MORTGAGE FINANCE

Taranaki Daily News, 28 November 1934, Page 9

MORTGAGE FINANCE

GOVERNMENT PROPOSALS EFFECT ON THE DAIRY FARMER. POINTS NEEDING CONSIDERATION. ADDRESS BY MR. W. J. POLSON. The provisions in the proposed plan for a mortgage corporation to take over State and private mortgages and refinance them on easier terms were outlined to a meeting of the Huiroa branch of the Farmers’ Union on Monday night by the Dominion president of the union, Mr. W. J. Polson, member for Stratford, whose speech at Huiroa was the first of a series to be given on similar lines at various country centres. Mr. Polson was at Strathmore last night. Mr. Polson made it clear that he was giving the addresses at the invitation of the union, which felt that the proposals, with other matters affecting farmers’ finance, should be fully explained and considered.

There was an attendance of 30 to 35, with Mr. J. Wood presiding. After the address Mr. Wood moved and Mr. A. E. Taylor seconded the following motion, which was carried unanimously: That any plan for rural finance should be either co-operative or State controlled; that it should provide for a low rate of interest not exceeding 3A per cent.; that it should include all Government lending institutions and not only some; that it should provide for sound appraisal and stable land values. “The most important matter to farmers’ that will be dealt with at the next session of Parliament is the proposal to set up a mortgage corporation to take over State and private mortgages,” Mr. Polson said. “I d<? not know just how far it is proposed that the Bill should go, but it will affect the future of all farmers who are mortgaged, and probably of those who are not.” The proposed legislation was of such a nature that all meetings of the Farmers’ Union should be dealing with and expressing opinions on it, and it was necessary that members be enlightened on the principles involved so they might be able to take an intelligent interest in a matter that would affect them so vitally. FINANCIAL AID NECESSARY. The report of the Dairy Commission, he went on, clearly set out the position of the dairy farmer and showed that 50 per cent, were earning less than their outgoings were before the lowest level of prices for butter-fat was reached. It was therefore essential that financial aid be given the dairy farmer if he were to carry on. The commission devoted much space in its report to plans for reorganising the dairy industry. That .alone would not save it, but the commission also recommended the establishment of a mortgage corporation along the lines of the Reserve Bank. If that was the intention, then it would appear that the mortgage corporation would be a joint stock corporation, and therefore a profitearning concern with the various methods of lending to farmers welded into it, including the rural intermediate credit system, which was a co-operative organisation. Should that be the proposal, then he would undoubtedly be a critic of the plan, for he could not see how it was possible to “marry” a co-opera-tive concern like rural credits with a profit-earning corporation such as the mortgage corporation would apparently be, for the result would be that it would earn profits for individuals at the expense of the farming community. Capitalistic control in its present form, Mr. Polson said, had failed not only in New Zealand but throughout the world. It had been found necessary entirely to reorganise the system to counteract the abuse of power which had occurred, and it was with that knowledge in its mind that the Farmers’ Union opposed control of the Reserve Bank by private shareholders. The bank was handling the business of the people, exchange and short-term lending to the State, so that it was imperative that the policy of the bank should be subject to the State. That contention was borne out by the practice in other countries where reserve banks were mostly State controlled. “BUBBLE ALREADY PRICKED.” There were men like the Hon. A. D. McLeod and Mr. Downie Stewart who believed in the old conservative idea of the sacredness of banking and who were opposed to State control or interference, but that was a bubble that had already been pricked—by the raising of the exchange rate, for example—an interference with banking by the State. There were also people who condemned that move as unsound and of no benefit to the farmer, and some who went so far as to say that the move had had an adverse effect, but' he could produce figures to show that the benefit of the higher rate, when worked back to the farm, was between 32 per cent, and 35 per cent., according to the type of produce the farmer in point produced. Thousands of farmers would have been forced off their farms without the aid of the higher rate, which increased their returns, while the increase in costs had been insignificant in comparison, because only about 10 per cent, of a farmer’s material was imported and suffered through the higher exchange. Mr. McLeod, however, was a strong supporter of the increased’ rate of exchange, yet he condemned State interference with banking. He could not have it both ways.

“It is necessary for the State to interfere when the occasion is important enough, and it has been done all over the world,” Mr. Polson stated. “We could not have made the trading banks responsible, and the Government had to interfere. That does not mean political control, as the Government controls only the policy. The bank should always be managed .by an independent board.” BANK OF ENGLAND’S POSITION. The Bank of England had been quoted as an example of a private banking institution with which the Government did not interfere, but it had to be remembered that the Bank of England was in a position altogether different from that of any other bank. Over a long period of years that bank had built up a tradition of public service that was unique, but at the same time the British Government, through representatives on the directorate, had a great say in the policy of the bank, and if it were not State controlled it was next door to it.

Everybody agreed with the Dairy Commission that the dairy industry was in a parlous position, but nobody had yet produced a practical solution for giving immediate relief to the dairy farmers. At the big dairy conference at Wellington recently some form of repayable subsidy was urged, but the Government refused on the ground that every other section of the community would want a subsidy if one were given to the dairy industry. Mr. Polson explained his plan for a repayable subsidy, as he suggested at the conference of Taranaki farmers at Stratford a few weeks ago. The plan had been criticised, Mr. Polson said, because there was no security over a farmer who sold his farm, but he suggested that the farm and not the farmer should be made responsible. If the conclusions of the commission were sound, the only way was to issue credit carefully and under strict re-

straint. The Government did not hesitate to use the Reserve Bank to issue notes to pay off the private banks, and to-day there was an issue of nearly £9,000,000 worth of notes, against the customary £5,000,000. Probably more would have been issued, but the banks “cried enough” and asked that the balance owing them be left on deposit in the Reserve Bank. Nobody felt the extra Issue, and it had made no difference in the value of the pound. It was a dangerous method, he admitted, unless kept under strict control, but it was satisfactory as long as it was sanely controlled by an independent and expert authority. There would be no objection to the repayable advance plan in Great Britain because the London committee that inquired into the position of the industry on behalf of the Dairy Board' could not find any evidence against. the . scheme, and stated that no witness objected to it. As far as he could gather the proposed mortgage corporation would refinance at a rate much cheaper than the present average. Bonds would be issued to the mortgagees at a low rate of interest in satisfaction of their claims, and they would be able to sell the bonds in the market, thus releasing assets that were now frozen, putting more money into circulation, reducing rmemployment and giving money to the farmer borrower at a lower rate of interest. From that aspect he was strongly in favour of the scheme, but he would oppose any move to tie the plan to any capitalistic concern such as a banking institution. The Reserve Bank was at present State controlled, but at the end of five years its control would pass to the shareholders. Therefore any suggestion that the mortgage corporation should be controlled by shareholders would have to be rigidly opposed. The mortgagors’ relief plan as now in operation could not be continued indefinitely, so it was necessary that a transitionary machine be set up to care for the interests of the mortgagor during the change from sheltered to unsheltered conditions. CAPITALISING OF INTEREST. The scheme for a mortgage corporation proposed to capitalise the mortgagee’s interest in the mortgage at an appraised value settled by a committee of appraisers, and once the value was fixed

bonds would be given the mortgagee, ; whose claims would then be discharged. Supposing a property was valued under mortgage at £5OOO and was worth only ; £3OOO to-day, he assumed that bonds to a value approaching £3900 would be : given to the mortgagee, and he could sell them in the market at around par. He did not know how that phase of the • matter would work or what the position of the New Zealand land market was, and if all the mortgagees tried to sell at once there might be a substantial fall in the land market. However, the Government was taking. that question into consideration. Mr. A. E. Taylor: Does that apply only to the first mortgagee? Mr. Polson: Well, I am only guessing, , but I think that as the first mortgagee ] is satisfied by the amortisation payments the second will slip in. > The bonds would be made liquid and saleable, he continued, and the corpor- ; ation would re-arrange the mortgages on , long terms at low rates of interest. There were £75,000,000 of State mortgages including £17,500,000 held by the Public Trust and £3,500,000 by the Government i Life Insurance. He was doubtful as to whether it was proposed to include those . two, but it "was essential that they should . be. It was necessary that the interest • on the bonds be no more than 3 per j cent, and that the money be lent to the farmer at 3J per cent., plus 1 per cent, 3 amortisation or sinking fund to repay ] the capital, bringing the total rate to ■ 4J per cent. Cheap money was abso- , lutely vital. It was cheap money that * helped New Zealand from the slump of the late ’eighties. Mr. Richard Seddon ■ made money available at low rates, and • though that alone did not pull the coun- i try from the slump, it enabled the people to take advantage of improving world conditions. ' OTHER COUNTRIES’ EXPERIENCE. The experience of other countries on lines similar to those proposed was that the cream of the securities passed into • the hands of individuals or private concerns; that was one reason why he was i so anxious to keep profit-earning concerns out of it. He would also limit the • liability of the State and would refuse a clearing transfer to any farmer who ' came in under the scheme if he did : not pay off at least the greatest proportion of his indebtedness instead of ’

going out and leaving someone else to “hold the baby.” According to the budget plan, it was proposed to deal with urban and rural lands. A long term loan could not be issued on a town property owing to the rapidly changing conditions and values in a town. Short-term loans would have to carry an excessive amount of amortisation, so he could not see how the plan could be applied to urban lands. The question of joint liability had not been considered in the plan as far as he could see, but it could not be disregarded, and as long as values were sound a great deal of relief could be given. He had drafted points which he considered were essential: (a) That the mortgage corporation be established on co-operative principles or be State controlled; Cb) cheap money, 3 per cent, bonds and 4J per cent, to the farmer, including amortisation; (c) inclusion of all Government lending institutions; (d) sound appraisals and- stable land values; (e) recognition of rights of mortgagees, as they have rights which must be maintained as far as possible. _ [ Mr. Taylor: If the Government brings ! down legislation on the lines of a joint > stock corporation would you have the support of any other members of the House in opposing it? ’ / . “I would have the support of a great many,” Mr. Polson replied. “Some members would support the Government in anything, but I cannot do that if a proposal is against my principles, no matter what they call me.” Mr. Polson will address other meetings in the Stratford district at Wharehuia to-night, Ngaere to-morrow night and Cardiff on Friday.