At the time the New York Public-Service Commissions were instituted, the most serious apprehensions were expressed by financial interests that the new laws which took from directors and stockholders most of the control which they had previously exercised over the issues of new securities would seriously interfere with the efforts of companies to provide new capital. As the Commissions have progressed, however, since they have been forced into the position of virtually guaranteeing every issue which they approve on the basis of a careful investigation of the prospects of the enterprise, a critical examination of its engineering features, the rock on which so many new schemes are wrecked, and an assurance to the investor that reasonable rates will be allowed and that cut-throat competition will be prevented, they have come to be very favorably regarded by investment bankers.

The bond-salesman who can offer a security whose issue has been approved by some publicservice commission has his work of persuasion largely accomplished. Indeed, the sentiment among investment-bankers is nearly unanimous as to the benefits which have come to their business from the work of these regulative bodies.

XVI

FARM MORTGAGES

A FARM mortgage does not differ from any other mortgage. It is a promise to pay one, two, five, or ten thousand dollars in three or five years from date, and it is secured by the mortgage which conveys, in trust, to the lender the title to the mortgaged property. This conveyance is recorded in the county in which the property is located, thus establishing the claim of the lender as a first lien upon the mortgaged premises. The advantages and disadvantages of this form of mortgage, as compared with an investment in the bonds of a large corporation, may be summarized as follows:

The first advantage of the farm mortgage is its high yield. The Central West, the part of the country in which mortgage loans are preferably made by conservative investors, is now making loans on a 6 per cent. basis to the investor. The Western States, as a rule, do not tax at home investments in foreign loans, and this gives the investor the opportunity to realize the full interest return.

The second advantage of the farm loan is its early maturity. The purchaser of a bond of a railway company cannot get his money back from the company for, perhaps, thirty or even fifty years. His only way of recovering his principal is to sell his bond to some other investor. This involves the risk of depreciation in the principal. The investor may have purchased his bond for 105, and when he comes to sell, it may have declined to 99%, owing to a falling-off in the demand for securities of that character. The bond is still perfectly good, his interest will be paid regularly, but he has sustained a loss on the capital value of his investment. The investor in a farm mortgage, however, can get his money back from the borrower at the end of three or five years.

The third point in favor of the farm mortgage is closely connected with that just mentioned, namely, the greater control which the investor has over his investment. Provision is usually made in the mortgage for an indefinite extension from year to year at the expiration of the term named in the instrument. When this provision is included, if the investor wishes the return of his principal at the end of the term, he can have it. If he wishes a longer-term investment, he can allow the mort

gage to run from year to year. A good farmer can make more than 6 per cent. by investing money in buildings and improvements and in land, and often is not anxious to pay off his mortgage. At the end of any year, however, the mortgage can be called up and the investor can get his money.

All mortgages, moreover, whether issued by a great railway company or by a small farmer in North Dakota, provide that the borrower should keep his farm, which is the lender's security, in good condition and the buildings in good repair. It is almost impossible for the investor in a corporation bond to enforce these provisions. He is only one of perhaps 2,000 bond-holders; he is represented by a trustee, and he must rely upon the trustee to enforce the terms of the mortgage. It is not the custom for the trustee, whatever powers may be given him by the mortgage instrument, to interfere with the management of the company. Instances have occurred where the security of mortgage bonds has been seriously impaired because of long-continued neglect of the property. This is not possible with the farm mortgage, or with any other form of real-estate obligation, where the security of each loan is a single piece of

property, and where the investor has the opportunity of inspection.

Against these advantages of farm-mortgage loans, certain disadvantages are urged. Some of these disadvantages are inherent in this form of obligation; others can be overcome by employing the services of reputable mortgage-brokers. The first point urged against the farm mortgage is its short duration. At the end of a few years, the lender may have his money handed back to him, and be obliged to look for a new investment. In practice, however, this objection is not serious. Either the mortgage is allowed to run from year to year, or a new investment of equal security can be obtained without difficulty.

Then, too, it is urged against the farm mortgage, that the application of the proceeds of the mortgage to productive purposes is not safeguarded as it is in a bond executed by a corporation. When a railroad company, for example, puts out an issue of bonds whose proceeds are to cover the construction of a branch line, the bonds will not be issued by the trustee to the banking house except upon the certificate of the company's engineer that a certain amount of mileage has been constructed. Not until the whole improvement has been com