Murray. Five years. 

Mr. Gesell. They have been holding it longer in many cases? 

Mr. Murray. They have been getting a renewal of that privilege 
of holding it 5 years, but the situation has changed somewhat. At 
least, from the newspaper reports, the present commissioner of insur- 
ance is asking the insurance companies who now apply for an exten- 
sion of 5 years to have a definite plan of sale; at least he is not 
anxious, according to the newspapers, to extend that period of 5 years. 

Mr. Henderson. What period is the usual extension? 

Mr. Murray. All that I know about is the common knowledge that 
it is a renewal for 5 more years. 

Mr. Henderson. But the period for which the tenant actually gets a 
contract is usually 1 year; is that it? 

Mr. Murray. Because the insurance company may sell that farm 
any time during that year. The farrps are all for sale. 

Mr. Henderson. You have two things, then : you have the attitude 
of the Iowa insurance commissioner and you have the desire on the 
part of the insurance company to get out of the land-holding business, 
working against a long-time rehabilitation of the farms. Isn't 
that it?. 

Mr. Murray. That is right. The insurance companies, however, 
are not interested in a long period of rehabilitation, because that is 
very expensive with tenant operation. 

Mr. Henderson. They can't, cJin they, with the nature of their 
obligations? That is, the general construction of insurance company 
holdings is that they are not permitted to hold any land unless it is 
taken in foreclosure. It isn't contemplated that an insurance com- 
pany be an absentee owner corporation. 

Mr, Murray. At the present time it is not. The attitude of the 
insurance companies is that they are interested in getting out of their 
land holdings, and the insurance commissioner has the same feeling, 
that they should get out as soon as they can, reasonably. 

Mr. Henderson. What do you think they ought to do ? 

Mr, Murray. Well, there is one queistion in my mind. I have never 
seen any evidence on this, but I am wondering if it would be possible 
for an expansion of the use of the contract of sale to tenants. Some 
of the companies, we understand from local observation, are using 
that and are selling to tenants on a small margin. Some of the other 
companies, particularly the ones in the east, do not favor, evidently, 
that particular type of sale, 

Mr. Henderson. Well, now, if you were an, insurance company 
and honestly believed you were going to have an increase in the price 
level, you wouldn't want to have a contract of that kind, would you ? 


Mr. Murray. Well, I would be up against this, that maybe that 
farm isn't making me much income there now with a tenant on there 
from year to year not knowing he could stay, and if I could sell that 
farm to a tenant he would be willing to take an interest in that farm 
and want to preserve the topsoil. 

Mr. Henderson. I can see your attitude from the viewpoint of 
Ames, Iowa, somebody interested in Iowa. What I am getting at is 
the viewpoint of the insurance company. One of the reasons why 
the insurance company is a good reservoir for any kind of security 
is that, with a few exceptions, it is not a trader. It is expecting to 
hold it to maturity, and it staggers its maturities to meet its obliga- 
tions. As I see it, you are caught, as far as your own citizens are 
concerned, in a conflict between the type of lender and what his atti- 
tudes necessarily haJve to be on account of the necessities of his business 
and the rehabilitation necessary for Iowa. 

Mr. Murray. Of course, if the insurance companies held all. their 
land off the market in terms of a speculation that prices would be 
higher and then they could sell 

Mr. Henderson (interposing). Then who can sell? 

Mr. Murray. Insurance companies could sell at the higher price 
if they felt they were going to be higher, but insurance companies 
haven't taken that position. They are interested in getting out of 
the real-estate business in the State, but they are not getting out as 
rapidly in the lower-valued areas, and my suggestion is that maybe 
the use of these contract sales, plus maybe a revaluation of that 
property — I don't know, but I am wondering if they have that prop- 
erty down on the basis where the farmers could buy it. 

Mr. Henderson. Maybe you have something there. Maybe it is 
a necessity for them to realize what they have hold of, if they have 
an asset that isn't worth as much as they have carried it at on their 
books. Is that what you are suggesting ? 

Mr. Murray. I am suggesting a revaluation to determine whether 
or not that is the reason why they haven't been selling those farms 
in those areas as rapidly as in other areas and I submit this table, 
that in these five low-value areas the value of land has dropped much 
more than it dropped in the high-value areas.^ Now, whether or not 
these insurance companies have all realized that this property has 
depreciated because of erosion or not is a matter on which I can't 
judge. I think it would be a question of determination. 

Mr. Henderson. And whether they have realized, also, that under 
the present ad hoc basis, with erosion working day and night, the 
value is likely to get lower? 

Mr. Murray. That is the point that I wanted to make a little while 
ago, that maybe even though they thought prices were going up, 
maybe selling the land even at a lower price might save them money, 
in view of the fact that the farm won't be worth as much 2 or 3 years 
from now as it is today. 

Mr. Gesell. Well, now, which of the companies are moving their 
real estate o.ff the fastest out in that neck of the woods? Is it the 
eastern companies or the western companies? 

Mr. Murray. I couldn't say as to that, because I haven't the 

> See "Exhibit No. 2285," appendix, p. 15512. 


figures, but I can say this, that our observation is that those com- 
panies that are using the contract of sale, selling on a small down 
payment, getting the lands in the hands of the owner-operator, who 
as I said before is interested in maintaining the property, those com- 
panies, I believe, are in the main, with some exceptions, the com- 
panies with home offices out in the Corn Belt with few exceptions. 
It seems to me the situation is pretty much the same as it was earlier 
"in the depression. The eastern companies realized later on how to 
cooperate on the moratorium. Maybe the same thing is true of these 
contracts of sale, that some of the companies in the Middle West have 
found that that is a way to get the land over into the hands of the 

Mr. Henderson. Well, there is always a risk there, too, isn't there. 
Dr. Murray ? You use one of the familiar ways of concealing a lack 
of value in an asset to get some kind of a contract that you can drop 
iri at a face value. You are up against another potentiality, that an 
insurance commissioner has to watch. 

Mr. Murray. But I ask you — not ask you, I wonder — if the farm 
now at its price, not selling, is any better asset than that same farm 
sold to an owner-operator who is interested in keeping the topsoil 
where it is ? 

Mr. Henderson. Does your insurance commissioner look at what 
the value is? Does your insurance department keep pretty well in 
touch with the nature of the studies that you are doing ? 

Mr. Murray. He has quoted some of our studies at different times ; 
yes. I can't say as to the way in which he conducts his office, as to 
an examination of values. 

Mr. Gesell. I might call the committee's attention to tables 180 
and 181 of "Exhibit No. 2250." ^ 

The (I!hairman. May I interrupt. .The roll is being called for a 
vote on an amendment, and Senator Norris and I will have to go. 

(Representative Williams assumed the Chair.) 

Mr. Gesell. Tables 180 and 181 of "Exhibit No. 2250," when com- 
pared on a percentage basis, sho^ that the companies with the great- 
est percent of real estate, farm real estate under contract of sale, 
are the companies domiciled in the West. Banker^' Life of Iowa 
heading the list at 33.9 percent, followed by Union Central, Equitable, 
Lincoln National, and Northwestern Mutual, ihe sixth company being 
Prudential and the seventh being the Jolm Hancock. 

I should like to offer this schedule, which is simply* a computation 
based on the other two tables,^ for the record. 

(The schedule referred to was marked "Exhibit No. 2286" and is 
included in the appendix on p. 15513.) 

Acting Chairman Wiixiams. In the disposition of these lands, are 
they under just a sales contract or' do they sell them and take a 
mortgage back on them? 

Mr. Murray. It is done both ways. Usually, according to our 
information, where a contract is taken, the title remains with the 
insurance company or with the Federal land bank, and in this con- 
nection the Federal land bank has sold a large proportion of its hold- 

1 See Hearings, Part 10-A, pp. 180 and 181. 
' Ibid. 


ings in the State of Iowa on contract, retaining title, and as soon as 
the present owner, under this contract, pays down a certain propor- 
tion of his amount on his contract, he gets a deed. 

Acting Chairman Wiixiams. But it would be rather difficult to 
make a sale and take back a mortgage, part with the title on the part 
of the company, and take a mortgage back on the same basis of 
valuation on which the original mortgage is made. 

Mr. Murray. The case where the outright sale is made is where 
the man usually pays down 25 percent; they give him the title, 
and he gives a purchase money mortgage for the difference. 

Acting Chairman Williams. They don't require the 50 percent 
payment ? 

Mr. Murray. They use various practices. Each insurance company 
usually has a different contract, a different method of sale. 

Acting Chairman Williams. I thought perhaps the law in some 
cases regulated that. Do the Federal land banks do that? 

Mr. Murray. The Federal land banks do that. They sell to a 
farmer, and after he has paid down a percentage, as I understand it, 
according to their own interpretation, they can give him a deed and 
take back a purchase money mortgage for the difference. 

Acting Chairman Williams. In other words, they make a loan 
then, and the mortgage is taken for 75 percent of the value instead 
of 50 percent. 

Mr. Murray. That is correct. 

Acting Chairman Williams. And that is the practice with insur- 
ance companies, too, is it? 

Mr. Murray, I believe it is. 

Mr. Pike. That is usually a smaller principal amount than the 
original amount. 

Mr. Murray. That is correct. If they had loaned originally, say, 
$90 an acre, had $100 invested in the farm, and sold the farm for $95, 
with a down payment of $20, it would mean they would take back a 
purchase money mortgage of $75, whereas originally they would 
have had that $90 loan. 

Acting Chairman Williams. Do they resort to the deficiency judg- 
ment in any cases? 

Mr. Murray. Deficiency judgment in Iowa is quite common and is 
used mainly for the purpose of obtaining the income from the farm 
during the year of redemption. If an insurance company has a 
judgment of $10,000, they may bid in the farm at $9,000, obtain a 
deficiency judgment of $1,000, and use that as a basis of obtaining a 
receiver who will then be in a position to collect the rent during the 
year of redemption. 

Acting Chairman Williams. Is their right under the deficiency 
judgment limited to the collection of that out of a particular year's 
rent, or is it a general judgmenl against the owner that may extend 
for a period of 10 years and be collected out of any assets which he 

Mr. Murray. I am not informed as to that, but I would say that 
it could be. T don't believe it specifically says that, as far as I know. 
There has been some deficiency judgment legislation in Iowa which 
I am not able to report. 

Mr. HendHrson. Undoubtedly the contract of sale, as far as the 
State of Iowa's purposes are concerned, is one of the best things. pos- 


sible, because you have then, someone who has an ante in the land ; he 
is looking forward to staying there for some time, and his whole 
future is tied up with whether that land actually gets more valuable 
and actually produces. Isn't that it? 

Mr. Murray. That is substantially correct. We feel that land 
which is constantly on the market by insurance companies, the Fed- 
eral land bank and the joint stock land banks, or other lenders is 
not in a stable condition, because those men who are operating it are 
operating it continuously under conditions which are not satisfactory 
for a long-term program. 

Mr. Henderson. They are probably mining it instead of farming 
it ; isn't that it ? 

Mr. Murray. There is a temptation to do that. If you are only 
going to be on there 1 year, and you don't know whether or not you 
would have a chance to buy it, maybe because you couldn't pay the 
down payment, there would be a temptation to say, "Well, the best 
thing for me to do is to take as much as I can get." 

Now, the insurance companies and the Federal land bank are striv- 
ing to do a good job of farm management, to rehabilitate this prop- 
erty, but it is expensive. A field force is expensiye to operate. 

Acting Chairman Williams. They are not getting much income 
out of it, are they? 

Mr. Murray. That varies. From the reports that we get from 
insurance companies, we infer, at least, that the income from their 
better land is even higher in some cases than what they got on 
the mortgage, but that on some of the poorer lands the reverse is 
true, that their income is very low. 

Mr. Hayes. Do the companies generally endeavor, with respect 
to the poorer-grade lands, to maintain the property itself in a good 
condition, to make improvements of a permanent nature, even though 
they are renting that to tenants ? 

Mr. Murray. That is correct. I think all of the insurance com- 
panies are interested in maintaining their investment. 

The difficulty is, if you have a tenant on the farm and his live- 
lihood depends on that farm, and he is operating that farm for only 
1 year, his best interest is to farm it not in terms of a long-term 
program but of a short-term program. 

Mr. Hayes. He has certainly no incentive to do anything which 
would make for permanent improvement. 

Mr. Murray. That is correct. 

Mr. Gesell. Let's see if we can pull this together a little. Dr. 
Murray. What we are getting at here are the various problems 
raised by absentee corporation ownership of f arm _ lands. Now, we 
h&ve one factor you mentioned, which is the increase in tenancy and 
the unstable nature of the farm community which results from that. 
Then I believe you mentioned farm management, one of the prob- 
lems in the field of farm management. 

Mr. Murray. In order to manage the property sufficiently, prob- 
ably 50 farms to a man would be sufficient. But the trouble is, that 
is too expensive, and that is another reason why insurance-company 
or Federal land-bank operation of holdings would probably not be 
economic in the long run. 

Mr. Gesell. How many farms does the usual insurance company 
have per ont manager? 


Mr. Murray. I imagine that- 

Mr. Gese'll (interposing). I want to know what you are told. 

Mr. Murray. I don't have any figures, but from our reports from 
individual managers, in many cases young men who have graduated 
at the college at Ames who are out now managing farms— — 

Mr. Gesell (interposing). That sounds like a pretty good source 
to me. 

Mr. Murray. Their reports back to us are anywhere from 75 to 
125 farms that they manage. 

Mr. Gesell. Is that about the same number as the Federal farm 
land banks have? 

Mr. Murray. That has changed recently, because the Federal land 
banks are now using their local secretaries to assist them in han- 
dling their real estate, but before that time I believe between 75 
and 100 to 125 was the number of farms that was often given to a 
field man. That meant the men who did that work really had very 
little time to spend with the individual farmer. 

Acting Chairman Williams. What do they do? I just wanted 
to ask you, what are their duties? 

Mr. Murray. To collect the rent, for one thing. 

Acting Chairman Williams. Of course, that is one thing. Is that 

Mr. Mu7 RAY. And that is a very important thing, of course. 

Acting Chairman Williams. Do they have to make several trips 
to get it? 

Mr. Murray. Not usually. I think the experience that most of 
the men report is that they have a very fine relationship with the 
tenants. You must understand that there is a terrific competition 
for farms in Iowa, and the insurance companies have been able to 
choose between tenants, and as a result they have had that kind 
of cooperation, but the job of managing a farm is considerable these 
days. You have to work ouj: a program, you have your rotation, 
your compliance with the Governntent program, you have all the 
improvements to make on the farm, and various things which come 
up from time to time in the handling of grain and the arrangements 
with respect to livestock and provision for livestock. 

Acting Chairman Williams. Do they do all that and the tenant 
has nothing to say about it ? 

Mr. Murray, The agreement is usually made in the lease. The 
field man of the insurance company represents the landlord, the 
insurance company, and of course, the field men report to us that 
sometimes they can't even get a night's sleep, because the tenants 
will be around asking for this or for that, and as a result the field 
men are very busy with various things connected with the landlord's 
obligation in managing the property. 

Mr. Hayes. That comes down to only 3 or 4 days per y -.^r per 
farmer, including Sundays. 

Mr. Murray. That is correct, and there are a lot of things to be 
done on a farm. In fact, I don't think a field man is a man who 
spends very much time in leisure. I think he is a pretty busy man. 

Mr. Pike. Do the usual terms involve cash rents, not shares ? 

Mr. Murray. Most of the farms in Iowa are rented for a share of 
the grain and cash for the hay and pasture. 


Mr. Pike. But with discretion on the part of the owner as requir- 
ing certain types of cultivation, certain types of soil preservation to 
comply with Government regulations ? 

Mr. MxTRRAT. That is correct. 

Mr. Pike. So pretty detailed power as to farm management lies 
with the owner under those leases, then ? 

Mr. Murray. That is correct. 

Mr. Pike. So that probably the cash revenue would be much less 
than if he were free and open to go at it for a year? 

Mr. Murray. I didn't quite get that last. 

Mr. Pike. The cash rental would be less than if you told tht 
tenant: "Here you are for a year; go ahead and get what you can 
out of it, and I will take half, or a quarter, or a third, whatever it 
may be." The tenant can't, as Commisisoner Henderson suggested, 
thoroughly mine his farm. 

Mr. Murray. Oh, no; they are prescribed; they have to meet the 
speciiScations of the Government program or if they are not in the 
Government program, the insurance company would provide certain 
fields that were to be put into legumes. The insurance companies 
have certainly leaned over backward in trying to get the farms into 
legumes and into crops that would conserve the soil, but the difficulty 
is the set-up, the fact that the tenant out there is only there for 1 

Mr. Pike. Of course, it is an impossible set-up. 

Mr. Murray. That is what we hope will eventually result from 
owner-operator management. 

Mr. Gesell. We have three things — tenancy, deterioration of the 
land, and the lack of close management supervision — as problems 
which arise out of absentee corporation ownership. What else can 
we add to that? 

Mr. Pike. How about the absentee ex-Iowan who is in Hollywood ? 
That has been spoken of quite a little bit in the last 15 or 20 years. 
It was a problem before the institutions got hold of these lands, 
wasn't it? 

Mr. Murray. We have cases of that kind. Some of them, of course, 
are familiar with the situation; some of them had to come back to 
Iowa to live. 

Mr. Pike. I was thinking some of them returned ; yes. 

Mr. Henderson. I have been wondering about that. You know, 
Cal Coolidge said about the farm belt, "They hired the money, didn't 

Now, what happened to all this money that the insurance com- 
panies put up? 

Mr. Murray. Do you mean what happened td the $500,000,000 
worth of loans they had in Iowa ? 

Mr. Henderson. Yes; we haven't spoken about that at all. The 
insurance companies put up some of my money, and some of every- 
body's money ; they put up $500,000,000 or more during the twenties. 
What happened to that money ? 

Mr. Murray. They still have about 190 million. 

Mr. Henderson. No; but the original mortgage — when you take a 
mortgage, what you usually get is money. Did a lot of fresh money 
go in there to people who owned it — was it like what they used 


to do in the twenties with a family-owned corporation where you 
go around and get them to sell a part of it to people? Was this a 
case where they were letting the general public in on a little bit of 
ownership of the Iowa land, or was it refinancing of mortgages, or 
what ? 

Mr, Murray. It was mostly refinancing of mortgages owned by in- 
dividuals, mortgages owned by commercial banks, and cases where 
people owned short-time debts that were not mortgages. They came 
out of the land boom without much in the way of cash. 

Mr. Henderson. What I am trying to get at is, Who got the insur- 
ance company's money ? The farmer didn't get it, particularly ; the 
banks got it. There was three billion eight in the beginning of the 
twenties, according to the testimony this morning. The insurance 
companies refinanced part of that. Now, that money has been gotten 
and spent for, well, farm machinery, and the like. Was that money 
lost, did it wash out in the disappearance of the price level ? Was 
it sort of a subsidy to make up for the failure of the farmer to get 
his parity during the twenties? Have you any ideas on that? 

Mr. Murray. Our figures show that a great many private investors, 
private individuals and commercial banks, got out of the farm-mort- 
gage business, or sold their farm mortgages, and the insurance com- 
]ianies provided the money to do that. 

Mr. Henderson. X^s ; I got into the mortgage business and now I 
am an absentee owner because I have an insurance policy. That is 
what happened. The money I was paying into the insurance company 
in the twenties went for a lot of refinancing. 

Mr. Murray. That is right. 

Mr. Henderson. Not to send people to Hollywood, is that it, or to 
California ? 

Mr. Murray. No ; but there were a lot of people with mortgages on 
Iowa land who were interested in getting cash. 

Mr. Henderson. That was the purchase-money mortgage, wasn't it ? 

Mr. Murray. Yes; they might have had a mortgage for $15,000 
and the insurance companies would refinance $10,000 of that as a 
first mortgage, and you keep back a second mortgage of $5,000 ; later 
on you probably couldn't collect your interest on the $5,000 and you 
had to foreclose and you were one of the private investors who fore- 
closed during the years 1921-30. 

Mr. Henderson. No; I was one of the prior ones. I foreclosed 
at the beginning of 1930. 

Mr. Murray. I see, you have the money in the insurance com- 
pany which made the $10,000 loan and then in 1931 the interest on 
that wasn't paid, so that then the insurance companies came in at 
that period and had to foreclose. So we get the period from 1920 
to 1930 when the second-mortgage holders of the land boom fore- 
closed and were cleaned out. 

Mr. Henderson. Well, that second mortgage was like a lot of the 
binder stuff in Florida, that is all that was. It represented values 
that were based upon an inflated price structure and land value 
structure, isn't that correct ? 

Mr. Murray. That is correct, and so also will the insurance com- 


pany loans in many cases if we don't get back to the level of the 
prices in the 1920's in certain areas of the State. 
Mr. Henderson. But who got the money originally? . 

Mr. Murray. I would say that private investors, private individ- 
uals, banks who held short-term debts, and other individuals, would 
be tne main recipients of those insurance company funds. The total 
debt did not increase during that period, it went down. 
Mr. Henderson. I know. 

Mr. Murray. So it was more refinancing than it was the addition 
of new funds into the picture. The local banks were hard pressed. 
Our local banks in many cases were up against insolvency from the 
period 1922 on. The record of their portfolios as revealed by vari- 
ous studies shows they had in many cases notes that had no mortgage 
back of them, that they represented funds they had advanced to 

Mr. Henderson. And the farmer got the money ? 
Mr. Murray. The farmer got the money and mortgaged his farm 
in order to pay off the bank. 

Mr. Henderson. But he had gotten the money in the first place. 
Mr. Murray. He may have invested it in various things. He was 
in the land boom. 

Mr. Henderson. I still want to know who got this money. I 
think I am getting a pretty good idea. You had a period during 
the war, wasn't that it, in which you got inflated land values as a 
result of inflated agricultural prices? 
Mr. Murray. That is correct, and in 1919 and 1920, also. 
Mr. Henderson. And in that period farmers went into" debt some- 
thing like $4,000,000,000 to the banks. As I recall Mr. Wall's testi- 
mony this morning, it was about three billion eight at the beginning 
of the 1920's. Now, the banks started to get in trouble, were under 
pressure, and somebody had to bail them out, and you had the pres- 
sure of a governmental policy in the early 1920's pressing down on 
the banks and they didn't always have to be told from Washington 
what their condition was. They knew when they ought to get these 
jshort-term loans over onto somebody else. Some of them took mort- 
gages, and then gradually the insurance companies came in and they 
took over the loan. And then later the Federal agencies came in and 
bailed out part of the insurance companies, but the part they didn't 
bail out the insurance companies still have, are stuck with now, as 
owner-operators, corporate operators, or as mortgages they are trying 
to work out. 

Now, a lot of it ^oes back to the conditions during the war and 
immediately following t^at in the inflation, isn't that it? ■ Aren't 
we paying in this for part of that inflation ? 
Mr. Murray. That i^ correct. 

I might give you an illustration of where some of your money may 
have gone. I know one local bank that helped a man finance the 
purchase of a 320-acre farm which cost about $90,000 and they put 
up $65,000. A little later, around 1923 or 1924, this bank needed a 
little extra cash, so they arranged a first mortgage on that farm for 
$31,000 which they sold to an insurance company, and they kept the 



second mortgage of thirty-two or three thousand dollars. Of course, 
when the depression came in 1933, the local bank, with its second 
mortgage of $33,000, was wiped out. The insurance company had the 
first-mortgage loan. The land is worth about the $32,000 and would 
handle Just about that much debt. 

Mr. Henderson. Who got the $58,000, the difference between the 
32 and the 90? 

Mr. Murray. The insurance company in this case either owns the 
farm or has the first mortgage on the farm. The farmer lost the 
$30,000 cash he put up. The bank lost $30,000 in the cash they put 

Mr. Pike. The fellow that sold to him in the first place was pretty 
lucky, wasn't he? 

Mr. Murray. Yes ; if he didn't buy another farm. [Laughter.] 

Mr. Henderson. I think we have a sufficient answer. What if the 
companies don't go back in on the lending? 

Mr. Murray. That is one of the problems we feel is very impor- 
tant. In some of the areas the insurance companies right now are 
competing actively for loans. They want loans. 

Mr. Henderson. All insurance companies? 

Mr. Murray. Not all of them but a number of them do and they 
are willing to pay the commission themselves in order to get the 
business in the better territory where experience has proved that their 
loans have held up. 

In this low-value territory, however, where the problem is more 
acute, there it appears that the insurance companies will probably 
not continue to lend. They may decide to go back in there, but I 
doubt it, because it is hazardous territory, they have discovered. 

Mr. Henderson. Is that territory that ought to be farmed? 

Mr. Murray. It is territory that ought to be farmed, but it is more 
hazardous than the best territory. 

Mr. 'Henderson. Don't we have agricultural surpluses? 

Mr. Murray. Certainly we have, but that gets into the whole ques- 
tion of the farm program. 

Mr. Henderson. Certainly it does, that is what I am getting at. 
This isn't an isolated matter. It does get into the whole problem of 
the economics of that territory. 

Mr. Murray. Alhright, we have areas in Iowa, there are areas 
surrounding Iowa in South Dakota and Nebraska and Kansas, other 
areas, where they have had this same problem where the insurance 
companies, if they have had poor experience, are not going to go 
back in. Who is going to refinance those areas ? They are not areas 
that should go out of cultivation. 

Mr. Henderson. Why not? 

Mr. Murray. They are above the margin and they offer a return, 
but they offer a return only if properly managed under semihazard- 
ous conditions, and those semihazardous conditions include the risk 
from erosion and drought. 

Now, it seems to me that that puts the problem up to the Federal 
credit agencies in some respects, the problem of the Farm Credit Ad- 
ministration and the Farm Security Administration, and it makes 
possible their considering those areas as areas in which they can 


render a real service, but a service which will have to be taken on 
with considerable amount of study and care. 

Mr. Henderson. Do you think they ought to bail me out? 

Mr. Murray. As insurance company policyholders, it seems to us 
that the insurance companies do not need to be bailed out. What 
they need to do in those cases is to sell those~ farms to owner-opera- 
tors if possible on terms which the owner-operators can pay. 

Mr. Henderson. Take their licking, in other words? 

Mr. Murray. It can be put that way. 

Mr. Henderson. That is the way it is, isn't it ? 

Mr. Pike. You have to get down to a realistic price basis to move 
their goods. 

Mr. Murray. The insurance companies state that if the drought 
and the conditions will abate for a period, that they can move most 
of that. 

Mr. Pike. Have they made any arrangements for that, however? 

Mr. Murray. I don't know as to the drought. We have been hard 
hit in certain sections, but I will say this, that in this southwestern 
corner of Iowa where there have been large amounts of difficulty 
from drought, they have still sold more land in that territory than 
they have in other sections of that drought territory. It is in the 
areas where the values have dropped so much where they have had 
the most difficulty. We feel in the college, from our studies, that 
eventually the sale by contract might be supplemented by an en- 
larged tenant purchase program in which the Farm Security could 
cooperate with the Farm Credit Administration in working out loans 
to men who want to own and operate that type of security. At the 
present timtf, there is no cooperation as far as I can see between the 
Farm Security Administration and the Farm Credit Administration 
except that they are both in the Department of Agriculture. It 
seems to me that the Farm Security Administration, which is inter- 
ested in making owners out of tenants, could avail itself through 
some authorization by Congress if necessary of the funds which the 
Farm Credit Administration is able to borrow in the investment 
"markets, to provide at least up to 75 percent of the amount needed 
to finance those tenants. At the present time, the Farm Security 
Administration in order to set up an owner-operator out of a tenant 
must use all appropriated funds, I understand, and appropriated 
funds as we have been told in the newspapers are difficult to get, and 
so far the appropriated funds for the tenant purchased program are 
a drop in the oucket. 

Acting Chairman Williams. You ought to have been here a couple 
of weeks ago when we were trying to get the twenty-five million for 
these tenant farmers and didn't get fe cent. 

Mr. Murray. Why can't that money be obtained mostly through 
the investment markets of the insurance companies who are willing to 
invest in obligations such as the Federal land-bank bonds and bonds 
of the P^arm Mortgage Corporation? 

Mr. Gesell. You mean in eflfect, then, that Uncle Sam ought to 
come in and bail out the insurance companies. That is what it comes 
down to, doesn't it ? 

Mr. Murray. Not necessarily.. There are other farms owned in 
these territories 


Mr-. Gesell (interposing). Just a moment. On the point we have 
been talking about, with respect to the farms that would be re- 
financed through the program you have just suggested, it would 
amount to that, wouldn't it? 

Mr. Murray. If they are bought from the insurance companies, 
yes, but I don't see that is necessary. 

Acting Chairman Williams. Why don't the insurance companies 
do that instead of the Government? 

Mr. Murray. That is what we have been trying to get. We have 
been suggesting that. 

Acting Chairman Williams, You haven't had any cooperation 
from them? 

Mr. Murray. Yes. They are interested in doing just that, but so 
far they can't sell in that territory. 
Mr. Gesell. At the prices they set. 

Acting Chairman Williams. Yes. At the prices they want, they 
can't sell them. Now, you wouldn't sell them to the Government at 
a higher price? 

Mr. Murray. No. But I might say there are other farms besides 
the insurance company farms in that area that need to be financed, 
and there are young farmers coming along at all times that need 
financing in that territory. 

Acting Chairman Williams. The point in my mind is, if the Gov- 
ernment can do it, why don't the insurance companies do it? 

Mr. Murray. The insurance companies can do it with their farms. 
We have additional farms owned by other investors, and there the 
tenant purchase program, it seems to me, could be expanded to take 
care of these other areas because the insurance companies are not 
going to make new loans in that territory probably. 

Acting Chairman Williams. They could do that as far as their 
own farms are concerned now, and these other agencies of different 
kinds, 'who own those farms could do the same thing? 
Mr. Murray. That is correct. 

Acting Chairman Williams. If- they would, and reduce the price 
to a point where the tenant could pay for it and make a living for 

• Mr. MuKRAY. Of course, in not all cases is it possible to do that, 
because in some cases people are not able to finance the sale. If 
they are private individuals they might not be able to finance the 
sale of a tenant up to 75 or 100 percent of the value of the real 

My point is, if the insurance companies go out of those areas, 
who is going to continue to lend there* 

Mr, Gesell. That was the question which Mr. Henderson asked 

Mr. Murray. The Farm Credit Administration and the Farm Se- 
curity Administration represent two agencies that could lend there, 
that are in a position to lend there. 

(Senator O Mahoney resumed the Chair.) 

Mr. Henderson. You are going to catch me either way, as I see it. 
You are going to catch me from either standpoint, the money I have 
in the insurance companies, or you are going to catch me as a tax- 
Mr. Murray. That depends upon 


Mr. Henderson (interposing). If the farm agencies borrow the 
money from the insurance companies, the only way they are going to' 
get it back to pay the bond off is by taxing you and me and every- 
body else; isn't that right? 

Mr. Murray. I don't see why that is true necessarily, because these 
bonds will represent mortgages on these farms which if they are 
properly appraised in these areas and revalued on the basis of income 
ability of those farms can be handled and pay out. 

Mr. Henderson. Isn't that the center piece of the thing then, 
getting them on a proper basis ? 
Mr. Murray. I think so. 

Mr. Henderson. Then when you are talking about appraisal on 
farm prices and their relationship to industrial prices, what do you 
assume as to farm income and the present level of income exclusive 
of the benefit payments? Do you assume the present level with the 
same benefit payments, or do you assume a third condition of present 
income with a larger benefit payment, or do you assume that there 
is going to be a better adjustment of prices as between farm and 
industrial ? 

Mr. Murray. Most of the assumption is on the basis of present 
prices with better production than they have had in those areas in 
recent years. 

Mr. Henderson. You mean higher production. 
Mr. Murray. Higher production than in the drought areas. 
Mr. Henderson. But ii you. get higher production, then the prices 
are going down. 

Mr. Murray. That is generally true, but these are problem areas 
where that is too -small a factor to have much effect. 

Mr. HendebsOn. You mean you can handle this situation and let 
the rest of them go that are in the same condition. 

Mr.- Murray. No; the rest of the farmers in the territory of other 
parts of Iowa, for example, are not in position to be worried about 
the situation so far as the price situation is concerned, and their 
debts. We have very few foreclosures. 

Mr. Henderson. I think that is a rather restricted point of view. 
It seems to me we have been hearing that most areas are complaining 
about price-debt ratio. 

Mr. Murray. In the main part of Iowa I can say that you wouldn't 
have that complaint. The production has been good and the loan of 
57 cents a bushel on corn is sufficient to pay the debt, the interest 
on the debt. But the problem still remains on these other farms. 

Mr. Henderson. If you get that 57 cents you are getting into some 
of my money, too, as a: taxpayer. That is what I was getting at. 
What I am trying to get at is. How are we going to get a good firm 
basis out there? As I gather, you are talking about some more 
jugglery of the credit of the owner of the piece of paper and the 
like and you are assuming that you are going to have 57 cents on 
corn. Is that it ? 

Mr. Murray. That is right, somewhere around, say, 50 cents for 
corn. On that basis we need refinancing in some of these areas 
Avhere, as I said, the insurance companies have decided not to invest 
their funds. 

Now, you have got to have regular investment channels in some 
of thofie areas to take care of the recurrent needs for farm credit. 


Now, there is a set-up here in Congress, a tenant purchase program. 
The Federal land-bank system, when it was started in.l91T, had as 
its main purpose financing the ownership of land by tenants; so also 
the Land Bank Conmiissioner loans in 1933 and in 1934 and in later 
years, as it has been continued, the idea back of these loans was to pro- 
vide for owiTership of farms by tenants, lending up to 75 percent. And 
now you have the tenant purchase program, lending up to 100 per- 
cent, and if there were ever areas where this financing was needed, 
it is in these problem areas where the insurance companies have had 
the experience and they don't want to reenter those areas. 

Mr. Gesell. In other words, the insurance companies, because of 
the requirements which they are obliged to follow in the handling 
of their trust funds, having once been burned in this area, are prob- 
ably not going to go back in, and the only way that the people there 
can be benefited is by somebody bailing out the insurance companies 
or somebody putting in money from the Federal Government ^s 
that what it comes down to? 

Mr. Murray. That is what it comes down to, with the exception 
that the insurance companies can sell the land themselves. 

Mr. Gesell. If they are willing to take a licking. 

Mr. Murray. Well, \vhether or not there is a licking all depends 
on the revaluation of their assets so they can sell it. 

Mr. Gesell. You think the land is overvalued, don't you, Mr. 
Murray? Doesn't that table ^ that we put in bear this out pretty 
strongly ? 

Mr. Murray. It has been overvalued in the past, a-s to why they 
haven't been selling their farms recently in the areas, I can only 
hazard an opinion. 

The Chairman. When you say the land has been overvalued, do you 
mean to imply that the loans are greater than the actual present 
value ? 

Mr. Murray. In many cases, yes. 

The Chairman So that the lenders, in many cases, couldn't sell 
t he land for the face value of the loan and come out even ? 

Mr. Murray. That is correct. 

The Chairman. Now, in what proportion of the cases is that true ? 

Mr. Murray. Well, that is largely true in these low land value 
areas, where the insurance companies, as far as the insurance com- 
panies are concerned, in about, say,, one-fourth of the territory — that 
is for Iowa. I can't say as to South Dalrota or some of the other 

The Chairman. One-fourth of the territory ? What proportion of 
the loan? 

Mr. Murray. I have no information as to what volume of loan^ — 
except as our figures do show, for example, in those 31 southern Iowa 
counties, judgments on actual insurance company mortgages repre- 
sented in the period from 1915 to 1936, $43,000,000. 

The Chairman. Has your study gone far enough to enable you to 
express an opinion as to whether or not, as a whole, the lands which 
are subject to mortgage to life insurance companies in the State of 
Iowa will support the amounts pledged? 

I See "ExUbit No. 2285," appendix, p. 1S612. 


Mr. Murray. Our studies probably have not gone far enough to 
support a definite statement on that count. We could say this, the 
present loans outstanding by insurance companies very largely are 
being paid, the interest is being paid, and the value of the land 
supports the loan. 

liie Chairman. And in a great majority of the cases, is that the 

Mr. Murray. That appears to be the fact, and I imagine your 
S. E. C. special study records will reveal more on that point as to 
delinquent interest in the State of Iowa, which we consider at the 
present time is very low. 

The Chairman, That is particularly true with respect to those 
high-value areas? 

Mr. Murray. That is right. 

The Chairman. Now, you are discussing the low-value? 

Mr. Murray. The low-value areas where it is a question of re- 
valuation. I don't want to imply how much revaluation is neces- 
sary. The only thing I would be interested in seeing would be a 
revaluation to determine whether that is a reason why they can't 
sell the farms as rapidly in those areas. 

Mr. HENDERSONi You think the insurance companies should make 
that move? 

Mr. Murray. It is probably out of my field to say so. If I were 
outside of the college and on this Debt Conciliatron Committee, 
that would be a different matter, but from the college the facts 
appear they are not selling the farms as rapidly in those areas 
as they are in the better areas. 

The Chairman. Is that because they cttn't get the loan value or 
because they can't get the appraised value, or because they can't 
get the going value — or rather, tho, gf^ing value is not a correct 
statement, but the value at which they were originally brought into 
the mortgage picture ? 

Mr. Murray. That is the question which I think should be studied, 
if it is a question of revaluation and the price was, say, reduced some- 
what, whether or not more farms would be sold. 

The Chairman. Did you study that question? 

Mr. Murray. I nave not studied that question. 

Mr. Geseil. Let me get at it this way. Just one more question, 
Mr. Murray. Who is having the most trouble in the low-valued 
areas, the local companies or the eastern companies ? 

Mr. Murray. Well, neither one of them is having trouble as 
far as I know, but I do think that the Federal Land Bank and 
some local companies are selling more farms in those areas, from 
our observation. 

Mr. Gesell. That means one of two things. Either the local 
companies are more realistic about land values or they make fewer 
mistakes in the loaning on the original mortgages. WTiich is it? 

Mr. Murray. Probably more realistic in the sense that they are 
selling more in terms of contract sales with a smaller down-payment. 

Mr. Gesell. That further substantiates the fact that some of 
the big Eastern companies which are in there in the farm pictui^ 
are not being realistic about taking the losses that are bound t<j> 
occur on this low-valued land. 


Mr. Murray. Either that or the fact that they are waiting for 
higher prices probably, or are interested in some other policy. 

Mr. Gesell. They have already run in many cases, I believe you 
said, beyond the 5-year period which is set by the statute and are 
having to get special extensions ? 

Mr. IMuRRAY. There may be cases of that kind. There probably 

Senator Herring. I would like to ask Dr. Murray : Is it true that 
some oi these farms, or many of the farms, the Farm Credit Ad- 
ministration are now selling are farms they took over when they 
scaled down and refinanced the insurance company loans and they, 
therefore, have prke at which they can sell them without loss ? 

Mr. Murray. The last part of that I didn't get, Senator. 

Senator Herring. The Farm Credit Administration, as you know, 
refinanced a lot of these loans that -we scaled down, on which they 
accepted the scale-down. Now they have them at a price at which 
they can put them on the maiket and sell without loss, do they not? 

Mr. Murray. That is correct. Then, in some cases, they have 
found that they had to take a subsequent loss. In other words, one 
of the things which bolsters our thought that maybe a revaluation 
is necessary is that since 1933 many of the loans made in southern 
Iowa have turned out where the foreclosure has not allowed any 
equity for the Land Bank Commissioner or seconcT mortgage holder, 
which is another reason, we think, why the Farm Security Adminis- 
tration and the Farm Credit Administration might get together in 
that territory and be of real service to that kind of area. 

Mr. Gesell. I have no further questions of Mr. Murray. 

The Chairman. I am sorry that I was absent during the latter 
part of this examination. May I ask, Mr. Gesell, whether you went 
over the tables on pages 180 to 183 with Mr. Murray ? ^ 

Mr. Gesell. I submitted a schedule based on tables 180 and 181, 
showing which companies had the greatest percentage of the farm 
land they held under contract of sale,^ and there the figures point 
out that it is the companies in the Corn Belt which head the list 
in the disposal of their farm properties. That was the only reference 
made to those particular schedules. 

The Chairman. Well, to give a complete picture it would be neces- 
sary, would it not, to combine tables 181 and 183 so that we would 
have both the lands which are under contract of sale and the lands 
which have been sold ? 

Mr. Gesell. Yes; i£ would be necessary to do that, particularly 
if we wanted to get back of the situation as it existed as of September 
1, 1938. 

Mr. Kades. Dr. Murray, isn't it true that to the extent insurance 
companies are purchjising Government bonds, the proceeds of which 
are used for loans to tenant farmers, insurance companies are par- 
ticipating in the rehabilitation program? 

Mr. Murray. That is correct, and I feel that it is a reai oppor- 
tunity there if the Farm Credit Administration could cooperate in 
some way with the Farm Security Administration, so that the tenant 
purchase loans, up to 80 or 90 or 100 percent of the value, could be 

1 See Hearings, Part 10-A. 

^See "Exhibit No. 2-'86," appendix, p. 15513. 


provided for these areas, but at the present time the Farm Credit 
Administration cannot assist the Farm Security Administration. 
All of the Farm Security Administration funds have to come from 
appropriations and the Farm Credit Administration has the oppor- 
tunity to go into the investment markets and obtain funds. 

The Chairman. Of course, the Farm Credit Administration, when 
it goes into the securities market and offers its securities to investors, 
IS under some obligation to make certain that there is a return, and 
it is not as free m making loans as the Farm Security Admin- 
istration would be. 

Mr. Murray. Mr. Chairman, that might be handled in this way, 
that if I as a tenant wanted a loan, the tenant purchase people could 
get me a Federal land bank loan for 50 percent of the value of the 
farm that I wished to purchase, the Land Bank Commissioner could 
get an additional 25 percent, and then the tenant purchase agency 
added the extra 10 percent that would be necessary, we will say, to 
make possible the purchase, in that way the tenant purchase agency 
would be taking that third mortgage equity, or the smaller amount, 
and providing an opportunity for the Farm Credit Administration to 
provide, we will say, the main part of the funds needed by the Farm 
Security to finance the purchase of farms by tenants. 

In the State of Iowa the tenant-purchase program is almost a 
drop in the bucket because their funds will go such a short way. 

The Chairman. Congress by law limited the amount of interest 
that the land banks eould collect on farm mortgages. That proposal 
was resisted by the Farm Credit Administration upon the ground 
that it would not enable the Farm Credit Administration to earn a 
sufficient amount from the borrowers to pay the expenses of admin- 
istration and pay the interest upon the securities, and therefore that 
it would result in making the Farm Credit Administration depend- 
ent not upon the commercial loans it was making, but upon appro- 
priations by Congress. 

Mr. Murray. My answer to that would be that the difference would 
only be the rate which is now charged by the Federal land bank 
at 31/^ percent, and the rate charged by the Farm Security at 3 
percent, and I think the average tenant, if he was given an oppor- 
tunity to borrow through the tenant-purchasing program, even if he 
had to pay the Syo percent required by the Federal land bank, 
would be such that they could go ahead and finanpe a lot more 
farms, if the Farm Security could use the first-mortgage and second- 
mortgage funds of the Farm Credit Administration. 

The Chairman. Would it not be a sounder policy to so stimulate 
farm production and farm prices as to enable the farmer to operate 
on a profit than' it would be to reduce interest rates and depend 
upon appropriations out of the general fund of the Treasury to 
carry the load ? The system does not become self -operating if it is 
dependent upon appropriations. It must depend upon production 
if it is going to stand up of itself. 

Mr. Murray. I think that is true, and I think that at the present 
time, when it seems to be difficult to get appropriations for the 
tenant purchase program, and at the same time, when insurance 
companies have money to invest, it seems unreasonable that there 
couldn't be some way worked, out between the Farm Security Ad- 


ministration "and the Farm Credit Administration, to get together, 
since they are both in the Department of Agriculture, to finance the 
man who wants to buy a farm. You have two organizations, as I 
understand it, the tenant purchase program has a set of appraisers 
and the Farm Credit Administration have a set of appraisers. Now, 
what is the necessity for two Government organizations doing prac- 
tically the same thing ? 

The Chairman. Well, of course, there is a difference. One of these 
agencies, the Farm Credit Administration, operates upon the basis 
of actual production and actual value. The other, the Farm Security 
Administration — and let me say I am thoroughly in sympathy witn 
what it is trying to do — is operating as a relief organization, and 
makes loans not so much for the purpose of or with the expectation 
of having these loans repaid with mterest as for the purpose of estab- 
lishing people upon the farm. 

Now, it is a very fortunate fact that the clients of the Farm 
Security Administration, at least up until last year, were making a 
very splendid record in repayment, but actually the two agencies 
are working with different motives, and there is some reason to 
believe that they should not be confused. 

Mr. MuBRAY. I think that point is well taken, except that after all, 
on the tenant purchase part of the program it would seem logical 
that if the Farm Security Administration, operating independently, 
could use three-fourths of the funds that it needs, or even one-half, 
if that is all they can use, from the Farm Credit Administration, it 
would make it possible for the Farm Security Administration to 
refinance, or to set up, far more tenants than they are able to do 
under the present program. 

The Chairman. That is very true, but what you are proposing. 
Professor, is to take a fund which has been set up upon the basis 
of sound values and sound interest returns, and to use it for a social 
objective in which the return is not of such immediate moment. 

Mr. Murray. It may be that there is a social motive back of the 
Farm Security, and I understand that there is a good deal of that, 
and yet it seems to me that the Farm Credit Administration should 
have some of that same motive as far as their first-mortgage loans 
are concerned, that after, all 

The Chairman (interposing). Of course, the Farm Credit Admin- 
istration had that motive in the commissioner's loans which were 
shown upon the table this morning as representing a very substantial 
proportion of the advances which were made after 1933, where con- 
cessions of really important extent were able to enable the borrowers 
to remain upon the land.^ 

Mr. Murray. Mr. Chairman, in the State of Iowa we have had 
an unusually good record, I think, on the tenant-purchase loans, 
and we found in many cases that the young men who had been chosen 
appeared to be very likely prospects for substantial farm owners. 
Now, in those cases where those men are buying those farms, there 
has been a good deal of discussion made as to just how much they 
would have to pay for those farms, and they have come to us at 
the college and asked us how to appraise those farms or how to 

> See "Exhibit No. 2274," appendix, p. 15501. 


help advise them on appraising those farms, and we have discussed 
the problem with them, and we are heartily in accord with the method 
that they are following and it is our supposition that they are driv- 
ing pretty hard bargains, that they are not setting those tenant 
farmers up with a very heavy debt that they can't pay. They are 
trying to buy the farms on the basis of what those tenant farmers 
will be able to pay. If that is true, there is no reason, as we see it, 
* why the Federal land bank and the Land Bank Commissioner couldn't 
finance at least part of that money and make possible setting up far 
more tenants than are now being set up under the Farm Security 

The Chairman. It would make it all a social movement instead 
of an investment movement. 

Mr. MuBRAT. The way we see it, the Federal land-bank system 
was a social movement. The Land Bank Commissioner loans were 
a social movement intended not for investment. 

The Chairman. Oh, yes. They were intended for investment pur- 
poses, and were intended to be self supporting. 

Mr. Murray. That is correct. 

The Chairman. When you make them dependent upon appro- 
priations to carry them, then they are no longer self-supporting. 

Mr. Murray. That is correct. But our idea was that they were an 
investment as far as obtaining the money was concerned, but the 
funds we(re to be used for people who would be interested in 
becoming owner-operators. They were mainly devoted to providing 
for the maintenance of farm ownership, or the making possible of 
farm ownership by tenants. 

Mr. Kades. Dr. Murray, if the Government were to lend through 
one of its agencies to tenant farmers at the rate of interest which the 
Government pays on the debt, and were to pass the benefit of that low 
rate on to the tenant farmer, would that aid materially in making 
the program a self-liquidating program, such as that suggested by 
the chairman? 

Mr. Murray. As far as I can^see, it would, although I don't see 

.that it is necessary to lower the interest rate on Federal land-bank 

loans and Land Bank Commissioner loans to these tenant purchasers ; 

that is, I think their operations would support the rates now being 


Mr. Kades. Then what deters insurance companies from lending 
at those rates? 

Mr. Murray. There is nothing that deters them except the ex- 
pense of lending in those areas, the problem of obtaining funds in 
competition with the Federal land bank and the Land Bank Com- 
missioner, because at the present time the Land Bank Commissioner 
and the Federal land bank are set up to lend in those areas, and have 
a large amount of capital provided by the Government as well as by 
the borrowei^s. 

Mr. Kades. Well, the insurance companies also have a large 
amount of capital, haven't they? 

Mr. Murray. But the capital that they have they expect some 
rate of return on. The Government is not receiving any return on 
the $125,000,000 of capital that they put into the system in 1932. 


Mr. Kades. I am confused, but I thought you just said that you 
didn't think it was necessary to have the interest lower than it is at 
the present time? 

Mr. Murray. No ; but I do feel that since all this capital has been 
put in, and there is a subsidy at the present time being provided on 
Federal land-bank loans, which would continue under this new 

Mr. Kades (interposing). Do I understand you correctly, then, 
that the interest rate is approximately at the correct point at the 
present time, provided there is a subsidy with which to repay some 
of the interest? 

Mr. Murray. Maybe I could clear the point up by saying that at 
the present time the rate charged on the contract mortgage rate of 
interest is 4 percent on Federal land-bank loans, but that the Gov- 
ernment is making up the difference between that and 31/2 percent. 

Mr. Kades. I understand that. Now, then, does that mean, in 
your opinion, that 4 percent or 3^ percent is the correct rate or is 
not the correct rate, or the rate at which the borrower will be able to 
pay his debt service? 

Mr. Murray. That is a matter on which I couldn't say as to the 
difference. I should think either at 3l^ or 4. 

Mr. Kades. In either event the borrower would be able to purchase 
the land and pay off the debt incurred in the purchase of the land ? 

Mr. Murray. It appears that he would, depending, of course, on 
future conditions and on whether the farms are bought right. They 
are making an attempt through the Farm Security Administration to 
buy those farms at that price at which the borrower would be able 
to repay on a reasonable basis — in fact, the Farm Security Adminis- 
tration does provide for principal payments right along in addition 
to regular payments. 

The Chairman. Are there any other questions? 

Then Professor Murray may be released. 

Mr. Gesell. That completes the examination. 

The Chairman. We are very much indebted to you. Professor. 

Mr. Murray. I have enjoyed being here very much. 

(The witness, Mr. Murray, was excused.) 

The Chairman. The next witness will be? 

Mr. Gesell. Mr. Glen Rogers, of the Metropolitan Life Insur- 
ance Co. 

The Chairman. The committee will stand in recess until 10:30 
tomorrow morning. 

(V, axoreupon, at 4:40 p. m., a recess was taken until Friday, Feb- 
ruary 16, 1940, at 10: 30 a. m.) 



United States Senate, 
Temporary National Economic Committee, 

Washington^ D. C. 
. The committee met at 10 : 45 a. m., pursuant to adjourmnent on 
Thursday, February 15, 1940, in the Caucus Room, Senate Office 
Building, Senator Joseph C. O'Mahoney presiding. 

Present: Senators O'Mahoney (chairman). King, and White; 
Representatives fSumners (vice chairman) tand King; James V 
Hayes, Henderson, Kades, Lubin, Pike, and Brackett. 

Present also: Representative Vincent F. Harrington, of Iowa; 
Gerhard A. Gesell, special counsel; Eniest Howe, chief financial 
adviser; and Helmer Johnson, attorney, Securities and Exchange 

The Chairman. The committee will please come to order. 

Mr. Gesell. The first witness this morning will be Mr. Limber; 
and with the permission of the committee, Mr. Helmer Johnson will 
examine Mr. Limber. 

The Chairman. That will be quite satisfactory, I am sure. 

Do -you solemnly swear the testimony you are about to give in this 
proceeding shall be the truth, the whole triith, and nothing but the 
truth, so help you God? 

Mr. Limber. I do. 

(Mr. Pike assumed the Chair.) 


Mr. Johnson. Will you state your name for the record, please? 

Mr. Limber. Ralph Clark Limber.. 

Mr. Johnson. What is your occupation, Mr. Limber? 

Mr. Limber. I am secretary for the Farm Mortgage Conference. 

Mr. Johnson. How long have you held that position? 

Mr. Limber. Since 1934. 

Mr. Johnson. And what did you do before that ? 

Mr. Limber. Before that time I was an employee of the Metro- 
politan Life Insurance Co., and served also as a statistician to the 
Farm Mortgage Conference. 

Mr. Johnson. Will you tell us what the Farm Mortgage Con- 
ference is? 

Mr. Limber. The Farm Mortgage Conference is a loose and in- 
formal organization of life-insurance companies that hold farm mort- 


gages, and who are associated together for a study of their fore- 
closure and 'farm real estate problems. 

Mr. Johnson. When was this conferen,ce organized? 

Mr. Limber. In December 1929. 

Mr. Johnson. By whom? 

Mr. Limber. I can give you the names ot the companies. 

Mr. Johnson. Let me put it this way : Were you connected with it 
at the time of its organization ? 

Mr. Limber. No ; I was not. I did not participate in the original 
discussions that led up to the organization nor did I attend the early 

Mr. Johnson. For what purpose was it organized, Mr. Limber? 
You came into it early.' 

Mr. Limber.' As I said a moment ago, it was organized for the 
purpose of studying the problems of the foreclosure period and for 
tlie collection or statistical data. 

Mr. Johnson. You say it is a very loose organization. Does it 
have any constitution or rules of operation ? 

Mr. Limber. No ; it has not. 

Mr. Johnson. The principal purpose, then, of this conference is a 
statistical organization? It serves to collect statistics? 

Mr. Limber. That is correct. 

Mr. Johnson. Mr., Limber; I show you a chart entitled "Amount 
of Farm Foreclosures Commenced, Farm Real Estate Acquired, Cost 
and Sellin; Price of Farm Sales Approved by Thirteen Companies." ^ 

Was thLt prepared by the Farm Mortgage Conference? 

Mr. liiMBER. It was. 

Mr. Johnson. It was prepared from data submitted by the member 
companies, was it not ? 

Mr. Limber. That is correct. 

Mr. Chairman, may I say a word in explanation of this chart? 
This chart shows the cost of farms approved for sale, compared with 
the total selling price of farni sales -approved. I should like to ex- 
plain what is included in that term "cost." It includes, besides the 
actual out-of-pocket outlays of the insurance companies, a certain 
very important item which was not an out-of-pocket expense. That 
was the due and uncollected interest from the time the loan became 
delinquent until the property was acquired. 

That represents a very considerable item in the cost figures used 
here. According to various studies I have made, it amounts to 12 
or 14 percent of the total cost. 

(The vice chairman assumed the Chair.) 

The Vice Chairman. What is that 12 or 14 percent of the total 
cost ? 

Mr. Limber. The amount of due and uncollected interest during 
the time the loan was delinquent and in foreclosure. That, I say, is 
included in the cost figure used in this chart. 

Mr. Johnson. I may say that this chart shows that during the first 
half of 1932 farm foreclosures in these 13 companies rose to over 
$70,000,000. By the first half of 1938 it was down to less than 10 
millions. Of farms sold, the selling price in no period equaled the 

1 "Exhibit No. 2287," Infra, p. 14923. 


cost of the farms sold. The cost, as Mr. Limber just stated, included 
certain items of acquisition cost. 

Mr. Limber. It included certain items which were not out-of-pocket 
costs, something the companies never had. 

Mr. Pike. They represented accruals against the properties which 
were neyer collected ? You added them to the cost of the properties 
in the chart ? 

Exhibit No. 2287 

Source: Farm Mortgage Conference, Jime 30, 1038. 



Mr. Limber. That is correct. 

Mr. Pike. And if you would have paid taxes, they would have been 
out of pocket ? 

Mr. Limber. That cost, of course, includes all direct oiit of pocket 
expenses, such as taxes advanced prior to foreclosure. 

The Vice Chairman. Have you anything to show the accumulation 
of charges after the time the loan became delinquent, and the amount 


of money that ought to have been paid where you have had to take 
over the property ? 

Mr. Limber. I have certain studies upon that point. The general 
conclusion that I have reached is this, that from the time the loan 
becomes delinquent up until the time the property is acquired, in- 
cluding this accrued and uncollected interest, the amount of the in- 
crease over the principal loan is about 18 percent, and a very impor- 
tant item in that increase is the accrued and uncollected interest. As 
you know J there is a long period between the time the loan first be- 
comes delmquent and the time the companies or any other institu- 
tional lender acquires title to it. 

The Vice Chairman. If I am not interrupting, during the interim 
between the time when the loan becomes delinquent and title is ac- 
quired by another owner, are you receiving any revenue from the 
farm, or are you covering that phase of it? 

., Mr. Limber. Up until the time the property is acquired, from the 
time it becomes fully delinquent, there is no revenue, I believe. 

Mr. Johnson. How were these figures reported to you, Mr. Limber? 
Were these extra costs, these items you include as costs, included with 
the figures that were reported to you ? 

Mr. Limber. If I understand you correctly, they were. I can read 
the definition which was appended to our heading for the column of 
cost. Do you wish tp hear that ? 

Mr. Johnson. If you please. 

Mr. Limber. The form upon which the member companies of the 
conference reported the farm sales from which that chart was made 
contained the column headed, "Actual cost to date of sale," and a 
footnote to that heading read : 

This includes maintenance, improvements and taxes, less income, as well as 
the capital invested on date acquired ; that is, principal of loan, interest to dat( 
of acquisition, taxes, attorney's fees, costs, and any other actual expenses ap 
to and including date of acquisition. 

Mr. Johnson. I offer the chart for the record. 

The Vice Chairman. It may be received. 

(The chart referred to was marked "Exhibit No. 2287" and appears 
on p. 14923.) 

Mr. Henderson. I gather from this chart, Mr. Limber, including 
these accruals there was no period covered by your chart in which 
the sales realization was equal to the total costs ? 

Mr. Limber. Defining cost in that way, that is true. Take out 
those accruals and the total selling price is equal. 

Mr. Henderson. In other words, just about realized the mortgage 
loan, is that it? 

Mr. Limber. They not only realized the amount of the unpaid prin- 
cipal of the mortgage loan but they also realized all other out-of- 
pocket costs. 

Mr. Henderson. In effect what the farmer got rid of was his mort- 
gage and some part of the accruals. The farm population in- 
volved here didn't get any return? 

Mr. Limber. I am afraid I do not understand. 

Mr. Henderson. It stands to reason if the farm at sale didn't bring 
the total of the cost, then there was nothing left for the farmer's 


Mr. Limber. I am speaking here of the cost and selling price of 
the farms as sold by the insurance companies after they had beqn 
acquired by the insurance companies. The original owner was out of 
the picture, 

Mr. Henderson. Did he get any realization when he was taken out 
of the picture? 

Mr. Limber. At the time of acquisition of the farm? 

Mr. Henderson. Yes. 

The Vice Chairman. He wouldn't, would he, because the insurance 
company only bids the amount of the debt. If anybody else wanted 
to go above it, he would get it. 

Mr. Limber. That is not a question I am qualified to answer. 

The Vice Chairman. I think I can answer it. 

Mr. L^iBER. It is my understanding that some of these farms were 
deeded over to the mortgagee,- possibly including some consideration. 

Mr. Johnson. If your method of calculating cost is included, I 
imderstand these accrued interest-tax items were not segregated in 
the figures that were furnished you? 

Mr. Limber. That is correct. 

Mr. Johnson. In other words, they furnished a lump-cost figure 
to you? 

Mr. Limber. That is correct. 

Mr. Johnson. So you rea,lly don't kiiow how much these acquisition 
costs and the accrued interest costs were^ 

Mr. Limber. There are certain things which throw light upon that 
question. In the first place, I have what I consider to be very accu-^ 
rate figures upon the time which elapses between the time foreclosure 
is commenced and the time the property is acquired, by comparing 
actual cases. May I give you a few of those instances? 

The Vice Chairman. In order to save time — isn't it a fact that 
speaking generally the insurance companies have loans on property, 
the loan becomes delinquent, the property is, sold, and the insurance 
company primarly wants to get its money out of it, its out-of-pocket 
money, as you caU it ? They put this property up and bid it if they 
think it is worth the money, then they sell it for what they can 
get for it, but usually are glad to get their original investment out, 
their original loan? 

Mr. Limber. That is a question of policy upon which I have no 
factual information. 

The Vice Chairman. Well, I can help you out. They generally 
do. Sometimes when they get a good piece of property, they want 
to sell it for profit or they would like to make up the losses they 
have sustained on that piece of property. They can have all the 
charts on earth but there is about Dhe situation. They do the best 
they can to get out and they take as little off as they can and if they 
get a good piece of property and think they can hold it a while and 
make some profit or recoup some losses they had on another piece of 
property they do. They do it just like John Smith or Bill Brown or 
anybody else who wants to save his business and get along — arid 
charts don't hielp much. 

Mr. Johnson, Mr. Limber, I show you 2 other charts. These 
were prepared %^ the Farm Mortgage Conference also, were they not? 

Mr. Limber. iThat is correct. 

124491-.-^l— pt. 28- 16 


Mr. Johnson. And like the other charts were prepared from data 
furnished by the member companies ? 

Mr. Limber. That is right. 

Mr. Johnson. The first of these charts contains 2 maps of the 
United States. One map shows the total farm mortgage debt by 
States on January 1, 1935. The second map shows the percentage of 
insurance company holdings of the total debt of the same day. It 
appears that 36.6 percent of the total Iowa farm debt was held by 
insurance companies; 30.5 percent of that of Missouri, and 27.6 of 
that of Illinois. 

The second chart shows by States the ratio of total foreclosures in 
December 31, 1935, to the total farm investments of member insur- 
ance companies on that date. 

This ratio was as high as 72 percent in Montana, 70 percent in 
South Dakota, and 69 percent in North Dakota. 

(Mr. Pike assumed tne Chair.) 

Acting Chairman Pike. The title of tliat chart is misleading, 
don't j^ou think, as it is written? The ratio of total foreclosures to 
farm investments, leaving out the insurance company. 

Mr. Johnson. That should be "Ratio to investments of member 
companies in farm mortgages." 

Ml'. Limber. Which chart are you speaking of? 

Mr. Johnson. I offer those for the record. 

(The charts referred to were marked "Exhibits Nos. 2288 and 2289" 
and appear on pp. 14927, 14928.) 

Mr. Limber. Mr. Chairman, may I examine those charts again? 
I looked at only the first one. 

Did these two charts come from this bulletin,^ Mr. Johnson ? The 
chart is "October, 1937." 

Mr. Johnson. Yes. 

Mr. Limber. I think an examination of the text accompanying that 
discussion will make clear that those are not figures submitted to the 
conference and therefore do not represent the holdings of the mem- 
bers of these loans. 

Mr. Johnson. Can you tell me where you got the figures? 

Mr. Limber. May I examine the text of this statement ? The state- 
ment here is — 

The total farm-mortgage debt and the total amount held by life-insurance com- 
panies, and the percentage of the total held by the latter, are shown by States 
as of January 1, 1935, in the maps above. 

Those figures are quoted from a publication of the Bureau of Agri- 
cultural Economics. 

Mr. Johnson. Well, you say they represent the industry as a whole. 

Acting Chairman Pike. That is the total farm-mortgage debt in 
millions of dollars, that is the one you are speaking of now ? 

Mr. Limber. I am speaking of the page containing the two charts. 

Acting Chairman Pike. That is the upper chart. That is in mil- 
lions of dollars. 

Mr. Limber. Both of those charts. 

The second page, containing the single chart, headed "Ratio of total 
foreclosures to total farm investment, is based upon data submitted 

* Farm Investors Bulletin, September 80, 1036. 

Exhibit No, 2288 


Source: Farm Investors' Bulletin. 



[ficurcs rcprcscnt kbt in million dollars] 

KEY (mILUON dollars; 

BW aoo TO too BBW ioo TO too 

BHH 3C0TO4C0 gnp OTOWe 



^icunes jtcPRCsCNT ptoceNTACc of iMsmuNct compiamt molb»i6s to total kbt] 


tSCY (million dollars; 

mi 100 AMD evn f ,^ M TO so 

BB n ^ 'M ^9 « TO <» 

pgg »c to T» rniiii TO 10 

to the conference by the member companies.* Concerning that part, 
Mr. Chairman, may I say a word? That was the ratio of total fore- 
closures to total farm investment as of that particular date. 

(The Vice Chairman, Representative Simmers, assumed the chair.) 

1 "Exhibit No. 2289," Infra. 14928. 



Mr. Pike. Do you mean to say that 72 percent of all the farm in- 
vestment in Montana was under foreclosure in 1935? The title is 
thoroughly misleading, unless that is the fact. 

Mr. Limber. As of that date that is correct, but that date followed 
a long period of severe depression during which one set of influences 
were operating to increase the amount of total foreclosures^ specific- 
ally the depression and the drought, and another set of influences 
were operating to decrease the total farm investment. 

Mr. Pike. 1 still don't believe it can be the fact. Let's take Penn- 
sylvania, where, according to the chart, 60 percent of all the farm 
investment in 1935 represented foreclosures. 

Exhibit No. 2289 
Sooroe: Farm Investors' Bulletin, September 30, 1936. 



|9VER 45.0% gg]22.5 TO 30. 
1 37.5 TO 45.0% PH UNDER 22.5% 

Mr. Limber. I believe that figure rests upon one or two companies 
in the state. 

Mr. HAt^s. I find myself suffering from the same difficulty as does 
Mr. Pike. Should this chart read as it does, or should it read, "Ratio 
of total foreclosures by farm-mortgage conference members to farm 
mortgages of conference members"? 

Mr. Limber. That would be correct. We might also add, it is the 
amount of investment 

Mr. Hayes (interposing). Which is it, the total farm investment 
by all mortagees and the total foreclosures by all mortgagees, or is 
it limited to members of the Farm Mortgage Conference 1 

Mr. Limber. It is limited to the members of the Farm Mortgage 
Conference. Mr. Chairman, may I say also that that chart is based 
upon amount of investment ; on the basis of the number, it would be 
considerably lower. 


The Vice Chairman. May I ask you this question, whether or not 
there had proceeded, in 1935 — and I don't know a thing about this — 
•curtailing of loans and a period of collection of outstanding moneys 
so that these represent to some degree the remainder after a period 
of inaction insofar as making new loans and activities as far as get- 
ting in new money. 

Mr. Limber. I understand, although I have collected no figures 
upon it, that new loans were made, but repayments, particularly if 
you include the amount of loans refinanced by the Farm Credit Ad- 
ministration, very considerably exceeded the amoimt of new loans 
being made during the years immediately preceding. 

The Vice Chairman. May I ask one question to make that perfectly 
clear. That is, whether or not — I think I understand your answer, 
but T would like to have your mind directed to the question of whether 
or not this represented the remainder, what was left over, of a policy 
of curtailment of new loans and the accumulation to a considerable . 
period of uncollectible loans? I think you probably answered that, 
but I would like to have you answer the question, having specifically 
in mind the question I have just asked, or do you knowl 

Mr. Limber. Th*^ loans included in that chart were the loans that 
were outstanding at December 31, 1935.^ 

The Vice Chairman. I understood that. What I am trying to get 
over, and I don't want to press the question if you don't know it, is 
whether or not they represent a lot of hangovers through a long 
period of poor collections, or represent current conditions? That 
question is pretty clear. 

Mr. Limber. I have no data upon which I could answer. 

The Vice Chairman. If you don't know, that is the answer. 

Mr. Henderson. Does this mean that $72 out of every $100, of 
mortgaged property was delinquent ? ^ 

Mr. Limber. Referring to what territory ? 

Mr. Henderson. Montana. 

Mr. Limber. No; that does not have reference to the delinquency 
upon outstanding mortgages. The total foreclosures included in that 
chart include these three things — the loans that are in process of fore- 
closure, the actual real estate, farm real estate owned outright, and 
also the farms that were sold with title retained — ^in other words, 
contract sales. 

Mr. Henderson. What does that mean as to Montana — 72 percent, 
then, of all mortgages made by members of the conference were 
either in the process of foreclosure, or had already been acquired? 
Is that it? 

Mr. Limber. No ; it does not. This is a cross-section as of a given 
time. The thing you have in mind is best answered in this way. Of 
the total mortgage holdings of 14 conference companies at the end 
of 1928, 29.2 percent were acquired during the succeeding 9 yeirs. 
That applies to the country as a whole. I do not have that figure 
for the State of Montana. I can give you the exact figures underiy- 
ing that percentage of 29.2 if you like. 

The Vice Chairman. What I can't quite get myself is the practi- 
cal value. I don't quite get the practical value of 

1 See "Exhibit No. 2289," supra, p. 14928. 
» Ibid. 


M>. LiMESR (interposing). I am sorry, Mr. Chairman, I didn't 
understand it. 

The ViOE Chairman. Maybe it isnH; worth it. 

•Mr. Hayes. Directing your attention again to this chart ^ of the 
"Ratio of total foreclosures to total farm investment," can you tell 
us what the* ratio of the farm investment of the member companies 
was to the total farm investment by insurance companies ? 

Mr. Johnson. We might get that this way, if I may interrupt 
Who are the members of your conference, Mr. Limber? 

Mr. Limber. At the beginning of this year there were 15 com- 
panies. Would you like me to give you the names? 

Mr. Johnson. Please. 

Mr. Limber. Aetna, the Bankers Life Co., of Des Moines, the Con- 
necticut General, the Connecticut Mutual, the Fidelity Mutual, the 
liincoln National, the Metropolitan, the Mutual Benefit, the National 
Life, the Northwestern Mutual, of Milwaukee, the Penn Mutual^ the 
Phoenix Mutual, the Provident Mutual, the Prudential, and the 

Mr. Johnson. Those are the largest insurarxe companies, in gen- 
eral, are they not, in the country, insurance companies that are fai;m 
investors ? 

Mr. Limber. A number of the largest insurance companies in the 
country are not included in this list. 

Mr. Johnson. Do you know about what percentage of ifisurance 
farm investments those companies represent? 

Mr. Limber. I can give you that figure. You are interested in the 

rircentage of farm-mortgage holdings of all insurance companies, 
do not nave that figure as of the beginning of this year. I do not 
yet have the year-end figures for '39. As of the end of 1938, the 
figure was — and this includes another small company which was a 
member at that time — 58.9 percent in terms of holdings of farm- 
mortgage loans. I can also give you the figure in terms of holdings 
of farm real estate, if you are interested. 

Mr. Johnson. Could you, very briefly? 

Mr. Limber. It is 55.8 percent of the total farm real-estate hold- 
ings of life-insurance companies as estimated by the Bureau of 
Agricultural Economics. 

Mr. Pike. Your association, then, represents somewhat over half 
the insurance holdings in each case? 

Mr. Limber. Slightly over half. 

Mr. Johnson. Mr. Limber, I show you a table prepared from pub- 
lications of the Farm Mortgage Conference, a table entitled "Farm 
Sales as Rejported by Farm Conference Members." You have 
checked the figures, haj^^e you not? 

Mr. Limber. I have checked the take-off of this statement from 
parts issued periodically by the conference, aTid the take-off is cor- 
rect. Mr. Chairman, may I say a word about, this table? This table 
shows the cost and the selling price of faniis soid by farm-conference 
members over a period of years. I want to make clear that the cost 
figure there is the cost figure as I defined it earlier in this discussion. 

> See "BxhlMt No. 2289," supra, p. 14928. 


It includes the due and uncollected interest, and that due and uncol- 
lected interest accounts for all, or practically all, of the loss shown 
on this statement. It is a loss of something the companies never had. 

Mr. Johnson. I offer this chart for the record. 
(The table referred to was marked "Exhibit No. 2290" and is in- 
cluded in the appendix on p. 15513.) 

The Vice Chairman. As a rule, do delinquent taxes accumulate 
along with delinquent interest? 

Mr. Limber. Prior, you mean, to the time foreclosure is com- 
menced ? 

The Vice Chairman. Yes. What I mean to say, does the com- 
pany find itself confronted with a lot of delinquent taxes in those 
situations in which there is a lot of delinquent mterest? 

Mr. Limber. The companies, as I understand it, usually advance 
taxes on these properties, and according to an inquiry I circulated, 
on the average they have advanced taxes for an amount in excess, 
or at least approximately 1 year prior to the time that they com- 
menced foreclosure. 

Mr. Henderson. You are making quite a point, Mr. Limber, of 
the fact that in this cost figure there is this accrual amount which 
you say the company never advanced, and therefore, they didn't lose 
it. Is that what I gather you are saying? 

Mr. Limber. I said it was not an out-of-pocket cost. 

Mr. Henderson. It is not an out-of-pocket cost, but on the basis 
of what the insurance contracts are, it is a serious matter, is it not, 
to the insurance companies? 

Mr. Limber. That is a question upon which I have no factual basis 
for testifying. 

Mr. Henderson. How long have you been with this conference? 

Mr. Limber. I have been secretary since 1934, 

Mr. Henderson. What is the purpose of this conference, anyway? 

Mr. Limber. The purpose of the conference, as I stated earlier, is 
purely fact-finding; also the conference meets four or five times a 
year, at which meetings we usually have speakers from various gov- 
ernmental agencies to explain their operations to us. We have nad 
speakers from the Federal Adjustment Administration, from the 
Soil Conservation Service, from the Weather Bureau, from various 
other governmental agencies. 

Mr. Henderson. This is for the 14 members, is that it ? 

Mr. Limber. For the membership. 

Mr. Henderson. About 14. 

Mr. Limber. This year, 15. 

Mr. Henderson. Fifteen insurance companies. Do you take any 
part in the drafting of legislation which affects farm foreclosures? 

Mr. Limber. No ; we do not. 

Mr. Henderson. Do you make any appearances before committees 
of State legislatures? 

Mr. Limber. We do not, 

Mr. Henderson. You have never appeared at all ? 

Mr. Limber. I have never appeared. 

Mr. Henderson. Do you sena them any statistics? 

Mr. Limber. To State legislatures or to committees thereof? 


Mr. Henderson. Yes; to committees considering any kind of 

Mr. Limber. No ;. we do not. 

Mr. Henderson. This is just for what might be called a cross-check 
of experience of different companies, the assembling of statistics for 
their information? 

Mr. Limber. Pureh' fact-finding. 

Mr. Henderson. Just for its own pure ethereal sake, is that it? 
I mean, who uses the facts ? That is what I am trying to get at. 

Mr. Limber. The members of the conference. 

Mr. Henderson. Isn't that what I just asked you? 

Mr. Limber. Or the representatives of these 15; yes, sir. 

Mr. Henderson. Wasn't that the question I just asked you? 

Mr. Limber. Possibly I misunderstood you, Mr. Henderson. 

Mr. Henderson. I suggest the witness be dismissed. 

Mr. Johnson. I have no further questions. 

Dr. LuBiN. May I ask the witness one further question? This 
chart ^ entitled, "Amount of Farm Foreclosures Commenced," and 
so forth, shows a rather close relationship between the cost of the 
farms approved for sale and the total selling price of farm sales 

Now, I take it that the cost of the farms approved for. sale is the 
cost to the insurance company. Is that right? 

Mr. Limber. It is the cost, as L define it, including the dne and 
uncollected interest, between the date the loan first went delinquent 
and the time of acquisition, a period of several years. 

Dr. LuBiN. Does this throw any light upon what the cost was to 
the company at foreclosure sale? After all, that is what the books 
will show, the cost of the farm when they bought it at foreclosure 
sale, will it not? 

Mr. Limber. I do not understand that it does. I suppose the figures 
are related, but I do not know how. 

Dr. LuBiN. Let me raise a hypothetical question. Would it be pos- 
sible, for example, for an insurance company that had a mortgage 
on a piece of property valued at $5,000, that is, the face value of 
the mortgage was $5,000 — the company was not getting its interest, 
it was in default, so that it decided to write the face value of that 
mortgage down to $4,000 and take a loss of $1,000, then decided to 
foreclose and the property sold, let's say, at $4,500, it got $4,500 for 
that piece of property, did it not? 

Mr. Limber. You refer to the sale of the property after it has 
been acquired? 

Dr. LuBiN. No; I am referring to foreclosing at public auction 
for $4,500. 

Mr. Limber. The cost figure which appears in that chart as de- 
fined in the definition I read to you does not take into account 
those decreases by 

Dr. Lubin (interposing). I can see if I went out to buy a piece 
of property the cost to me is what I have to pay for it, is it not? 
Now, do these figures show what this property cost the companies 
when they '.'^tually bought it, or do these figures show what it cost 

» See "Exhibit No. 2287," supra, p. 14923. 


these companies in terms of selling price at auction when they fore- 
clpsed plus other liabilities on that property which they didn't 

Mr. Limber. The definition of the cost figure that is given there, 
plus the principal of the original loan, unpaid principal, tax ad- 
vances, prior to the time that they secured title, the cost of the 
acquired title, sometimes known as foreclosure cost, also the due and 
uncollected interest from the time the loan went delinquent up 
until they got title — and it also includes after the time they got 
title until the time they sell the property, their maintenance and 
rehabilitation cost. 

Dr. LuBiN. Does this mean, when you talk about the value of the 
mortgage, the face value of the mortgage or the value of the mort- 
gage on the company's books? 

Mr. Limber. The unpaid amount of the principal. 

Dr. LuBiN. As shown on the company's books ? 

Mr. Limber. I have no information upon the accounting practices 
followed by the different companies here. We have asked them to 
report the unpaid principal in connection with that figure. 

Dr. LuBix. So, you don't know whether these figures show what 
these properties cost the companies or whether they just show book 
values ? 

Mr. Limber. This cost figure, I have defined. 

Dr. Lubin. But I ask you whether or not the cost figure, as far 
as the mortgage was concerned, was the actual face value of the 
mortgage or the book value of the mortgage. 

Mr. Limber. Referring to the mortgage alone, that part of the 

Dr. Lubin. Which is the major part. The others are insignificant. 

Mr. Limber. I don't know, but it is my understanding that it 
would be the same, being the unpaid principal. 

Dr. Lubin. I am still trying to find out, is the unpaid portion 
of the principal the face value or the book value ? 

Mr. Limber. I do not know. 

Acting Chairman Pike. Of course, as they report to you, the fig- 
ures on which these charts are built up are not the same as the 
figures reported on page 186 ^ here, where, let^s say, the companies in 
total have shown a profit. It shows the difference between sales price 
and book value. 

Mr. Limber. That is a different group of companies. 

Acting Chairman Pike. They must be reported on a different basis. 

Mr. Henderson. Mr. Limber, you can jolly well do as you please 
about it, but as one who has set on both sides of the table, I 
suggest you don't go before any legislative committee unless you 
want to obfuscate something. If there comes a time when your 
association wants to obfuscate something, I think you would make an 
admirable witness, but in most cases there is necessity for explana- 
tion. I suggest the witness be dismissed, Mr. Chairman. 

Acting Chairman Pike. If there are no more questions, thank you 
very much, Mr. Limber. 

^ See Hearings, Part 10-A. 


Mr. Gesell. The next witness is Mr. Hall of the Lincoln National 
Life Insurance Co. 

Mr. Hall, you have not been sworn. 

Acting Chairman Pike. Do you swear that the testimony you are 
about to give in this proceeding shall be the truth, the whole truth, 
and nothing but the truth? 

Mr. Hall. I do. 


Mr. Gesell. Will you state your full name, your occupation, and 
residence ? 

Mr. Hall. Arthur F. Hall, chairman of the board of the Lincoln 
National Life Insurance Co., Fort Wayne, Ind. 

Mr, Gesell. The Lincoln National is one of the companies shown 
in these schedules we have before us, so, if the committee please, I 
won't bother to bring out from the witness the size and scope and 

How long have you been connected with the Lincolii National ? 

Mr. Hall. I organized it 35 years ago. 

Mr. Gesell. You have been with it all the life of the company ? 

Mr. Hall. Yes. 

Mr. Gesell. Were you president of the company prior to becoming 
chairman of the board ? 

Mr. Hall. I was. 

Mr. Gesell. When did you become president ? 

Mr, Hall. I don't remember when I became president; about 6 
or 8 years ago. 

Mr, Gesell. And you became chairman of the board when ? 

Mr. Hall, A year ago last February, 

Mr. Gesell. Now in 1929, the Lincoln National made some col- 
lateral loans, did it not? 

Mr. Hall. Yes, sir. 

Mr. Gesell. Do you recall that on October 10, 1929 — rather, I 
should say, on November 8, 1929 — a loan in the amount of $50,000 
was made to Mr. Thomas M. Ryan, an officer of the Peoples Life 
Insurance Co.? 

Mr. Hall. Yes, sir, 

Mr. Gesell. That loan was secured, was it, by stock of the Peoples 

Mr. Hall. Yes, sir. 

Mr. Gesell. Is the loan still outstanding? 

Mr. Hall. Part of it. 

Mr. Gesell, Is it delinquent in any way as to interest or prin- 
cipal ? 

Mr, Hall, No, sir, 

Mr, Gesell. That loan was made on November 8, 1929, was it not? 

Mr. Hall. Yes, 

Mr, Gesell. Am I correct in saying that oh October 10, 1929, you 
borrowed the same amount from the Peoples Life Insurance Co. ? 

Mr. Hall.. Yes, sir, 

Mr, Gesell, How was your loan secured? 


Mr. Hall, By stock in my own company. 

Mr. Gesell. So that in November Mr. Ryan, an officer of the Peo- 
ples Life, borrowed $50,000 from the Lincoln National, and in De- 
cember you borrowed the same amount from the Peoples Life, and 
in each case 

Mr. Hall (interposing). No; I borrowed mine in October. 

Mr. Gesell. And in each case the loans were secured by the stock 
of the company represented by the particular officer who borrowed? 

Mr. Hall. Yes. 

Mr. Gesell. What is Mr, Ryan's connection with the Peoples Life ? 

Mr. Hall. He is chief counsel, 

Mr. Gesell, Will you explain how these transactions took place? 

Mr. Hall. Yes, sir. In May of 1929 I wrote a letter to the presi- 
dent of that company, stating that I would like to borrow $50,000, 
and it was almost immediately approved. I didn't want the money 
uiitil fall, and I didn't get the money until the 10th of October. 

Mr. Gesell, Your loan then was negotiated in May and actually 
made in October? 

Mr. Hall. Yes. 

Mr. Gesell. Now, what were the circumstances under which, in the 
following month, this officer of the Peoples came to borrow money 
from the Lincoln National? 

Mr. Hall, At that time they wanted to borrow the money, and 
we were very glad to loan it to them. 

Mr. Gesell. Is there any relation between these two loans at all, 
or is it purely a coincidence that within a space in the same year 
the same amount was lent back and forth ? 

Mr. Hall. No relation whatever. 

Mr. Gesell. Now on December 2, 1929, Mr. Harry R. Wilson of the 
American Central Life borrowed $50,000 from the Lincoln National, 
did he not ? 

Mr. Hall. Yes, sir. 

Mr, Gesell, That loan was secured by stock of the American 
Central Life ? 

Mr. Hall. Yes. 

Mr. Gesell. Is the loan still outstanding ? 

Mr. Hall. Part of it. 

Mr. Gesell. That was in December 1929 ? 

Mr. Hall. Yes, sir. 

Mr. Gesell. In October of 1929 you borrowed the same amount, 
$50,000, from the American Central Life, did you not ? 

Mr. Hall. Yes ; but my loan was agreed upon in the previous May, 

Mr. Gesell. Your loan was secured by stock oi the Lincoln 
National, was it not ? 

Mr. Hall. It was. 

Mr. Gesell. Now, again, will you explain the circumstances under 
which these loans were made? 

Mr. Hall. Well, in May of 1929, I addressed a letter to the presi- 
dent of the American Central Life, stating my desire to borrow 
$50,000, and my letter, which has been submitted to you, explains why 
I wanted to borrow it. 

Mr. Gesell. I believe I have returned that letter, Mr. Hall. If 
you do not mind, I would like to have you read it to the committee. 


Mr. Gesell. The next witness is Mr. Hall of the Lincoln National 
Life Insurance Co. 

Mr. Hall, you have not been sworn. 

Acting Chairman Pike. Do you swear that the testimony you are 
about to give in this proceeding shall be the truth, the whole truth, 
and nothing but the truth? 

Mr. Hall. I do, 


Mr. Gesell. Will you state your full name, your occupation, and 
residence ? 

Mr. Hall. Arthur F. Hall, chairman of the board of the Lincoln 
National Life Insurance Co., Fort Wayne, Ind. 

Mr. Gesell. The Lincoln National is one of the companies shown 
in these schedules we have before us, so, if the committee please, I 
won't bother to bring out from the witness the size and scope and 

How long have you been connected with the Lincoln National? 

Mr. Hall. I organized it 35 years ago. 

Mr. Gesell. You have been with it all the life of the company ? 

Mr. Hall. Yes. 

Mr. Gesell. Were you president of the company prior to becoming 
chairman of the board ? 

Mr. Hall. T was. 

Mr. Gesell. When did you become president ? 

Mr, Hall. I don't remember when I became president; about 6 
or 8 years ago. 

Mr. Gesell. And you became chairman of the board when ? 

Mr. Hall. A year ago last February. 

Mr. Gesell. Now in 1929, the Lincoln National made some col- 
lateral loans, did it not ? 

Mr. Hall. Yes, sir. 

Mr. Gesell. Do you recall that on October 10, 1929 — rather, I 
should say, on November 8, 1929 — a loan in the amount of $50,000 
was made to Mr. Thomas M. Ryan, an officer of the Peoples Life 
Insurance Co.? 

Mr. Hall. Yes, sir. 

Mr. Gesell. That loan was secured, was it, by stock of the Peoples 

Mr. Hall. Yes, sir. 

Mr. Gesell. Is the loan still outstanding? 

Mr. Hall. Part of it. 

Mr. Gesell. Is it delinquent in any way as to interest or prin- 
cipal ? 

Mr. Hall. No, sir. 

Mr. Gesell. That loan was made on November 8, 1929, was it not? 

Mr. Hall. Yes. 

Mr. Gesell. Am I correct in saying that on October 10, 1929, you 
borrowed the same amount from the Peoples Life Insurance Co. ? 

Mr. Hall.. Yes, sir. 

Mr. Gesell. How was your loan secured? 


Mr. Hall. By stock in my own company. 

Mr. Gesell. So that in November Mr. Kyan, an officer of the Peo- 
ples Life, borrowed $50,000 from the Lincoln National, and in De- 
cember you borrowed the same amount from the Peoples Life, and 
in each case 

Mr. Hall (interposing). No; I borrowed mine in October. 

Mr. Gesell. And in each case the loans were secured by the stock 
of the company represented by the particular officer who borrowed? 

Mr. Hall. Yes. 

Mr. Gesell. What is Mr. Ryan's connection with the Peoples Life ? 

Mr. Hall. He is chief counsel. 

Mr. Gesell. Will you explain how these transactions took place? 

Mr. Hall. Yes, sir. In May of 1929 I wrote a letter to the presi- 
dent of that company, stating that I would like to borrow $50,000, 
and it was almost immediately approved. I didn't want the money 
uhtil fall, and I didn't get the money until the 10th of October. 

Mr. Gesell. Your loan then was negotiated in May and actually 
made in October? 

Mr. Hall. Yes. 

Mr. Gesell. Now, what were the circumstances under which, in the 
following month, this officer of the Peoples came to borrow money 
from the Lincoln National? 

Mr. Hall. At that time they wanted to borrow the money, and 
we were very glad to loan it to them. 

Mr. Gesell. Is there any relation between these two loans at all, 
or is it purely a coincidence that within a space in the same year 
the same amount was lent back and forth ? 

Mr. Hall. No relation whatever, 

Mr. Gesell. Now on December 2, 1929, Mr. Harry R. Wilson of the 
American Central Life borrowed $50,^000 from the Lincoln National, 
did he not ? 

Mr. Hall. Yes, sir. 

Mr. Gesell. That loan was secured by stock of the American 
Central Life ? 

Mr, Hall. Yes. 

Mr. Gesell. Is the loan still outstanding ? 

Mr. Hall. Part of it. 

Mr. Gesell. That was in December 1929 ? 

Mr. Hall. Yes, sir. 

Mr. Gesell. In October of 1929 you borrowed the same amount, 
$50,000, from the American Central Life, did you not ? 

Mr. Hall. Yes ; but my loan was agreed upon in the previous May. 

Mr. Gesell. Your loan was secured by stock or the Lincoln 
National, was it not ? 

Mr. Hall. It was. 

Mr. Gesell. Now, again, will you explain the circumstances under 
which these loans were made? 

Mr. Hall. Well, in May of 1929, I addressed a letter to the presi- 
dent of the American Central Life, stating my desire to borrow 
$50,000, and my letter, which hias been submitted to you, explains why 
I wanted to borrow it. 

Mr. Gesell. I believe I have returned that letter, Mr. Hall. If 
you do not mind, I would like to have you read it to the committee. 


Mr. Hall. This letter is very similar to 10 letters written to 
various insurance companies in May, 1929 [reading] : 

Fort Wayne banks are terribly hard up for money and have raised the rate 
of interest to 7 per cent on loans on which stock Is given as collateral. 

Several of us here want to make substantial loans at 6 percent on Lincoln 
Life stock at $75.00 or $80.00 a share. 

When the new investment law goes into effect, I am wondering if the Amer- 
ican Central is in position or is desirous of making some loans on Lincoln 
Life stock, and if so about how much and when. 

Our paid business is 15 per cent ahead of the same period last year and our 
mortality is running lower thus far. 

Mr. Gesell. Mr. Hall, was it a coincidence again that Mr. Wilson 
of the American Central sought a loan from your company in the 
same amount as you had borrowed from his company previously? 

Mr. Hall. True. Nothing was said at any time for several months 
after it had been agreed to loan me money. 

Mr. Gesell. I am referring to the Peoples Life. I understand 
there are several Peoples Life Insurance companies. This was the 
Peoples Life Insurance Co., of Frankfort, Ind., was it not? 

Mr. Hall. Correct. 

Mr. Gesell. Now, Mr. Hall, do you recall that on January 6, 1931, 
Mr. James A. McAvoy, an oflBcer of Central States, borrowed $8,000 
from the Lincoln National ? 

Mr. Hall. Yes, sir. 

Mr. Gesell. And that on January 29, 1931, he borrowed $24,000? 

Mr. Hall. Yes, sir. 

Mr. Gesell. Those loans were secured by stock of Central States, 
were they not? 

Mr, Hall. They were. 

Mr. Gesell. And do you recall that on April 1, 1931, you borrowed 
$25,000 from Central States? 

Mr. Hall. Yes, sir. 

Mr. Gesell. And in July of 1931 you borrowed another $15,000 
from Central States? 

Mr. Hall. No ; I borrowed ten and on August 26 I borrowed five. 

Mr. Gesell. Making a total of the three loans of $40,000 ? 

Mr. Hall. Correct. 

Mr. Gesell. So that you borrowed $40,000 in 1931 from Central 
States and Mr. McAvoy borrowed from your company thirty-two 
thousand ? 

Mr. Hall. Correct. 

Mr. Gesell. By the way, were the loans of Mr. McAvoy paid off? 

Mr. Hall. They were not; they were charged off. 

Mr. Gesell. They resulted in a loss to the company of $32,000? 

Mr. Hall. Yes, sir. 

Mr. Gesell. In the case of all of these loans, have your obligations 
from the various companies from which you borrowed been paid off ? 

Mr, Hall. All of them, in full. 

Mr. Gesell. In this case again, there seems to be a certain degree 
of reciprocity between the loans you negotiated from these companies 
and the loans your company made to them. Do I understand that 
there is any different explanation here than in the other two cases? 

Mr. Hall. None. 

Mr. Gesell. You mean to say, then, that on these three occasions 
i.T',^ivin,r <i;of<n 000 trflTimintion!?. and another transaction running up 


to forty or thirty-two thousand dollars, there was no previous under- 
standing or arrangement of any sort between the officers of the two 
companies ? 

Mr. Hall. None whatever, by word of mouth or otherwise. 

Mr. Gesell. In what way would these officers of the companies 
who had lent you money approach you with respect to your lending 
them money? 

Mr. Hall. They wrote us letters which I have submitted to you. 

Mr, Gesell, I have here a letter that you wrote Mr, Julian Price, 
president of the Jefferson Standard, under date of May 31, 1929, 
You recall that letter, do you not ? 

Mr. Hall, Very well. 
. Mr. Gesell. I was interested in the second paragraph in which 
you say [reading from "Exhibit No. -22^1"] : 

It is hard to understand the attitude of the loan committees to collateral 
loans such as the one I seek. We recently loaned approximately $200,000 to 
friends of yours and mine, officers of another life insurance company, on their 
stock as collateral, and j: had a dickens of a time to get my finance committee 
to consent to a loan on life Insurance stock. That is the one collateral they 
understand better than any other. They will make a loan on a farm or a 
business property at 5%% and think they have a cream loan. When we fore- 
close we have the devil's own time to get rid of the security. If, however, 
we should have to foreclose on the collateral loan we made, we could find a 
market In ten minutes for the collateral. 

I gather there was some difficulty in making these collateral loans 
as far as your finance committee was concerned. 

Mr. Hall. There was. 

IVtr. Gesell. What arguments or explanations did you give your 
finah.ce committee at the time the loans to these officers of companies 
'which had loaned you money came before the finance committee for 
consideration? .. 

Mr. Hall. Well, we made loans, of course, to officers of other 
companies long before I borrowed any money from any companies, 
and my argument merely was that our officers should understand 
life-insurance stock collateral, stock, rather, as collateral, better than 
they should understand any other form of collateral, and that they 
were intimate, or should be intimate with the operations of a life- 
insurance company. 

My philosophy m making such loans is set up, if you would finish 
that letter which I wrote to Mr. Price, as to why they should be 
made and why they were perfectly good loans.^ 

Mr. Gesell. I shall be glad to offer the entire letter for the record. 

The Vice Chairman. It may be received. 

(The letter referred to was marked "Exhibit No, 2291" ard is 
included in the appendix on pp, 15514, 15515.) 

Mr. Pike, It turned out later on one of those loans that the finance 
committee was more nearly correct than you, didn't it? 

Mr. Hall. It turned out that way on loans on all kinds of col- 
lateral. We lose on farm mortgage loans, too. 

Mr. Henderson. Do you lose on any policy loans ? 

Mr. Hall. No. 

Mr. Gesell. Mr. HaU, why didn't you borrow this money you 
needed from your own company? 

Mr. Hall. I can't borrow from my own company. It is illegal. 

» See "Exhibit No. 2291," appendix, pp. 15514. 1551& 


Mr. Gesell. Isn't that part of the story here ? The same situation 
applied in the case of these other officers that were borrowing from 
you; isn't that correct? 

Mr. Hall. Yes; just the same as it is with banks, the president 
of a bank cannot borrow from his own bank, but he can borrow on 
his stock in that bank from another bank. 

Mr. Gesell. Isn't there some kind of a gentlemen's understanding 
or tacit understanding involved in this situation where you loaned 
the same amount to an officer of another company as he in turn 
borrowed from your own company? 

Mr. Hall. No. In fact, we loaned more to the Peoples Life than 
I borrowed from them. You didn't mention the fact that we loaned 
twenty-five thousand to the president of that company. 

Mr. Gesell. I haven't a record of that here. When did you loan 
that to him ? 

., Mr. Hall. On November 5, 1929, 3 days before the fifty thousand 
was loaned to Mr. Ryan. 

Mr. Gesell. You loaned how much? 

Mr. Hall. Twenty-five thousand. 

Mr. Gesell. So that you loaned a little more in that case to the 
Peoples than they loaned to you. 

Mr. Hall. That loan, by the way, is fully paid. 

Mr. Gesell. And this is all a pure chance that there is this cross- 
loaning ? 

Mr. Hall. It is. I think they borrowed from us for the same 
reason that I desired to borrow from them. .The local banks had 
raised the rate. 

The Vice Chairman. Just in that connection was there a shift in 
loans from the local bank to the insurance company, or was this a 
new transaction ? Did your loan status with your local bank change 
as the result of this loan, either before or after ? 

Mr. Hall. Afterwards, as soon as I got the money from the life 
insurance companies, I paid off the bank who had increased the rate 
1 percent. I was seeking a lower rate of interest. 

Just one more point about that, Mr. Chairman. The loans from 
the banks were 90-day loans. One couldn't tell when the bank would 
say, "We will no longer renew this loan." 

Mr. Gesell. You could get longer terms by borrowing from the 
insurance companies. 

Mr. Hall. And not be worried all the time. 

Mr. Gesell. Were these loans collateral or time loans ? 

Mr. Hall. They were due on I think 60 days' notice. I wiU get 
that information for you.^ 

Mr. Gesell. I want to come now to a type of transaction that the 
committee will be interested in. 

Mr. Hayes. May I ask a question before you go into another type 
of transaction? You mentionedj as I understood the testimony, Mr. 
Hall, that before a loan was written off entirely, what happened to 
the collateral for that loan ? 

Mr. Hall. We still hold it. 

Mr. Hates. Have you made any endeavor to sell it ? 

Mr. Hall. Oh, yes. 

I Information included In subaeQuent testimony. 


Mr. Hates. Is the collateral worthless ? 

Mr. Hall. No. 

(Senator O'Mahoney resumed the Chair.) 

Mr. Hates. About how much of the principal of the loan does 
the collateral represent? 

Mr. Hall. The collateral represents the entire principal of the 
loan but I don't think the worth of it is more than $2,000. I don't 
think we will ever realize more than two or three or four thousand 

Mr. Hates. Did Mr. Ryan pass on or have anything to do with 
passing on your loan from the Peoples ? 

Mr. Hall. I don't know. It was up with their finance committee. 
. Mr. Hates. How about Mr. Wilson with respect to the American 

Mr. Hall. I am quite sure he was on their finance committee. 

Mr. Hates. How about Mr. McAvoy with respect to Central 

Mr. Hall. He was president of the company and I have no doubt 
had something to do with passing on it. 

Mr. Hates. In at least two instances people who borrowed from 
your company had something to do with passing on their loans. 

Mr. Hall. And no doubt the third one, too. 

Mr. Gesell. And correspondingly, did you pass on the loans to 
the officers of these other companies? 

Mr. Hall. Yes; but my entire finance committee did. I have 
here — I don't think you want it for your record but I would like 
to have you see how such an application was analyzed and passed 
upon. That loan was never made. It was approved. Every mem- 
ber of the finance committee you see down there votes "yes" or "no." 

Mr. Gesell. A specific vote was required, and details with respect 
to collateral required? 

Mr. Hall. Yes, two, four, seven — seven votes, so you can readily 
see that I alone couldn't carry a vote. 

Mr. Gesell. I want to ask you now about the circumstances under 
which the Lincoln National purchased the reinsurance business of 
the American Life Insurance Co. of Dallas, Tex., in 1929. Do you 
recall that? 

Mr. Hall. Yes, sir. 

Mr. Gesell. -Can you tell us, first of all, what was the purchase 
price ? 

Mr. Hall. As I recall it, it was approximately $267,000. 

Mr. Gesell. Can you tell us how that was financed ? 

Mr. Hall. Yes, sir. It was financed by my borrowing the money 
from the bank and purcfiasing the business with that money. Then 
my company bought that business from me for exactly the same 
price, with exactly the same interest payment that I owed, but gave 
me a contract to make a payment — I think that particular one was 
one-half of 1 percent of the renewal premiums collected on our busi- 
ness afterwards. My collateral to the bank for the loan was an as- 
signment of the contract that I had with my company. My company, 
therefore, never paid me any money; it never passed through my 
hands. It went directly to the bank with which I had made the 


Mr. Henderson. Each stockholder? 

Mr. Hall. Yes. 

Mr. Gesell. These were 3-year collateral loans, is that correct? 

Mr. Hall. Yes ; callable both 30 or 60 days alter the year. 

Mr. Kades. Do I understand that your personal loans from the 
bank were for 30 days? 

Mr. Hall. I think they were for 90 days. 

Mr, Kades. And you made arrangements with the insurance com- 
pany to borrow in May 1939 ? 

Mr. Hall. Yes, sir. 

Mr. Kades. You, however, drew the money down in October 1929? 

Mr. Hall. No. Some of it I didn't draw until July and August 
of 1931. 

Mr. Kades. Did the bank loans mature in the meantime ? 

Mr. Hall. Well, they matured every 90 days. 

Mr. Kades. Do I understand you to say tnat you borrowed from 
' the insurance companies in order to avoid the 90-day paper, and put 
it on a long-term basis ? 

Mr, Hall. And on a lower interest basis. 

Mr. Kades. Then why did you wait from May until October 1929, 
before you drew down any money? 

Mr, Hall. Well, I don't think those companies were in position 
to loan such a large amount of money quickly. We were, but we 
were a much larger company than the companies from whom I 

Mr. Kades, Were banks in October 1929, asking for additional 
collateral ? 

Mr. Hall. Yes ; and raising the rate. The Fort Wayne banks in- 
creased their rate from 6 to 7 percent on all loans collateralized by 
stocks of any type, 

Mr. Kades. Were they asking for additional stock? 

Mr. *Hall. That I don't recall. 

Mr, Kades. That had nothing to do with the shifting of the loan 
from the bank to the insurance company ? 

Mr, Hall. I think not. 

Dr. LuBiN. Mr. Hall, you stated that in May, of 1929, you wrote 
a letter to 10 companies in which you raised the question as to whether 
you could borrow certain funds from them ? 

Mr. Hall. Correct. 

Dr. LuBiN. In some instances, however, you waited almost 2 years 
before you went to these companies to borrow the money? 

Mr. Hall. No ; in one instance. I then probably wanted to borrow 
some more money that I hadn't even thought of previously. 

Dr. LuBiN. I understand that you made the arrangements in May 
'29, but you didn't borrow until 1931 ? 

Mr. Hall. That is correct. The president of our company calls 
my attention to the fact that although I wrote to the president of 
the Central States in May of 1929, asking whether or not they 
could or would make loans, that no arrangements were made at that 
time for them. At that time they were in no position to make the 

Dr. LuBiN, So there is no relationship between your borrowing in 
1931 and the arrangement you made in 1929 ? 


Mr. Hall, Merely that I had asked for it in 1929, but no loan was 

Dr. LuBiN. So you made a further request 2 years later, and the 
loan was consummated? 

Mr. Hall. I judge I did. 

Mr. Hates. Your testimony, as I understand it just now, is that 
though you made your original approach to those companies in May 
of 1^9, the actual loans were deferred until some time in the tall 
because of the inability of those companies at the time of the original 
request to make loans of such substantial amounts? 

Mr. Hall. I said I merely suspected that that was the reason for 
the delay. 

Dr. LuBiN. Does that mean that they refused the loan in May 
of 1929? 

Mr. Hall. Oh, no. 

Mr. Hates. What was their answer, that they were able to make it 
in May of 1929 or that they weren't able to make it ? 

Mr. Hall. Mr. Chairman, I have all the correspondence from my 
personal file concerning these matters which I am perfectly willing 
to leave with this Commission if they so desire. It answers aU 
these questions. 

The Chairman. You have ample time to review your correspond- 
ence and confer with your associates. 

Mr. Hall. I merely want you to knorw that I don't seek to hide 
the answer to any question you may ask me. 

The Chairman. We appreciate that fact. 

Mr. Hall. Here is the replv in June 1929 from the Peoples Life 
at Frankfort, Ind., which did loan me, in October, $50,000 [reading] : 

This month and next we have a number .of large mortgage loans which 
aleady have been approved, and it will take all the funds available to complette 
these loans according to our previous arrangement We are loaning more than 
50 percent of our funds at 7 percent on city property, interest payable semi- 
annually, and we have two loans of twenty thousand, one of thirty thousand, 
and one of fifty thousand coming this month, and one of $15,000 being made 
in Indianapolis the first of July, besides several smaller loans. 
- You no doubt appreciate the fact that our income is small as compared with 
yours. Looking up the law on loans on stock, our attorney advises me that 
$65,000 is the limit to any one company. Therefore, as soon as funds are 
available I shall be pleased to loan you $50,000, which will be a permanent 
loan of $50,000. 

Mr. Hates. What company was that? 

Mr. Hall. The Peoples Life of Frankfort, Ind. 

Mr. Hates. Is that typical of the replies you received? 

Mr. Hall. The ones from whom I borrowed were all in that cate- 
gory- , 

Mr. Hates. As I understood your original testimony with respect 
to these loans, and I may have misunderstood and I would like to be 
corrected if I did, your testimony was that while you made applica- 
tion originally in May, you didn't require the funds yourself until 
October, ahd for that reason did not borrow ? 

Mr. Hall. J think I should correct that, because the sooner I could 
get the loans the sooner I lowered my interest 1 percent. 

Mr. Hates. So that the reason, primarily, was the inability of the 
companies lending the money 

Mr. Hall (interposing). Inability due to such reasons as I have 
read here. ■ 


Mr. Hates. Were these loans made before or after you made your 

Mr. Hall. There were never any of them made coincident with the 
time I made my other request. 

Mr. Hates. They were made independently of the actual borrowing 
by you ? 

Mr. Hall. Y^s, sir. 

Mr. Gesell. I have no further questions. 

Representative Sumners. I would like to ask one further question. 
I gather from that letter and your statement that your application 
to these companies with reference to loans was probably for $65,000? 
. Mr. Hall. No. I will get my letter. 

Representative Sumners. I don't think that is important. I 
thought I heard that. 

Mr. Hall. I read you one letter. I said several oflBcers of the 
company would like to borrow, and his answer was that $65,000 would 
be the limit. 

Representative Sumners. The question I want to ask is, What, if 
any, difference is there between the amount and character of the col- 
lateral which you put up to secure the loans from these insurance 
companies and that which was securing the same indebtedness with 
the banks ? 

Mr. Hall. The same collateral. 

Representative Sumners. You had a loan with the bank with a 
certain collateral which the bank had approved. You moved that 
loan and_^hat collateral over to the insurance company and got the 
money from it, and paid the debt to the bank ? 

Mr. Hall. That is correct. 

Dr. LuBiN. Mr. Hall, is it customary for insurance companies to 
make collateral loans and to make them permanent ? Does that reply 
tO'you mean that this loan was going to be extended indefinitely at 
your cJption ? 

Mr. Hall. No. Mine was only made for 3 years. It wasn't per- 
manent. As a rule, mortgage loans are made for a minimum of 5 

Dr. LuBiN. Did I understand you to say a minute ago that these 
loans were made by your company to the officers of these other com- 
panies in each instaijce before you borrowed from their companies ? 

Mr. Hall. No. 

Dr. LuBiN. Were they made after you borrowed ? 

Mr. Hall. Yes. 

Dr. LuBiN. In all instances ? 

Mr. Hall. No; in one instance they were made to the other com- 
pany first ; in two instances they were made to me first. 

Dr. LuBiN. Which instances are those, thosB of 1929 or '31 ? 

Mr. Hall. '31. 

Dr. LuBiN. In 1931 they borrowed first? 

Mr. Hall. Yes. That is the loan we lost. 

Mr. Kades. Did the collateral notes to the banks contain the usual 
provision that, in the event the collateral fell below a certain value, 
additional collateral would have to be pledged ? 


Mr. Hall. Yes. 

Mr. Kades. Did the collateral loans from the insurance companies 
contain a similar provision ? 
Mr. Hall. Yes. 

Now, that brings me to the point contained in the letter which 
your Commission has. It shows that, first, on the Peoples Life 
loan, which I secured on October 10, 1929, I put up 700 shares of 
stock; on December 29, the following year, I put up 100 shares: on 
July 15, of the following year, 208 shares — the market price was 
going down ; on December 24, 1931, 1 put up 500 shares ; on November 
18, 1935, I put up 297 shares; so I finally added up to 1,805 shares 
in that case. 

The American Central shows that I originally deposited 700 shares, 
as in the other case; and on December 29, 1930, I added 300 shares; 
on January 16, 1932, I added 450 shares ; so I had 1,450 shares. 

Mr. Henderson. Had not the ad(Jitional shares been put up, the 
company that made the loan to you might have lost money ? 

Mr. Hall. I think so. 

Mr. Kades. Did you require Mr. McAvoy to put up additional 
collateral ? 

Mr. Hall. I do not recall. If we asked for it, I don't think we 
got it. 

Mr. Hates. Did you ask for it? 

Mr. Hall. I don't recall, but no doubt we did. 

Mr. Kades. Did you accelerate the maturity of this note wheii he 
was unable to put up additional collateral? 

Mr. Hall. I do not recall that. 

Mr. Hates. Did you receive a financial statement from Mrat 
Avoy at the time of the original loan to him ? 

Mr. Hall. No; because the loan was on the stock of his compaliy. 
We made an analysis of that company's business. 

Mr. Hates. That was m 1931 ? 

Mr. Hall. Yes. 

Mr. Hates. And you relied entirely on collateral in 1931 ? 

Mr. Hall. Yes. 

Mr. Hates. Stock collateral ? 

Mr. Hall. Correct. 

Mr. Kades. What month was that in 1931 ? What month did you 
make a loan to Mr. McAvoy ? 

Mr. Hall. Loaned him money in January and borrowed in April, 
July, and August. 

Mr. Kades. Was that a 3-year note? 

Mr. Hall. I judge it was. I can look it up for you. 

May I introduce, Mr. Chairman, the form of note that we used 
in all these cases? 

The Chairman. I beg your pardon? 

Mr. Hall. May I introduce the form of note that was used in each 
case when we made a loan? 

The Chairman. Unless there is objection. 

Mr. Hall. It will answer some of the questions that might occur 


Mr. Gesell. I will be glad to have this filed as part of the record. 

The Chairman. Is there any objection to having it printed? 

Mr. Hall. No. 
'The Chairman. Then it may be received and printed. 

Mr. Hall. I think, however, Mr. Chairman, the name of the bor- 
rower should be left off. 

The Chairman. Would you prefer to have it filed with the com- 
mittee and not printed? 

Mr. Hall. I would prefer that. He still owes part of that money. 

The Chairman. Then it will not be printed, but will be held, with- 
out references to the individuals concerned, as a part of the record 
of the committee. 

Mr. Hall. I think that is a courtesy to the borrower. 

The Chairman. We will be glad to comply with that suggestion. 

(The note referred to was marked "Exhibit No. 229 1-A" and is on 
file with the committee.) 

Mr. Gesell. We have no further questions of this witness. 

The Chairman. May I ask, sir, whether there is any particular 
provision of the Indiana law with respect to transactions of this 
type, which you want to discuss this morning? 

Mr. Hall. Yes ; stocks generally. We may loan 80 percent at the 
present market value of stocks. 

The Chairman. That is the ordinary collateral loan that Dre- 
vails ? 

Mr. Hall. Yes. 

The Chairman. Is there any provision with respect to lending 
money between life insurance companies? 

Mr. Hall. None. 

The Chairman. That is not covered in the law at all? 

Mr. Hall. No. - 

The Chairman. So the transaction that has been described here, 
according to your statement, ^as wJthin the laws of the State of 
Indiana ? 

Mr. Hall. Yes; approved by the attorney general. 

The Chairman. I beg your pardon. 

Mr. Hall. We had it approved by the attorney general of our 

The Chairman. In other words, before the transaction was car- 
ried out, it was submitted to the attorney general of your State? 

Mr. Hall. Yes. 

The Chairman. And approved? 

Mr. Hall. Approved by him. 

The Chairman. Did the insurance department have anything to 
do with it? 

Mr. Hall. I judge they did. It must have befen submitted to the, 
attorney general through the insurance department. 

Mr. Gesell. You mean you told him you borrowed so much money 
from an officer of one company, and he in turn was going to borrow 
the same amount of money from your company ? 

Mr. Hall. No. 

Mr. Gesell. Just the general proposition as to whether or not you 
could loan on stock? 



Mr. Hall, Yes. 

The Chaibman. Then I misunderstod you. Was the transaction 
itself submitted to the attorney general ? 

Mr. Hall. No ; the question was submitted to the attorney general, 
whether or not it would be proper for an Indiana officer of an Indiana 
company to borrow on the stock of his company from another Indiana 
life msurance company. 

The Chaibman. That question, as a generality, and with no relation 
to a specific case, was presented to the attorney general ? 

Mr. Hall. Yes. 

The Chairman. By your company? 

Mr. Hall. Yes; by word of mouth, I judge. I have no correspond- 
ence on that. 

Mr. Gesell. It is recorded in tHe correspondence that you did take 
it up. 

Mr. Hall. Yes; it is recorded somewhere in the correspondence that 
you have to that effect. 

The Chaibman. Did you have a letter fro.n '^e attorney general ? 

Mr. Hall. No. 

The Chairman. Was it an oral opinion he handed down? 

Mr. Hall. We were advised by the insurance department that the 
attorney general had rendered such an opinion. 

The Chairman. I see. Thank you. 

Mr. Henderson. Mr. Hall, where do you get the market price of 
the stocks of insurance companies ? 

Mr. Hall. Well, it is quoted in many newspapers. Ours is only 
quoted in the Chicago Journal of Commerce and the Fort Wayne 
papers. It used to be quoted in the Hartford, Conn., papers. The 
stocks in the larger companies are reported pretty well over the 

Mr. Gesell. Most of that is over-the-counter quotations ? 

Mr. Hall. Yes. 

Mr. Gesell. Thank you, Mr. Hall. There are no further questions. 

The Chairman. If there are no further questions, the committee is 
indebted to you, Mr. Hall, for the testimony. The witness may be 

The committee will stand recessed until 2 o'clock. 

(Whereupon, at 12 : 10 p. m., a recess was taken until 2 p. m. of the 
same day.) 


The committee resumed at 2 : 05 p. m. upon the expiration of the 

The Chairman. The committee will pJease come to order. 

Mr. Gesell. The witness this afternoon is Mr. Glenn E. Rogers of 
the Metropolitan Life Insurance Co. I should say the first witness — 
we will have two, we hope. 

The Chairman. Mr. Rogers, do you solemnly swear the testimony 
you are about to give in this proceeding shall be the truth, the whole 
truth, and nothing but the truth, so help you God ? 

Mr. Rogers. I do. 



Mr. Gesell. Will you state your full name, please, sir? 

Mr. KoGERs. Glenn E. Rogers. 

Mr. Gesell. What is your position with the Metropolitan? 

Mr. Rogers. Manager of the Farm Loan Division. 

Mr, Gesell. How long have you had that position ? 

Mr. Rogers. Since September 1932. 

Mr. Gesell. Were jou connected with the division prior to the 
time you were placed m charge ? 

Mr. Rogers. I have been connected with the division since 1924. 

Mr. Gesell. Prior to that had you had experience in the handling 
of farm problems? 

Mr. Rogers. Yes. 

Mr. Gesell. Whafc^was y'our experience? _ 

Mr. Rogers. I was brought up on an Illinois farm and then at- 
tended the Iowa State Agricultural College and went back to the 
farm for a while, then became an agricultural agent, a county agent 
in Minnesota, and from there I guess I was one of the first appraisers 
of the Federal Land Bank of St. Paul, and from that I went with' a 
mortgage company in Minneapolis, and from there to New York 
City as assistant manager of the Farm Loan Division of Metro- 

Mr. Gesell. And you became manager in 1932 ? 

Mr.' Rogers. Became manager in 1932. 

Mr. Gesell. Not just exactly the best time to become manager. 

Mr. Rogers. There were many problems then. 

Mr. Gesell. Now, Mr. Rogers, before we get down to detail, I 
would like to get some idea from you of the Metropolitan's farm 
investment. First of all, can you tell me how many farms the 
Metropolitan owns? 

Mr. Rogers. Seven thousand one hundred and fifty-three, I think, 
is about correct toda^, but I can tell you accurately. 

Mr. Gesell. Wjthin approximation is perfectly all right. Gen- 
eral figures. 

Hqw much of an investment does that represent? 

Mr. Rogers. Today it represents $79,800,000. 

Mr. Gesell. Wliat is your biggest farm? How many acres, 

Mr. Rogers. Roughly, 2,000 acres, I believe. I think there are 
three farms that are approximately 2,000 acres. 

Mr. Gesell. And how small do you run down? 

Mr. Rogers. Oh, I would say 25 or 30 acres, but seldom below 40. 
Not many farm loans are made on farms below' 40 acres. 

Mr. Gesell. And the average size of the farm is about what? 

Mr. Rogers. I would say the average size is approximately 200 
acres. I am not sure. That would be easily calculated — ^7,153 farms, 
1,560,000 acres. 

The Chairman. What do you say is the average? 

Mr. Rogers. About 210, I believe, Senator. 

Mr. Gesell. How many mortgages have you got? 
Mr. Rogers. I would say approximately 13,000. I am not real 
sure on that. 


Mr. Gesell. That is roughly correct? 
. Mr. KoGERS. I think so. 

Mr. Gesell. What investment does that represent? 

Mr. Rogers. That represents $74,000,000. 

Senator King. When you say farms, some of those large so-called 
farms include considerable land used for dairy purposes, do they 
not, and for hay, rather than for the production of what might be 
'called peculiarly agricultural crops — wheat and corn? 

Mr. Rogers. Well, the largest farms that we had — we carried these 
farms under a single number. Now, we acquired, for instance, in 
North Carolina, 7,500 acres in 1 property. We carried it as 1 farm. 
Yet it was made up of a number of parcels. That particular prop- 
erty has been sold. I think it was sold as 31 different parcels. Now, 
the 2,000-acre farm in Kansas is broken down into about 6 different 
farms. I think 1 in Minnesota is the same way. There are several 
units, but 1 man owned them, and we call them 1 farm. In addition, 
I should say we have 1 ranch in Colorado that has about a thousand 
acres under irrigation, but it is a cattle proposition with the cattle 
grazing on the forest range. 

Mr. Gesell. What is your biggest mortgage? 

Mr. Rogers. The biggest mortgage, I am not sure, I think it is 
$150,000. I am not sure about that. 

Mr. Gesell. And how small do your mortgages run? 

Mr. Rogers. Oh, we have them down as low as $500. $1,000. 

Mr. Gesell. Are there many that small ? 

Mr. Rogers. Not many. 

Mr. Gesell. Now, what States — in what States is this investment 
located primarily ? 

Mr Rogers. Well, it is primarily located in the Central West, al- 
though it is scattered in 25 different States. If you wanted that figure 
accurately, I could give it to you. 

Mr. Gesell. Well, "Exhibit No. 2250" shows that specifically for 
each State.^ I just wanted to refresh the committee's recollection. 

Mr. Rogers. The State of Iowa,:of course, is the leading investment, 
with us, and the State of Illinois runs high. 

Mr. Gesell. You are in 25 different States ? 

Mr. Rogers. Twenty-fiye different States; and in some States the 
amounts relatively are small. 

Mr. Gesell. Now, will you tell us a little about your lending and 
managing organization ? I realize you could probably talk all after- 
noon about that alone. I want in outline form how you lend, the kind 
of staff you have, and how you are organized. 

Mr. Rogers. Well, I think it is a very simple organization. When 
confronted with a management probljem, it seemed that it was neces- 
sary to develop an organization that 'understood farms and farming. 
We have always looked upon the lending of money and the manage- 
ment of farms as separate businesses. A man to be competent to lend 
money must have more or less of a banking instinct. A man to man- 
age farms must have an intricate knowledge of agriculture, and in 
our case we have gone to the scientific agriculturalists in order to do 
constructive work, in order to be of benefit to tenants who reside upon 
those farms. Many of the men in the farm management organization 

1 See Hearings, Part 10-A, pp. 167 to X71. 


would not make lenders of money. Some would make salesmen. Some 
would make lenders, but some of the men are of the type that are defi- 
nitely farm managers, and will be strictly confined to that work. 
Then we have the farm sales department, which takes another type 
of personality. I always say that you cannot tell from talking with 
a man his ability to sell farms. The sales he makes are the things 
that tell the story. We have these three departments that are sep- 
arate and distinct. 

Mr. Gesell. Let's see. Those are the lending department. 

Mr. Rogers. Yes. 

Mr. Gesell. The managing department. 

Mr. RoGEBS. Yes. 

Mr. Gesell. And what is the third ? 

Mr. Rogers. Salefe. 

Mr. Gesell. And the sales department. Those are separate and dis- 
tinct from each other ? 

Mr. Rogers. Yes. 

Mr. Gesell. What is the total personnel ? 

Mr. Rogers. The total personnel in the field, you are referring to — 
approximately 350 people. There are about 165 men, field men, I 
believe, and of that 165, 1 think 130 are agricultural college men, most 
all of whom are mature men, 35 to 45 years of age, with a few men 
of a younger age who work as assistants to these older men, as a 

Mr. Gesell. The company at one time used farm correspondents, at 
least in part, to make its loans, did it not ? 

Mr. Rogers. Yes. 

Mr. Gesell, Does it at the present time ? 

Mr. Rogers. We have I think four correspondents left. 

Mr. Gesell. You have probably switched over to the manager 
system, have you ? 

Mr. Rogers. We have switched over. Here was one of the great 
difficulties. The farm management business being so separately and 
entirely different from the lending, the correspondent had no ability 
as a farm manager, he had no liking for it. He didn't want to man- 
age farms. So in the very early part of the defaults, it was neces- 
sary to set up a separate management organization. Then if a cor- 
respondent failed or decided he cared not to continue, we would try 
to carry over some of his people into our organization in order to 
continue the experienced men. A good many of our present lend- 
ing organizations were built up by taking the employees of the 

The Chairman I take it the correspondents were practically all 
experts in lending? 

Mr. Rogers. Yes. 

The Chairman. Of this staff of which you spoke a moment ago, 
how many are in the managing department, the farm management 

Mr. Rogers. Today I would judge about 125. 

The Chairman. How long have you had a management staff as 
large as that ? 

Mr. Rogers. Well, that dates back quite a ways. I would say 1933 
or 1934. 


Mr. Gesell. I assume you started to build up that staff as soon as 
you became head of the division. 

Mr. Rogers. Yes. 

Mr. Gesell. There was an increasing problem at that time. 

Mr. Rogers. In 1932, that is correct, Mr. Gesell. The building of 
an organization with farms coming to you at the rate of 300 a month 
is quite a difficult thing, because the men must be trained. 

The Chairman. How many persons are there in the sales depart- 

Mr. Rogers. In the sales department? We handle that slightly 
differently. What I claim as to our salesmen is that they are really 
sales executives. We encourage the local real-€state brokers to help 
us in the sale of farms, and we call the men in our branch office staff 
the farm sales managers. It is their job to see that the farm-loan 
men, that the farm-management men, and that the real-estate brokers, 
all lend their efforts toward the sale of company-owned farms. There 
are only 12, I think, Senator; now that may be 11 or it may be 13, 
but I am close to right. 

The Chairman. That is, those men are sales executives ? 

Mr. KoGERS. Yes. 

The Chairman. And then the balance of your staff is in the lend- 
ing division ? 

Mr. Rogers. Yes. 

The Chairman. And that would number approximately 150, or 

Mr. Rogers. Thereabouts. 

Mr. Gesell. Your company is really the biggest farmer in the 
United States, isn't it, Mr. Rogers? 

Mr. RoGTOS. We are today, I believe. 

Mr. GESteU-. You own more farm land than anyone else? 

Mr. Rogers. I believe that is correct. 

Mr. Henderson. Now, you have those 11 or 12 sales executives, 
but how many people would you say are on the selling staff, taking 
the brokers and the managers and; the salesmen together ? 

Mr. Rogers. Mr. Henderson, that would be a large organization. 
Strange as it may seem, some of these individual brokers thjs past 
year sold enough farms so their commissions would mount upwards 
of five to ten thousand dollars on company farms alone. I have 
no idea as to that. We advertise, these men are solicited, these 
brokers, and it is very, very extensive. '. 

Mr. Henderson. Have you any idea how many individuals last 
year sold one or more farms for you ? 

Mr. Rogers. No;T haven't. 

Mr. Henderson. Would it be 100?, 

Mr. Rogers. Oh, I would say mote than that. More than that. 
For instance, last year we sold over $5,000,000 of land in Iowa alone. 
We had four sales executives, a farm sales manager and three sales 
executives. The sales of those farms were made by real-estate 
brokers throughout that territory and that is a lot of farms to sell 
in a year. 

Mr. Henderson. Do you suppose you were the largest seller of 
farms in Iowa last year? 

Mr. Rogers. I think we were without question. We sold $11,- 


600,000 worth of land last year throughout different parts of the 
United States. Koughly, $5,500,000 of it was in Iowa. 

Senator King. Did you get cash for any considerable part of the 
land sold, or did you take mortgages? 

Mr. Rogers. We sold a great lot of it on contract. 

Mr. Gesell. Might I say we are coming to the sales procedure, 
Senator King, in a moment. 

Is the company lending at the present time on farms ? 

Mr. Rogers. Yes ; our loans in 1939 were $12,000,000. 

Mr. Gesell. You made $12,000,000 of loans when? 

Mr. Rogers. In 1939. 

Mr. Gesell. How many did you make in 1938? 

Mr. Rogers. $8,900,000. 

The Chairman. Do you refer to these as new loans — ^that is to say, 
loans which had never before been made ? 

Mr. Rogers. That is right. 

The Chairman. This figure did not include any refinancing? 

Mr. Rogers. Well, it might have included a few Federal land-bank 

The Chairman. I mean refinancing of Metropolitan loans. 

Mr. Rogers. No. 

Mr. Gesell. No recasting of your own ? 

Mr. Rogers. The figure would be 17,000,000 if it included refinanc- 
ing of our own. We look upon the matter of what we call new loans 
as new money we pay out. 

The Chairman. New loans as to your company ? 

Mr. Rogers. As to our company, yes. 

Mr. Gesell. Now, may I ask you what type of loan — or what are 
your standards in loaning farm money at the present time ? 

Mr. Rogers. Well, I would say that our standards are very high. 

Mr. Gesell. I am sure you would. I meant more, what do you mean 
specifically, what do you look for specifically, when you loan? In 
other words, what kind of an individual will you loan to, up to what 
percentage of the land value will you loan on ? That is what I mean 
by standards. 

Mr. Rogers. We adhere quite largely to the better farm-land areas, 
for several reasons, and the maximum is approximately 50 percent of 
the value of the farm. 

The Chairman. Who fixes the value? 

Mr. Rogers. Our own organization — one of our own men. Our 
farm-loan men who must be trained appraisers. Then with a corre- 
spondent, of course, the correspondent's appraiser appraises. But 
where we have a correspondent we have a contract of guarantee to 
repurchase within 1 year if the loan for any reason is not satisfactory 
to us. We have a staff of reviewing appraisers and the reviewing 
appraisers review the loans made by the correspondent and also by 
our own branch offices to maintain an even standard and quality of 
loan throughout the organization. These reviewing appraisers are 
not permitted to be a part of any branch office. They are supposed to " 
be separate entities, and I usually have them come to the home office 
for a period of 30 to 60 days in the winter months in order that they 
will know f uljy our home-office views on lending. 


The Chairman. What are your home-ofl5ce views in aflSxing the 
appraised value of the property on which you loan ? 

Mr. Rogers. That is a rather difficult question, other than to say 

The Chairman (interposing). Yes; I realize it is not a thing you 
can answer specifically, perhaps. 

Mr. Rogers. In the first place, the farm must be a good farm, and in 
a community of good land values. The buildings must be in good 
condition. We will lend on farms without buildings, providing the 
amount loaned per acre is slightly lower, but we also require financial 
statements to avoid lending money to people who are already over 
their heads. 

The Chairman. Don't your appraisers carry some instructions from 
the company to guide them in fixing values ? 

Mr. Rogers. On that. Senator, an appraiser of lands is built up by 
experience and discussion and exchange of views over the years, and 
they do not carry instructions with them. ' They have very complete 
reports to fill out. I have two requirements which I have made; 
that they state the hour of the day at which the appraisal was made 
to avoid a fellow appraising a farm not at the proper time of day. 

Mr. GESEUi. You mean for instance midnight? 

Mr. Rogers. Midnight — or the man with a long drive ahead. I 
know from experience in the field there are times when a fellow 
gets very tired, that he can probably try to appraise a farm at dusk, 
which is just not proper, and I have sometimes required that he set 
out on a dotted line his path over the farm, his trip over that farm, 
to be sure of the appraisal. 

So we have with these trained appraisers men- that are selected 
because of their knowledge of land, and then with the reviewing ap- 
praisers, we have two men who are real experts go over the property, 
go over it entirely. With a branch office I realize if a man made a 
mistake, that the loan is made. Nevertheless, I know the man made 
a mistake. 

Mr. Gesell. I believe the Senator's question was. What are the 
standards for appraisal, not how do you check your own appraisers 
to see that they make the kind of appraisal that they should as 
professional men, but what are their standards? I take it, from 
what you say, that it is just a matter of the individual man's knowl- 
edge of the farm property. 

Mr, Rogers. Yes. A man is able to know land and report accurately 
on the contour, he must submit a plq.t showing the exact contour. 

The Chairman'. Do you want your, appraisers to try to determine 
what the value of the farm would be ? 

Mr. Rogers. Oh, yes. , 

The Chairman. What it would bring in the matket ? 

Mr. Rogers. Yes. 

The Chairman. Is that the principal factor in determining? 

Mr. Rogers. That is the principle factor in determining the loan 
and the recommendation of it, but he must report every detail re- 
garding that property, the condition of every building. '. 

Th3 Chairman. Of course, it is obvious that from a comparison 
of a great number of cases, you can judge whether an appraisal is 
out of line or not? 


Mr. RoGiKS. Yes. 

The Chairman. You can judge from the conditions in the par- 
ticular area, the county or the State, what value ought, approxi- 
mately, to be put on a particular type of farm ? 

Mr. Rogers. Yes. 

The Chairman. I was wondering if any instructions of any specific 
kind were given to the appraisers in reaching their figure which is 
reported to you, and then reviewed by the ofl&ce appraisers? 

Mr. Rogers. That, of course, is merely the education of the men 
over the years, and our report is extensive, as I say. If a man will 
give me an accurate plat and an accurate description of a farm 
•in any county in which we make loans, I can tell within a few dollars 
whether or not he is right, because we maintain that kind of infor- 
mation constantly. 

Senator King. I suppose the assessors of the respective counties — 
^nd they assess real estate, you know, for taxation — ^they have their 
values and those records are available to your organization if it is 
desired ? 

Mr. Rogers. The assessed valuation varies materially, and they are 
difficult to folldw. Our best information is the judgment of a com- 
petent man who has been oh the property. 

Now, in the past, since 1932, we have made approximately $25,000,- 
000 of loans, have had five foreclosures, and acquired one farm. 

Mr. Henderson. You mean on the new business? 

Mr. Rogers. On the new business ; yes. 

]\Ir! Henderson. Did I understand that you look into the financial 
ability of a armer as well as a farm itself ? 

Mr. RoGEi^ts. Indeed. 

Mr. Henderson. In other words, you are loaning on the farm and 
on the man also ? 

Mr. Rogers. Yes; we have a complete financial statement of the 
man. and that is sworn to. 

Mr. Gesell. Is that a pretty good, summary of what you take into 
account in the loan, reading from one of the memoranda from your 
files [reading] : 

Each loan to be qualified for approval must meet three basic requirements: 
The farm must be located in an approved lending territory; the borrower's 
financial condition must be satisfactory ; and the amount of the loan applied for 
must not exceed 50 percent of the value of the land without buildings. 

Mr. Rogers. Yes. 

Mr. Gesell. In the event an application meets these conditions the 
loan is then approved for submission to the real-estate committee. Is 
that an accurate summary? 

Mr. Rogers That is quite an accurate summary. 

Mr. Gesell. I am interested in these approved lending territories, 
Mr. Rogers. Of the loans that you have made in the last couple of 
years, in how many States have you loaned ? 

Mr. Rogers. In the last couple of years? I would have to count 
them up, but it would be over 20, 1 am quite sure. 

Mr. Gesell. You have loaned in over 20 States? 

Mr. Rogers. I am quite sure of that. 

Mr. Gesell. There are certain areas that you have withdrawn from, 
are there not? 


Mr. Rogers. Withdrawn from in a way, not entirely, but there are 
some territories where we are less active than we were in former years. 

Mr. Gesell. Now, I would like to discuss with jou for a moment the 
factors that have led to your decision not to contmue active lending in 
certain areas. For instance, you have pretty well withdrawn from 
California, have you not? 

Mr. Rogers. Yes. 

Mr. Gesell. What were the factors which led to your discontinuing 
loans in California ? 

Mr. Rogers. California is a long way from New York, for one 

Mr. Gesell. That is quite a statement, Mr. Rogers. That is the 
first time that I can recall that anyone from the Metropolitan has 
discussed this question of size. Now, I would like to elaborate on 

Mr. Rogers. Well, that area — Senator King is very familiar with 
it — is an area of highly specialized agriculture. In order for an 
insurance company — that is, at least, in order for a company like 
ours — to lend money at present-day rates of interest, we must be able 
to obtain a volume of loans of considerable size within a relatively 
small area. 

Mr. Gesell. You mean you have to keep your loans well knit 
so you can keep track of them. 

Mr. Rogers. Yes; to service them properly. To build a branch 
office to service loans and to make loans, I believe that $5,000,000 
would be the minimum, and $10,000,000 would be much more nearly 
the correct minimum. Now, to lend $10,000,000 oft the agricultural 
land in California and maintain an active oranch office — and, as I 
say, that is far away from headquarters, and with the competition 
that prevails, you must remember that the Federal land bank is the 
controlling institution in the farm mortgage field in America, and 
you also have other insurance companies in California — it would be 
difficult in that limited area to secure a large enough volume of loans 
to make it worth while. 

Mr. Gesell. What factors have come up to make that situation 
different than it was before? You see, what I am trying to get at 
is what the economic or social or any other kind of reasons are that 
prompt your leaving that territory. 

Mr. Rogers. Tt is insufficient volume. We started in that field, I 
think, in 1924. 

Mr. Gesell. It was as far away from the home office then as it is 

Mr. Rogers. Yes ; but you learn by experience. 

Mr. Gesell. That is another point I want to chec"k up. 

Mr. Henderson. What was the experience you had with Cali- 
fornia lands? 

Mr. Rogers. After several years we found we only had $4,000,000 of 
loans in force, and to maintain an organization to service $4,000,000 
of loans, and then with the depression which brought values down — 
remember, land values in the United States have shrunk from 
$66,000,000,000 to $34,000,000,000, which narrowed your credit basis. 
It meant that loans were smaller per acre than they had been, and 
as a result, it seemed impractical to try longer to support an organiza- 


tion in California. We acq^uired very few farms. I think now, for 
instance, we own 12 farms m California, maybe 13 or 14. I believe 
we own 9 in Utah, and wa have 3 or 4 uj) near Spokane, and we are 
trying to service that with one organization. 

Mr. Gesell. You are reading this map a little ahead of jne, Mr. 
Rogers. Let's talk about some of these areas a moment. You have 
withdrawn from Oregon, the same way you have from California, 
have you not? 

Mr. Rogers. Not exactly. We withdrew from the Willamette Val- 
ley in Oregon. We did not withdraw from the Palouse Country, as 
I call it. 

Mr. Gesell. That is the upper eastern central part? 

Mr. Rogers. Yes. 

Mr. Gesell." But you did withdraw from the west central part 
of the State. 

Mr. Rogers. Yes. , 

Mr. Gesell. Why was that? 

Mr. Rogers. Lack of volume. I think we had six little farms out 
there. We never had ^^er two hundred fifty to three hundred thou- 
sand dollars of loans. 

Mr. Gesell. And it was again the experience of recent years that 
has made you feel that that type of volume of loan cannot be so 
easily handled froni the home office? 

Mr. Rogers. No; it would be handled from Spokane- but at that, 
it is 250 or 300 miles from Spokane. 

Mr. Gesell. You loaned in a considerable portion of Utah at one 
time, did you not? 

Mr. Rogers. Not a considerable portion. Utah is a State of some 
irrigated land and a tremendous lot of ranch land. 

Mr. Gesell. But you did loan in Utah ? 

Mr. RoGi^is. We loaned in Utah, and I do not believe we ever 
had more than $300,000 loaned in Utah. It is not an easy State 
to get loans in. . 

Mr. Gesell. Are you loaning in Utah now? 

Mr. Rogers. No; we are not. 

Mr. Gesell. Why not? 

Mr. Rogers. Because of volume again. 

Mr. Gesell. Inability to place your money in a volume which leads 
to efficient management, is tnat a good summary of it? 

Mr. Rogers. That is true. The loans are small, and usually money 
is quite available through local sources in Utah, in that area that 
is desirable farm land. It is a beautifully. farmed area, most of it — 
Senator King knows that — the northern part is beautifully farmed. 

Mr. Gesell. Now, let's take some of the southeastern States, such 
as North and South Carolina, Alabama, and Georgia. You are 
loaning less in those States, are you not? 

Mr. Rogers. Yes. 

Mr. Gesell. What is the reason there? 

Mr. Rogers. There are two main reasons. South Carolina and 
Georgia and south Alabama coastal plains areas are areas of 
rather low land values. The loans there average small in size. The 
Farm Credit Administration will make loans in that area at, I 
believe, 4 percent interest. To make a group of loans that would 
average two thousand to three thousand dollars in size and obtain 
a rat« of interest that would enable you to service those loans and 


have a fair margin of return left is very difl&cult. The minute you 
go into an area with a higher rate than somebody else makes, you 
are going to the second type of loans. The one with the low 
rate is going to get the better type. We can go into Illinois where 
loans average $10,000 in size and we can compete with the Federal 
land banks today, but to go into North Carolina, for instance, with 
any volume and make an average loan of $2,500 — you can't service a 
$2,500 loan for less than $25 a year, and then you have to have a 
very high-type class of loan. 

The Chaibman. In other words, the small loan doesn't lend "itself 
to efficient management? 

Mr. Rogers. No; not when they are univers3,lly small. If you had 
a small loan in Illinois— of which we have a great many, but they 
are in with a large number which gives you an average size — then you 
can service them. 

The Chairman. What is the size of loan that appeals to your expe- 
rience as being the most profitable and most easily handled from the 
point of view of the lender? 

Mr. Rogers. I would say six thousand to eight thousand dollars 
average. That would be the average in the portfolio— six thousand 
to eight thousand dollars. 

The Chairman. Would it be correct to say that you are not particu- 
larly anxious to get the other loans unless they are in an area where 
they can be serviced easily? 

Mr. Rogers.. That is true. If it is a $20,000 farm and a man wants 
a $2,000 loan, you don't hesitate to make it by any means in an area 
where you probably have $10,000 loans on similar farms, and that d8es 

Mr. Gesell. Now, Mr. Rogers, may I ask you this side of it :«^re 
there areas in the United States where you think the areas are of recog- 
nized worth from the point of view of the company where it might 
loan in which you have not loaned ? 

Mr. Rogers. Indeed, I do. 

Mr. Gesell. Now, in a general way — ^I don't want you to give away 
«.ny trade secrets — but, in general, what States do those loans rest in? 

Mr. Rogers. One of the finest agricultural areas of America is in 
the Lancaster, Pa., community. 

Mr. Gesell. Have you loaned there? 

Mr. Rogers. No. 

Mr. Gesell. Why not? 

Mr. Rogers. The fellows there lend to each other. You haven't a 
chance and if an outsider goes in he takes what is left. 

Senator King. They have a great many rather wealthy agricul- 
turists there. 

Mr. Rogers. Yes ; th^j do. 

Senator King. Especially among the Pennsylvania Dutch, so-called. 

Mr. Rogers. That is right. 

Senator King. They are great farmers and thrifty and energetic 
and saving, and they can loan to themselves if they need to. 

Mr. Rogers. And they take the attitude of helpfulness. Their local 
organizations will help each other. I investigated the area and I 
decided definitely there was no place for us. 

Mr. Gesell. I take it you aren't coJTOiplaining about it. 

124491 — 41— pt. 28 18 


Mr. Rogers. No ; not in the least. 

Mr. Gesell. What about some other areas where the local folk aren't 
quite so cooperative ? What about Texas ? I notice you don't loan in 
Texas and I have always thought Texas had some pretty good farms. 

Mr. Rogers. Texas has some very excellent land. Texas is a little 
bit peculiar unto itself in this respect — that there is the black lands of 
Texas, some of the most fertile land in Texas ; then they have a large 
area which also is an excellent area. It is a deeded-land area where 
the loan probably would run low per acre, but nevertheless the sheep- 
and-cattle industry is a very sound industry on those cheaper lands. 

Mr. Gesell. Table 167 indicates that you haven't had loans in 
that State.^ What is the reason? 

Mr. Rogers. We have been trying for 2 years to find a satisfactory 
basis to go into the State, but, as I say, unless you have a $5,000,000 
volume of loaned money, how long is it goin^ to take you to build a 
$5,000,000 volume? That is the question with us, as far as Texas 
is concerned. 

Mr. Gesell. In other words, then, as a fellow gets to be a bigger 
and bigger farmer he has got to find areas in which he can put 
larger lumps of money to make it successful from his point of view ? 

Mr. Rogers. Yes; it is really a unit of operation. You have a 
manager, regardless of what the territory is, you have the manager's 
salary and office, and the clerical staff and the appraisal staff. When 
you are meeting the Federal land bank today with a Si^-percent 
rate, and you are going in to take only the first-class type of loan, 
you can allow about a quarter to a half of 1 percent for servicing 
and for obtaining the loans. You couldn't help but go in with a 
substantial loss, and it might continue for quite some period. 

The other possibility is through a correspondent arrangement, but 
the correspondent also looks at the same thing. He has to have a 
volume to support him. 

Mr. 'Gesell. Now, there are a lot of other States here shown on 
167 in which we have loans.^ I notice my home State, for example ; 
we have some pretty good farms Up in northern Connecticut. Is it 
again a question of volume there ? 

Mr. Rogers. It is again a question of volume. 

Mr, Gesell. Is that true in practically all the New England 
States, where you have not loaned, like New Hampshire, Maine, and 
Connecticut, and Vermont ? 

Mr. Rogers. I think I can answer that by a little illustration. 
The story is often told of a Kansas farmer who went into the New 
England States for a visit and was at a railroad station in Vermont 
when a Vermont farmer came up with a load of milk. They struck 
up a conversation. The Kansas farmer said, "Why don't you sell 
your farm and come out to Kansas, where the furrows are a mile 
long and it is easy to run a tractor, and so on, as against farming 
in the stony land you have up here?" 

The Vermont farmer answered and said, "Well, that may be all 
right, but you fellows out in Kansas don't pay the interest upon 
my mortgages very promptly." 

The facts are that mortgages made in the Midwest area and in 
the Southwest particularly were for years sold to individuals and 

^ See Hearings, Part 10-A, p. 167. 
» Ibid. 


to savings banks in the New England States. It was a sort of sur- 
plus fund. Therefore, for an insurance company to attempt to go 
into an area like that would be futile. Your expense would be fa^ 
in excess of anything that you would get. 

Mr. Henderson. Mr. Kogers, are there any States that have insur- 
ance laws which require a certain proportion of the income from 
policy loans to be invested in farm lands? 

Mr. Rogers. You are referring, I think, to the Robinson law of 
Texas, but I don't think that the way you have stated it is quite the 
way the law provides, but I don't believe I could do any better, Mr. 
Henderson. But there is some restriction in Texas, and that has been 
modified from time to time. There was a time when some of the 
companies questioned going into the State, but I am not familiar with 
that detail. 

Mr. Henderson. Are there any other States that have that as far 
as farm mortgage investments go? 

Mr. Rogers. Not that I know of. 

Mr. Henderson. It is more typical of types of investments other 
than farm mortgages. 

Mr. Rogers. I would have to limit myself to farm mortgages be- 
cause I do not know. 

Mr. Hayes. Mr. Rogers, I notice you have fairly substantial hold- 
ings in the State of Washington. Table 170 shows $1,593,000.1 Will 
you give the reasons for the investments there in such large amounts 
as against your pulling out of Oregon and the California neighbor- 

Mr. Rogers. Mr. Gesell has a map there that will show you whdre 
that very fertile, rich country is located. It is Walla Walla, Pendle- 
ton, and so on. That area is a very high-priced land area. It is 
very productive. It is very odd in its contour. It is a very high roll- 
ing country, but it produces wheat at 40 bushels per acre in won- 
derful shape. That area is very unusual in itself. Land values are 
high. Farms run rather large, and it has been an excellent country. 
It has suffered a little from the matter of restriction of the export 
ef wheat, as it used to ship its wheat west, and when it struck the 
proposition of having to send wheat east with a high freight rate 
and long railroad haul, that country had some difficulty. 

For illustration, we sold a single farm there very recently, for 
$94,500, with $50,000 cash. It is a wealthy country normally. 

Mr. Hates. One further bit of curiosity. I was wondering why 
you have only one mortgage in New York State ? 

Mr. Rogers. Well, that is quite a joke with us in New York. That 
mortgage stands on the books of the company at $800. [Laughter.] 

Mr. Henderson. Why don't you loan in New York? 

Mr. Rogers. The same reason as New England. There is very little 
outlet. An old country. With one third of the population in the 
Northeast, with surplus funds for lending, makes it difficult to make 
loans under such conditions. 

Until, I think, the depression of 1932, there were relatively very 
few loans. 

The^HAiRMAN. In other words, you are telling us, Mr. Rogers, that 
in New England and in New York, and that general area, the people 

I See Hearings, Part 10-A, p. 170. 


themselves have sufficient money to sustain whatever loaning program 
is necessary? 

Mr. Rogers. That is right. 

The Chairman. And institutional loans are not required there? 

Mr. Rogers. No ; they are not required. 

The Chairman. We would probably find that the Farm Credit 
Administration doesn't operate there as it does in other parts of the 
country. Is that true? 

Mr. Rogers. I think you would find that the Federal Land Bank 
of Springfield is among the smaller banks. Probably it has grown 
some since the depression, but if you were to go back prior to that 
time I think you would find that the Farm Credit Admmistration is 
not very active in that territory, and they came down quite a way, 
I think. 

Senator King. Domestic capital was available? Local companies? 

Mr. Rogers. Yes; an area of surplus funds. Savings banks — you 
will find a great many farms owned by savings banks in Vermont and 
New Hampshire, and I think probably in Maine. 

The Chairman. You say you will find a great many farms owned 
by those banks? 

Mr. Rogers. Middle-western farms, because they were sold mort- 
gages by middle- western companies. They had to have an outlet for 
their funds. 

The Chairman. And if we had a study made of the savings banks' 
investment in farms, is it your opinion that we would find substantially 
the same condition that has been revealed here, with respect to the 
increasing ownership of farms by the lender ? 

Mr. Rogers. I think you would find the ownership of more farms in 
New England savings banks at this time than has been the case prior 
to the depression, but to what extent. Senator, I would be unable to 

Mr. *Ge8ell. Are there some areas in the country which need farm 
mortgages in which you do not lend ? I mean States where the farm- 
ing community would like to have funds but you don't feel you should 
go in, for quite proper reasons I can see, with respect to securities and 
your adequacy in handling the problem ? 

Mr. Rogers. I would say the F. C. A. reaches into every nook and 
corner of the country, and when the Federal land banks make money 
available at 4 percent and 3i/^ percent interest on $1,000 and $2,000 
loans, that reasonable credit is being carried to every agricultural 
portion of this Nation. 

Mr. Gesell. There is no community that you feel is in need of your 

Mr. Rogers. In need of ours? 

Mr. Gesell. Yes. 

Mr. Rogers. Not necessarily ; no. There are communities in which 
we desire to have our funds, however. 

Mr. Gesell. Yes ; but I mean communities where you are not lending 
where you feel there is need for your funds ? 

Mr. Rogers. No; I should say that is right. 

Senator King. Perhaps it is not relevant, but have you ascertained 
the amount of loans made upon real estate, urban and suburban prop- 
erty, including farms, in the United States ? 


Mr. Rogers. No; I do not know, Senator. I could give you the 
estimate made of the farm-mortgage debt for the United States, 
which is $7,000,000,000. 

Senator King. Would the study which you made enable you to 
form any opinion as to the value of the property which is mortgaged 
to the extent of 7 billion plus? 

Mr. Rogers. No; I would not know that. I would say that the 
estimate of the value of farms today is slightly over $34,000,000,000. 
Therefore, the total mortgage debt is about 20 percent of the esti- 
mated value of farm real estate. 

Senator King. Have you any figures showing the number of farms 
that are free from obligations? 

Mr. Rogers. It is reported that approximately 62 percent of all 
farms of the United States are free of mortgages. 

Mr. Gesell. Are you able to loan as much money on farms as you 
want to loan? 

Mr. Rogers. No ; not now. 

Mr. Gesell. Do you have some kind of budget or kitty at the be- 
ginning of the year of how much money you want to get out on the 
farms ? 

Mr. Rogers. No ; we haven't. 

Mr. Gesell. The board of directors doesn't set aside any portion of 
funds and say, "Here is the money you should get out on the farms 
if you are able to do it with satisfactory security"? 

Mr. Rogers. No ; they usually say, "With our cash position, can you 
get out more ? 

Mr. Gesell. Have you any idea of what proportion of that cash 
position would be allocated to your particular department to get out ? 

Mr. Rogers. No. 

Mr. Gesell. If it were to be brought down to the amount that 
the management feels it should be in the interest of safety? 

Mr. Rogers. No; you see my department is unique. You men- 
tioned our being the largest landholder, and our landholdings are 
r . y 1.7 percent of the company's assets. 

Mr. Gesell. Yes, I realize that ; and the whole farm investment is 
only around 5 percent, isn't it? 

Mr. Rogers. I think less than 33/2 percent. 

Mr. Gesell. So you would like to get. out moi-e money in your 
farms than you are able to get? 

Mr. Rogers. Yes; we would. 

The Chairman. You spoke a minute ago of the extent of the Farm 
Credit Administration activities reaching every nook and cranny of 
the country, as I think you said. 

Mr. Rogers. Yes. 

The Chairman. At the same time, we have the picture of life 
insurance companies operating in some areas and not in others and of 
withdrawal from some areas. If the Farm Credit Administration 
were not operating, what would the source of credit be for farmers 
in the areas from which you have withdrawn ? 

Mr. Rogers. Well, that, of course, is very difficult, because the Farm 
Credit Administration has existed for over 20 years— that is, the Fed- 
eral land banks. Prior to the existence of the Federal land banks, in- 
dividuals and insurance companies were the two types of institutions. 


along with commercial banks, and savings banks, that held the larw 
part of the mortgage debt. You will notice today, after the depres- 
sion, after a really complete upset of the whole economic structure of 
farmmg, that individuals and commercial banks hold 50 percent of 
the mortgages today. They are larger lenders than the Federal land 
bank itself. ^ 

The Chairman. Did the app>earance of the Federal credit system 
have anything to do with the withdrawal of life insurance companies 
from the farm-mortgage field in any areas from which there was with- 
drawal ? 

Mr. EoGERS. I would say that in recent years, with a very low rate 
after the subsidized rate, that might have an effect. Prior to that time, 
there was not much difference between the rates. 

The Chairman. The subsidized rate, of course, was a result of the 
Mr. KoGERs. Yes. 

The Chairman. And was the desire on the part of the Congress to 
help keep the people on the land, I suppose. Well then, would you 
say that the rise of the Farm Credit Administration activity and the 
change in the aspect of vour farm portfolio was the result of the farm 
prgblem, the farm condition ? 

Mr. Rogers. I would say, to some degree as a result of farm prob- 
lems, but, you see, our peculiar position is that we started lending on 
farms just about the time the Farm Credit Administration started. 

The Chairman. I see. Well, now, you spoke of a minimum of 
$5,000,000 in the State of Texas as being a necessary minimum, you 
couldn't operate at a profit with a smaller account than that. I under- 
stood that was your explanation for not operating in Texas. Now, is 
that the minimum for all areas, or would you change your minimum 
according to the area ? 

Mr. Rogers. No; that would be the minimum that I would say in 
which we could maintain an organization to satisfactorily solicit and 
service farm loans. 

The Chairman. In how many places in the country do you have 
such organizations? 
Mr, Rogers. You mean organizations of our own branch offices ? 
The Chairman. That is right. 

Mr. Rogers. Our Fort Dodge office has about twelve to fourteen 
million dollars of Iowa loans it services. Our Cedar Rapids office 
has about four or five million. We are building thai: from scratch. 
Our Illinois branch office has eight million. Our Minnesota branch 
office has upward of three to four million, with a group of farms 
to service of some five million. Of course, that makes your volume 
come up as well. ■ Indiana, I can't say offhand. I. think we have now 
reached close to five million. For instance, in Nashville, Tenn., we 
extended the territory of the branch office to take in a larger volume. 
We go into Kentucky from Nashville, Tenn. We go into Alabama 
and through that method we enlarge the scope of an organization. 
That is the basis. 

The Chairman. How many organizations of this kind do you have? 

Mr. Rogers. I think it is 10. 

The Chairman. You have 10 in the United States? 


Mr. KoGERS. Yes. 

The Chairman. Would it not be possible for you to operate through 
correspondents in areas in which you do not have a branch office and 
probably operate with a smaller volume? 

Mr. Rogers. If a satisfactory correspondent could be found. You 
see, the correspondent system largely failed because of the cost of 
servicing. When the depression came in 1930 or 1931 and from there 
on, it failed and it dropped to very low in 1932. They had guaran- 
teed to service the loans they had sold during the life of those loans. 

Mr. Gesell. Those must have been terrific guarantees as compared 
to what their financial standing was. 

Mr. Rogers. Well, yes ; they attempted to service and a great many 
of them stopped the business because they couldn't go on. Every 
one, and especially those particular types of brokers, lelt that condi- 
tions were only temporary, that they would return and that it would 
return to a profitable basis, but of course the foreclosure record simply 
dispelled that. 

The Chairman. Do you wish to leave the inference that you found 
it desirable to abandon the correspondent system and to adopt the 
branch-office organization, the branch-office system? 

Mr. Rogers. Not necessarily. When you take your management — 
I found it necessary to take the management into our own organiza- 
tion — when you have purchase money mortgages and contracts you 
really get right into the investment field, and if you have a corre- 
spondent in that same section, you have two organizations in there 
doing the same job. 

The Chairman. Does the farm-management phase of the business 
operate out of the branch office as well as the lending phase ? 

Mr. Rogers. Yes; they operate out of it. The branch office would 
have the two separate managers. 

The Chairman. Yes; I would imagine that. 

Mr. Rogers. I think there are some charts here that might help 
you a little bit on that situation. 

Senator King. For my own information, while the charts are 
being examined, perhaps the question I am about to ask was consid- 
ered by Mr. Wall yesterday — from 1936, as I read this table, the 
Federal land bank had mortgages nearly as great as the insurance 
companies and the commercial banks. 

Mr. Rogers. What year was that. Senator ? 

Senator King. 1936. I was wondering, it you assume that table is 
correct — and I assume it is — if that proportion would still exist; 
that is to say that the Federal land banks loaned practically 50 
percent of all of the loans made to farmers. 

Mr. Rogers. Senator, you s"-^. that brings us into the Emergency 
Farm Mortgage Act. Now, we go back prior to the Emergency Farm 
Mortgage Act, and we had this situation : The Federal land banks had, 
I think, $1,100,000,000. They had approximately 12 percent of the 
mortgage debt. The insurance companies had approximately 23 
percent of the mortgage debt. At the passing of the Emergency 
Farm Mortgage Act, the Federal land banks made 10 percent of the 


mortgages of the United States — that is, refinanced 10 percent of the 
entire (or close to that figure) farm-mortgage debt in 1 year. You 
see, $730,000j000— I think they followed the next year with $248,000,- 
000— and it is that emergency financing which gave the Federal land 
bank a large percentage. 

The CHAibMAN. This chart which you had distributed to members 
of the committee is a very interesting one, and I think it would be 
illuminating if you would discuss it briefly.^ I observe that from 
1918 to 1926, inclusive, when farm values were above 120 percent 
upon a 1912 or 1914 basis, 80 percent of 10,000 farm loans which were 
afterward foreclosed by Metropolitan were made. 

Mr. RoGEORS. Yes. 

The Chairman. And that these foreclosures of farms, at least of 
8,000 of them, took place during the years 1931 to 1936, inclusive, 
when farm values had dropped well below 90 percent, on the same 

Mr. Rogers. Yes, Senator; if you will observe^ the gradual de- 
crease in land values, you will observe that the farm prices, that is, 
the prices farmers paid and received, were well above the 1910-14 
base level, that we didn't have many foreclosures. When you hit that 
1929 crash, which was really a double crash as far as farmers were 
concerned — they had a set-back in '20 and '21 and '22, and our fore- 
closures were not great, but when we come to this second place where 
the prices that farmers received went way below the 1910-^4 level, 
then we had tremendous foreclosures. 

The Chairman. Now, it is very noticeable from this chart that 
the prices which the farmers received began to drop in 1929. There 
was a precipitous fall to a low level in 1933, and from there on the 
prices which the farmers received rose rather rapidly until in the 
latter part of 1934, the base line 100 percent, was exceeded, and 
the farmers continued to receive more than the 1912-14 averaare until 
late in 1937. 

Mr. Rogers. Yes. 

The Chairman. But while the prices were going up for the farmers, 
during the years 1933 to 1936, during those same years, the fore- 
closures were continuing? 

Mr. Rogers. Yes. Now, that is the thing that Dr. Murray spoke 
about a little yesterday. I have a chart that will show you why 
that was. 

The Chairman. Before you offer thaib other chart, I wonder if you 
wouldn't describe this a little bit more so we will have the story on 
one chart. 

Mr. Rogers. Senator, that trouble, or that rise in prices, was due 
to the fact that a severe drought struck the Middle West area, some 
of the finest lands in the country, in 1934, '35, and* '36, and as a result 
com went to $1 a bushel, and the areas which were fortunate enough 
to have crops ^ere receiving excellent income. 

The Chairman. Of course, if Secretary Wallace had a representa- 
tive on this committee, he would want to have something to say to 
that. Perhaps the Department of Agriculture had some credit for 
the increase in prices. 

1 See "Exhibit No. 2292," infra, p. 14965. 
» Ibid. 



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1910-14 AVERAGE = 100 PERCEN 
1910-14 AVERAGE = 100 PERCEN 
1912-14 AVERAGE: 100 PERCEN 
















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Mr. Rogers. Yes; they probably did. 

Senator King. They controlled the weather, probably. 

Mr. Hendebson. It is a fact that, independent of the reasons, there 
have been those periods in which the two lines, the prices paid by the 
farmers, and the prices received by the farmers, were tendmg to come 
together, and where you were getting an equilibrium. 

Mr. Rogers. The chart seems very definitely to show that. 

Mr. Hendekson. I am glad you brought it up, because I have a 
personal interest in this. I was attacked as a theorist for suggesting 
it some years ago. 

The Chairman. I thought you were going to suggest you had a 
farm somewhere. 

Mr. Henderson. Mr. Chairman, I have two farms somewhere. 

Senator King. You are a capitalist; you don't belong here. 

Mr. Rogers. I would like to have you take these maps 

Mr. Henderson (interposing). Mr. Chairman, the Senator can 
have either one of those farms at a considerable discount. 

Mr. Gesell. May I suggest in the interest of orderly procedure 
that we introduce this first chart before we go to the second. 

The Chairman. Mr. Gesell, you have taken the words out of my 

May I ask with respect to the first chart, what is the source of the 
figures from which the computation was made upon which the lines 
Mere drawn ?^ 

Mr. Rogers. They are Department of Agriculture figures, except- 
ing our own statement. I thought this area would show very clearly 
that this farm-mortgage trouble arose in this area here. 

The Chairman. Yes; but with respect to the figures themselves, 
the base 1910-14 average for prices paid by the farmers, that line is 
calculated upon Department of Agriculture figures-? 

Mr. Rogers. Yes. 

Mr. Gesell. It is really the same chart we put in yesterday, Sen- 

The Chairman. I didn't see it. It wasn't put in yesterday when 
I was here. 

Mr. Rogers. It is about the same, only that the prices or gross 
income received by the farmers was on this figure instead of this 
ratio relationship between prices received and prices paid. 

The Chairman. Yes. 

Mr. Rogers. I have lined the prices received and prices paid as a 
comparison, and the one thing further before we leave this chart 
which would accentuate this picture — you see, where the land-value 
line drops across the 1910 line, the Metropolitan foreclosed approxi- 
mately 10,000 farms. I think the real-estate number is 9,934 today, 
and we have some 100 loans in foreclosure. 

But 9,825 were made prior to 1929 — 175 were made in 1930 and 
1931, and then we own the one farm that was the result of a mortgage 
made since 1932 out of some $25,000,000 loaned. 

Our experience so bears out the economic effects of agriculture, 
that to have the portfolio of an institution simply follow your eco- 
nomic chart I thought would be an interesting thing to bring out. 

1 See "Exhibit Slo. 2292," supra, p. 14965. 

2 See "Exhlbjt No, 2271," supra, p. 14862, 

Exhibit No. 2293 

[Prepared by The Metropolitan Life Insurance Company] 


'934 1935 1936 1937 1938 1939 

NOBMAL »40.8I4.624 $43,491,014 " $44,347.4eO |4I,134,096 »3«l2»i2a4 »34,I0M77 

pnOOGMT »3M63.2eS |3S,8»4,9^^ $41,433^28 $44,931,»7e 147.807.327 $49,eM,ISe 

124491—40 (Face p. 14967) N«. 1 

■« 4 

Exhibit No. 2293-A 
[Prepared by The Metropolitan Life Insurance Company] 


•935 1936 1937 1938 1939 

_»iJit »40.e,-.«4 »4J,«,.0,« »4O4r,480 »4U34.0»» » 3«M^M $34,,02.«T7 

«OyC«r ,3,,„„,. ,3„„.,„ »4,.43,.4a» ,44.,3,..7. »47.,07.3a7 ,4,.«.,,« 

124491—40 (Face p. 14967) No. 

ISzHiBiT Na 2293-B 

(PrepEired by The Metropolitan Life Insuranoe Company] 

124491—40 (Pace p. 14967) No. 3 


The Chairman. It is very interesting. Let's give this exhibit a 

"Exhibit No. 2292," prepared by the Metropolitan Life Insurance 
Co., may be admitted. 

(The chart referred to was marked "Exhibit No. 2292" and appears 
on p. 14965.) 

Mr. Gesell. Can we submit at this time also, Senator, the map of 
the United States which has just been offered with the legends on 

The Chairman. By whom was this prepared? 

Mr. Gesell. Mr. Rogers prepared these. 

Mr. Rogers. Here are two more, the rise of commodity prices and 
paralleling it is one of the things that makes the Metropolitan the 
largest farmer in the United States. 

The Chapman. This chart may also be admitted as an exhibit, also 
prepared by the Metropolitan. 

(The maps referred to were marked "Exhibits Nos. 2293, 2293-A, 
and 2293-B and appear facing p. 14967.) 

Mr. Henderson. You followed my line of questioning Mr. Murray 
yesterday, I guess? 

Mr. Rooiais. Yes. 

Mr, Henderson. And I asked him rather facetiously who was go- 
ing to bail out the Government so far as its mortgages were con- 
cerned. It isn't such a facetious question when you get down to it. 
I asked him later, you probably remember, if the only way in which 
the farm mortgage debt could be paid is the same way any credit 
extension can be paid, that is, over a period of time, out of the net 

Mr. Rogers. Yes, you are exactly right. 

Mr. Henderson. Th^t is, j^^our larm debt assumes its proportions, 
either large or small, in relation to the ability of the farmer to make 
a living and to have s<imething in excess ? 

Mr. Rogers. That is correct, Mr. Henderson. 

Mr. Henderson. Sq you are inextricably tied up with the welfare 
of the farmers? 

Mr. Rogers. Yes, your farms must pay for themselves, there is no 
other way out of it. The farms must bail themselves out. If farms 
are carried b^ some individual at a price in excess of what they are 
justified, he is doing nothing but fooling himself. 

The Chahiman. Now, of course, it probably should A)e pointed out 
with respect to this latest chart that you have presented, the map of 
the United States, that this reflects only your experience.^ 

Mr. Rogers. Yes, it reflects only our experience, but I think. Sen- 

TherCHAiRMAN (interposing). For example, the drought area as 
set forth on this map is only that portion of the drought area in 
which you are operatmg? 

Mr. Rogers. Yes. 

The Chairman. It does not include those States nor does it under- 
take to reflect the condition in: those States in which you did not 
operate ? 

1 "Exhibit No. 2293-B," infra, facing p. 14967. 


Mr. BoGERS. No. Again I was endeavoring to show the effects 
of the 3 drought years following the 2 bad economic years which 
meant 5 years of failure precipitated on a very fine agricultural area, 
the results that would be experienced. 

The Chairman. This chart very eloquently points out that in those 
areas in which the drought was not effective, didn't exist, the rate of 
flow of foreclosures dropped sharply. 

Mr. Rogers. Yes. 

The Chairman. And that it was only in the drought areas that 
you were having your greatest difficulty and were compelled to fore- 

Mr. Rogers. Yes. 

The Chairman. In other words, during this period from 1934 to 
1939, in those area^ where normally they existed, the farmer was in 
a much better position and he was tending to prosper rather than 
the reverse. 

Mr. Rogers. Yes, and effects you see now after 2 years of good 
crops — that drought area hasn't fully recovered itself. Our peaK of 
ownership in that area was in December '39. 

Another interesting observation : We sold $2,400,000 of land in that 
yellow area, within the red lines, this year. In the 5 years, 1931-36, 
inclusive, we sold $1,600,000 in the full 5 years. 

The Chairman. Then you did not withdraw from the drought area. 

Mr. Rogers. No, that is a splendid farm area. Instead, we were 
inclined to go to the assistance of those people in such ways as we 

Now, that brings us straight on to our farm rehabilitation program 
or farm management. 

Mr. Gesell. May I suggest we go along back on this line of exami- 
nation a little? I have down here "farm rehabilitation program" on 
page 4 of my outline and I am on page 2, and there is quite a bit I 
think we ought to go into before we go much further with that. 

Unless the committee wishes Mr. Rogers can go over the general 
discussion, and we can come back to it specifically later on. 

The Chairman. We don't desire to interrupt the orderly progress 
of your examination. 

Mr. Hayes. May I have one question on this chart before you pro- 

Mr. Rogers, I would like to have your opinion on one fact that the 
first chart brings out rather sharply.^ You will note that the prices 
received by farmers took, as the chairman said, a precipitous drop 
from late 1929 to 1933. The drop was some 90 points as indicated on 
your chart.. The prices paid by farmers took also a large drop, but 
not quite so large. 

Mr. Rogers. Yes. 

Mr. Hayes. Whereas the value of land per acre had the least drop 
of all. Then, when prices dropped, though both prices received and 
prices paid revived rather substantially, the value per acre revived 
very, very slightly. 

Mr. Rogers. Yes. 

Mr. Hayes. Do you have any particular opinion as to the reason for 

See "Exhibit No. 2292," supra, p. 14965. 


Mr. Rogers. I have a chart that will demonstrate that for you if 
you would like to have it and there it is.^ I anticipated that question. 
I think these are simply roughly prepared for the purpose of illustra- 
tion only. 

To answer your question, you will notice the red line is that drought 
area. It was always the higher-priced land per acre, and it was higher 
in 1910 than the other area, and of course it was much higher in 1920, 
but for the first time in a period of 30 years the two lines have crossed. 

And then take your map. Foreclosures continued in that area, do 
you see? They were in economic distress for 5 years, although the 
price of corn went to $1 a bushel, the Illinois farmer was bailing him- 
self out and the Nebraska farmer was probably paying $1 a bushel to 
support a small herd of cattle to continue him through. 

The Chairman. This again reflects the drought? 

Mr. Rogers. Yes. I think that it is very interesting that that fine 
land, which had been for so many years the highest-priced land 
area — that the two lines have crossed. 

The Chairman. Yes; that is a very significant thing, it seems to 

Mr. Rogers. It was an unusual combination, of circumstances. 
Two years of those very low prices, and then followed by 3 years 
of drought, you see, meant 5 poor years in a fine agricultural area. 

The Chairman. If you have no objection we will enter this in 
the record. 

(The chart referred to was marked "Exhibit No. 2294" and appears 
on p. 14970.) 

Mr. Gesell. Mr. Rogers, coming back to the farm mortgages in 
your portfolio, are your interest rates on those mortgages different 
by States or localities? 

Mr. Rogers. To some degree. 

Mr. Gesell. Give us some idea of the difference, will you ? 

Mr. Rogers. The Midwest area has always been the lower-rate area. 

Mr. Gesell. What do you loan at there now ? 

Mr. Rogers. We are lending at 4 percent interest, and we are 
paying on a 10-year loan. The broker who turns the loan to us gets 
1 percent of the face of that loan. That is getting down pretty low. 

Mr. Gesell. What do you mean — pretty low from your point of 

Mr. Rogers. Yes; from our point of view. 

Mr. Gesell. What do you loan for .in the South, for example? 

Mr. Rogers. We lend at from 4 to 5 percent. The areas vary a 
trifle. ' 

Mr. Gesell. And what region do you loan at the highest interest 

Mr. Rogers. In the Memphis territory. 

Mr. Gesell. What is the rate there ? 

Mr. Rogers. Five percent. 

Mr. Gesell. May I ask you whether your rates of interest differ 
depending en the size of the mortgage ? 

Mr. Rogers. No. 

Mr. Gesell. That is the same all the way ? 

1 See "Exhibit No. 2294," infra, p. 14970. 


Mr. Rogers. Yes. I always say when you begin to classify your 
mortgages you are admitting a second-class mortgage, if you ^re going 
to take one at a higher rate. I think we, with our policyholders of 
small means, should confine ourselves to the very best. 

Representative Williams. Right in that connection, what, is your 
minimum? Have you a minimum below which you*will not go, in 
amount I mean? 

Mr, Rogers. No ; we do this ; we say when a loan goes below $2,000 
that because of the cost of the servicing a man should pay one-half of 
1 percent more per annum, but we do not stick rigidly to that rule, as 
we have mortgages, as we have said, as low as $600, as low as $500. In 
that connection, in some foreign countries the rate is one thing and 

Exhibit No. 2294 
[Prepared by The Metropolitan Life Insurance Company] 



V \ 













hb «cas SMom to oa. 3i . «» 


iy3l/3* - t«0,8l4.«4 
IV31/3S - *3,«1.0I« 
l?/Jl/36- 4«.3«7,4«0 
\Vi\m - «1. 134.097 
IV31/M - X.B^.» 
13/31/30 - 3*, 102,677 

•34 - U?.9«3,2« 

•38 - 47.e07.3J7 
■J» • 49.6SB.19S 



the servicing cost is added on. That is, the mortgage states so much 
interest rate and so much annual payment for servicing, but that has 
never been a custom here. 

Representative Williams. What is the range of your maturities ? 

Mr. Rogers. We take the attitude that the farmer should say. One 
man may wish a 10-year loan ; another man may wish a 20-year loan ; 
another may wish a 25-year loan. A man may have income from an 
estate, or he may have a farm that he is going to dispose of, and he may 
wish a 5-)^ ear loan. We let the farmer tell us what type of loai. he 
wishes and we endeavor to do our best to meet his needs. 

Mr, Gesell. Where do your needs and his wishes clash ? 

Mr. Rogers. There isn't really much reason for clash, unless he 
should want something like a 50-year loan, or something of that kind. 


Kepresentative Wiixiams. To what extremes do you go, from 1 year 
to 20, or 1 year to 30, 35? 

Mr. Rogers. We go up to 26 years, for the reason that on an amor- 
tized basis, to make a loan on an amortized basis, you can get to the 
point where the principal balances left is $300 or $500. We try not to 
get below a mimmum of from one thousand to $500 at the end of the 
term. You understand what I mean. Congressman Williams? And 
26 years has to date been our custom. We have some mortgages on an 
amortized basis that have been made for 34 and 35 years. 

Mr. Gesell. How many of your mortgages now would you say are 
secured by land which is not 50 percent of the mortgage but more ? In 
other words, you said you would loail on land up to 50 percent of the 

Mr. Rogers. You mean how many renewals and workout cases that 
we have worked along with that are now in excess of 50 percent? 

Mr. Gesell. Would your renewal and workout cases include all such 
mortgages, or would you have other mortgages on your books where 
the land value was greater than 50 percent of the mortgage ? 

Mr. Rogers. Not any other than the ones that were made prior to, 
let us say, 1932, where borrowers had not been able to reduce them, 
but we aim to have a 2 percent or 3 percent amortization each year, 
and the mortgages that have lived through this depression are a 
pretty sound group of mortgages. 

(Senator King assumed the chair.) 

Mr. Gesell. There are many in that group, then, where the land 
values now in your opinion are greater than 50 percent of the value ? 

Mr. Rogers. There are somej yes. 

Mr. Gesell. I was wondering how many there were? 

Mr. Rogers. I wouldn't be able to say. 

Mr. Gesell. Can you tell us how much of your portfolio is rep- 
resented by recast mortgages at the present time ? 

Mr. Rogers. That is renewals ahd loans that have been with us 
for years? 

Mr. Gesell. Yes; where the terms of the mortgage have been 
changed, making new mortgages. 

Mr. Rogers. I would say that $45,000,000 — now that is an estimate, 
but about $45,000,000 are the mortgages that have been renewed. 

Mr. Gesell. How many of your mortgages would you say are 
purchase-money mortgages ? 

Mr. Rogers. I cannot say. Had I known that you were going to 
request that figure I could have had it. 

Mr. Gesell. Can you give us any estimate of that ? 

Mr. Rogers. I wouldn't attempt to give you an estimate. It may 
be in that book; I am not sure. Very few of our purchase-money 
mortgages are in excess of ^0 percent. 

Mr. Gesell. How does that happen? You mean because you 
asked for such a large original cash payment on the sale of the 
property ? 

Mr. Rogers. No; we carry the sale on contract. We endeavor to 
carry the ;property sold on contract until 50 percent of the purchase 
price is paid. 

Mr. Gesell. Then you take your purchase-money mortgage ? 


Mr. RoGints. Yes. We hfl,ve some farmers — the thing in working 
with farm people is to work with them as nearly as you can, the way 
they wish to handle things. We have some farmers who don't want 
a mortgage; they want a contract. We have some contracts that 
are paid down to where there is no balance left, that iSj no. balance 
of book value. Let us take a farm that sold at a profit of $1,000, 
or $5,000 book value, and sold at $6,000. A man pays; we carry that 
on contract or on the books only at the balance of the original book 
value. For instance, if he paid down $1,000 we would reduce the 
book value from $5,000 to $4,000, but the farmer would owe $5,000. 
If he got down to the point where he had paid $5,000 in cash and we 
still held the contract, we would have no book value, yet we would 
have $1,000 balance of A contract. 

Mr. Gesell. How many cases of that kind are there ? 

Mr. Rogers. There aren't many, but there are a few, because they 
show the attitude of an individual farmer. That is .the thing I 
wanted to bring out. You can't set down rules on such matters. It 
makes no difference to us. We are rendering a service as well as 
lending money and whether a loan is made for 10 years or a contract 
sale is for 25 years, it means very little. It is a matter of book- 

Mr. Gesell. Does your company have any special reserves set 
aside for mortgages that may turn sour? 

Mr. Rogers. Not for mortgages; we have 25,000,000 set aside for 
real estate, and I am very hopeful that the farm-loan division will 
never call upon a dollar of that 25,000,000. 

Mr. Gesell. But I am talking now about reserves as against bad 

Mr. Rogers. No ; not as against bad mortgages, Mr. Gesell. There 
is a surplus of over 300 million, as you kno\/. 

Mr. Gesell. Yes; I know. We were talking about special ear- 
marked funds. We get talking about surpluses and no matter what 
question you raise, it is going to nip into that, and I wondered how 
much was allocated. 

Mr. Rogers. One table looked kind of bad to me and I figured out, 
excluding foreclosures and moratoriums, today, 0.35 of 1 percent of 
mortgages were in that particular category, and that would be four 
one-thousandths percent of the assets.^ 

Mr. Gesell. What category is that? 

Mr. Rogers. That is on one of the pages there. 

Mr. Geseix. Tell us what page it is. I notice on table 174 that 
20.6 percent of your mortgages were delinquent 3 months or more. 

Mr. Rogers. That is the one I had reference to. 

Mr. Gesell. What is wrong with that table! 

Mr. Rogers. Well, the table included cases in foreclosure and cases 
in moratorium. Now, of course, the 20 percent, that today is 10.8, 
but to get to this 4.38 you have here; then you turn to the page on 
the other side, the 4.38 figure, and you have in that category $3,111,000. 

Mr. Ge^fll. I have lost you entirely. What page are you on ? ^ 

Mr. Rt njERS. Page 173. 

Mr. '^i^sELL. Now, what is the 4.38 figure there? 

- -.^e Hearings, Part 10-A, p. 174. 
« Ibid., p. 173. 


Mr. BooEBS. The 4.38 figure is on your next page, 174, the top of 
the third last column. 

Mr. Gesell. We are talking about the percentage of mortages de? 
linquent 3 months or more ; it is 20.65 percent. What is wrong with 
that figure ? 

Mr. Rogers. Because it includes a lot of foreclosures and a lot of 
moratoriums, which are in the hands of the courts and which the 
company could have nothing to do with, as I say, another 4.38 percent 
or more. 

Acting Chairman E[i>fG. Three years or three months ? 

Mr. EooERS. Three years. You see. Senator Kling, we^work with 
these people when they are fair and reasonable. For instance, we 
have in that group, there was one loan now, where the principal was 
reduced from 20,000 to 7,000. 

Mr. Gesell. Look here on page 172 of "Exhibit No. 2250." It 
shows that you have 20.65 percent of your mortgages with interest 
delinquent 3 months or more. 

Mr. Rogers. Yes. 

Mr. Gesell. Now, the Prudential, just below you, shows only 6.9 
percent of its mortgages are delinquent. Isn't that some measure of 
the degree of delinquency which.exists in those two companies. 

Mr. Rogers. Turn to your next page, 173.^ 

Mr. Gesell. You mean the previous page ? 

Mr. Rogers. Yes. 

Mr. Gesell. And how much difference is there in amount? The 
same two figures. You mean, if experienced in size of the mort^ 
ga^ account, in terms of dollar figures it isn't as big a discrepancy 
as it appear* to be, expressed in percent ? 

Mr. Rogers. No; because your trouble comes out of those mort- 
gages made in your troubled period. The Prudential has more new 
mortgages. You are comparmg an experience with new mortgages 
against an experience with old mortgages. 

Mr. Henixerson. I think you are comparing mortgages. The table 
undertook to compare mortgages. 
- Mr. Rogers. But that is the fact. 

Acting Chairman King. Where you compare mortgages you may 
take into account the period in which they are delinquent, even 
though they are mortgages. 

Mr. Gesell. What you are trying to say is that the Prudential 
closes down on these things fast and hard as foreclosure, and you 
people are very lenient, is that what you are trying to get at? 

Mr. Rogers. No, sir; I am trying to say this: The Prudential had 
the $2,916^000 in the same classification as we have $3,111,000, which 
shows that both companies are working along with the old mort- 
gages, trying to help them, and about on an equal basis. 

Mr. Gesell. I know, but look at the difference in the account, 
Mr. Rogers. 

Mr. Rogers. But look at the difference in the increase. 

Mr. Gesell. Now, just a minute. I asked you to look at the dif- 
ference in the account. Let's do that first, and then we will look 
at what you want me to look at. On 161,^ look at the difference 

1 Ibid., p. 173. 
» Ibid., p. 161. 

124491t-41 — pt. 28 19 


in accounts. The Prudential carried $167,000,000 as against your 
70 million. 

Mr. Rogers. Yes. 

Mr. Gesell. Then this question of percentage begins to get im- 
portant, doesn't it, if you are considering mortgages as a group of 
mortgages ? 

Mr. Rogers. Not at all. Turn to page 161. 

Mr. Gesell. That is where I was. 

Mr. Rogers. You see the Metropolitan with 196 million; you see 
the Prudential in 1929 with 191 million. We are still working with 
those people, both companies on about the same basis. 

Mr. Gesell. Now, let me see. This is 3 months' delinquency. 

Mr. Rogers. Very good. 

Mr. Gesell. Now, you are going back 10 years to point out a simi- 
larity in the point of size of your mortgage account. I can't follow 
you on that. 

Dr. LuBiN. May I suggest turning to 182, where we have a table 
showing farm real estate owned, and despite the fact that the Pru- 
dential has loaned so much more on mortgages, its total ownership 
is only 48 million as compared to 86 million by Metropolitan.^ Does 
that mean, in effect, the Metropolitan has been harder on the farmer 
and taken over more real estate? 

Mr. Rogers. To get that picture you have to turn to 184.^ You 
can turn to the tables if you wish, but the real facts are that the 
volume of loans made prior to 1929 are our trouble cases, regardless 
of what company made them, and we are still working with those 
cases, many of them. As I say, today, after the moratorium is out; 
of the way, and after some foreclosures arc out of the way, the figures 
are really infinitesimal; but the Prudential foreclosed, as you say, 
105 million, and the Metropolitan foreclosed 99 million. Our experi- 
ences are almost identical, due to conditions. 

Dr. LuBiN. But you yourself pointed to 161 and showed that Pru- 
dential had $167,000,000 worth of mortgages as opposed to your 70 

Mr. Rogers. No, no ; 196 million. 

Dr. LuBiN. But I am talking about 1938. 

Mr. Gesell. We are talking about 3-month delinquencies in 1938, 
Mr. Rogers. ; 

Mr. Rogers. But what I say is, you are talking about new mortgages 
in contrast with old mortgages and are lumping them in together. 

Mr. Gesell. We are looking at the mortgage account. 

Mr. Rogers. All right, let's say this : In 1929, as I say, 9,825 of our 
foreclosures came out of that area. Now, you will find that the Pru- 
dential's real estate largely came out of the loans made in that area. 

Mr. Geseix. Let me ask you this, Mr. Rogers. If you had a choice 
of two mortgage portfolios, just had them sitting here, here is yours 
and here is the Prudential's, and yours is 20 percent delinquent 3 
months and theirs is 6.9 percent delinquent 3 months, which would 
you rather have ? I mean, in terms of appraising that point, it seems 
to me there is no question as to which company has the best perform- 

«lbM., p. 182. 
» Ibid., p. 184. 
• Ibid., p 161. 


Mr. Rogers. I can't see that. I think one acquires $107,000,000 of 

real estate and the other $100,000,000. What I say is that you cannot 

fairly compare a portfolio of new mortgages with a portfolio of olcj 

mortgages, and if you take our 1932 mortgages only and take Pruden- 

' tial's 1932 mortgages only, I think our experience would be similar. 

Mr. Pike. Mr. Rogers has a point ther^ which I don't think he has 
had the j)roper opportunity to finish bringing out. He has been cut off 
in the middle each time. It seems to me, if I understand him. Pru- 
dential has been going on taking new mortgages pretty regularly and 
now has a mortgage account only 20 percent less than it had in" 1929, 
so its present mortgage account of around 160 million is proba;bly com- 
posed of, say, half new mortgages and half old, whereas the Metro- 
politan has cut its mortgage account down from one-hundred-ninety- 
some million to 180 million during the period, which means that they 
haven't taken on many new ones, that its mortgage account is very 
much more weighted with old mortgages than the Prudential, so that 
its delinquencies largely represent those old mortgages. It seems to me 
to be not an entire explanation but something of a considerable expla- 
nation of the difference. 

Acting Chairman King. That was what I understood the situation 
to be, that your delinquencies related rather to that period when there 
were so many foreclosures and so much difficulty by reason of the de- 
pression, whereas the other mortgage company's portfolio contains 
largely new mortgages. 
: Mr. Rogers^ Yes; exactly. 

Acting Chairman Kjng. And, of course, you would have a larger 
delinquency in the old mortgages which were taken during tnat 
period of depression than you would a corresponding number of 
dollars of delinquencies with new mortgages? 

Mr. Rogers. Yes. If you took our new "mortgages, Senator King, 25 
million or thereabouts since 1932, and compared them with our older 
mortgages, why there would be no comparison at all. 

Mr. Henderson. But you would still have 20-percent delinquency. 
There is no challenge on that ? 
- Mr. Rogers. No challenge except 

Mr. Henderson (interposing) . What you are saying is an explana- 
tion rather than a challenge ? 

Mr. Rogers. That is true. 

Mr. Henderson. And from an income standpoint 

Mr. Rogers (interposing). Let's take the income table. Let's get 
into the interest-collected table. 

Mr. Kades. Mr. Rogers, before you do thatj isn't one of the explana- 
tions for the difference between tne Prudential and the Metropolitan 
the fact that you have shifted into« a farm-ownership status where 
the Prudential has not? 

Mr. Rogers. Well, there are two factors there. Of course, I do 
not know the Prudential portfolio ; that is one thing. I do know 
that this drought area that you have shown, where we were heavy and 
where it shows that crossing line, is the reason why sales have been 
slow in addition to our system of rehabilitating our properties. That 
makes our real -estate portfolio higher. 

Mr. Kades. Considerably higher, if you look at table 185.^ 

* See Hearings. Part 10-A, p. 186. 


Mr. Rogers. Yes. 

Mr. Kades. Metropolitan shows farm real estate sold in a percentage 
of 17 plus, whereas the Prudential is 58 plus. 

Mr. Rogers. Yes. 

Mr. BIades. So the Prudential has sold off its real estate and used 
the money to invest in farm mortgages. 

Mr. Rogers. You see, they have 31 million of purchase-money 
mortgages in this group of their portfolio today, maybe more. 

Mr. Kades. Does that mean that the real estate which the Pruden- 
tial has foreclosed is sold back on a purchase-money mortgage, 
whereas the real estate which the Mel^ropolitan has foreclosed is sold 
back on a contract basis ? 

Mr. Rogers. That to some extent is true, but the thing about it is 
that the Prudential has sold. I believe, $61,000,000 of real estate, and 
naturally a large number oi purchase-money mortgages would arise 
out of that volume of sales, whereas I think we have sold something 
like $25,000,000 of real estate today, and our contracts are something 
like $12,000,000. The difficulty, as I said, is that to compare new 
mortgages and old mortgages is a very difficult thing. 

Mr. Gesell. I think the comparision is quite apparent there on 
the schedule.^ 

Does tjiat complete your challenge of that figure, Mr. Rogers, 
which you offered here a moment ago? Have you anything else 
to say about that figure ? 

(The Chairman, Senator O'Mahoney resumed the chair.) 

Mr. Rogers. Only one, one figure, and then we will move on. 
Mr. Henderson, what did you ask? 

Mr. Henderson. I said, so far as delinquency goes, there is a de- 
cided difference between a mortgage account that is 20 percent 
delinquent and one which is 60.8 percent delinquent. 

Mr. Rogers. Let's return to that table, Mr. Henderson, that shows 
interest collected. 

Mr. Gesell. That is 179, isn't it? ^ 

Mr. Rogers. Yes. Now, you see, that table shows a consistent — 
not a consistent gain altogether, but it shows that old mortgages, 
many that have been delinquent, are gradually catching up. 

Mr. Gesell. Show me how that shows that. 

Mr. Rogers. All right; turn to 

Mr. Gesell (interposing). Now, wait a minute; you are talking 
about table 179. I wanted to see how that showed that. 

Mr. Rogers. You have to have the average rate of your portfolio. 
Turn to 163.^ You take all mortgages; 4.85 was the average rate, 
was it not, in '38? 

Mr. Gesell. Yes. 

Mr. Rogers. That shows 4.82 collected. Take '36 ; the average 

Mr. Gesell (interposing). 1938 shows the average for all mort- 
gages of Metropolitan as 4.85, and 4.91 collected on table 179. 

Mr. Rogers. 4.91, yes. In other words, the collections were greater 
than the contract rate. 

Now, in 1939 our figure of collection is 5.01 and our contract rate 
average dropped to 4.73. 

1 Ibid. 
~ » Ibid., p. 170. 
» Ibid., p. 163. 


Mr. Gesell. What you are showing by that is that you are com- 
ing up on delinquent interest. 

Mr. KoGERS. Because the men we have carried are gradually catch- 
ing up. Those are delinquent people we are ^working with and 
they are cooperating with us and they are gradually getting their 
loans into condition. For that reason the interest collected is in 
excess of the interest called for in the contract rate. 

The Chairman. In other words, delinquents are paying not only 
the current interest but some of the back interest, too ? 

Mr. Rogers. Yes. 

The Chairman. And that tends to accumulate the amount of 
interest you are collecting year by year? 

Mr. Rogers. Yes; but if we took and threw those poor fellows 
out, we would show a much better record on delinquency. I don't 
think that is fair. 

Mr. Gesell. Looking at it from another point of view, even with 
the delinquencies being paid up, you still have such a high per- 
centage of your portfolio delinquent. 

Mr. Rogers. That statement 

Mr. Gesell (interposing). That is the figure you were challenging 
a moment ago. 

Mr. Rogers. Table 174.^ Now, 1939 was 10 percent. 

Mr. Gesell. I think the fact you are going to 1939 figures is very 
interesting, Mr. Rogers. We were wondering what we were going 
to do about keeping this thing up to date. If you are going to argue 
on 1939 figures we want to get 1939 figures from the other people 

Mr. Rogers. My idea is to show these people are wotking out, are 
working along. You take table 175.^ It is difficult to take delin- 
quent interest and not compare with delinquent taxes. They are part 
of the delinquency. Let us say we followed the policy of telling 
a farmer he should pay his taxes, first of all, and then he should 
take care of his insurance and Federal money remaining, and he was 
having trouble, and that which remained would apply on interest, we 
would show a poor record on delinquency per loan. But say another 
company said, "All right, you pay your interest first and then find 
a way to pay taxes, or we will let it go." 

The Chairman, There are two other factors that probably would 
be reflected in that figure. One of those would be whether or not you 
made work-out agreements with your mortgagors. If you did, that 
would tend to increase the amount of delinquent interest, would it 

Mr. Rogers. That is right; yes. 

The Chairman. Then also whether or not you were undertaking 
to sell the real estate? 

Mr. Rogers. The sale won't account for it. 

The Chairman. Well, if you sold the real estate that would remove 
that interest. 

Mr. Rogers. Wipe it out. 

The Chairman. That charge would be wiped from your books 
altogether, would it not? 

1 See Hearings, Part 10-A, p. i74. 
» Ibid., p. 175. 


Mr. Rogers. Yes; that is true, but, Senator, you are very correct. 
Now, as to individual loans, as an illustration, we have one of 
$70,000— $71,000— in Illinois. That loan has never been fully in good 
standing' in 10 years, but that owner has paid everything she could pay 
and has accounted for all the money that she received. Now, within 
the last 30 days she has arranged to sell, I think, some 300 acres of an 
800-acre farm. Out of that she will pay all delinquent interest, 
she will reduce the principal of her loan and the renewal will be 
made at a lower amount per acre on some 500 acres that remain, 
and that person is in the clear. 

It takes time to work out these things, and if you will follow that 
chart, you can see that the farmers went through a terrific crash in 
this whole situation. 

Now, another one that is in there — I know so many of these cases 
personally because I give so much attention to them — there is one 
fellow that we found, I think it is 13 years that 'he has not had his 
loan actually in good standing at any one time, but he has paid every- 
thing he could pay, and within 60 days I expect to see him come 
through with a clean record. So many of these things should be 
analyzed on the basis of the facts that prevail. 

The Chairman. The table at page 176 would seem to indicate tKat 
the Metropolitan has a much larger number of work-out cases than 
any other company in the entire group.^ 

Mr. Gesell. Until you get down to Mutual. 

Mr. Rogers. I would say most of the insurance companies have 
been very considerate all the way through. We may have been a 
little more so, or we have been caught in more moratoriums, I think, 
because of our larger investment in Iowa, and moratoriums are in- 
cluded in there. That law was declared unconstitutional in 1939 and 
since that time a lot of these cases have worked out. Time is a great 
healer in financial troubles after a terrible economic collapse. 

Mr. Gesell. Now, let me ask you this, Mr. Rogers 

Mr. Rogers (interposing). We actually collected 4.91 in 1934; 5 
percent in 1935;. 5.87 m 1936; and in 1937^ 

Mr. Gesell (interposing). I don't think anybody knows what you 
are talking about until you tell what table you are talking about and 
what percentage you are trying to show. 

Mr. Rogers. Page 179.^ i ou see the default that occurred in 1932 

and 1933. We collected 3.05 percent qn our entire portfolio. That 

is interest actually received, dollars actually received. In 1933 it 

was 3.19; in 1934, 4.91; in 1935, 5 percent; and in 1936, 5.87; in 1937, 

4.82 ; in 1938, 4.91 ; and in 1939, 5.01. 

That is collected on the whole portfolio of mortgages outstanding, 
the entire group outstanding. 

Mr. Gesell. What was the point you wanted id make ? 

Mr. Rogers. I wanted to make the point that it shows that the in- 
terest on the whole portfolio collected, actual dollars collected, is 
higher thfin the contract rate in the whole portfolio, which would 
show the opposite as to delinquencies. 

Mr. Gesell. Show the opposite from what? 

^ See Hearings, Part 10-A. 
» Ibid. 


Mr. EooERS. The delinquent item, the money, the interest is being 
collected. The delinquent interest is being collected in those cases on 
the work-out. 

Mr. Gesell. In spite of the fact that the delinquent interest is 
being collected, you still have a very substantial part of your port 
folio delinquent. 
Mr. KoGERS. If you wish to state it on that basis. 
Mr. Gesell. What is the attitude of the company with respect to 
competition between various insurance companies for the same mort- 
gage or offering lower interest rate, or offering to refinance one of 
your mortgages at a lower rate ? In other words, rating of mortgages 
by other companies, what position do you take on that subject? 

Mr. Rogers. Well, we at one time endeavored to avoid what would 
seem to be raiding portfolios of other companies, but the mort- 
gage business is controlled by the country banks, the local real-estate 
dealers, and those people who act as mortgage brokers, and they are 
the ones who control their farmer clients, and they place the mortgages 
for their farmer clients with whomever they desire. 

That may mean that they would be placing mortgages with some 
insurance company and they control the business of one of our bor- 
rowers and a loan came up for renewal and it would be paid. There 
would be no question about it. 

Mr. Gesell. Do you go out after loans on other life insurance com- 
panies' books and offer lower rates? 

Mr. Rogers. We do not go out after loans on anybody's books for 
the reason that our contact is with the local country bank — the broker. 
He is the man who handles the clients in his own field. We couldn't 
hope or couldn't think of knowing all the farmers in the community. 
Our men have to cover a wide area. Our servicing cost and solicita- 
tion cost is very, very narrow. We do not do business direct with the 
farmer. He goes to his own broker and the broker turns the loan 
to us or to some other insurance company, or to the Farm Credit 
Administration as far as that is concerned. 

Mr. Gesell. By and large, have your interest rates been higher or 
lower than those of other insurance companies operating in the same 
territory as you do? 

Mr. Rogers. I would say about the same. There are times when it 
might be higher, but not very long. 

Mr. Gesell. And you make no effort, through your brokers or other- 
wise, to take loans from other insurance companies. Is that correct? 
Mr. Rogers. I would say that is correct, Mr. Gesell. I would say 
this : That if we have a broker who wants to place his loans with us 
and his farmer clients have loans with other insurance companies, we 
are going to consider the applications that that man submits to us, 
regardless of what insurance company or Farm Credit Administra- 
tion .or individual might hold that mortgage. That is the privilege 
of the broker and of the borrower himself. 

Mr, Gesell. Now, coming to this question of foreclosure, which we 
have been discussing some already, what type of mortgage would you 
foreclose ? 
Mr. Rogers. We would foreclose what we call a hopeless case. 
Mr. Gesell. When does a case become hopeless ? 


Mr. Rogers. Well, when a man is absolutely unable to pay. 
Mr. Gbsell. You have had one case of a man who has been unable 
to pay for 13 years. 

-Mr. Rogers. No he has been paying for 13 years, but he aever had 
every dollar of interest — that is, his loan was in default during that 
time, but he was accounting for every cent that he made. 

Mr. Geseill. What do you take into account when a man can pay 
nothing on his interest? 

Mr. Rogers. When a man is fully unable to pay and there is little 
likelihood of his ever being able to work out his situation. 

In that connection, Mr. Gesell, I made a spot check at one time, 
some years ago, of some 17,000,000 of our mortgages that had been 
foreclosed. I found that those men owed $3,000,000 of mortgages 
on other properties that they owned, but they owed $5,500,000 of 
outside debts, and, by and large, it is that outside indebtedness that 
caused a great many of the foreclosures. Now, if Ave had a borrower 
who owed us $10,000 and he owed scattered debts of $5,000, and they 
were coming in on him and pressing him and he was trying his 
best to pay somebody, and had a farm worth 12 or 14 thousand dollars 
or probably not over 10 or 11 thousand, he is under difficulties, and 
you can't expect him to. pay. 

Mr. Gesell. It is a matter of judgment in each individual case ? 
Mr. Rogers. Yes. 

Mr. Gesell. Who makes the judgment, the man on the sc^ne or is 
that made in the home office ? 
Mr. Rogers. Well, we go to great lengths on that. 
Mr. Gesell. Will you answer my question? Who makes the deci- 
sion ? 

Mr. Rogers. It is made in the home office upon recommendation of 
the man in the field. 

Mr. Gesell. Are those recommendations customarily followed? 
Mr. Rogers. Customarily followed. " 

I would like to explain that. We require in each case that a fore- 
closure is recommended that an extensive report be made showing 
the financial condition of the farmer and giving a history of his 
condition and of the reasons why he is unable to pay. Now, if the 
facts indicate there is a possibility, in our opinion, we write back for 
further information or insist that the man be given additional time. 
I recall an odd instance of one man,. where foreclosure was recom- 
mended with no default excepting principal, and I required that that 
farmer sign a statement that he had no opportunity of working 
out. Yet I discovered that he had become involved in some other 
transactions and that he was going to lose all of his property. Each 
case must be handled individually. 

Bear in mind that this depression that came on, came on not through 
the fault of an individual management. It came on through condi- 
tions beyond the control of any of these people. 

Mr. Gesell. Beyond the control of the farmer, you mean? 
Mr. Rogers. Yes. An economic collapse is beyond the control 
of the farmer. 

Mr. Gesell. Can I perhaps get somethmg out of you this way? 
Does the location of the mortgage make any difference in the fore- 
closure as to the type of underlying land or as to the general locality 
in which the mortgage rests? 


Mr. HoG£RS. No; I feel we are dealing with an individual. We 
must constantly keep in sight his welfare. 

Mr. Gesemj. Therefore, you foreclose just as little in the cases 
where you have low valued land, and your company is overloaned, 
as jou do in the best value territory ? 

Mr. Rogers. Yes. If there is any area where we have overloaned. 

Mr. Gesell. I thought we had a lot of testimony about that yes- 
'terday, that made it pretty apparent that all of the companies have 
gone m and overloaned in the southern part of Iowa. 

Mr. Rogers. You should have excluded our company because the 
counties that bothered Professor Murray do not bother us. 

Mr. Gesell. You don't feel you have overloaned any place, any 
time, under any circumstances? 

Mr. Rogers. I wouldn't say that was the case. We had a cor- 
respondent one time who sent in a few loans and we sent our in- 
spector down and on the arrival of our inspector he disappeared. 
There were some bad loans. 

Mr. Gesell. How was it your company escaped what we heard 
yesterday was the factor in alinost every other institutional lender 
that ever loaned on farms during this period — they overloaned? 
How did you people escape ? What was the sectet ? 

]!ifr. Rogers. Well, I think that would have to be subject to analy- 
sis. I could not answer for all the other insurance companies. 

Mr. Gesell. I am asking you only to answer for the Metropolitan 
as to why it was the only company; that had this unusual result in 
the loaning on farm property? 

Mr. Rogers. I womd not say that a single mistake had not been 
made, but I would — I think that is true in any business — ^but I 
would not agree that overlending was general upon the part of the 
Metropolitan in any community. 

Mr. CrESELL. How did it happen to escape ? 

Mr. Rogers. Well, I would say 

Mr. Gesell (interposing). Did you have better correspondents? 
Did you have a lifelong system? : Did you have a different manage- 
ment? Did you loan in different areas, or what? 

Mr. Rogers. I would say it was undoubtedly due to management. 

Mr. Gesell. You foreclosed quite a bit of property, didnx you ? 

Mr. Rogers. Yes, sir. 

Mr. Gesell. I have here a publication entitled "Memorandum to 
Financial Correspondents" from your farm division,* in which you 
say [reading] : 

In- principle, if the Joan was properly made, it should not default, although 

we will agree there are exceptions to this rule. Nevertheless, it is true that 

in the majority of -the cases the conditicms which are the cause of the bor- 

• rower's -trouble at this time prevailed to a degree at the time the loan was made. 

You have had troublesome mortgages, and that sentence suggests 
the possibility there was some overloaning or some errors made m the 
loaning of the money originally. 

Mr. Rogers. Yes, sir. I think it is very human to err, and I be- 
lieve you will find errors in every community, that we made loans 
but they would be individual. 


That memorandum, I think, should be put in the record in full 
rather than a single sentence. 

Mr. Gesell. I am talking about this sentence right now, Mr. 
Rogers. We have put in a great deal you have volunteered here. 
What about this— did you overloan on properties or not? 

Mf. Rogers. Well, I would say, no, other than an occasional 
exceptional instance. 

Mr. Gesell. And you think the reason your company escaped that 
was the quality of its management? ^ . 

Mr. Rogers. There was every eflfort made to avoid just the thing 
you are talking about. 

Mr. Gesell. How is it that other companies that must have had 
that same point of view in mind, how is it their policyholders were 
led into difficulties^ 

Mr. Rogers. I would rather they would state that. I would be 
surprised if you got the admission out of all of them which you infer. 
I think a lot of insurance companies you could say that is true. 
I would defend some of the other insurance companies on the very 
same thing and strongly defend them. 

Mr. Gesell. What was your attitude toward the reduction of in- 
terest during the troublesome period from 1930 to 1935 ? 

Mr. Rogers. Our policy was not to increase interest rates but to 
carry on the rates of the mortgages, with one exception, and that is 
this : That many of the correspondents had depended for years upon 
a cash commission, as explained by Professor Murray yesterday. 
I insisted, in the time of distress, that instead of those farmers pay- 
ing cash commissions, an extra quarter of 1 percent of the servicing 
fees should be added on, so that a rate might be raised from 
5 to 5^4- The farmer was not to pay a cash commission, and that 
one-quarter would go back to the correspondent. -We would pay it 
to the correspondent as a service fee rather than to have him coUect 
the 1 percent commission, or a II/2 percent cash commission, and 
guarantee to service the loan for 5 years or 10 years, because usually 
the cash commission collected is gone before the loan is fully serviced. 

The Chairman. What is your policy with respect to work-out 
cases ? - 

Mr. Rogers. Now work-out cases are carried along on the present 
mortgage. Sometimes they would run past due as to principal for a 
long period. 

Tne Chairman. Did you make any change in the mortgage or in 
the interest, in the principal, or in any of the factors ? 

Mr. Rogers. Not very often. 

The Chairman. Then what is a work-out case? 

Mr. Rogers. A work-out case is a man who has been unable to pay his 
interest, probably through some unusual circumstance, probably be- 
cause of bad economic conditions, such as prevailed in the Missouri 
Valley territory. You get all kinds and types of cases. 

The Chairman. When you are working out a case, do you make a 
new contract? 

Mr. Rogers. Not generally. We work along with the existing con- 
tract. We constantly call on the man. We have chattel mortgages. 


We have the assignment of rents. And we will go along with that 
man and work with him in that way. 

The Chairman. Would you permit a reduction in the amount of 
interest paid ? 

Mr. Rogers. In some cases, but not generally, because the rate was 
low in most all of them. 

The Chairman. Then a work-out case is just a case in which instead 
oi foreclosing, you are just going along and hoping to work it out in 
one way or another by assignment of the property, chattel mortgages, 
or things of that kind ? 

Mr. Rogers. Giving time. That is exactly right. 

The Chairman. Now, when you gave time, how would you give 

Mr. Rogers. Well, we would work along with a man. For instance, 
he is in default today. He has an annual crop. His business is on 
ah annual basis. We would take a chattel mortgage in some cases on 
his crops and after he had paid what he could pay we would work 
along with him on it until the next crop was harvested and we would 
then see what his situation was. 

The Chairman. Suppose his interest is due today and he can't meet 
it. What is your policy ? 

Mr. Rogers. You mean he has been in good standing heretofore ? 

The Chairman. Yes; his mortgage has been in good standing 
and the interest date comes and the mortgagor can't meet the interest. 

Mr. Rogers. We will get in touch w^th that man after a time, proba- 
bly at the end of 30 days, unless he comes in and makes a report. He 
may be sealing his corn with the Government. He may ha\p hogs to 
sell. He may have some reason why he wishes a delay. Wo endeavor 
to be very reasonable and very fair. If you have ever work ^d with 
farmers. Senator, you know that they, do have those problems. 

The Chairman. And they are usually pretty good pay if they 
can pay at all. 

Mr. Rogers. Yes; and good faith is the thing that we desire most 
of all. 

The Chairman. What I am getting at is, would you permit the 
payment of the interest to be postponed? You have given 30 days 
of grace. If the farmer satisfied you that perhaps in 3 or 4 months 
he could pay, would that be satisfactory ? 

Mr. Rogers. Yes; in the individual cases. Now, for instance, we 
will have loans in default over quite a period. If k man had no 
second-mortgage indebtedness, had no junior indebtedness, and was 
a perfectly fine fellow and had been fine with us, we would probably 
not ask that fellow for a chattel mortgage. 

The Chairman. What are the circumstances which would lead 
■"you to^begin foreclosure proceedings'? 

Mr. Rogers. Bad faith m one case, and inability, definite inability 
to pay; the borrower generally will admit his inability to pay when 
he nas reached that point. 

The Chairman. WTiich, from your point of view, as the head of 
this department, would be the better policy, to foreclose or to work 

Mr. Rogers. Work out. I think it is entirely wrong to promptly 
foreclose, unless there are certain circumstances that prevail that 


make it necessary ; then each man's individual case should be taken 
into consideration and thoroughly analyzed. 

The Chairman, Do vou want us to understand that your policy 
was not to foreclose unless it was absolutely necessary? 

Mr. Rogers. Absolutely. That is right, Senator. 

Mr. Gesell. Now, when asked you about interest, Mr. Rogers, 
I thought you were going to tell us you reduced interest. I take it 
you didn't. 

Mr. Rogers. No; we did not. 

Mr. Gesell. You actually increased it? 

Mr. Rogers. I explained that. 

Mr. Gesell. The explanation you gave was that it resulted in 
increase as far as the farmers are concerned. 

Mr. Rogers. And it reacted to his advantage, that he had no cash 
commission to pay. 

Mr. Gesell. Now, there was quite a demand from the farmers, 
was there not, for a decrease in the interest? 

Mr. Rogers. I do not say there was. I can see before you a letter 
of a correspondent. A correspondent always wants to decrease the 
interest and a correspondent wants to increase the amount. They 
were inclined to think you were too hard on them. The correspond- 
ent is the one who wants the cash commission. We found that was 
not a proper way. 

Mr. Gesell. You mean then that this demand which is apparent 
by the material that I have in front of me from the correspondent for 
a lower interest rate was prompted by the selfish interest of the coi"- 
respondent-and didn't reflect in any way the wishes of the farmer? 

Mr. Rogers. I would say that. 

Mr. Gesell. It is pretty hard for me to believe. 

Mr. Rogers. In general, 5 percent interest at that time was about 
as low a rate as mortgages have been made in, I suppose, 25 years. It 
is a low rate of interest today. Some of your Government agencies 
are getting higher rates. 

Mr. R^DERSON. Couldn't we get an answer, Mr. Rogers,, to the 
plain question Mr. Gesell asked ? He asked you whether or not this 
request. for lowered interest was dub to the selfish interests of the 
correspondents and not in any way to the farmers wanting a reduction 
in interest. Could you give an answer to that ? 

Mr. Rogers. Mr. Henderson, I could not give an answer to that. 

Mr. Henderson. Then I think, as a member of the committee sitting, 
I would prefer you to say that. 

Mr. Gesell. This letter from Mr. Lougee, who was your corre- 
spondent in Iowa, is dated August 24, 1931. He discusses several 
matters with respect to decline in crop prices and says [reading from 
"Exhibit No. 2296"] : 

We hear a great deal of complaint about the lending companies charging 5%% 
Interest under such conditions. There never was a time when the farmers needed 
consideration like right now. I wonder if your company has any thought of 
reducing the Interest rate to 5%. 

You replied to Mr. Lougee, in the second paragraph, or in your 
whole letter, as follows [reading from "Exhibit No. 2296-A"] : 

We are in receipt of your letter of August 24th in which you inquired if we 
have given thought to reducing the interest rate on ou. mortgages from 5%% to 
5%. We realize that any interest charge is diflJcult for some farmers to meet. . 


The difference, however, between 5% and 5%% is scarcely the determining factor 
as to a farmer's success. 

We have not given consideration to reducing the rate from 5^!% to 5% and 
in the event we admit the total inability of farmers to pay the chances are that 
we would decide to make no further farm mortgage iavestments. Probably we 
should come to this conclusion. We have, however, looked upon the present 
situation as more or less a temporary one and not as a complete condemnation 
of the desirability of farm investments. 5%% interest is a reasonable rate, 
although at times we appreciate it that a lot of farmers have been favored with 
a 5% rate. 

It seems to me that correspondence is pretty much in opposition to 
what you have said, because you have admitted there quite clearly 
that it would benefit the farmer to have a lower interest rate, that 
6 percent interest rates were being granted farmers and in addition 
we have the fact that your correspondent has said the farmers would 
like to have a 5 percent interest rate and think it would be desirable. 

Mr. Rogers. Well, Mr. Gesell, you are drawing the conclusion en- 
tirely upon the statement of one correspondent. 

Mr. Gesell. You mean one of the most prominent correspondents. 

Mr. EoGESS. Yes; but would it not be fair to take the reports of 
all correspondents and all branch offices and consider the field as a 
whole, rather than to have the opinion of one man whose livelihood 
depended upon the volume of loans he made, and so on, as the deter- 
mining factor? 

Mr. Gesell. Well, have you a tabulation there that will show what 
the attitude of each of your correspondents and managers was in Au- 
gust 1931 concerning the interest rate? 

Mr. BooERS. I have not ; but I would like to show you that the con- 
tract rate of the Metropolitan Life Insurance Co. all during that 
period was slightly below the contract rate of the great Federal land 
banks.: I do not believe that when a life-insurance company follows 
a procedure and a policy that a great governmental institution fol- 
lows that it is to be condemned because one letter from a person who 
has an ax to grind writes in on a question of interest rates. 

Mr. Gesell. Oh, I quite agree with you on that. 

Mr. Rogers. I would like to put that into the record. 

Mr. Gesell. Let's identify it and discuss it here a minute. I quite 
agree with you that no one should take one letter and use it as a basis 
for condemnation. There certainly was no condemnation in my ques- 
tion. I was simply asking you what your attitude was about the 
reduction of interest rates. 

The Chairman. May I interrupt y6u just a minute? This exhibit 
which you show, Mr. Rogers, represents what? 

Mr. Rogers. Mr. Gesell has made a statement that the company 
raised intei?est rates. 

Mr. Gesell. I beg your pardon. I didn't make that statement. 
You made it. 

Mr. Rogers. Pardon me. 

The Chairman. May I say, there is a fact here somewhere, and 
the fact cai'i be developed without argument on either side, so let's 
try to get the facts. 

Mr. Rogers. I think it is a very minor matter. Here is out of what 
the matter arises : In the period the farmers were having difficulty 
paying interest, the matter of renewal of loans came up, and of new 
loans as well, and th^ correspondents, particularly one correspondent. 



had always charged cash commissions, and those cash commissions 
were 1 to 1% percent. I insisted that instead of requiring the farmer 
to pay a cash commission, that an extra quarter should be put in the 
interest rate and the cash commission dispensed with during this 
period, that it was difficult for them to pay interest, and that applied 
in one territory. 

What I want to show by this chart is that the Metropolitan did not 
raise interest rates. It made that one little change in a certain area, 
which did not represent the area as a whole, but met the problem that 
prevailed in a particular situation, and I submit the chart to show 
that the company's interest rate was in keeping with the market. It 
was in keeping with the rates of the great governmental institutions, 
and that is my point of view on what — ; — 

Exhibit No. 2295 
[Prepared by The Metropolitan Life Insurance Company] 



J.o % - 

: ^^ 












The Chairman (interposing). This chart is entitled "Average Con- 
tract Rates of Interest on Farm Loans Outstanding." By whom was 
it prepared? 

Mr. Rogers. It was prepared in I^^ew Yock. I can't say — under my 

The Chairman. In yotir office? 

Mr. Rogers. Yes. The information of the Federal land bank was 
taken from Federal land bank' records and the information as to the 
Metropolitan rate was taken from Metropolitan records. 
^^""(The chart referred to was marked "Exhibit No. 2295" and appears 

The Chairman. But with respect to the Metropolitan rate, this 
chart shows that from 1928, that rate declined from what appears to be 
5.3 or 5.2l^ to something under 5 in 1938. Is that correct ? 

Mr. Rogers. That is correct. Senator. 

The Chairman. But that between 1928 and 1935, there was prac- 
tically no .change ? . 


Mr. Rogers. Yes; had there been a raise in interest rates, it would 
have been reflected in that figure, in that chart ; that line would show 
it, and what I am saying there is that the portfolio as a whole shows 
an even, consistent rate of interest in comparison with that of the rate 
of Federal agencies. 

The Chairman. But that there might have been some changes in 
an individual case ? 

Mr. Rogers. In an individual case and what I am saying is that 
that individual case could not be taken to be representative of the 

Mr. Gesell. Just on one point of this, you indicated that I had 
taken one letter and thrown it up here in your face, and it was indic- 
ative of the attitude of the field men. I have another letter from 
Mr. Lougee dated October 10, 1932, which is on a different subject. 
He says here [reading from "Exhibit No. 2296-B"] : 

I have submitted your two letters of September 26th to Mr. Green, to Henry 
Hall, to perhaps half a dozen of my field men. and sent a copy of your i)ersonal 
letter of September 26th, to Eldin, as you had requested me to do. 

Henry Hall wrote his reply to your question, a^d I am enclosing it herewith. 
I have just received Eldin's reply addressed to ' u, this morning. He did not 
touch upon the question of relief to the distr . . ded, but has dwelt at length 
upon our operations in the Sioux Falls oflSce. I am enclosing his letter. 

EJvery one of the field men with whom I have talked, and to whom I sub- 
mitted the question that you asked of me, has given to me the same answer 
without any suggestion from me as to what my answer to your question would 
be. The answer in every case has been to reduce the interest rate to a low 
rate, for a period of one year, letting each year take care of itself, suggesting 
that when prices have again become normal, and it is warranted, that we could 
require payment of the contract rate. 

I would like to offer this correspondence for the record. 

The Chairman. This correspondence is all from one person? 

Mr.' Geseix. It is correspondence between Mr. Rogers and Mr. 
Lougee, one of the farm correspondents. 

(The letters referred to were marked "Exhibits Nos. 2296, 2296-A, 
and 2296-B," and are included in the appendix on pp. 15516-15519.) 

Mr. Rogers. I would like to enter also with that the question of 
whether or not the policy pursued by the Metropolitan wasn't the 
same policy as tha,t pursued by the great Federal agencies until the 
passage of the Emergency Farm Mortgage Act. I think it is only 
fair to look at it in that way, to look at it in comparison, and the 
policies pursued by the lending agencies at the time. 

Mr. Gesell. Then your policy, I take it, was controlled entirely 
by what the Federal Government did and not based upon an individ- 
ual estimate, as to how the problem should be handled ? 

Mr. Rogers. Mr. Gesell, when you have 29,000,000 small policy- 
holders, largely small policyholders, you are not very anxious to go 
out and automatically reduce the income of the institution, in which 
those 29,000,000 people have an interest. Most of those people are 
people of small means. We have endeavored straight through to 
be fair to both sides, but we 

Mr. Gesell (interposing). It gets kind of complicated when the 
farmer is also the policyholder? 

Mr. Rogers. Well, yes; but 

The Chairman (interposing). Now, Mr. Gesell, that isn't fair. 
That is an argumentative statement by you, and the fact that some 


farmers may be holding j^olicies in a particular company doesn't 
justify the assumption that the farmers and the policyholders are the 

The Chairman. Let's not have an argument here between^ counsel 
and the witness. As I said a moment ago, there must be a fact. 
Now, let's get the fact and we can develop that without argumenta- 
tive questions, it seems to me, and I say that now to both sides. 

Mr. Geseix. I think, if I may be permitted, that in a company the 
size of the Metropolitan, with some 29,000,000 policyholders, that it is 
a rather difficult job to distinguish the people who are getting the 
benefit of the funds and the people who are paying the premiums in. 
I think the testimony would properly suggest that kind of a question. 

The Chairman. The question here is what has been the policy of this 
company with respect to the interest upon farm mortgages. Is that 

Mr. Rogers. Yes. 

The Chairman. And what the company did with respect to this in- 
terest during the particular period of time. Now, may I suggest, Mr. 
Rogers, that you tell us, and after you have told us what you have done, 
then jjerhaps we can develop it. VTI \t has been your attitude with 
respect to interest ? 

Mr. Rogers. Senator O'Mahoney, we did not raise interest except in 
the case I mentioned, eliminating cash commissions and adding in- 
terest in the f jrritory of this one man, and I made that chart to show 
if we raised .nterest rates that chart would sl\ow a raise of interest 
rates, would it not, the one I submitted to you ? ^ 

The Chairman. Then are you saying that interest rates were raised 
only in the area of this particular correspondent, Mr. Lougee? 

Mr. Rogers. For the purpose of doing away with the payment of 
cash commissions so that the actual net cost to the farmer meant no 
greater cost. 

The Chairman. Just how did that operate? How was k done? 

Mr. Rogers. With a 5-year loan, the rate of the existing mortgage, 
6 percent, Lougee collected, or the correspondent collected, a 1-percent 
cash commission normally for renewal of that loan. I insisted that 
farmers could not pay a cash commission under the circumstances 
that prevailed, that it was a penalty to them to require them to pay a 
1-percent commission, or any cash commission ; that it was far better 
to make that rate 5l^. 

The Chairman. In other words, you eliminated the l-percent com- 
mission that the farmer paid to the correspondent ? 

Mr. Rogers. Yes. 

The Chairman. But you placed a quarter percent interest addi- 
tion which the farmer paid to the company? 

Mr. Rogers. Yes ; and that went back to the correspondent in lieu 
of his servicing commission. 

The Chairman. So that the correspondent instead of getting 1 
percent from the farmers received a quarter of a percent, but through 
your company? 

1 See "Exhibit No. 2296," supra, p. 14986. 


Mr. Rogers. Yes. 

Mr. Kades. Isn't it a fact he received a quarter of a percent for 5 
years which means 1^/4 percent rather than a quarter of a percent.? 

Mr. Rogers. Yes ; that is very true. 

Mr. Kades. So the farmer paid more? 

Mr. Rogers. But he paid it over a longer period of years. 

The Chairman. The correspondent received l^^ percent rather 
than 1 percent? 

Mr. Rogers. Yes ; but he was delayed for 5 years getting it. 

The Chairman. He was paid over 5 years ? 

Mr. Rogers. That is right. 

The Chairman. So that the farmer, then, actually paid one-fourth 
of 1 percent more for 1 year; is that right? 

Mr. Rogers. He paid a quarter of 1 percent more over the extended 
5-year period. That is, he paid 1% by paying one-fourth each year, 
you see, as against laying out a full 1-percent cash. 

The Chairman. So that actually there was no reduction of the 
amount that the farmer paid? 

Mr. Rogers. No reduction ; it was just a deferred arrangement. 

The Chairman. An arrangement whereby the amount of commis- 
sion paid to the broker was given to him over a 5-year period instead 
of at onetime? 

Mr. Rogers. Yes, exactly right ; that is exactly right. It is a small 
item when we get down to it. 

The Chairman. Was there any other request to you or to your com- 
pany in this area to make an adjustment of interest rates downwg,rd 
to the farmer? 

Mr. RoGEbs. It would be very difficult to answer that on corre- 
spondence that is 9 years old. What I djd say was this, that we were 
reluctant about reducing the contract rate in mortgages that we held 
at that time. The letter that Mr. Gesell has read from Mr. Hall was 
a result of my having sent out a general letter to the entire territory 
asking for suggestions without reservations as to what was best to 
meet the adverse depression situation that prevailed. I wanted to get 
"Information from all territories. Mr. Gesell has taken the informa- 
tion from the one source, from Lougee, whereas the information came 
in from all of our representatives everywhere. 

The Chairman. What was the information that came in from all of 
your representatives ? 

Mr. Rogers. Of course, that again is 8 or 9 years old, and to remem- 
ber it is difficult, other than that the depression prevailed on every 
hand. Follow your chart,^ Senator, and see where your prices were. 
There was trouble in all areas. 

The Chairman. You have a genei'al idea what the report was? 

Mr. Rogers. I haven't now. As I say, it was 8 or 9 years ago. 

The Chairman. Was there any reduction of interest that you made 
to the farmer ? 

Mr. Rodgers. There was no other change. We went along. 

The Chairman. Was there any other concession you granted the 

1 See "Exhibit No. 2292," supra, p. 149fly5. 


Mr. Rogers. No; there was no concession other than the extension 
of time of payments of all kind, but we did not change 5-percent 

The Chairman. How much extension of time of payments was 
granted ? 

Mr. Rogers. That all depended upon the individual circumstance. 
That is the question that was brought up a while ago and was threshed 
out, that possibly we were more lenient than we should have been. 
I don't feel that we were. 

The Chairman. What was the maximum extension that was 
granted ? 

Mr. Rogers. That I can't say. We have some loans, as was 
pointed out, that were 3 years in default at one time. 

The Chairman. That are since working out ? 

Mr. Rogers. They are since working out. This much can be said, 
that no interest over 6 months past due was ever carried as an asset 
in the company. 

The Chairman. Would it be fair to say that 3 years represented 
the maximum of extension? 

Mr. Rogers. I would not say. I had one farmer who in the last 
30 days paid 4 years of delinquent interest at one time, paid it up 
entirely, and is in good standing. 

The Chairman. How long was he delinquent? 

Mr. Rogers. He was delinquent 4 years. 

Mr. Henderson. I suggest, Mr. Chairman, that the witness is using 
a single example, and has been most of the afternoon, in a manner 
in which he criticized Counsel Gesell. May I ask a question on the 
testimony ? 

The Chairman. Certainly. 

Mr. Henderson. In explanation of a question asked by Mr. Gesell, 
you spoke about the interest of 29,000,000 policyholders. He asked 
you whether or not the contract rate for policyholders was reduced 
m that period. 

Mr. Rogers. I do not know, Mr. Henderson. 

Mr. Henderson. May I ask you another question ? In that period, 
which is 9 years old, and you can't recall, would you agree that it 
is likely in that period of great depression that many farmers who 
had mortgages with; your company did request lower interest rates? 

Mr. Rogers. Oh, I wouldn't say that they didn't; no, indeed not. 

Mr. Henderson. Now, Mr. Chairman, the answer I' got was, "I 
wouldn't say they didn't." I asked you' a plain, straightforward 

Mr. Rogers. Mr. Henderson, I would have to have direct contact 
with the borrowers and with 26,000 loans to be handled. I can't go 
out and interview individual borrowers. 

Mr. Henderson. Mr. Chairman, I suggest he has not given me an 

The Chairman. What was the question? 

Mr. Henderson. I asked what I thought was a question within the 
realm of good feeling that you are suggesting. 

The Chairman. You are referring now to the chairman? 


Mr. Henderson. The chairman's suggestion to which I think we 
subscribe. I asked him whether or not m this period of the depression 
he recalls that many farmers with mortgages did request a reductio^i 
in interest rates. Now, if the witness wants to say that he can't recall, 
I will take that as an answer. 

Mr. Rogers. I am quite willing to sav that. I can't recall. 

Mr. Henderson. Then I will take tne same privilege which Vice 
Chairman Sumners took this morning when we had another expert 
on the stand and say that as a simple layman, familiar somewhat 
with the pressure for reduction of interest rates in that period, that 
many did. Can we go on ? 

Mr. Ghsell. I hope so. Mr. Rogers, what about scaling down? 
Did your company adopt the policy of scaling down mortgages? 

Mr. Rogers. If the mortgage was in excess of the value of the 
land, yes ; but we have few of such cases. 

Mr. Gesell. There was a great deal of scaling down by other lenders, 
was there not ? 

Mr. Rogers. That I cannot say. I do not know. 

Mr. Gesell. And I take it, except in a very occasional case, you did 
not scale down ? 

Mr. Rogers. I do not know what you would say as to occasional. 
We accepted payment of a great many loans wherein we waived the 
interest entirely. 

Mr. Gesell. What do you understand bv the term "scaling down" ? 

Mr. Rogers.. Scaling down the total indebtedness of the borrower, 
i assume. 

Mr. Gesell. Did you ever scale down the principal indebtedness 
at all? 

Mr. Rogers. I would say we accepted payment in some cases at less 
than the principal amount. Again we are talking about a good many 
years ago. Had I known a question of this type was to be asked I 
could have brought the record. 

Mr. Gesell. I^t's have that one right now. 

The Chairman. Let me interrupt. Here is a matter of general 
^policy which it strikes the chairman you must know, whether it was 
the policy of the Metropolitan to scale down or not. Now, there may 
have been individual cases in which you did, but how. about the 
general policy? 

Mr. Rogers. No ; because the value of the security was there ; and, 
again I repeat, the 29,000^000 policyholders were to be protected. 

The Chairman. That is a straight answer; the general policy was 
against scaling down? 

Mr. Rogers. Yes. 

The Chairman. Mr. Gesell, did you hear the answer to the question 
I asked? 

Mr. Gesell. No ; I did not. I take it you got the answer. 

The Chairman. I think so ; yes. 

Mr. Gesell. I just wanted to say that Mr. Rogers has several times 
now said that if he had only known what he was going to be asked we 
would have a different story here. I think the record should show that 
an invitation was offered to every Metropolitan executive who is to 
testify before this committee to come down and discuss the matter 


with US, and they did not come down, and I wrote a letter and I also 
had some telephone conversations; executives of other companies have 
been down in my office talking over these matters, and that has not 
been the case with the Metropolitan. We have offered them that 

Mr. John L. O'Brian (counsel. Metropolitan Life Insurance Co.). 
May I make a statement on that, Mr. Chairman? That seems to 
carry an imputation with it. 

The officers of the Metropolitan have at all times been ready to 
confer. The only suggestion that was ever made by the Metro- 

The Chairman (interposing). Now, that may be all 

Mr. O'Brian (interposing). There is an inaccurate statement re- 
flecting on the company. In the letter which Mr. Gesell wrote with 
respect to this witness, he said [reading] : 

We will not call for figures or detailed facts other than are contained in the 
investment analysis or which are of such general knowledge that Mr. Rogers 
will have no difficulty in recalling the same. In the main, we will be interested 
in discussing with Mr. Rogers his policies in the handling of the farm real estate 
and mortgage portfolio. 

The Chairman. The chairman was saying that with respect to this 
matter, it is very obvious that we could easily become bogged down 
in matters of little detail as to what was^ asked and what was meant, 
and the response that was given, and what this committee wanted, and 
what the S. E. C. wanted. I want to say that many of the persons 
and organizations which have been called before this committee have 
been misled into the belief, or have fallen into the erroneous assump- 
tion, that it was the purpose of the committee to find fault with, to 
make a case against, to make critical conclusions with respect to, the 
manner in which various persons and companies have operated. That 
has not been, so far as I know, the purpose of anybody on the com- 
mittee, and it has ncrt been the purpose of the S. E. C. ; am I not cor- 
rect in stating that ? 

Mr. Henderson. You certainly are, Mr. Chairman. 

The Chairman. The committee has been trying to develop funda- 
mental facts with respect to the entire economic system, and I beg the 
gentlemen to believe me when I say on behalf oi the committee that 
we are not seeking to cast any false implications upon management, 
nor are we trying to imply any criticism. The purpose of the whole 
story has been to develop the broad picture. Have I correctly stated 
the position of the S. E. C. ? 

Mr. Henderson. You certainly have, Mr. Chairman. 

The Chairman. And Mr. Gesell, that was your attitude? 

Mr. Gesell. That was my understanding of the matter. 

The Chairman. Now, of course, it is only natural that in pursuing 
an inquiry, the questioner and the witness are very likely to get into 
an argumentative frame of mind. I think we have avoided that to 
an extraordinary degree in this committee. There is only a disposition 
to develop what the facts are, and I am sure the witness need not take 
offense at the form in which a question is directed at him. I am sure 
it is not the intention of counsel to give offense in any of these 


How far from finished are you ? 

Mr, Gesell. We are a long way from finished. I think it might be 
a good time to adjourn and get a good start tomorrow. 

The Chairman. I think possibly it would be a good thing, but I did 
hope it wouldn't be necessary to hold a meeting on Saturday. I know 
that several members of the committee have spoken to me about that, 
not desiring a meeting on Saturday. Could we not go over until 
Monday ? 

Mr. Gesell. I believe we can. It might result in our having to 
hold hearings Friday of next week between the holiday and the week 

The Chairman. Let's make an effort then to carry the inquiry on 
next Monday with this new start, and with a better understanding of 
what we are trying to get at, and I say to the gentlemen representing 
the Metropolitan that neither the S. E. C. nor the committee is seeking 
to cast any slurs, let me say, upon youi" company. 

The committee will adjourn until 10 : 30 Monday morning. 

(Whereupon, at 4:45 p. nu, a recess was taken until Monday, Feb- 
,ruary 19, 1940, at 10: 30 a. m.) 


M01IX>AY, FEBKUABY 19, 1940 

United States Senate, 
Temporary National Economic CoMMrrrEB, 

Washington^ D. G. 

The committee met at 10:40 a. n)., pursuant to adjournment on 
Friday, February 16, 1940, in the Caucus Room, Senate Office Build- 
ing. Senatoc Joseph C. O'Mahoney, presiding. 

Present: Senators O'Mahoney (chairman). King, and White; Rep- 
resentative Sumners (vice chairman) ; Messrs. Henderson, Lubin, 
Pike, Kades, and Brackett. 

Present also : Senator Clyde L. Herring, of Iowa ; Representative 
Vincent F. Harrington, of Iowa ; Gerhard A. Gesell, special counsel ; 
Ernest Howe, chief financial adviser ; and Helmer Johnson, attorney. 
Securities and Exchange Commission. 

The Chairman. The committee will please come to order. 

N. Y. — Resumed 

Mr. Gesell. Now, Mr. Rogers, there are one or two matters I want 
to cover with you before we get to a discussion of the management 
of the Metropolitan's farm real-estate and rehabilitation program 
and some of those other matters we touched on last time. 

First of all, I want to ask you whether you are familiar with the 
provisions of the second Frazier-Lemke Act. 

Mr. Rogers. Yes. 

Mr. Gesell. That bill provided, did it not, that the farmer might 
under certain circumstances, enter into a composition or extension 
system whereby interest would be reduced to 1 percent? 

Mr. Rogers. Yes. 

Mr. Gesell. And then gradually increased to 5 over a period of 
years ? 

Mr. Rogers. That is correct, as I recall. 

Mr. Gesell. What was the attitude of the Metropolitan with re- 
spect to agreeing to such compositions under the act ? 

Mr. Rogers. We felt that where the security for our debt was 
there, in all respects, that we were duty bound to endeavor to 
recover for the benefit of our policyholders that which was rightfully 
theirs. The security for the whole debt was available, we believeo in 
all instances. 



Mr. Geseix. So that in no case did you consent to such a composi- 
tion; did I understand you correctly on that? 

Mr. Rogers. I would not say in no case, but it was our general 
policy not to consent to a composition. I would say this, that if in ^in 
individual instance it was definite that the policyholders were not pro- 
tected to the full extent, then we would have consented to a compo- 

Mr. Gesell. But you felt in all cases that your mortgages were 
sound, and that to in effect permit this interest reduction would be to 
lose security for the policyholder? 

Mr. Rogebs. Yes. Now in explanation, the largest number of 
Frazier-Lemke cases we had at any one time was 43, out of a mortgage 
portfolio of several thousand loans. We have, I think, only 12 today, 
and I think the total that was ever filed, the entire total was 77, so 
that the Frazier-Lemke Act, the second one, was an act that gave the 
farmer an opportunity to get all of his creditors together, and so fre- 
quently it was the subsequent creditors that wished protection, and in 
that way it really constituted a moratorium. 

Frankly, I have never been opposed to the second Frazier-Lemke 
Act, I think in times of distress, such as prevailed, that such legisla- 
tion is often very desirable. 

Mr. Gesell. Did you have many requests for compositions under the 
Frazier-Lemke Act? 

Mr. Rogers. Each case was a request. 

Mr. Gesell. You said you had 45 cases. Then you mean you had 
45 requests? 

Mr. Rogers. We had 77. 

Mr. Gesell. With respect to the Federal Farm Mortgage Corpora- 
tion bonds, did you acquire any of those bonds? 

Mr. Rogers. Oh, yes. 

Mr. Gesell. Have you in mind how. many of them you hold at the 
present time? 

Mr. Rogers. Not at the present time, I could not say, as they are 
handled by the Treasury Department. I could tell you, I believe, to 
the dollar how many bonds we accepted. 

Mr. Gesell. That would be fine. Let us have that figure. 

Mr. Rogers. We accepted — well, I would give it in two figures. 
Would round numbers satisfy ? 

Mr. Gesell. Certainly. 

Mr. Rogers. Ten million five hundred thousand in bonds. 

Mr. Gesell. That is bonds of the Federal Farm Mortgage Corpora- 
tion which you accepted at any time during the period ? 

Mr. Rogers. That was really in payment of the loans that the Farm 
Credit Administration took up from the company. The total amount 
of our mortgages that were refinanced by the Farm Credit Adminis- 
tration was $23,553,000. 

(Senator King assumed the chair.) 

Mr. Gesell. Under what circumstances, and for what types of mort- 
gage, did you take the bonds? 

Mr. Rogers. Well, we accepted the bonds in payment of any mort- 
gages. You see, the Federal Credit Administration or the Federal 
land bank refinanced anj farmer's indebtedness that desired it. Now, 
out of that group I believe that there were close to $5,000,000 of our 


farm mortgages that were in good standing as to payment of interest, 
principal, and taxes at the time they were taken over by the Farm 
Credit Administration. 

,: Mr. Gesbll. That was what I was trying to get at, get some idea 
of what bonds were for mortgages in good standing, well secured, 
and what percentage of bonds were for mortgages with which you, 
yourselves, were having some difficulty. I had in mind this letter 
'from Mr. Lougee, which indicated that you took those bonds only in 
cases where the mortgages which you had were in some difficulty. 
Referring to the first two niunbered paragraphs, you catch what I 
mean, I think. 

Mr. Rogers. That was an endeavor at first to retain these mort- 
gages that were in good standing, but we had to abandon that policy. 
We were unable to continue to hold even our very good mortgages, 
and out of th^$5,000,000, or thereabouts, of loans that were in good 
standing, and some of it right in the depth of the depression — well, 
I shoula say the 5,000,000 were in good standing, and out of the bal- 
ance were a large number of good mortgages that were excellent but 
temporarily in default. 

Mr. Gesell. Temporarily embarrassed? 

Mr. Rogers. Yes. 

Mr. Gesell. Let's see if I have the figures correctly. There were 
about 20,000,000 in all? 

Mr. Rogers. Twenty-three. 

Mr. Gesell. Of which five were 4®finitely good at the time they 
were taken over. 

Mr. Rogers. That is right. 

Mr. Gesell. And there were others in the remaining 18,000,000 
which were just temporarily embarrassed, and you believed would 
have co.nie out whole? 

Mr. Rogers. That is right, and occasionally a farmer would let his 
loan default because in most cases he might owe subsequent debt, and 
the Federal Credit Administration had a tremendous task at that 
time. They refinanced, or, let us say, they made, 10 percent of all the 
farm mortgages in the United States in a single year. Naturally, 
there were delays, and during a delay if a farmer realized that his 
loan was approved but it would be a mere matter of time until he 
would get his moneyj he frequently would let his interest default. 
Those cases would go in with the default cases. . 

Mr. Gesell. And these cases that went to the Farm Credit Admin- 
istration did result in some scaling down for the farmer, did they 
not ? 

Mr. Rogers. I think they did. 

Mr. Geseijl. He either got a reduction in interest or he got a mort- 
gage of longer term that was more satisfactory, taking the economic 
situation into account. 

Mr. Rogers. Yes, indeed. 

Mr. Gesell. So that along the line of some of the questions I was 
asking you last week on matters of interest reduction and scaling 
down 01 mortgages, to the extent that you took these bonds of the 
Farm Credit Administration you did ^ant benefits to the farmers. 

Mr. Rogers. Yes. We took this position, that'if we had a very well 
secured loan but a man had other indebtedness, had been caught, let 


US say, in some kind of a jam, that we should never stand in the way 
of a man benefiting himself by refinancing his debts unless we our- 
selves would do it, as it was unfair for us to say, "We have a fine 
mortgage and will stand pat, but you owe other debts which do not 
interest us." We say that everyone who had indebtedness subsequent 
to our mortgage, regardless of how good that mortgage may be, that 
man should be given the opportunity to refinance elsewhere. 

Mr. Gesell. And, of course, it was true that in this group of 
$23,000,000 of mortgages which were turned over to the Federal 
Farm Credit Administration there were some definitely bad mort- 
gages, delinquent mortgages, and to that extent you did get some real 
assistance from tl^e Administration? 
Mr. Rogers. Yes ; we got some real assistance. 
I wish to say this, that the Federal land banks did a wonderful 
job during that time considering the burden that was placed upon 
them, and there were cases wherein we felt it advisable to accept 
payment and waive all interest due, in a bad case, if we thought it 
was definitely bad. If we thought the policyholders would not have 
an opportunity to collect on those cases we would let them go, and I 
think in some cases we took less than the full amount of the principal, 
but I cannot recall that detail of several years ago. 

Mr. Gesell. On the question of moratorium legislation, what was 
the attitude of the company ? Did it oppose moratorium legislation, 
or was it neutral, or what position did it take? 

Mr. Rogers. We took a neutral position. We never opposed mora- 
torium legislation. We might, on an individual case where bad 
faith seemed to exist on the part of a farmer borrower, oppose him 
in that type of case, but in the majority of the moratorium cases we 
went right along with those people. 

Mr. Gesell. I think perhaps you misunderstood, if I may inter- 
rupt. I asked with respect to the enactment of the legislation. You 

were discussingj after the legislation was in effect 

Mr. Rogers (interposing). That is correct. 

Mr. Gesell. What your policy was. Now, with respect to the 
enactment of the legislation, 
Mr. Rogers. We never took any part in that at aU. 
Mr. Gesell. Did any association or organization of life-insurance 
companies of which your company is a member to your knowledge 
oppose moratorium legislation? 

Mr. Rogers. That I do not know, Mr. Gesell. You would have 
to ask those people. I do not know. I do not follow those things. 

Mr. Gesell. You have no knowledge of any activities of the Asso- 
ciation of Life Insurance Presidents in that regard ? 
Mr. Rogers. No. 

Mr. Gesell. Now, with respect to handling of cases after the mora- 
torium legislation was enacted — I interrupted you when you were 
about to tell us about that. 

Mr. Rogers. Well, what I was going to say was that we had a great 
many cases that ran under moratorium laws. Our policy of leniency, 
working with borrowers, left a great many of our cases subject to 
the provisions of the moratorium laws when they were passed. We 
worked along with those people and did everything we could to be 
helpful. We turned the work over to one man, an agricultural expert, 


to try and advise with these people in the operation of their farms. 
In some few cases, the moratorium saved the farms, but not in many 
cases. Another development was the fact that after the moratorium 
law of Iowa, particularly, was declared unconstitutional in 1939, com- 
promise arrangements were worked out in a very, very large per- 
centage of the cases. 

Mr. Gesell. Now, let me ask you this. When moratorium legis- 
lation was up for consideration, or a legislature was about to convene 
to consider legislation in aid of distressed farmers in a particular 
State, did that in any way affect the foreclosure policy of your com- 
pany in the farm field? 

Mr. Rogers. Well, I would say this, that if we had a number of 
cases that were definitely foreclosure cases that had no possibility of 
working out, we might say to our attorneys, "Well, it would be 
advisable to push those cases along." I think that might have been 
done, and I think it was perfectly proper to do it. 

Mr. Gesell. Yes; you mean that if you felt there was to be some 
type of legislation enacted, in anticipation of that you would trj 
to clean up all of the cases where you were sure no "work-out possi- 
bilities existed? 

Mr. Rogers. Yes. To illustrate: I made a spot-check, I believe I 
mentioned before, oi $17,000,000 of mortgages that were foreclosed. 
Those parties owed $3,000,000 on other land and they owed second 
mortgages and junior indebtedness of $5,500,000. In such circum- 
stances it was verv difficult for many of those people to work out, be- 
cause their seconaary indebtedness was probably equal to 50 percent 
in some instances of their first mortgage. 

Mr. Gesell. Is that the way that you determine whether* or not 
work-out possibilities existed, namely, to inquire into the whole debt 
picture of the farmer? 

Mr. Rogers. Indeed, in all instances. 

Mr. Gesell. It wasn't based simply on an analysis of the land and 
the particular mortgage you held, but his whole circumstances ? 

Mr. Rogers. His whole circumstances, because after all it is the 
man and the family that count. 

Mr. Gesell. Well, now, one other phase of this. Are you familiar 
with the Iowa Farm Debt Advisory Council And its activities? 

Mr. Rogers. Yes; indirectly of course. ' 

Mr. Gesell. What was the nature of the activities of the Iowa 
Farm Debt Advisory Council ? 

Mr. Rogers. It was to get the creditor and the debtor together for 
the purpose of diseussing the affairs of the farmer borrower, the 

Mr. Gesell. It was a plan, was it not, whereby the insurance com- 
pany would advise the council prior to foreclosure with a view to 
sitting down with the council and the farmer and considering mat- 
ters of debt adjustment? 

Mr. Rogers. Well, now, that is just slightly confused, I think. I 
cannot recall the details, excepting this, that we took the position 
that the farmer should ask for xjonsideration of his case before the 
debt adjustment committee, and that we were always happy in such 
circumstances to meet with him and with the debt-adjustment com- 


Mr. Gesell. The debt- adjustment committee, however, wanted you 
to notify them directly, did it not ? 

Mr. Rogers. I believe that is the case, but we felt that was terribly 
unfair to the farmer. We shouldn't notify them or haul him before 
a committee of others. He might much prefer to talk his situation 
over with us. We were always willing to listen to him, always 
willing to work with him. 

Mr. Gesell. Well, you felt it was unfair to notify this council 
before you foreclosed, do I understand you correctly in that? 

Mr. KoGERS. I didn't say exactly that. I said it was a matter for 
the farmer to go to the debt-adjustment committee, rather than for 
us to haul him before the debt-adjustment committee. 

Acting Chairman King. You didn't want to initiate the proceed- 
ings which would invoke the power of the adjustment committee. 

Mr. Rogers. No. 

Acting Chairman King. You wanted the farmer himself to do that. 

Mr. Rogers. That is right. Senator King. 

Mr. Gesell. The council felt pretty strongly, didn't it, that that 
approach to the matter was unsatisfactory from their point of view, 
since they felt many farmers considered their. cases hopeless and 
wouldn't seek the aid of any third party ? 

Mr. Rogers. There may have been some correspondence that had 
reference to that, but it has been so many years aga I do not recall 
the details of it, 

Mr. Gesell. Do you recall seeing that letter that I now show you ? 

Mr. Rogers. Yes; this is a letter addressed to Mr. Lincoln, then 
vice president and general counsel of the company.^ 

Mr. Gesell. That letter states the position of the council with re- 
spect to the position your company took on this matter, does it not? 

Mr. Rogers. I would have to read that letter rather carefully. I 
think Mr. Lincoln's reply stated our position. 

Mr. Geselu I have a letter of Mr. Lincoln's dated October 24, 
1934.^ Is that the one you refer to ? 

Mr. Rogers. That is the one. 

Acting Chairman King. You recognize the fact that there was this 
advisory committee created by the law of Iowa, and when you asked 
to participate in the proceedings for the purpose of adjusting all of 
the obligations, -^our organization did participate, directly or indi- 
rectly ? 

Mr. Rogers, o^ ~ itor King, I am not sure whether that was a law 
or whether it was a created bod v. Which would you say, Mr. Gesell? 

Senator Herring. It was m reated by law. I appointed the con- 
ciliation board as Governor 1> the eflfort to assist both the loaning 
companies and the farmers that were bein^ foreclosed. 

Mr. Gesell. This is the letter of Mr. Lincoln referred to, stating 
the position of the Metropolitan, is it not? 

Mr. Rogers. This is the letter ; yes. 

Mr. Gesell. I should like to offer this letter for the record. 

Acting Chairman King. It may be received. 

(The letter referred to was marked "Exhibit No. 2297" and is 
included in the appendix on p. 15519.) 

» See "Exhibit ^fo. 2298." appendix, p. 15520. 
» See "Kxhiblt No. 2297," appendix, p. 15r>19. 


Mr. Gesell. I should also like to offer for the record a letter 
from the Iowa Farm Debt Advisorj'^ Council which Mr. Rogers 
identified a moment ago. 

•Senator White. Is the one now being offered the one to which tJie 
J^incoln letter is the reply? 

Mr. Gesell. It is the reverse. The Iowa Council letter is the reply 
to Mr. Lincoln's letter. 

Acting Chairman King. It may be received. 

(The letter referred to was marked "Exhibit No. 2298" and is 
included in the appendix on p. 15520.) 

Mr. Gesell. That letter from the Iowa Council indicates that m.ost 
of the insurance companies took an attitude opposite from yours 
with respect to this matter of farm-debt adjustment, as far as ^his 
particular council was concerned.^ I wondered whether there were 
any other factors in your mind other than the fact that you thought 
it was unfair to the farmer to bring him before this council unless 
he was willing, which prompted your attitude in this connection. 

Mr. Rogers. Not that I recall at this time, as letters were fre- 
quently written to us by our correspondent that he had talked matters 
over with a farmer and the farmer preferred not to get others into 
his financial affairs. 

Mr. Gesell. Do I understand that the farmers didn't Want their 
matters brought before this council in cases that came to your atten- 
tion through correspondents? 

Mr. Rogers. I would say that some did not. Others did. We al- 
ways left it to the farmer. We thought it was his right and privilege. 

Acting Chairman King. It is a purely voluntary matter on the 
part of the farmer. If he wahted to accept the services of this ad- 
visory committee, it was all right with you. If he did not want to 
accept their interposition, that was a matter for him to determine? 

Mr. Rogers. Yes; that is right. 

Acting Chairman King. But yiou did not feel, as I undestood you 
tnat it was an obligation resting upon you or your company to insti- 
tute the proceedings under which he was to be brought before or 
under the jurisdiction of this advisory committee? 

Mr. Rogers. That is correct. 

Mr. Henderson. Mr. Rogers, you said, I believe, that there was no 
other reason why you had adopted the attitude you did. Was it that 
you believed a -move in Iowa would be a political move, the setting 
up of this council? 

Mr. Rogers. I don't recall anything of that kind. 

Mr. Henderson. Would this refresh your memory? 

I will make my question specific. Did you have a feeling that the 
program instituted out there was for political purjJoses and you had 
a general distrust of the people who were running it? 

Mr. Rogers. No ; that was not the case. I would not say that was a 
part of the reason, or that those in charge considered it desirable from 
a political standpoint that such committees be set up. I wouldn't 
say that I didn't have that feeling, though. 

Mr. Gesell. This note that is attached is written in your hand- 
writing, is it not? 

Mr. Rogers. Yes ; it is. 

1 See "Exhibit No. 2298," appendU; p. 16520. 


Mr. Gesell. And you say, "I believe politics prompts the program 
of Governor Herring on the foreclosure of mortgages. I know Bow- 
man and frankly doubt his sincerity." Mr. Bowman is evidently the 
man who signed the letter originally initiating the question as to 
whether or not there would be a cooperative move between ygur com- 
pany and the Iowa Farm Debt Advisory Council. I take it then you 
felt that this council wasn't prompted by the needs of the farmer in 
the locality, entirely — there were other factors involved? 

Mr. Rogers. I would say that it was prompted by the needs of the 
farmer, and I would say also that it was prompted by the desire of 
the men in control of the administration of the State of Iowa to have 
such legislation — or not legislation, but to have such committees 
set up. The thing about things of this kind is that, not being in a 
State you do not know thoroughly all that goes on. 

Mr. Henderson. In other words, it mignt be good public policy 
^nd good politics at the same time. 

Mr. Rogers. Indeed; yes, sir. 

Acting Chairman King. All political moves are not bad. 

Mr. Rogers. Indeed not. 

Acting Chairman King. Although some may be. 

Mr. Gesell. I was just tvondering, Mr. Rogers, whether the very 
fact that you weren't in the State and were somewhat removed from 
those problems led you to misjudge the efforts back of the formation 
of this particular organization? 

Mr. RoG? ds. That is a possibility. We endeavored to keep very 
fully infor.ned, but a single State is a large. area, and that which 
goes on within the State is difficult to know. 

Mr. Gesell. Now, coming to the question of the management of 
farms — first, there is one other question. Who has been your farm- 
mortgage correspondent in the States of Kansas and Oklahoma? 

Mr. Rogers. In the State of Kansas, the Central Trust Co., of 
Topeka, Kans. ; and in Oklahoma we had the Pioneer Mortgage Co. 
for many, many years, and then succeeding the Pioneer Mortgage 
Co. was the Central Mortgage Co. 

Mr. Gesell. The Central Mortgage Co. and the Central Trust Co. 
represented you from ^i on in Oklahoma and Kansas; is that cor- 

Mr. Rogers. The Central Mortgage Co. represented us in Oklahoma 
from the time that the Pioneer Mortgage Co. was unable to carry on. 
What happened there was that the executive vice president and the 
president of the Pioneer Mortgage Co. both died within a period of a 
year. Then it became necessary for us to find someone to take over 
the servicing of our Oklahoma mortgages at the time of severe 

In that connection, the Pioneer Mortgage Co. had some employees 
that were excellent men. We thourfit if we could get one of our 
existing correspondents to just add that State to their operations and 
take over some of these experienced people, that it would be the 
easiest way to handle the situation in the depth of a depression when 
conditions were very, very bad and experienced people were badly 

Mr. Gesell. So that you took the farm correspondent in Kansas, 
in whom you had confidence 


Mr. BooERS (interposing). That is right. 

Mr. Gesell. And he took over the business of the loan correspond- 
ent in Oklahoma, some of the personnel, and continued the operations 
in Oklahoma? 

Mr. Rogers. Yes; that is right. 

Mr. Gesell. Mr. Carroll B. Merriam was a director of the Metro- 
politan at that time, was he not? 

Mr. Rogers. The negotiations for the taking over of the Oklahoma 
operation were started before Mr. Merriam was a director. He was 
a member of the R. F. C. here in Washington, D. C. He had not 
been active in the Central Trust Co. for some time. His son, Jack 
Merriam, was the real mortgage executive in the Central Trust Co. 
at the time. 

Mr. Gesell. Then, do I understand you to say that he was a di- 
rector before the negotiations in Oklahoma were completed, but that 
• he was not when the negotiations started ? 

Mr. Rogers. That is exactly right. 

Mr. Gesell. And after the negotiations went through, Mr. Mer- 
riam was a director of the Metropolitan? 

Mr. Rogers. Yes ; at the time the negotiations were completed. 

Mr. Geseix. What was his connection with the farm correspondent, 
the Central Trust Co. ? He was a stockholder, was he not ? 

Mr. Rogers. He was a stockholder in the Central Trust Co., but 1 
do not recall his interest in Central Mortgage. 

Mr. Gesell. The Central Mortgage was owned by the Central 

Mr. Rogers. Yes. - 

Mr. Gesell. So, having a stbck interest in the parent, so to speak, 
he had an indirect interest in the subsidiary ? 

Mr.' Rogers. Yes; I suppose so. 

Mr. Gesell. And you say the companies were run by his son? 

Mr. Rogers. That is correct. 

Mr. Gesell. And then for a period of some years farm loans were 
made through these correspondents in Kansas and Oklahoma, were 
they not? 

Mr. Rogers. That is correct. 

Mr. Gesell. During the time that Mr. Merriam was a director of 
the Metropolitan ? 

Mr. Rogers. -That is right. 

Mr. Gesell. And, in addition, the farm correspondents handled the 
management of some farm property that had been taken over through 
foreclosure out in that area under an arrangement similar to that of 
other correspondents? 

Mr. Rogers. I will tell you how that worked out. At the time that 
the Central Mortgage Co. took over the handling of the Oklahoma 
loans they did not wish to handle the real estate — as I mentioned 
Friday, the mortgage loan correspondents were not very greatly 

So we set up our own organization to handle the management of the 
farms and put a Mr. R. E. Wilson in charge. In keeping with our 
extensive rehabilitation program, Mr. Wilson carried out and directed 


the rehabilitation of our Oklahoma properties, bringing them up to a 
high standard. After that difficult work was comjJleted and some of 
the farms had been sold, I saw that the expense of our supervision 
for the small number of farms in that State was very high. Then 1 
asked the Central Mortgage Co, if they would not take over tne super- 
vision of those farms on a fee basis. 

Now, out of 2,000 1'^ans, over 2,000 loans, in Oklahoma, our maximum 
ownership of properties was 88, and those properties were very small, 
ard, of coursej I spoke of the expense in supervising small loans, and 
that prevails m supervising small properties. 

Mr. Gesell. So that in that instance you decided it would be better 
for the farm correspondents to handle the management of the 
property ? 

Mr. Rogers. Yes : and they still handle it. 

Mr. Gesell. Mr. Merriam has resigned as a director, has he not? 

Mr. Rogers. So I understand. 

Mr. Gesell. When was his resignation — last year? 

Mr. Rogers. That I could not say, Mr. Gesell. 

Mr. Gesell. May we have that date for the record ? 

Mr. F. H. Ecker (chairman of the board, Metropolitan Life In- 
surance Co.). The exact date I do not know, but it was probably 
about the 1st of December of last year. 

Mr. Gesell. Then, for the period from 1934 to his resignation, the 
Central Trust Co. and the Oklahoma subsidiary were actively acting 
as farm correspondents, were they not ? 

Mr. Rogers. Yes ; the Central Trust Co. had acted for several years, 
I believe. 

Mr. Gesell. That was prior to the time Mr. Merriam became a 
director? They had a connection? 

Mr. Rogers. They had a connection ; yes. 

Mr. Gesell. Due to the troubles of the Oklahoma correspondents? 

Mr. Rogers. Yes. 

Mr. Gesell. Well, now, how many farms — once again may we have 
the figure for the record— does the Metropolitan manage ? 

Acting Chairman Kjng. Now ? 

Mr. Gesell. Yes. 

Mr. Rogers, Slightly over 7,000. I believe I gave the number as 
7,153. I believe nie number is actually 7,078, as of last week. 

Mr. Gesell. When you take over a farm through foreclosure, you 
have indicated you enter into an extensive rehabilitation program. 

Mr. Rogers. Yes. 

Mr. Gesell. Before I get to that, may I ask you geuerally what that 
averages per farm, and how much of the money goes to buildings and 
property, and how much of it goes to the land, so we can have some 
idea on an over-all basis how it works ? 

Mr. Rogers. That would be an impossible question to answer, for 
the reason that reclaiming land in many respects is giving aid to 
Nature. It is planting legume seed, soil-building crop seed, and it 
takes time to go around the farm with your soil-building crop seeds, 
but you will continue it. It is a part of regular maintenance. 

Mr. Gesell. Since it is a long-term program, it is hard for you to 
say, on the average, how much you put into the farm ? 


Mr. Rogers. Yes. I would say this: That to date we have spent 
from 8 million to 9 million dollars placing the buildings and fences 
on our farms in excellent condition. 

Mr. Gesell. If I may interrupt a moment, how much of it have 
you spent for this land rehabilitation, so we can get the figures offset 
against each other? 

Mr. Rogers. That would be difficult. You have legume seed run- 
ning into the millions of pounds. For instance, today we have on 
liand, off of our. own farms, enough crotalaria seed to be used in the 
South for the next 2 years, and lespedeza seed to be used in our 
Memphis branch office territory and Missouri territory that will last 
us 2 years. 

Mr. Henderson. What type of seed is that? 

Mr. Rogers. One type is crotolaria. It grows much like sweet 
clover. Governor Herring knows sweet clover, but it grows only in 
the South, in the Coastal Plain region. It will not produce seed 
much norih of Macon, Ga., and it will grow sometimes 6 feet high, 
and then we turn that into the soil, generally in a ver^ green state, 
and that adds tons and tons of fertility to the land. 

Mr. Gesell. How does it happen that you know the figure for 
what it costs to rehabilitate the. buildings and fences and don't know 
how much you put into the land? It would be the difference, 
wouldn't it, if you took your total rehabilitation expense ? 

Mr, Rogers. Because we look upon the building up of the land as 
an annual, regular maintenance expense, and we look upon the build- 
ing situation as a large outlay of money that will end once they are 

Mr. Geseil. And you can't tell us as of today, or to date, how 
much you have put mto the land? 

Mr. Rogers. No; I could not. It would run into thousands of 
dollars, of course. 

Mr. Gksell. 1 was trying to get some relation between how much 
went to buildings and fences and how much went to land. You 
can see my point. 

Mr. Rogers. Yes. For instance, commercial fertilizer is also an 
annual expense, I think our purchases of commercial fertilizer run 
from 100 to 125 thousand dollars a year. 

Mr. Gesell. If vou can't tell us that figure, will you describe 
your rehabilitation program for us in as short a time as you think 
Tidequately covers it? 

Mr. Rogers. Well, of course, rehabilitating farms is quite a heavy 
task. We have spent 8 to 9 million dollars on the buildings alone, 
but the farms have paid fer that expense; we have charged that 
against the annual income cif the farms, and in addition I think we 
have spent probably 2 piillion dollars for new buildings, maybe more, 
which were added to the capital account, were considered capital ex- 
penditure. I could show you more readily by a few pictures that 1 
have here. 

Acting Chairman King. That would take too long. Haven't you 
any idea as to the amount you have expended for the rehabilitation of 
the land in contradistinction to the rehabilitation of the buildings? 

Mr. Rogers. No. 

124491—41 — pt. 28 21 


Acting Chairman King. Would it be 50 percent as much? 

Mr. Rogers. If I were to make an estimate I would say the cost of 
the rehabilitation of the land would run about $300,000 a year. 

Acting Chairman King. $300,000 a year? 

Mr. Rogers. Yes; that would be my estimate. 

Acting Chairman King. Would that include the cost of all the 
fertilizer you had purchased? 

Mr. Rogers. Yes. 

Acting Chairman King. Would that be the cost of. operating the 
farms themselves? 

Mr. Rogers. No; that is just for the seed and for the fertilizer. 

Acting Chairman King. Then the cost of operating the farms 
would l^ something. 

Mr. Rogers. You mean the supervision of them? 

Acting Chairman King. Yes; operating them, plowing, i-eaping, 
and sowing. 

Mr. Rogers. We do not operate them. Senator. 

Acting Chairman King. You let your tenants do that ? 

Mr. I^GERS. All are on a tenant basis, with very few exceptions. 

(Senator O'Mahoney resumed the chair.) 

Mr. Gesell. To get some idea of your rehabilitation program, could 
you tell us generally after you get a farm what you do ? 

Mr. Rogers. Yes. After we acquire a farm we have one of our agri- 
cultural experts make a complete analysis of it. He makes out a com- 
plete report, an analysis of how the fields should be laid out, as to the 
buildings that should be repaired and the buildings that should be 
added. Sometimes building;s should be cut down in size; sometimes 
they should be moved to give a better appearance to the farmstead. 
That is all worked out as a complete program, and after the field repre- 
sentative, as we call him, has made his recommendation, then his super- 
vigor, the man that is over him, goes over all his plans. Tlien that plan 
is submitted to New York for approval, and, after approval, then we 
proteeed with two things. 

The plan of the farm or the field starts immediately. The rehabili- 
tation of the buildings we have to take more gradually, because we 
budget the amount that we are to spend on the buildings each year, 
and that is much in proportion to tne amount of work the men can 
handle. That, I believe, is the way that this is carried out. 

Mr. Gesell, What are your relations with the tenants ? Wliat type 
of agreement do you have with them? Do they pay you on a crop- 
share basis, or do they pay you a percentage of their earnings, or how 
does it work ? 

Mr. Rogers. They pay us on a crop-share basis for the main cash 
crops, and then they pay us cash rental for pasture land and hay- 
meadow land. 

Mr. Gesell. Then you must receive, in most instances, a considerable 
share of the crops of these farms each year. 

Mr. Rogers. We receive 

Mr. Gksell (interposing). How does it run, around 50 percent? 

Mr. Rogers. It depends upon the community. In Iowa 50 percent 
of the corn in most areas is the accepted standard ; in the South, one- 
fourth of the cotton ; in some areas 40 percent of the small grain ; other 
areas, one-third of the small grain; whatever is the custom of the 


The Chairman. Can that be handled profitably from the point of 
view of the Metropolitan ? 

Mr. Rogers. I would say so, Senator. You take in 1939 our income, 
rental income, was $5,000,000. In 1938 I think it was $4,500,000. In 
1937 I think $4,600,000. The lasc 4 years it has been running along 

The Chairman. In other words, for 4 years the rental income of the 
Metropolitan from farm tenants has been in excess of $4,000,000 
annually ? 

Mr, Rogers. Yes ; it averaged about $4,600,000. 

The Chairman. How does that compare with the interest income 
Avhich you wold have received had there been no foreclosures ? 

Mr. Rogers. Well, it would be lower, in view of the fact that we have 
spent so much money on rehabilitation. If that item were taken out, 
you see, the gross rental return in 1939 was 6.03. The taxes amount to 
approximately 1 percent. 

Now, after a farm is thoroughly rehabilitated, the annual mainte- 
nance item is very small. 

The Chairman. The rehabilitation cost would be amortized into 
the future. 

Mr. Rogers. Under the ordinary circumstances, but we do not. 

Mr. Gesell. Perhaps I can help by directing some questions fo the 
tables which show some figures on that. 

Mr. Rogers, you have "Exhibit No. 2250" in front of you, have you 
not? Is it not correct that table 188 shows the farm real estate net 
income or deficit of the companies — that the table shows for the 
period '32 through '38 your company made, above depreciation, 
$^,342,000 from its farm real estate? ^ ' 

Mr. Rogers. Yes; and included in that — that is, in addition 
thereto — ^all of the money that was expended on rehabilitation. 

Mr. Gesell. Yes. That is shown on table 191, isn't it, entitled 
"The farm real estate owned — General ledger account" ? - That table 
shows, does it not, that your book value of farm real estate as of 
December 31, 1938, is $83,290,000? 

Mr. Rogers. That is correct. 

Mr. Gesell. $76,812,000 of that is represented by the unpaid prin- 
cipal amount of the foreclosed mortgages; is that not correct? 

Mr. Rogers. Yes. 

Mr. Gesell. In other words, your farm real estate is carried at 
$6,478,000 — that is the difference — more than the amount of the un- 
paid principal of the amount of the mortgages foreclosed at the time 
the real estate was taken over? 

Mr. Rogers. Yes. 

The Chairman. Would you state that again? I didn't get it. 
My attention was diverted. 

Mr. Gesell. We are talking of table 191, and that table indicates 
that the Metropolitan's farm real estate account is carried at $6,478,- 
000 more than the unpaid principa,! of the mortgages foreclosed at 
the time the real estate was tak^ over. That is the difference 
between $76,812,000 

The Chairman (interposing) "Which is the unpaid principal 
amount of foreclosed mortgages, 

1 See Hearings, Part 10-A, p. 188. 
» IbW., p. 191. 


Mr. Gesell. And the $83,290,000 figure, which represents the value 
whicli is carried in the general ledger account. 

The Chaikman. The book value ; yes 

Mr. Gesell. The difference is $6,478,000, as Mr. Rogers testified. 
Stated in another way, Mr. Rogers, that means your book value is 
109.79 percent of the unpaid principal of the foreclosed mortgages. 

Mr. Rogers. Yes ; that is correct, and in explanation, $3,000,000 of 
that represented new buildings constructed upon farms where we 
believed that the book value was sufficiently low, or the real value of 
the property was sufficiently high, to justify considering those new 
buildings as a capital expenditure. 

The Chairman. In other words, the investment of the Metro- 
politan in rehabilitation or improvement is reflected in this figure. 

Mr. Rogers. Not the rehabilitation, only the new buildings. If 
we built a new house 

The Chairman (interposing). I used the word "rehabilitation" 
probably in too narrow a sense; in new construction and improve- 

Mr. Rogers. New buildings only. 

The Chairman. And what has been the valued of that? 

Mr. Rogers. $3,000,000. 

The Chairman. $3,000,000 have been expended in real-estate im- 
provements upon the buildings. 

The Vice Chairman. That is too narrow. Senator, if you will 
pardon me. The figure just given is with reference to new buildings, 
but it does not include the cost of improving the buildings and paint- 
ing them up and patching them up, and so forth. 

Mr. Gesell. It includes only a portion of the rehabilitation expense 
that has been capitalized. 

Mr. Rogers. And only a portion of the new buildings. 

The Vice Chairman. "Wait a minute — only a portion of the new 

Mr. Rogers. Judge Sumners, if we have a farm that we doubt if 
its real value is in excess of its book value, and we add a new barn to 
that farm, we charge that new barn to expense. 

The Vice Chairman. You don't charge it to that particular prop- 

Mr. Rogers. No ' we charge it to expense. 

Mr. Gesell. You don't capitalize that ? 

Mr. Rogers. We don't capitalize it. 

The Vice Chairman. Why don't you capitalize it? It is a part 
of your investment in that property, isn't it? 

Mr. Rogers. We don't, because we have our doubts as to the real 
value of the farm. 

The Chairman. As I understand your statement, it is simply 
this — that if the value of the farm in your judgment is not actually 
equal to the book value, then if you construct some building upon 
that farm, you do not add the cost of that construction to the book 
value, because it operates only to bring the real value up to the 
boot va'hie. 

Mr. Rogers. That is correct ; exactly. Senator. 

The Vice Chairman. Does the cost of improvement find its way 
into any other item than as an item of cost of that particular farm? 


Mr. Rogers. No; not in that particular case, Now, in the event 
we had a farm with a book value, let us say, of $10,000, and we be- 
lieved the real value of that property was $13,000, and we were con- 
structing a new barn costing $800, in that event we would increase 
the book value of that particular farm $800. 

The Vice Chairman. Let me ask you right at that point— ^I think 
we have got you there: At what book value are you carrying these 
farms that are not worth what you foreclosed them for? 

Mr. Rogers. Well, we are carrying some farms that are probably at 
this time not worth the full amount of the book value. They are 
few in number. What we look at is our farm real-estate portfolio 
as a whole. We have many farms, a great percentage, of them, that 
are worth much more than the book value. 

Now, if we have a farm that is injured to the extent of being worth 
materially less than its book value, we write that individual property 
down, but if we have a farm 

The Vice Chairman (interposing). You write it down. Then 
when you put a new building on it, why don't you write it up? 

Mr. Rogers. We have not followed that policy. 

The Vice Chairman. Suggest that to your management, will you? 

Mr. Gesell. Now, Mr. Rogers, in further reference to this ques- 
tion, am I correct in saying that most of these rehabilitation ex- 
penses that have been capitalized have been capitalized since 
January 1, 1932? I would assume that is correct, because your 
foreclosures took place mostly since then, and much of your expendi- 

i,^i\ Rogers. I would presume that that would be the case, since 

Mr. Gesell. It would be safer to say that probably 75 percent of 
these items capitalized have taken place since that time, 

Mr. Rogers. I believe it would. 

Mr. Gesell. Now, if you will turn 

The Vice Chairman (interposing). Let me ask another question. 
I can't get this clear. When you put these improvements on prop- 
erties that are not equal to their book valne, you are merely trying 
to pull up the real value to the book value 

Mr. Rogers. That is correct. 

The Vice Chairman. I can't understan-d why you don't put the 
book value of the farm at its real value ? 

Mr. Rogers. That was done, as I say, whenever there is any great 
difference. You may have a farm, let us say, that has a book value 
of $10,000, and you have an appraisal of, let us say, $9,400. The 
farm is being improved,^ the income from it is being improved, and in 
those cases we are not adjusting those small items. 

The Vice Chairman. Let me ask another question and maybe that 
will clear it up : How much is the expenditure cf the character which 
you have indicated that goes on these farms that are below book 
value, and with . reference to which you make no inclusion in this 
item of improvements ? 

Mr. Rogers. I would have to make an individual analysis of each 
property, I have no other way of doing it. 

The Chairman. By and large, what would be your opinion ? I 
should think that your answer, would depend .upon vour general 


knowledge as to what proportion of farms on which improvements 
had been made were actually below book value. 

Mr. Rogers. Senator, I couldn't give you an idea. That is very 
difficult in handling upward of $80,000,000 of real estate. 

The Chairman. Could you answer a question as to the whole port- 
folio? Is that above or below book value, or was it above or below 
book value when you began this program ? 

Mr. Rogers. Today we believe that our value, real value, is $5,000,000 
above our book value and that is arrived at by taking into account in- 
come and the intricate knowledge of these properties of the men who 
handle them. 

The Ch^mrman. All the work that you have done in rehabilitation 
and improvement has, of course, increased the value of these farms. 

Mr. Rogers. Yes ; greatly. 

The Chairman. All right; accepting the fact that the value now is 
so much greater than book value, what about the condition at the time 
you began? 

Mr. Rogers. Well, Senator O'Mahoney, you know it is very difficult 
to take a farm that has probably been worked hard by the owner, to 
try and save it, and he has not spent money on buildings at all ; k 
takes money to bring that farm back to its real value, and it is all done 
over a period of years. We are constantly working with them. 

The Chairman. I should think that it is perfectly obvious that in a 
depression, an agricultural depression particularly, many mortgaged 
farms would tend to depreciate because of just exactly the conditions 
t hat you now describe. 

Mr. Rogers. Yes. 

The Chairman. The farmers didn't have the money to keep them 
up and buildings began to run down, and so forth and so on, so that 
when you began this program of rehabilitation, it would appear to me, 
without any knowledge of the facts with respect to your farms but as 
a general rule probably there had been a considerable depreciation of 
actual value. 

Mr. Rogers. Yes ; there had been ; and, of course, with the program 
starting in 1932, and really being more active in 1933, during that time 
(he farms kept coming to us, you see. 

The Chairman. Now, you have actually by this policy greatly in- 
creased the value of these farms? 

Mr. Rogers. Greatly increased it.- 

The Chairman. And all I was trying to find out was how greatly 
have you increased it? 

Mr. Rogers. Because of the changing portfolio I would be unable to 
say. And another thing, you have a slight change in land value gen- 
erally over the country. We can see in different sections a gradual 
change in land values. For instance, land values, I believe, as indi- 
cated by the Department of Agriculture, have dropjoed slightly in 
the last 2 years — have gone off slightly in the last 2 years. 

Mr. Gesell. Mr. Rogers, I was just wondering whether you were 
quite correct in your statement to Senator O'Mahoney. The rehabili- 
tation expense to a large extent may have been simply money expended 
to bring the value of the land and property back to what they were at 
the time the original mortgage was made — isn't that correct — just 
because of this mining of the land and the deterioration that took place 
during this period of depression ? 


Mr. Rogers. Oh, we have gone 'way beyond that. We have some 
of these farms in finer condition than they have ever been in. For in- 
stance, in Minnesota our men made their crop rotations a little too 
short ; in other words, they placed so many legumes on those farms that 
we actually got them too fertile and have had to crop them more 

The Chairman. You have directed the farmer in these improved 
methods of agriculture, have you not? 

Mr. Rogers. Oh, yes ; and of course we furnish all the soil improve- 
ment crop seed. 

The Chairman. Do you have special experts whose duty it is to 
help the farmer with respect to how he shall control the crops? 

Mr. Rogers. That is correct, Senator. 

The Chairman. You teach him the improved methods of cultiva- 
tion, better methods of treating the soil? 

Mr. Rogers. Yes. 

The Chairman. Do you counsel with him with respect to the type 
and character and amount of crops which are planted ? 

Mr. Rogers. Yes, indeed. What we say is that each farm must have 
a certain percentage in soil improvement crops each year, and that 
is agreed upon with the tenant and he understands it, and I wish 
to say that tenants love the system, they love to have the improve- 
ments made on the farm and they work with us splendidly, 

The Chairman. Do you have any contractual arrangements with 
the tenants by which this program is carried out? 

Mr. Rogers. We have each field lettered. I wish I could show you 
one of those plans. 

The Chairman. I would like very much to see one. Perhaps I 
am anticipating some of your questions, Mr. Gesell, on that. 

Mr. Gesell. No, Senator; when you were out of the room Mr. 
Rogers offered those and Senator King felt that the time was too 
short, so we didn't get to them at that time. 

The Chairman. I see. 

Mr. Rogers. There are two types of farms. Now the one in green 
I believe is Montgomery County, Ky. 

The Chairman. The one before me is Montgomery County, Tenn.^ 

Mr. Rogers. Well then, it is Tennessee. The other one, and I think 
you should have it also. Senator, is a very high type Illinois farm. 
These are just the essentials, the bare essentials of the working plan. 
You see, each field is lettered. A, B, and C, and then if you turn 
to the next page, to the cropping program ^ 

The Chairman (interposing). Now we are referring to the Illinois 
farm. Each field is labeled by your manager. 

Mr. Rogers. That is the agreed plan of operation. 

The Chairman. Agreed to by whom, with whom? 

Mr. Rogers. It is worked out by our men and the tenant in making 
his lease agrees to operate in this way. 

Now turn to the next page, Senator, and that is the cropping pro- 
gram outlined for a period of years.^ 

The Chairman. The rotation chart ? 

Mr. Rogers. That is the rotation chart, you see. 

1 See "Exhibit No. 2299," appendix, p. 1552J^. 


The Chaibman. I see. Now this rotation chart is worked out in 
the case of corn for the years 1939, 1940, 1941, 1942, and 1943. 

Mr. Rogers. That is right. Each field has its rotation. 

The Chairman. In other words, here is the rotation for field A, 
and then in the next column the rotation for field B, then the rotation 
for field C,'for field D, for field E, for field F, for field G, and for 
field H. 

Mr. Rogers. Yes. 

The Chairman. All included in 320 acres? 

Mr. Rogers. That is correct. 

The Chairman. That is quite a detailed plan, isn't it, for the im- 
provement of agriculture on this farm ? 

Mr. Rogers. Yes; indeed. 

The Chairman. To what extent is the farmer consulted in the work- 
ing out of this plan? 

Mr. Rogers. Our own men usually work the plan -out, with, of coarse, 
the tenant who is on the property. The tenant is given, as a rule, an 
outline of this cropping system so that he knows what it is. Some of 
them have it up in their homes. The lease provides that each year 
these fields shall be planted to certain crops. 

The Chairman. In other words, you issue a lease to the tenant by 
which he agrees to follow the program of farming which is devised 
by your experts? 

Mr. Rogers. Yes; that is right, and they work together on ii. Now, 
there is a great elasticity in the use of crops. For instance, the one 
thing that we are interested in is that the soil-building crops, the 
legume seed on a certain area of the farm, is planted, and for the 
balance of the field whether he wished to put a field in corn or half in 
corn and half in potatoes, we are not particular about that; or if he 
wanted to use a small grain — wheat, barley, or rye — we meet his 
requests In that respect. 

The Chairman. What is the term of such a lease ? 

Mr. Rogers. Our leases are made on a 1-year basis. We have con- 
sidered longer-term leases, but we would have to include in them a 
cancelation right in the event of sale. 

The Chairman. You have a 1-year lease and a 5-year crop-control 
program ? 

Mr. Rogers. Yes; regardless of what tenant may remain on the 
property, the soil-building program continues. The operation of the 
farm continues in the regular way. 

The Chairman. You use the term soil building which brings to my 
mind the soil conservation. Do you cooperate with the Department of 
Agriculture in its soil-conservation programs? 

Mr. Rogers. You see, we are not permitted to go into the soil- 
conservation program. There is a limitation of $10,000 which practi- 
cally bars us, and our policy is to leave that to the tenant. If he wishes 
to go in, we work out a modification of this plan, but you can realize 
that practically all of the farms that wg have enter the soil-conservation 
program with little change because they have been on a soil-conserva- 
tion basis for many years. 

The Chairman. In other words, you don't have to do very much in 
bringing your farms up to the standard set by the Department of 
Mr. Rogers. No. 


The Chairman. If anything. 

Mr. Rogers. Seldom anything, if anything. I will give you an 
illustration where we arc having a little difficulty. In the State 
of Georgia we had 80 thousand acres go out of cultivation. We 
brought that back into cultivation by the use of large tractors and 
large tractor machinery, and then after we had it rehabilitated we put 
small homes up on it. A lot of those farms have been sold, but when 
the soil-conserving program goes back to any degree on a base acre- 
age principle, it catches those farms that were not in cultivation 
during the depth of the depression period, or parts of it. ; 

The Chairman. Do these leases contain any option to the tenant 
to purchase? 

Mr. Rogers. No; they do not. In the past 4 years 87.3 percent 
of all of our farms that have been sold have been sold back to 
farmers or men whose business is farming, and one out of eleven 
sales has been back to a former owner or a member of a former 
owner's family. 

The Chairman. What is the relationship, the ratio between those 
sales and the total number of farms which have been taken over? 

Mr. Rogers. The sales you mean to date? Eleven million six 
hundred thousand dollars of sales in '39 represented about 12 per- 
cent of all farms that we owned. 

The Chairman. I was asking you a few moments ago to compare 
the income of the company from the crop rents and whatever other 
income you derived under this prpgram with the income which 
had formerly been received from the same farms by way of interest. 

Mr. Rogers. To date it is lower because we have been in the process 
of rehabilitation. Now, that farm in Tennessee — the one with the 
green plat — we have had only 2 years.^ 

The Cjiairman. Would it be correct to infer it is lower only be- 
cause of the expense of rehabilitation? 

Mr, Rogers. I would like to answer that by saying that after 
our rehabilitation is completed, that is the rehabilitation of soil 
and rehabilitation of buildings, ^I believe that our income would 
be equal to or greater than the interest we are now receiving upon 
mortgages made on farms. 

The Chairman. And from the point of view of pure investment, 
for the benefit of the company and its policyholders, which, in your 
judgment now, if you have had experience enough to form a judg- 
ment, would be better, the farm mortgage plan wirfi paj^ment of 
interest and the retirement of the mortgages, or the tenant lease 
program with the income from crops? 

Mr. Rogers. I would say that in the end we would have to take 
into consideration the rise and fall* in land value and commodity 
"prices, but inasmuch as under the law we are to dispose of these 
properties as soon as we can dispose of them readily, we look en- 
tirely to the question of sale. 

The Chairman. Yes; I understand that, but the answer to my 
question is independent of that. Which would be in effect and in 
fact the better from an income point of view to the company ? 

Mr. Rogers. I believe the rehabilitated farm, would produce the 
better income by and large, from the experience we have had. 

> See "Exhibit No. 2299," Infra, p. 1552i. 


The Chairman. In other words, if the law did not require the sale 
of these properties eventually, the company would get a better in- 
come by holding them and following the tenant program? 

Mr. Rogers. Yes ; I feel quite certain of that. 

Mr. Gesell. And you believe an organization such as yours can, 
over such a broad range of the agricultural land, successfully and 
ably manage farm property? 

Mr. Rogers. Yes; I do. 

Mr. Gesell. You don't feel that the size of the job or your absence 
from the territory, or any of the other factors which prevail, make 
it impossible for you to do a good farm-managing job? 

Mr. Rogers. No; I do not, because of the fact of the ejxperience 
we have had. Take this year, I just received a report on $2,500,000 
worth of Iowa farms which returned $7.85 per acre gross rental, 
or 9 percent on the book value, but that is a gross figure. 

Mr. Gesell. How big a crop do you have each year? Have you 
any idea of that, Mr. Rogers? I remember reading an article here 
in Country Home magazine which said that you counted a $3,000,000 
corn crop as a failure, that during '37 you harvested 50,000 bales 
of cotton, 10,000,000 bushels of corn, 5,000,000 bushels of wheat, 
6,000,000 pounds of peanuts, and 1,000,000 pounds of tobacco.^ Does 
that give some idea of the crop you have ? 

Mr. Rogers. Yes; some idea. That includes the tenants' share. 
That is what the farms have produced. 

Mr. Gesell. How many tenants do you have, between 50 and 60 
thousand people? 

Mr. Rogers. The number of tenants is around 8,000, and with their 
families and their hired help, and so on, it would run to the figure 
that you have stated. 

The Chairman. Mr. Gesell, may I interrupt? As I look at these 
plats, I think it would be probably impossible to reproduce the 
diagrams of the farms with our facilities, 

Mr. Gesell. We have had trouble with the charts, I might say, 
that were introduced last time. Being in color they cannot be 
reproduced in the record. 

The Chairman. I think that the information contained on these 
two sample plats is of so much interest that they ought to be in 
the record. 

Mr. Rogers. The S. E. C. has that first one, the diagram ; and that 
other little fellow — not so small either, the one in green, the farm 
in Tennessee, I just had prepared a day or two ago. Those cases 
also contain an illustration of the rehabilitation. Senator O'Mahoney. 
Can you see the two pages of pictures? 

Tiie Chairman. Yes; I noticed that, and of course we can't re- 
l)roduce the pictures, either, very easily, although they are very inter- 
esting. There are pictures here of the before and after plan, show- 
ing the dilapidated condition of the farm buildings, both the resi- 
dential buildings and the barns, and then the manner in which all of 
these structures have been improved. 

Mr, Rogers. Yes. 

iSoe Ralph Wallace. "Putting New Life in 1,618,000 Acres," the Tountry Home, 
Magazine, October 1938, p. 7. 



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cs — 

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The Chairman. But it strikes me that it would be well to put in 
the record this tabular information on page 1 of the plat of the farm, 
and the rotation chart, don't you think so, Mr. Gesell ? 

Mr. Gesell. I haven't seen it, but I have no objection at all to its 
fToing in. Yes ; I think that would be good information to go in. 

Mr. Rogers. The color tells the story of the contour of the land, 
.every little knoll, every little depression is marked down. We spent 

Exhibit No. 2299b 

8554X-0glesDy— 370 acres— Montgomery County, Tenn. 

Exhibit No. 2299c 

8554X-0glesby— 370 acres— Montgomery County, Tenn. 

$500,000 in your State last year on this work. Senator Herring. I 
don't know how many millions we have spent in your State in bring- 
ing the farms up. 

The Chairman. Let us admit to the record those portions of these 
two plats' which I have mentioned. 

(The plats referred to were marked "Exhibits Nos. 2299 and 2299-A 
to 2299-E" and appear on pp 15015-15018. The rotation charts bear 
the same exhibit number and are included in the appendix on pp. 
15521, 15522.) 



The Vice Chairman. You spoke of an item, percent gross income. 
Did that farm receive any benefits from the Federal Government? 

Mr. RocEHS. No benefits at all. That is, 266 farms in Iowa this 
year with a book value of $4,900,000 produced the rental income of 
$463j000, or 9.33 gross income on book value, and $7.85 per acre. 

The Vice Chairman. ,I don't know whether you understood me or 

Exhibit No. 2299d 

8554X-Oglesby— 370 acres— Montgomery County, Tenn. 

Exhibit No. 2299e 

8554 X-Oglesby— 370 acres— Montgomery County, Tenn. 

not. My question was whether there were any governmental contri- 
butions under any farm program that w^ent into those figures? 

Mr. Rogers. No; none at all. Congressman. 

The Vice Chairman. Were your farmers not cooperating with the 
federal Government? 

Mr. Rogers. The tenants are. 

The Vice Chairman. All the benefits that come from the Govern- 
ment in any sort of way go to the tenants as distinguisned from the 
company ? 


Mr. Rogers. As distinguished from the other, other than the parity 
payments, the price-adjustment payments. But we have not re- 
ceived any price-adjustment payments on the 1939 crop, and I do not 
know whether we are entitled to any or not. 

The Vice Chairman. I don't want to go into detail. 

The Chairman. We might get the opinion of the witness as to 
whether or not the House was correct in cutting that $3^0,000,000 
appropriation off the parity payments. 

Senator Herring. Yes ; I would like to get that. 

The Vice Chairman. I don't think we ought to go into that. 

The Chairman. I was just trying to worry this leader of the 

The Vice Chairman. There is a question that I think is rather 
important, and that is whether or not any of these insurance com- 
panies that you know of, holders of large numbers of mortgages on 
farms, have ever undertaken to establish any advisory service to 
their mortgagors comparable to this service which you extend to the 
farmers, and if so, what has ever happened to it ? 

Mr. Rogers. I tried that. Congressman, and we have run into this 
difficulty. We ran into the difficulty that the man would say, "If I 
spend $50 for legume seed, or $100 for legume seed, I will have to 
take that much out of what I will pay on interest or what I will pay 
on taxes.^' So often their farms were run down. 

The Vice Chairman. Without going into detail, you have really 
tried to do it and it didn't work? 

Mr. Rogers. That is right. 

The Vice Chairman. That is all. 

Mr. Gesell. Mr. Rogers, one more question on the management 
of these farms. Have you made a profit or a loss in handling them ? 

Mr.' Rogers. Our figures show this, that on the farms that we 
have sold, taking into account 

Mr. Gesell (interposing). Now, I must because that is 
not answering my question. 

Mr. Rogers. Pardon me. 

Mr. Gesell. I am going to come to the sales in a moment. Just 
in the handling of the farms from day to day, tjie management of 
the farms, do they make a profit or do you lose money on them? 

Mr. Rogers. Well, again we come into that heavy rehabilitation 
expense. If you eliminated the heavy rehabilitation expense, which 
we hope to have out of the way entirely by the end of next year, then 
I would say that we would make money upon them. This year we 
have a 2.02 net return after a million five hundred thousand dollars 
has been spent on rehabilitation. 

Mr. Gesell. In other words, in capitalizing this rehabilitation 
expense your figures do show that you made money. 

Mr. Rogers. That would be true of the past 4 years. 

Mr. Gesell. But if you hadn't capitalized your rehabilitation 
expense, you would have lost money on the farms and would count 
on making it at some other time ? 

The Vice Chairman. The witness said 2.02 profit." 

Mr. Rogers. Yes; that is right, after a million and a half spent 
on rehabilitation. 

The Vice Chairman. In other words, they absorbed a million and 
a half and still made 2.02. 


Mr. Gesell. What about '38, which is the figure we have before 
us here, Table 188?^ It would show that you made a profit from 
'32 to '38 of $2,342,000, and the figures we have discussed show that 
you liave capitalized $6,478,000, so that if those two were taken into 
"account you probably have not made money on the farms. 

Mr. Rogers. Up to '38 our expenditures for rehabilitation ran 
more nearly $2,000,000, you see. 

Mr. Gesell. And what were your profits in '38 ? 

Mr. Rogers. 0.97 in the black. 

Mr. Gesell. So that you would say you made money without cap- 
italizing this rehabilitation expense in '38? 

Mr. Rogers. Yes. Your book shows, and our book shows, a black 
return of 0.97, and of 1.16 in '37; and. in 1936 our expenditures of 
rehabilitation Were not as great.- That often is affected by weather 
conditions. We had 1.88 in the black. 

Mr. Gesell. Taking the period '32 to '38, you said that approxi- 
mately 75 percent of your rehabilitation expense occurred in that 
period, and if you were to take that off this figure of profit of 
$2,342,000, you would be a minus figure, would you not, for that 

Mr. Rogers. What profit figure do you refer to ? 

Mr. Gesell. The $2,342,000 appearing in table 188.« 

The Vice Chairman. Anyway, Mr. Rogers, you had to build this 
property up before you could sell it? 

Mr. Rogers. Yes ; that is right ; and of course we made a lot of ar- 
rangements with former owners in this way, tljat there was no need 
of our going through foreclosure expense, and "We will gladly give 
you the 1 year full income from the property which you would be 
entitled to under redemption, and you deed the property over to us." 
Those properties would be inbluded in the book value, you see. 

As you are accumulating real estate you have two factors. You 
have farms which produce you nothing because you get them too 
late in the yekr, or you have worked- out a compromise arrangement 
giving the former owner the crop and then you have the factor that 
you haven't had a chance to get it up into producing condition, so 
that as your real-estate portfolio begins to go down, then you have an 
accumulation on the opposite side. Do you understand, Congressman ? 

The Vice Chairman. Sure ; I understand lots of things. 

Mr. Gesell. There are a lot of companies, however, that do not 
capitalize these rehabilitation expenses. 

Mr. Rogers. We are one. We never capitalize rehabilitation ex- 

Mr. Gesell. What is the item of improvements of $3,052,000 ap- 
pearing under the heading of Improvements ? 

The Chairman. That doesn't include rehabilitation. That is what 
he is talking about. 

Mr. Rogers. If we had a 7,500-acre farm, we broke it down into a 
number of units. We put new buildings on each property. 

Mr. Kades. Mr. Rogers, who determines whether or not a particular 
improvement on a particular farni is to have its cost capitalized? 

Mr. Rogers. In the first place, we have a complete valuation on 

' Soe Hearings, Part 10 A. p. 188. 
^ Ibid., p. 189. 
« Ibid., p. 188. 


every property. Then, when the recommendation for expenditures 
comes in, I have all that information before me and I make the recom- 
mendation to the real estate committee, and they are the ones who pas$ 
upon that or make final decision upon my recommendation. 

Mr. Kades. Then you make the recommendation as to whether or 
not a cost is to be capitalized ? 

Mr. Rogers. I make the recommendation; yes. We had a large 
estate, for instance, in the South, in South Carolina. We broke it 
into 18 small farms. You have to build new buildings in such cases. 

Mr. Kades. Do you follow any standards or any particular policy 
in reaching that determination? 

Mr. Rogers. Largely the value factor. 

Mr. Kades. Would the time factor enter into it? For example, if 
you had foreclosed a farm in 1932 and still held it, would that be 
the determining factor- which you would take into consideration in 
determining, whether or not to capitalize improvement in 1939? 

Mr. Rogers. No ; the value of the property ; and the values are re- 
viewed each year and are very carefully revised. 

Mr. Gesell. Now, coming to your sales policy — we are almost 
through, Mr. Rogers. 

The Chairman. Before you ask that question — a moment ago, in 
answer to one of my questions, you said that the tenants loved this 
program of cultivation and advice ^a hich you have instituted. What 
is the turn-over among tenants? 
: Mr. Rogers.- What is that? 

The Chairman. What is the turn-over among the tenants ? 

Mr. Rogers. I think that in the last 3 years — that would be an esti- 
mate ; you have two types of turn-overs, one where we wish to change 
tenants, and one where he wishes to leavQ us — our requests have aver- 
aged about 4 percent, and that an equal number have wanted to leave 
us, so that our tenant turn-over, from our standpoint, is very small, 
but our tenants buy farms of others. You can realize that under this 
kind of a program, tenants can be built into purchasers, but they won't 
always buy the farm they live on. 

"' The Chairman. I was very much interested in your testimony, 
which I think is very illuminating, because in our studies in the De- 
partment of Agriculture appropriations bill and in the Farm Security 
set-up we find almost exactly the same type of condition which you 
have described. The Farm Security Administration has been en- 
gaged, as part of its program, in seeking to put farmers on the land, 
and the relationship between the Farm Security Administration and 
the farmer who is put on the land is not unlike the relationship which 
you describe. 

Mr. Rogers. That is true. 

The Chairman. The whole farm-tenant problem which Congress 
has sought to solve by the so-called Bankhead-Jones Act brings all 
of these phases into bold relief. Frequently, the Farm Security Ad- 
ministration finds that some farmers would fall into the 4 percent that 
you have described as the ones which you want to change. 

Mr. Rogers. Yes. 

The Chairman. So that to my mind the outstanding problem, so 
far as agricultural land is concerned, is the relationship of the in- 
dividual to the large organization. 

124491-— 41 — ^pt. 28 22 


Mr. Rogers. Yes; that's right. 

The Chairman. Now, here you h.ive drawn this picture of a huge 
iustitiition which owns a very hirge amount of land and which has 
undertaken a rehabilitation ])rogram, a farm-development program 
not unlike that of tlie Farm Security Administration, for the benefit 
both of the tenant and of the company and then, likewise, for the 
improvement of the land. 

Mr. Rogers. Yes. 

The Chairman. The Farm Security Administration is doing like- 
wise. We find, however, that frequently tenant farmers object to 
the decisions of the Farm Security Administration with respect to 
whether or not certain things should be done. I have often heard 
county agents criticized by farmers because county agents have 
sought to impose or stimulate improved farm practices. I have 
no doubt that your men have also heard criticism on the part of 
some farmers with respect to the methods and policies that you 
would like to carry out. 

Mr. Rogers. Senator, in that connection the position that I have 
taken is that sometimes the tenant is correct and your expert is 
wrong, and every time a question of that kind arises I put the ques- 
tion very bluntly, "Who is right in this instance?" 

Now, we outline to the tenant before he comes on our property 
just how the farm is to be operated so that he can say "yes" or "no" 
at that time. That might account for the fact that we have very, very 
little trouble. The Farm Security Administration is following very 
much this plan. In fact, some of my men that were trained in my 
organization are now in the Farm Security Administration and with 
it, and I believe that your soil conservation program also is coming 
around to this type of an operation on most farms. This plan, as 
you will notice, bears a number of "220," and it called a "220" plan, 
and thg tenants know it, and we have tenants today that can plan a 
farm very expertly themselves. 

The Chairman. You exercise great care in the selection of the 
tenants who go on your farms? 

Mr. Rogers. Great care ; yes. 

The Chairman. So that before they go on they know what the 
company will expect them to do with respect to tanning methods? 

Mr. Rogers. Yes. - 

The Chairman. And that reduces the friction between the tenant 
and the company to a minimuni ? 

Mr. Rogers. Yes. 

Now, Senator, in, that connection, with 8,000 leases a year for the 
past 3 years, which meant 24,000, we had litigation in 6 cases out 
of 24,000, and in working with that many people you can't have a 
perfect, 100 percent record. 

The Chairman. You say that your ordinary lease is for a single 
year. Do you give any leases to good tenants for longer periods? 

Mr. Rogers. Well, the understanding is so mutual between the ten- 
ants and our organization or our men that we desire good tenants 
who do a good job, and they know that we want them, and the same 
thing is true that the tenant who is on a good farm wishes to stay, 
so we renew those leases very early, but we always are confronted 
with a law that says "Sell," so that we must be in a position to sell. 


The Chairman. So that because of the law which requires you to 
sell you can't enter into a loirg-term lease? 

Mr. Rogers. Not very easily, no; and if we did we would have 
to carry that same provision, cancelation in event of sale. 

The Chairman. Do you think it would be a good thing to change 
the law so as to permit long-term leases, or to change the law so as 
to give the tenant farmer an option to buy ? 

Mr. Rogers. Well, I have this feeling, that we should not own land 
or farms any longer than is reasonably necessary. I think that is 
correct. I would not like to see the law changed. 

The Chairman. What do you mean by "reasonably necessary"? 

Mr. Rogers. In other words these properties. must be, in my opinion, 
sold back to the people on the land, and as they are gradually able 
to take them, they should be permitted to take them. 

Mr. Gesell. Mr. Rogers, why is that? If you feel, as I recall your 
testimony, that you could probably make a better income managing 
these farms than you could under mortgage, and if you believe that 
you are successful and making a profit in the handling of these farms, 
why, from your point of view, is it desirable to turn them back to 
the men on the land? It seems to me there is something of a con- 
tradiction there. - 

Mr. Rogers. I was probably speaking from a social standpoint. 

The Chairman. I am very glad to have you say that, because it 
has long been my conviction that one Of our fundamental troubles 
in this country has been the divorcement of people from the land, 
from ownership of the land, and the more we can stimulate fa^m 
ownership and even the ownership of urban property, the better it 
will be for ^11 concerned, including insurance companies and busi- 
ness of all kinds. 

Mr. Rogers. Yes. 

The Chairman. Because I think the trouble in this country is 
that there are too many people without property. 

Mr. -Rogers. I think you are correct. 

Senator Herring. Mr. Chairman, I should like to ask Mr. Rogers, 
"irom his experience in farming in the manner in which he has farmed, 
has there been any large percentage of tenants that have been able 
to save enough to buy any considerable number of farms from him ? 

Mr. Rogers. Yes, uovernor Herring. I think that last year 175 of 
our own tenants purchased farms. Now, there is a social problem 
involved at this time in that you have a good tenant that is doing 
a fine job, but he hasn't accumulated enough money to make what 
would generally be called a reasonable down payment. This year 
we sold $800,000 worth of land on what we call a character-sale basis, 
mainly to our own tenants. Some of them only paid 4 percent down. 
Several of those cases are in your State, and this year we are making 
an analysis of all of our tenants to see if we cannot in some way 
work out an arrangement where they will be the owners under con- 
tract, which will take care of this tenant situation as far as we are 

We are now taking our best-trained agricultural experts and having 
them call upon and work with these contract purchasers. There is 
the responsibility of property ownership and the responsibility of 


debt that weighs heavily on the minds of a lot of people, especially 
young people, and wh'en we are able to have these well-trained experts 
call at their homes, maybe twice a year or three times a year or once 
a month, and are always there to be called upon in the event these con- 
tract purchasers desire help or consultation, I believe that we will 
help them through that period of ownership that is most difficult. 

The one thing that must bs realized with this farm situation; the 
terrible catastrophe that occurred shocked the nerves of a lot of 
farm people on the question of debt. They reluctantly go into debt 
again and it takes time for them to recover. 

Another thing, a lot of older men own these farms. You are now 
dealing with a lot of young people. One of our greatest prides is to 
take the young people and build them into purchasers of these farms. 

Mr. Gesell. What do you do, Mr. Rogers, when you sell a farm 
and the tenant has to get out to find him a place somewhere else? 

Mr. Rogers. That is one of our difficult problems, and that is one 
of the problems that is bothering us today, and especially March 1 
in your State, Governor Herring. We have a perfectly fine tenant 
ana the neighbor or someone has bought that farm and we must sell, 
and you have the case of the purchaser coming up to the door with 
his machinery, and so on, and the tenant that you have is a desir- 
able fellow with no place to go. There are some of those cases. 

Mr. Gesell. Then it becomes very important, doesn't it, as part 
of your program, to try to sell the farms back to the tenants? 

Mr. Rogers. It is very important at this time and we are making 
an extraordinary effort to do_ that. 

Mr. Gesell. Let me find out just how you do that. Do you sell 
the farms back in such a manner as to always require a cash down 

Mr. Rogers. We always require sQme cash down payrtient because^ 
we* believe in taking over the ownersnip of a property, that a man 
should have some stake in it, even though it is a small stake. 

Mr. Gesell. What percentage of cash down do you require on the 
purchase price? 

Mr. Rogers. I just stated on the character sales, which are a spe- 
cial type, Ave have taken from 3 percent up to 9 percent. Our ordi- 
nary terms are 10 percent to the company, which we have endeavored 
to obtain. 

Mr. Gesell. Ten percent to the company net if the purchaser will 
live upon and maintain the farm? 

Mr. RoG|a{8. Yes, sir. 

Mr. Gesell. Twenty percent if the purchaser is a speculator or 

Mr. Rogers. Yes, sir. 

Mr. Gesell. And am I correct that you will not consider a down 
payment of less than $250 ? 

Mr. Rogers. We have modified that. We have some farms that 
are very small and some of our character sales have been made 
with a down payment as low as $100 on a very small southern 

Mr. Gesell. How do you price these farms for sale? 

Mr. Rogers. The prices are arrived at by the field men. 


- Mr. Gesell. Independent of the book value you carry them at? 

Mr. Rogers. Absolutely independent of the book value. 

Mr. Gesell. They go out and set a price and that is the price you 

Mr. Rogers. You see, these men are on the properties, they must 
be on the properties at least 12 times a year. I require a report on 
the number or times each property is visited, from the field represent- 
ative, along with the field manager, the supervisor, and also we fre- 
quently use the farm loan man's idea of value. 

Mr. Gesell. Do you recall that letter, Mr. Rogers? 

Mr. Rogers. I know nothing of that letter because that was written 
by the man that preceded me in office. 

Mr. Gesell. His policy must have been quite different from yours. 

Mr. Rogers. His policy was very much different in respect to farm 
management. My policy in reference to farm management is perhaps 
unique in the United States. It did not go into effect until I became 
manager of the division. 

Mr. Gesell. According to this letter, prior to that time the sale of 
the property had a pretty distinct relation to the book value at which 
it was being held. 

Mr. Rogers. Yes; unfortunately, that man was very sick at the 
time that letter was written — very sick. 

Mr. Gesell. Your policy has always been to set an independent 
price based upon the value of the property as your field men see it? 

Mr. Rogers. Yes; that is correct. 

Mr. Gesell. Do you believe that this matter of a cash payment 
makes it more difficult to get the land back into the hands of the 

Mr. Rogers. Well, I would say that, not requiring a cash payment, 
the party purchasing not having a stake in the property, is not the 
best thing for the seller. I think he should have something ■ there 
that is his, that he put into it. 

Mr. Gesell. That isn't quite an answer to my question. My ques- 
tion was whether you think demanding a large cash payment makes 
it more difficult to get the land back mto the hands of the tenant. 

Mr.,, Rogers. Demanding a large cash payment does. 

Mr. Gesell. What about 10 percent? 

Mr. Rogers. I consider that a small cash payment. 

Mr. Gesell. And you don't feel that demanding a 10-percent cash 
payment down makes it more difficult for you to get the land back 
into the hands of the tenants? 

Mr. Rogers. Well, of course my character-sale discussion would 
cover that. 

Mr. Gesell. Would be an exception to it, but let's take a tenant 
who can't qualify as to character with your organization but still is 
a pretty good tenant. You want 10 percent down with him ? 

Mr. Rogers. Yes, sir. 

Mr. Gesell. Does that requirement make it more difficult to get the 
land back into his hands? 
, Mr. Rogers. It makes it more difficult. 

The Vice Chairman. I take it ^ou want to get it back into the 
hands of somebody who will keep it. 


Mr. Rogers. Somebody who can work it, somebody who can keep 
it. I think the Federal land bank requires 15 percent; 1 am not sure. 

Mr. Gesell. How do you advertise what prices your farms are for 
sale at? 

Mr. Rogers. We do not generally advertise the price of the farm. 

Mr. Gesei-l, You mean to say you don't quote the price and set it 
up for all to see and all to look at? I should think -if you were 
anxious to get rid of the farms as is pretty well necessary under 
present investment laws, you would want to advertise it in every 
way possible so as to find purchasers. 

Mr. Rogers. Not prices. 

Mr. Gesell. You wouldn't advertise prices? 

Mr. Rogers. In the first place, the New York State insurance law- 
requires that the sale — the approval of a sale — must be by the real- 
estate committee or part of the board of directors. 

Mr. Gesell. Can't you advertise such and such a farm for sale, 
$250, subject to approval of our real-estate committee ? 

Mr. Rogers. We do not advertise the prices, but we place what we 
consider a fair price, and it will be recommended. Our farm 
sales executives do that with the real-estate brokers and so on: 
"Here is a list of farms and the prices that we believe will be coti- 
sidered proper, suggested prices." 

Mr. Gesell. And they deal with the broker on that subject? 

Mr. Rogers. Yes. "What we find is this, that you have to have a 
buyer before you begin to talk price and when you get your buyer 
you get your man that is interested, then the matter of price comes up. 

Mr. Gesell. Without stating a farm price, it may be more difficult 
to get buyers, may it not? 

Mr. Rogers. I doubt that, but, of course, that would be subject to 

Mr. GVsell. How many farms have you had to repossess that you 
sell, on a ].Qrcentage basis? Do you have many repossessions or do 
most of your sales arrangements go through? 

Mr. Rogers. Most of our sales arrangements go through. I think, 
out of 1,700 sales contracts at the end of 1939, we had 38 cancelations. 

The Vice Chairman. That is very interesting. Will you develop 
how long those sales operated? 

Mr. Rogers. I couldn't say how long. In 1938 we had 26 cancela- 
tions out of some 1,300 sales in force. 

Mr. Gesell. It is hardly right, is it, to relate the repossession to 
the sales made that year? The repossessions are frequently the re- 
sult of sales made in the previous years, are they not ? 

Mr. Rogers. What I was referring to was the sales contracts on 
our books and they may have been there a period of years. That 
would have to be a research study which I have never made, but 
the reason that I am going at it to have these trained agriculturists 
work with these contract purchasers is to keep the farms sold. One 
thing is to sell them, ancl especially on small down payments, but 
the next thing is to keep the farm sold, and that is the thing we are 
lending every effort toward. 

The Vice Chairman. Have you any information as to how many 
of these persons to whom you sold have in turn sold these properties ? 

Mr. Rogers. No, I haven't. There have been some resales. 


^ Mr. Gesell. How many of your sales fall in the speculator class; 
in other words, where you require a 20 percent down payment? 

Mr. Rogers. I had that figure, I believe. 

Mr. Gesell. I saw in your manual and I believe you have con- 
firmed this on the stand, that you will ask 20 percent of the pur- 
chaser if he is a speculator or nonresident. I -was wondering how 
many of your sales fall in that category? 

Mr. Rogers. I could say this : Out of a total of 2,985 sales, 379 were 
made to men other than farmers. In other words, 12^^ percent were 
made to persons whose business is other than farming. 

Mr. Pike. And they were presumably carrying the 20 percent 
down payment? , 

Mr. Rogers. They presumably would. 

Mr. Gesell. I have no further questions. 

The Vice Chairman. I would like to ask one or two questions and 
if I ask one that you have already 'covered, will you tell me? 

In regard to tenants that go onto your farm, do you as a matter 
of policy render assistance by equipping the tenant with animals or 
machinery or any such thing as that ? 

Mr. Rogers. We endeavor to select our tenants quite carefully, but 
if he meets with misfortune during the cropping year we have gone 
to his assistance in that way. 

The Vice Chairman. The answer to my question, then, would 
be that you do require as a part of the qualification that the person 
who comes on your farm is equipped at least with the necessary tools 
and animals to operate the farm? 

Mr. Rogers. Yes; that is correct. We do finance a great many 
tenants during the vear, and I think up to last year we had loaned 
tenants for operation $888,000. We had collected $26,000 of interest, 
and we had charged off as losses $8,000. That is how closely we work 
with these men. 

The Vice Chairman. I think it is in the record that these persons 
to whom you make sales do continue to receive the benefit of your 
advice ? 

Mr. Rogers. That is correct. We have purchasers, for instance, 
who say, "We demand that you give us that plan of operation at the 
time we purchase the farm." I made a check one time to see 

The Vice Chairman (interposing). I didn't mean to go into detail. 
I don't want to take much time, but I wanted to get that in the 

Mr. Gesell. That was one other question along that line. How 
do you acount for the fact that your company has more properties 
held over 5 years than Prudential, Equitable, Northwestern or Mutual 

Mr. Rogers. I would account for that in that m*p or chart which 
f showed Friday, where we had rather high concentration of owner- 
ship in the area that unfortunately was caught with that 1934, 1935, 
and 1936 drought immediately following the depression.' And an- 
other thing is, our rehabilitation program, slows down sales a little 
because if you are selling a farm with a small down payment, you 
are taking all that a fellow has. If you sell him a farm that is in 
bad condition, you break him and you do not do yourself any good. 
I prefer on a 10 percent down payment, which is a small down pay- 


nient, to sell a fiirm that is in good condition, both as to buildings 
and especially in good condition as to production. 

The Chairman. In other words, you sell a better farm at a better 
price in your opinion by this program? 

Mr. Rogers. Yes. 

The CHAfRMAN. And to farmers who are more likely to stay on 
the land and go through with the contract, is that your feeling? . 

Mr. Rogers. Yes; that is right. As Mr. Henderson so ably said 
the other day, the farms must bail themselves out. The farms must 
pay for themselves, and to sell a farm to a man and take all the 
cash that he has, knowing that within a matter of a short time he 
has a new roof to put on a house and such as that, you have him 
broke, you have him discouraged, you don't have the same man that 
you have if you give him a complete going concern and then advice 
and counsel to help keep it going. . 

The Chairman. To what extent is your policy governed or for- 
mulated by state law? 

Mr. Rogers. I would say — ^you mean the New York State Insurance 

The Chairman. Any State law. 

Mr. Rogers. It has no effect. Senator. 

The Chairman. There are no State laws governing the form of 
your contracts, contracts for sale? 

Mr. Rogers. No. Georgia may have a little peculiar Jaw. It 
works out to make a little change, but all the laws are reasonable 
in that respect, I would say. 

Mr, Gesell. And you have complete latitude as to how you shall 
manage and handle these farms? 

Mr. Rogers. Yes. 

The Chairman. And there is no law governing tenant relations, 
of course, is there? 

Mr. Rogers. No, not that I know of: 

The Chairman. What is the New York State law with respect 
to farm holdings? 

Mr. Rogers. After a farm has been held 5 years, you must ask the 
State insurance department for an extension of time to hold the real 
estate longer. 

The Chairman. And it is the New York State law with respect 
to the 5-year limitation that actually controls? 

Mr. Rogers. Yes; that is correct. 

Mr. Gesell. Have you ever been refused an extension, Mr. Rogers, 
any requests for extension? 

Mr. Rogers. No ; I never have. 

The Chairman. Is there any such law in lowa?^ 

Senator Herring. Five years. 

Mr. Rogers. I think that refers to Iowa companies, does it not? 

Senator Herring. To Iowa companies, yes. 

Mr. Henderson. We had quite a discussion of that in Mr. Murray's 

Senator Herring. As long as this memorandum went into the rec- 
ord — and I am quite interested in this conciliation council, having 
set it up, and Mr. Rogers wrote this just when it was being set up — 


"I believe politics prompts the program of Governor Herring on the 
foreclosure of mortgages''^— I am wondering as he became more ac- 
quainted with the work oi the conciliation council if that suspicion 
was justified or otherwise? 

Mr. Rogers. I would say as it worked out, it was not justified. 

The Chairman. Well, suspicions generally are not justified, whether 
they are held by life-insurance executives or by politicians or states- 

Mr. Henderson. May I say, Mr. Rogers, that I might see a re- 
dundancy here. In the Metropolitan National Farm Adjustment 
Credit Management Co., do you have a stamp plan? You seem to 
have about everything else. 

Mr. Rogers. Well, of course, in this agricultural thing, I have made 
a great study of it. I think there is much to be done, particularly in 
that section of Iowa to which Professor Murray referred. 

' Mr. Henderson. What you have said is that in reality you have the 
equivalent of a farm agent in Iowa ; you certainly have a program, as 
these charts show, for conservation; you have a rehabilitation pro- 
gram ; you have a seed program ; you have a tenant cropper program ; 
you have a sales agency; you have a credit agency; and you seem 
to have a bureau of agricultural economics, from the nature of your 
testimony ; and the only frills that seem to be lacking are perhaps a 
stamp plan and a surplus disposal plan, and I expect if we probed 
a little further, in time we would find you had that. 

Mr. Gesell. As a matter of fact, it is true, is it not, Mr, Bogers, 
that when you take these crops from the tenant you frequently hold 
them off the market until you get a price that is suitable ? 

Mr. Rogers. No ; we follow the plan of orderly marketing. We feel 
any holder as large as we are should not throw its crops upon the 
market kt one time. 

Mr. Gesell. That is just the point — so you do hold them off to keep 
the price stable. 

Mr. Rogers. Yes- to distribute them. 

The Chadiman. You control the marketing program and not the 
tenants ? 

Mr. Rogers. Of our part. We have one-half of the corn criK and he 
has half. 

The Chairman. He can sell his half and you manage your half? 

Mr. Rogers. That is true. 

Mr. Gesell. It is true in many cases, isn't it, that the tenant asks 
you to handle his part of the crop and he takes the money rather 
than handle it himself? 

Mr. Rogers. Under the corn-sealing program, they would rather 
seal their corn and buy ours. [Laughter.] 

The Chairman. Are there any other questions? 

Mr. Geselt.. I have no further questions. 

The Chairman. Do any other members of the committee desire to 
ask Mr. Rogers any questions? 

May r ask this one question? Isn't it a fact that you have fre- 
quently been consulted by Farm Credit officials and Department of 
Agriculture officials with respect to agricultural problems? 

Mr. Rogers. Yes ; they have all these reports. Secretar^^ Wallace 
discussed these reports with me in 1934, and I have given them 


througliout the plan, and the Federal Credit folks come u|> and we 
talk these things over constantly, the various departments. We use 
them to help us, too. 

The Chairman. Perhaps we ought to call it the Wallace-Rogers 

Mr. Rogers, we are very grateful to you for your testimony. Thank 
you so much. 

(The witness, Mr. Rogers, was excused.) 

The Chairman. The committee will stand in recess until 2 o'clock. 

(Whereupon, at 12:35 p. m., the committee recessed at 2 p. m. of 
the same day.) 


The committee resumed at 2 : 10 p. m., on the expiration of the 

The Chairman, The committee will please come to order. 

Mr. Geseix. The witness this afternoon is Mr. R. R. Rogers', vice 
president. Prudential Insurance Co. of America, Newark, N. J. 

The Chairman. Do you solemnly swear that the testimony you 
are about to give in this proceeding shall be the truth, the whole 
truth, and nothing but the truth, so help you God? 

Mr. Rogers. I do. 


Mr. GeselL. Mr. Rogers, will you state your full name and your 
position in the Prudential? 

Mr. Rogers. R. R. Rogers, vice president of the Prudential, in 
charge of mortgage loans, Newark, N. J. 

Mr. Gesell. Your department of the Prudential handles botii 
farm-mortgage loans and city-mortgage loans, is that correct? 

Mr. Rogers. That is true. 

Mr. Gesell. First I want to ask you a little ^bout the Prudential's 
lioldings of farm mortgages and farm real estate. How many farms 
does the Prudential manage or own at the present time? 

Mr. Rogers. At the present time 5,940. 

Mr. Gesell. And what does that represent in terms of amount of 

Mr. Rogers. About $45,000,000. 

Mr. Gesell. What is the size of your largest farm? 

Mr. Rogers. I think our largest farm is in Louisiana; it is a sugar 
plantation of about 2,500 acres. 

Mr. Gesell. And your smallest? 

Mr. Rogers. I should say 40 acres. 

Mr. Gesell. How many farm mortgages have you outstanding now ? 

Mr. Rogers. About 35,000. 

Mr. 'Gesell. Your largest and smallest there, please? 

Mr. Rogers. I think our largest is $372,000, which covers 21,000 
aci-es of a very large cotton plantation, fully integrated, having cot- 
ton gins — a wliole town — and the whole goes into the security for the 
loan. The smallest I don't know, but I sliould say that probably is 
20 acres, and I don't even know where it is. 


Mr. Gesell. What is your average mortgage loan? 

Mr. Rogers. About $5,000. 

Mr. Gesell. About $5,000? Can you give us some idea of the his- 
tory of the Prudentiars farm-mortgage loans program? I think 
because of the testimony that has gone on here the last couple of days 
you have an idea of the subject the committee is interested in and 
could probably cover it faster if I don't interrupt with questions. 

Mr. Rogers. I hope so, Mr. Gesell; I will try it, anyway. The 
Prudential conmienced farm lendirg in 1898—42 years ago — but 
didn't get into the business in a very heavy way until 1906. It 
has been actively engaged in making farm loans ever since that time, 
and in the intervening period it has lent to farmers more than three- 
quarters of a billion dollars. Up until' 1922 the major part of Pru- 
dential's mortgage portfolio consisted^ of farm loans. After 1922 
city loans increased much faster than farm loans, despite the fact 
that we continued to invest all we could in farm loans. 

The Chairman. I didn't get that statement. 

Mr. Rogers. Despite the fact we continued to lend all we could 
in farm loans. 

The Chairman. What was the phrase preceding that ? 

Mr. Rogers. After 1922 city loans increased much faster than farm 
loans, despite the fact that we continued to invest all we could in 
farm loans. For the last few years our mortgage account has main- 
tained a fairly even ratio of 20 percent farm loans and 80 percent 
city loans. 

The Chairman. To what do you attribute the fact that city loans 
were increasing at such a rate as comparea with farm loans? 

Mr. Rogers. I think as I go on it will be apparent, Mr. Chairman. 
The reason for the wide disparity is that our farm loans are definitely 
limited.: There are just so many farms in the United States, of 
wthich about 50 percent will be mortgaged, and that ends it except 
for swapping back and forth. 

Mr. Gesell. You mean, in other words, that there just isn't as big 
an avenue for investment? ^ 

Mr. Rogers. Yes; definitely limited. The farm-loan debt in the 
United States is about equivalent to the city-loan debt of New York 
City; yet New York City loans will continue to advance because of 
new buildings, new houses, new mercantile establisliments ; but the 
farm-loan debt is fairly static. 

The Chairman. In other words, the urban debt increased primarily 
because urban areas are expanding? 

Mr. Rogers. That is true. 

The Chairman. And farm areas, on the other hand, tend to con- 
tract instead of expand? 

Mr. Rogers. I think you have explained it better than I could. 
City loans, of course, are an endless supply of mortgages; every new 
home creates a potential mortgage loan. Our over-all experience with 
farm loans has been very satisfactory; up until 1930 the farm-loan 
experience was almost perfect. Since then it has passed through 
some very bad years, but the restoration of a better farm condition 
has restored farm values to a point where we believe we will suffer 
no loss of principal. We appreciate, of course, the foreclosures of 


farms in many cases meant loss of homes, and we approached fore- 
closures with very great reluctance. 

Foreclosures came about for many reasons. First, I think, and the 
major reason, was probably the abandonment of farms; and, second, 
inability and lack of desire on the part of the farmer to attempt to 
salvage a farm so heavily encumberea by first, second, and third mort- 
gages, and delinquent taxes, and judgments, and what not. 

Three. Absentee ownership, which had relied on farm rentals to 
pay living expenses and to pay taxes and mortgage requirements. He 
found his share of the yield inadequate for all of these things. 

Fourth. The borrower in too many cases had ceased to be his own 
man; he was so tied up with chattel and crop mortgages that when 
his crop was harvested ne had nothing to say about the disposition of 
the returns. This resulted in the subordinate creditors getting all 
and the senior creditors getting nothing. 

And fifth — and this may seem strange, Mr. Gesell — the desire of 
(he farmers to be foreclosed. 

Mr. Gesell. Those were in cases that he was so burdened with debt 
that it was a relief for him to get rid of his debt? 

Mr. Rogers. Quite true ; and we had put in a plan which we thought 
was sound, and still think so, that as to any farmer who was heavily 
burdened in that way, we would foreclose, and after we had foreclosed 
our mortgage and cut off some of the subordinate obligations, we 
would sell that farm back to him or a member of his family, and if 
we were willing to sell that farm for less than our cost, that price 
would be available to him. In the first of those circumstances many 
farmers felt it best to be foreclosed and get a fresh start. 

The Chairman. Do I understand your policy was to sell at cost? 

Mr. Rogers. At our cost. We would sell the farm at a less price 

The Chairman (interposing). You are speaking of farms to which 
you had acquired the title ? 

Mr. Rogers. That is right. 

The Chairman. And did you follow the policy of not selling for 
more than cost? 

Mr. Rogers. I beg your pardon? 

The Chairman. Did you have a policy of not selling for more 
than cost? 

Mr. Rogers. To the former owner; yes, 

Mr. (lESELL. You mean, the former owner could always get it back 
from you at cost? 

Mr. Rogers. Yes. 

Mr. Gesell. But you might be still quoting that property at more 
than cost to someone else? 

Mr. Rogers. Yes. 

Mr. Gesell. While we are there, on this question of sales, did you 
require a down payment? 

Mr. Rogers. In that particular case, no. 

Mr. Gesell. Will you tell us how it was arranged? 

Mr. Rogers. We put this sort of a deal in process which we found 
\o he very satisfactory and we have now extended it even further. 
The farmer, of course, had no money, but if he had enough stock and 


tools, or could get it, and if he had feed and seed or could get it, and 
if he would follow a program of farming upon which we could agree, 
we would sell that farm back to him without any down payment in 
cash, providing he would deliver each year one-half of the crop to 
us. That half of the crop would be sold at a time agreed upon be- 
tween us, and out of the sales price of that crop we would first 
apply to interest on the contract of sale and second to principal. 
Mr. Gesell. How long, under that arrangement, was he sure of 
staying on the farm? 

Mr. Rogers. That was a 3-year contract, and it made no difference 
if he had a crop failure the first year, he could pay us nothing. Pro- 
viding he had done a first-class farmerlike job, he would not be with- 
out that farm. 

Mr. Gesell. So that by giving him a 3-year period you avoided 
to some extent keeping him in a position of a man continually subject 
to be removed ? 

Mr. Rogers. That is true. And by the way, when we sold him 
that farm back, we gave him the option of our going in and doing 
a first-class repair job. I mean Fy that, putting the buildings and 
so on in first-class condition and adding the cost, of that to the price 
of the farm. 

The Chairman. My understanding is that under this arrangement 
you had