Show 5 MOOT BEG I N FARM LOAN BANK EXPOSE Utah Senator Characterizes Joint Stock Institutions as Medium for Capital to Escape Taxation Herald Id Bureau Washington July 12 T L LIl IMITATION if not actual abolishment abolishment abol- abol of the twenty-one twenty jo joint jont nt stock loan banks established in various arious van vari ous Otis parts of the tue country under the provisions of the federal farm loan act is contemplated by the Senate as asa asa asa a result of exposures recently made by Senator Smoot of Utah who characterized characterized charac charac- these banks as fiS a medium through which a great amount of capital capital cap cap- ital may escape taxation These banks are even a 0 greater power for speculative purposes said Senator Smoot I think the tho system Is unjust nobody can defend It it and tho the law Jaw aw ought t to be amended amende I have a abill abill abill bill prepared for tor this purpose and I Intend to Introduce It within a few days das and hope to see the committee on banking and currency act ct upon it very quickly la ln discussing his proposed amendment amendment amend amend- ment meat to tho the federal farm loan act and other features of or the the Joint stock loan banks Senator Smoot declared that establishment of ot more of ot these banks would seriously menace menaco tho the present system o of income taxation Statement In connection with his proposed amendment to the farm tarm loan act Senator Senator Sen Sen- ator Smoot prepared a statement relative relative rela rela- tive tivo to the situation and result of this system compiled from Information based on the business done b by tho the Chicago Joint stock lan land bank which he says sas is typical of oC that of the other twenty one banks As a result or of tho the Immense pro profits tits garnered b by these banks the tho federal farm loan bureau is already swamped with applications and according to Senator Smoot unless some action Is taken It will be impossible impossible I sible for th the farm loan lonn bureau to withstand withstand withstand with with- stand the demands upon it IL Tho The statement o of the Chicago bank bankas as It was read into the record by Senator Senator Sen Sea ator Smoot follows The charter was as granted ranted for tor tho the operation of or this bank July 2 1917 It operates In the states o of 11 Illinois 1110 Is and Iowa Capital stock has been authorIzed authorized authorized author author- at Capital stock has been paid In as follows Jul July 25 25 In 1917 7 I Jan 15 Hi 1918 HIlS Oct 21 21 1918 Jan 28 28 1919 Feb 27 1919 May 7 7 1919 Or a a. total paid In capital stock of to the close of or May 31 31 1919 This represents an aVera average o Investment of ot 2991 for tor the tho period from Crom tho the or organization to the close of May 31 1919 1119 Income of ot 1 t- t Per Ier Cent As shown b by their report for Cor tho the month of or Ma May 1919 the tho net earnings s amount to In addition to this amount dividends have been declared declared de do- dared amounting to and sa salaries salaries sal sal- 1 aries ades were wore paid to officers and directOrs directors directors direct direct- ors for tor the tho first five tive months o of tho the current calendar year amounting to 16 two two OO-two two salaried directors The Tho statement also shows of ot bonds unsold These bonds at nt 5 per cent If Ir sold at t as ns advertised should not tho the bank which would meun mean an additional of ot from this source Assuming that this profit proUt Is realized on bonds on hand the total pro profits tits would amount to 91 or 30 per cent on the tho avera average e Investment In over O and above tho amounts amount for tor officers officers' nn it- it ors ors' salaries i rj Without IU the ul-the the profits i i o on bond sales actual earnings have been or 20 Per cent on average investment over or and above tho the amounts aid ald for Cor officers officers' and directors directors' directors directors' directors directors' direct direct- ors' ors salaries the bank Is If ll maintained at present present pres pres- ent size the net income of ot 1 per cent the difference between Interest rate ruto received from borrower and anti that paid bonds would amount to on per pOI annum while If It Increased to maximum permitted under authorized capital of tho the income would amount to per annum l of 2000 If It this bank should take no more moro loans or should liquidate and and should continue to operate only to such buch extent as would be bo necessary to make collection tion on amortization amortisation pa payments and make male interest pam payments on outstandIng outstanding ing lag bonds the annual fixed Income for tor forthe the tho next 18 IS years earn without n ny further effort would woul amount to which would permit the payment of ot salaries of or 1500 each CL per jer annum to the tho salaried salaried sal sal- aried directors allow per annum annum annum an an- num for tor such clerical assistance as would then be needed and leave leavo a n profit of or per annum for tor tho the el eighteen years years' period This would represent an Income of ot over s 8 per POI cent centon on the Investment for the tho period The Thu clerical assistance estimate would bo be But sufficient to not riot on only 1 cover coverall I all ail necessary clerical assistance but butto butto butto to pa pay Such puch uchi Incidental expenses as uS rent light heat posta postage e etc a as ml might ht be bt necessary to maintain tho the Institution until complete liquidation could be bo made ml The Tho present annual I Continued on following page pas i J I A w Mi in r r fl I I SMUT BEGINS FARM lOAN LUA BANK EXPOSURE Continued from preceding page roll for tor clerical assistance amounts pay to approximately The Thc profits made by this institution I bo be fairly Indicative atI of at would seem to I those that could be made In Inny any ny carefully carefully care care- I full fully opera operated tell Joint stock land bank this volume of oC business Other doing Joint stock land banks s do not sho show Institution this profits nearly so large rge as ns of oC Instances S number tion but In a n banks are arc operated opel oper thc these e joint stock land In 1 connection with a n. trust company com com- which thIs which It seems mark this I pany mark pany-mark d rl s the tho benefits from premiums pre pre- thus received ree on sales of oC bonds I greatly reducing the margin of oC profits bonds are I shown by them since th those these se sold to the tho trust companies at par lar Trent Interested Tho The owners In some cases of oC th the bunks banks are arc stock land stock of oC the tho joint and andIn the owners of oC a trust company compon are arc divided between between between be be- In tic some cases profits tween them In such cases I am lm told of oC these the bank banI examiners b by one ono of Joint stock land banks that an application application cation callon will gill be b made mado sometimes to one one of these thes banks and they sa say Well tit ell to today a we wo aro are not In a position to grant rant lant your our request but we suggest to you OU to such and such a trust that you OU go to the company The applicant goes trust company compan and the trust company will wUl say Wo 0 can make the tho loan at 7 per Iler cent but we should like to have ha submit application and se se- se you your our When hen the borrower le- le 1 returns turns they will if IC tho the security Is satisfactory satisfactory sat sat- make mala the loan lom at 7 per cent cent- Then tho the trust company takes 1 per percent percent percent cent the Joint stock land bank takes 1 1 per cent and there thore Is where the thc double dou dou- double ble profits aro arc made The bank and trust company arc are owned b by the same people I want to sn say that If It tho the Chicago hank bank continues a 1 few tew years longer It could draw OOOO per annum annum annum an an- further business business busi busi- num do ho nothing seek no ness and watt wait for Cor cl eighteen years before bo- bo fore foro the payments are aro fully tully mado when they will have received all of ot the profits named and capital invested x during that time dimming Cummings Favors Im I'm or Move roe This statement statement brought on a lengthy discussion In the Senate and ninny many of or those senators taking part In the tho discussion ills dis were aghast at tho the startling disclosures made by b tho the Utah senator Senator Cummings s expressed himself him him- himself self as DoS favoring the abolishment hm lIt of or orthe the joint stock land banks on the basis b that It Is manifestly unfair to accumulate late ate nn any great grent amount of oC capital that thatIs Is free Creo from Crom all taxation ana ane that tho thoI ho government would not long on be able ablo tn to endure under such a n system Tho entire on- on I tire Senate was vas agreed ns on the man many beneficial results obtained through the federal farm loan banks b but they were equally eQuall agreed on the tho dire results of ot the tho ho joint stock land banks presaging presaging ing an early passage of Senator Smoots Smoot's amendment e I |