During the worst of those years, William E. Barkley was president and a director of the Lincoln Joint Stock Land bank; William A. Selleck was vice-president and a director; Don L. Love was a director and treasurer; W. W. Burr was on the board as an agronomist.
All of the nation's joint stock land banks came under criticism in the mid-1920s — and onward — for foreclosing on farmers and sometimes taking the land for themselves, contrary to the mission established for them in 1916, which was to provide needed farm credit in exchange for tax-exempt status.
After a near-panic in the midwest over the farm credit crisis, Congress held hearings in 1927 on legislation to regulate the joint stock land banks through the Treasury Department rather than through the Farm Loan Board. The House Banking Committee took testimony from the land banks, which defended themselves, including extensive testimony from William Selleck of the Lincoln Joint Stock Land Bank.
"I have no knowledge of that at all"
Early in the hearings, the joint stock land banks' association secretary offered this defense, but stumbled over showing any compassion for farmers (emphasis added):
Mr. POWELL [W. W. Powell, secretary American Association of Joint Stock Land Banks] ...At this point, I want to turn back, if I may, because I have some figures that may come in here, which just arrived by air mail yesterday afternoon, and I am very anxious to submit them .... We have the annual report as of December 31, 1926, of the State Bank Commissioner of the State of Nebraska, likewise the annual statement of the Banking Commissioner of the State of Iowa, which reports cover the condition of all the State banks and trust companies under State supervision in each of those States. ... At this point I am very happy to say that if it was the intent of anybody to think of the joint-stock land banks as a horrible example these figures will dispel any such view of the matter, because these figures show definitely that of all the loaning agencies in the field the joint-stock land banks have the best record. Our percentage of real estate to capital stock is lower than that of any other agency.
Mr. BRAND. [Charles Brand, Ohio Republican congressman] Mr. Powell, have you any information in regard to what has become of the farmers who owned those lands being sold out by the banks; that is, what they did?
Mr. POWELL. I have no knowledge of that at all. This information is taken from the official records of banking houses as obtained through the commissioner of banking's office, and has nothing to do with that, of course.
"This is only a subterfuge"
The chairman and members of the House Banking Committee then jousted back and forth with William Selleck over how foreclosures at his bank were handled, particularly about a bank employee who was a stand-in for the bank so local farmers would not know what the bank was doing (emphasis added):
The CHAIRMAN. [LOUIS T. MCFADDEN, Pennsylvania Republican congressman] Some mention was made of the amount of the sale price and the amount of the new loan to the new purchaser. I would like to ask you a little more about those new purchasers. Were any of these purchasers employees of the Lincoln Joint Stock Land Bank?
Mr. SELLECK. I will endeavor to answer that question fully, and then give you the facts just as you want. I will say this, that it has been the practice of this bank when we found that a farm must be taken back, to get a deed of compromise if we could and if the title was such that we could .... Where a deed of compromise has been possible, we have had a Mr. Norman Black, I think his name is, who has taken the deed in his own name. That is done for this purpose: In nearly all these cases that we have been able to get compromise deeds there has been the hope still existing in the mind of the farmer, and also in the bank, that this man might yet pull himself out and go on with his contract and save his farm .... I started to tell about Mr. Black. When we find that we can get a title of this sort and the farmer still has hope, so that if this man can get himself together he can redeem within the year, he may go without further expense. We believe that the fair thing for the farmer; we believe it is giving him another chance, and we do not want his land.
The CHAIRMAN. Mr. Selleck, does Mr. Black execute his mortgage to your bank?
Mr. SELLECK. The mortgage is not disturbed; if it be a deed of composure or deed of settlement, it is allowed to stand during this year.
The CHAIRMAN. In the name of the original borrower?
Mr. SELLECK. In the name of the original borrower.
The CHAIRMAN. Notwithstanding the fact that he has lost title to the property?
Mr. SELLECK. He has a year in which he may still redeem; and if he redeems within that year, then the title is given back and the matter goes on.
The CHAIRMAN. In the case of foreclosure, what happens? Does Mr. Black buy that property in for your bank ?
Mr. SELLECK. Not generally; there have been a few instances where he has.
The CHAIRMAN. And he issues his mortgage to the bank?
Mr. SELLECK. I think there is just one instance where he has issued mortgages.
The CHAIRMAN. To what extent?
Mr. SELLECK. My remembrance is there was only one instance....
Mr. WILLIAMSON. May I ask right there, in the event of Mr. Black taking over the property, if he should sell it and make a profit, does he give that profit to the bank?
Mr. SELLECK. Yes. ...
Mr. STEVENSON. I want to ask you this question: What becomes of the rents and profits of it in the meanwhile? That is the only question that would seem to be a place where the bank might get into a little trouble.
Mr. SELLECK. The bank gets that; the bank manages these farms.
Mr. STEVENSON. You require provision to be made in that arrangement so that the rents and profits go to the bank?
Mr. SELLECK. Yes, sir .
Mr. STEVENSON. So as to pay running charges?
Mr. SELLECK. Yes, sir.
The CHAIRMAN. Is there any other officer or director or employee who acts in a similar capacity for your bank as does Mr. Black?
Mr. SELLECK. No, sir.
The CHAIRMAN. So that all of the transactions incident to foreclosure and sale are handled by your bank in the name of Mr. Black?
Mr. SELLECK. Yes...
Mr. STEVENSON. Let us get at that question and see if I understand. That applies where there is a foreclosure sale and Mr. Black has purchased under the foreclosure, and, therefore, your lien had been eliminated or wiped out.
Mr. SELLECK. Yes, sir; and in those two cases we have a written contract.
Mr. STEVENSON. At any time prior to the time that the sheriff gave his deed, of course, that would not be the case.
Mr. SELLECK. Yes.
Mr. STEVENSON. But after the sheriff has given his deed it would be a fact?
Mr. SELLECK. Yes, and in those cases we have a written contract with Mr. Black.
Mr. STEVENSON. Does Black bear the loss, if any, on that transaction?
Mr. SELLECK. No, sir.
Mr. STEVENSON. Who bears the loss?
Mr. SELLECK. If there is a loss, the bank would bear it.
Mr. STEVENSON. If he had a profit, does Black get it?
Mr. SELLECK. No, sir.
Mr. STEVENSON. If he should take that over and sell it at a profit, would that profit go to the bank?
Mr. SELLECK. Yes, sir,
Mr. STEVENSON. Why do you have Mr. Black step in; why does not the bank do that?
Mr. SELLECK. For this very good reason, as I think you will see: The minute that a farm goes into the name of the bank it loses at least 25 per cent of its sale value.
Mr. STEVENSON. I do not see that.
Mr. SELLECK. If you were handling land I am sure you would appreciate it. There is no bank, no receiver, no public officer that can ever get the full mortgage value of the land. The buyers in the immediate neighborhood will say " That is a forced sale."
Mr. PRALL. Do they not know that they have a man who is connected with the bank? Do they not know that this is only a subterfuge so far as that is concerned?
Mr. SELLECK. No; I do not think so. We have not more than one farm in any one place, probably not more than one farm in one locality.
The CHAIRMAN. Is Mr. Black compensated by salary?
Mr. SELLECK. He is a regular employee.
The CHAIRMAN. He receives no fee other than salary!
Mr. SELLECK. No, sir.
The CHAIRMAN. What is his salary?
Mr. SELLECK. I do not know.
"Would you not consider it a little unethical?"
The committee goes on to discover that there are other procedures at the Lincoln bank that are not transparent, also ostensibly to help farmers (while not telling them) but which make a side profit for two of its directors (emphasis added):
The CHAIRMAN. In other words, you have no other accommodation [for] borrowers?
Mr. SELLECK. No, sir. But in our bank this has been done, which did not affect the real estate title at all—I want the committee to know all the facts, so far as I know them: Mr. Barkley and Mr. Grainger several years ago established an account called the “ Barkley-Grainger account." That was used for the purpose of advancing money for delinquent payments. They took up the delinquent payments and as their reward for that got the 8 percent that the statute allowed for delinquents.
Mr. FENN. Mr. Barkley and his companion got that?
Mr. SELLECK. Yes, sir; the bank having been paid by them the delinquent payment.
Mr. FENN. They were making a little rake-off on it then?
Mr. SELLECK. I doubt if, as a matter of fact, it ever exceeded 6 per cent net.
The CHAIRMAN. In other words, making delinquent payments and amortization payments for the account of the mortgagor when he is unable to make that payment!
Mr. SELLECK. Yes.
The CHAIRMAN. Otherwise that loan would be in default and would have to be recorded as a defaulted loan on the books of your bank, would it not?
Mr. SELLECK. That is not an infrequent thing, Mr. Chairman; for instance, let me call your attention to this fact, that in the very large number of loans of any of these banks, I believe I am sure it is true of ours — there are second mortgages held by commercial banks or by other investors. When a payment becomes due, it is very customary for us to notify the second mortgagor, in case the original mortgagor does not remit promptly — to notify this second lien holder, advising them that there has been a delinquency and that his second lien is in danger. The second lien holder, as long as the commercial banks were in good shape, invariably took that up. I see no difference between that, Mr. Chairman, and the Barkley-Grainger account taking it up.
The CHAIRMAN. To what extent has Barkley and Grainger assumed to pay for defaulted interest?
Mr. SELLECK. There has been no contract at all.
The CHAIRMAN. As a running guess, how many of those loans would be in default if they had not assumed and paid interest?
Mr. SELLECK. I do not have that information . But most of their payments have been on mortgages where the farmers have had three months' or six months' leeway. It did not feel, as was brought out before the committee several days ago, that they had any right under the law to grant extensions; but these men could take up the delinquency and carry it at their own convenience.
The CHAIRMAN. Then Barkley and Grainger are directors of the bank, are they?
Mr. SELLECK. Yes, sir.
The CHAIRMAN. And also members of the executive committee?
Mr. SELLECK. Yes, sir.
The CHAIRMAN. Suppose some of those mortgages on which Grainger and Barkley had assumed a payment of interest should default, has the Lincoln Bank ever reimbursed them when foreclosures have taken place?
Mr. SELLECK. I do not know that it ever has. Commissioner Williams tells me that the last examination shows a record of it. I can not explain it. There must be something about it of which I do not know the facts. I am not trying to dodge your question at all.
The CHAIRMAN. The point is whether because of this slump in real-estate values out there your bank and other joint-stock land banks were carrying in one way or another on a hocus-pocus plan these farm lands and making them appear as live mortgages or not?
Mr. SELLECK. I can answer that in a broad way.
The CHAIRMAN. That presents a very serious angle, if such is the case, particularly if any of these mortgages are still held as security for bond issues. And I am assuming that these Barkley and Grainger loans, where interest was paid, that many of them are on deposit as security for the bonds which have been sold to the investing public; is that correct or not? Or have they been withdrawn as security for the bond issues?
Mr. SELLECK. I can not answer that question right now; I do not know what the facts are. But I want to say that the Barkley Grainger account has been mostly used in foreclosing of loans that have been paid by the borrower before the suspense of two years have gone by. It has been a sort of revolving fund with which they have taken care of the man who needed to have a little time before he could get his money.
Mr. WILLIAMSON. Was that gratuitously done or to make money?
Mr. SELLECK. Entirely —
Mr. WILLIAMSON. They did this without profit?
Mr. SELLECK. They get the benefit of 8 per cent. The law provides that delinquency will bear 8 per cent from the date of delinquency until paid, and they get the benefit of that.
The CHAIRMAN. You state they have established a fund. Is that fund then deposited with the Lincoln Joint Stock Land Bank or is that in a separate institution?
Mr. SELLECK. It has been deposited with the Lincoln Joint Stock Land Bank. The whole thing appears in the records of the bank. There has been no effort
The CHAIRMAN. Is it the general practice of the Lincoln Joint Stock to take deposits of trust funds?
Mr. SELLECK. Oh, no. This is not a deposit in that sense at all. They have simply provided funds with which these payments have been made.
The CHAIRMAN. So they have established a fund with the Lincoln Joint Stock Land Bank to take up these delinquent payments of interest and amortization. Are they always consulted when this account is charged, or is the Lincoln Joint Stock Land Bank given full authority to charge up any defaulted interest to this account?
Mr. SELLECK. I do not believe I quite understand your question.
The CHAIRMAN. In other words, tħis is an account with the Lincoln Joint Stock Land Bank to the credit of Barkley and Grainger. Have the Lincoln Joint Stock Land Bank officers or employees authority to charge to that account any defaulted interest?
Mr. SELLECK. No, sir. It is entirely optional with Mr. Barkley and Mr. Grainger whether they will buy that delinquency or not.
The CHAIRMAN. In other words, they negotiate with the borrower?
Mr. SELLECK. No, the borrower does not know anything about it.
The CHAIRMAN. The borrower does not know anything about it?
Mr. SELLECK. No, sir.
The CHAIRMAN. So far as the borrower is concerned, he is in default?
Mr. SELLECK. Yes, sir.
The CHAIRMAN. And does not know any one has paid his interest?
Mr. SELLECK. No, sir.
The CHAIRMAN. That is a confidential arrangement between the Lincoln Joint Stock Land Bank and Barkley and Grainger?
Mr. SELLECK. Yes, sir.
Mr. GOODWIN . How is delinquent interest carried where Grainger and Barkley pay the interest?
Mr. SELLECK . So far as the bank is concerned, there will be no delinquent interest any more than with a second mortgagee.
Mr. BEEDY. Does it not show up on the books as delinquent?
Mr. SELLECK. No, sir; no more than when a second mortgagee pays.
Mr. ALLEN . Is this foreclosure added to the balance of mortgaged indebtedness?
Mr. SELLECK. That would come in the hands of Barkley and Grainger as a second lien.
Mr. PRALL. Would you allow any other person to come in and do this thing as Barkley and Grainger are doing?
Mr. SELLECK. We seek the second mortgagee always to do it.
Mr. PRALL. If they do not do it, these two men do it all?
Mr. SELLECK. Yes, sir; nobody else has.volunteered to do that sort of work.
Mr. STEVENSON. The man that has got the lien has got to take care of you or lose his lien?
Mr. SELLECK. Yes, sir.
Mr. STEVENSON. And you give him that opportunity?
Mr. SELLECK. Yes, sir.
Mr. BEEDY. This arrangement is set up only in all those cases where the original borrower has been unable to get a second mortgage on the property?
Mr. SELLECK. Not in all of them, but wherever it is done the facts are set out on the books exactly as they are.
Mr. BEEDY. Wherever the original mortgagor has not been able or never tried himself to get a second mortgage, you then seek a second mortgage, if possible, before you avail yourself.
Mr. SELLECK. Oh, no, sir.
Mr. BEEDY. I understood you to answer Mr. Prall that you always sought a second mortgage?
Mr. SELLECK. We seek the second mortgagee and try to get him to take up the delinquency.
Mr. BEEDY. You do not try to get a second mortgage?
Mr. SELLECK . No, sir.
The CHAIRMAN. Mr. Selleck, on some of these properties which you have been discussing here, is it a fact that your bank holds them part as real estate and part as mortgage loan?
Mr. SELLECK. I do not know of any such instance.
The CHAIRMAN. You are a lawyer, of course, and understand the Federal farm loan law?
Mr. SELLECK. Yes.
The CHAIRMAN. Is this practice, to which you are referring here this morning, of two directors, or Mr. Barkley, who is president of the Lincoln Joint Stock Land Bank, creating a fund to provide for defaulted interest, in strict accordance with the Federal farm loan act, in your judgment?
Mr. SELLECK. I know nothing against it, any more than where there is payment by a second mortgagee.
The CHAIRMAN. Would you not consider it a little unethical?
Mr. SELLECK. I do not see why, if the whole thing is set out on the books the way it is, it is certainly, Mr. Chairman, in the interest of the mortgagor, giving him another chance.
The CHAIRMAN. Do you not think where these mortgages are put up as security back of farm-loan bonds that are sold to the investing public that that is rather a breach of faith to the bondholders?
Mr. SELLECK. Just let me analyze that a moment, and see whether it is or not: These mortgages are put up, presumably, at 50 per cent face valuation. Is the bondholder in any way disturbed in his relations because one amortization payment or two or three or even four or more have been paid and become a second lien to his lien? Is he damaged thereby?
Mr. STEVENSON. In addition to that, Mr. Selleck, the bare payment reduces the amount of the principal!
Mr. SELLECK. That is exactly what I called attention to.
Mr. STEVENSON. And that increases the security?
Mr. SELLECK. And part of the principal has been paid.
Mr. PRALL. Why do we not create another bank, board, or another committee, or something of the kind to take care of all these things of that nature which are being done by the officers of the ban ? If it would pay them, it might pay the Government.
Mr. WILLIAMSON. I do not think it is possible for them to do it except as a matter of protecting their bank.
Mr. SELLECK. We do not do it for the same reason that we are all in just the same fix. It is a temporary matter - I believe temporary because the same values are concerned.
Mr. PRALL. Have you done this very long?
Mr. SELLECK . I can not tell. It has been done perhaps two or three years.
The CHAIRMAN. Mr. Selleck, in connection with this friendly arrangement between Barkley and Grainger with the joint-stock land bank referred to a moment ago, I asked you whether they had ever been reimbursed by the bank for any payments. It is not quite clear to me what your answer was on that.
Mr. SELLECK. I said I did not know of a case until Commissioner Williams called my attention to it that there was one case. Was there more than one?
Mr. WILLIAMS. I will have to refer to the report of the examiners.
Mr. SELLECK. Mr. Williams told me that the report showed that the bank had reimbursed Grainger and Barkley on one case.
Mr. ALLEN. Because of Barkley's indebtedness, if the land is never redeemed and the bank becomes the owner of the property, are they reimbursed for the money they have advanced, or do they take a loss on that?
Mr. SELLECK. I was trying to say that Commissioner Williams says that in one instance the bank reimbursed them. I do not know why that was, because the understanding that I have always had was that they secured a second lien for the amount of money they paid. If it went to foreclosure the only way they could protect themselves would be for them to buy in the farm, and they have done that in one instance.
The CHAIRMAN. It would seem to me to be unfair on the part of the joint stock land bank to refund to Barkley and Grainger where default had occurred and the bank had had to assume that.
Mr. SELLECK. I agree with you, Mr. Chairman, and I frankly state I do not know what the explanation is. But I feel sure that, having the confidence I have in Grainger and Barkley, that there must be some reason. So I prefer to say I do not know.
Mr. SELLECK. If I may, I want to speak just a moment on this section of net earnings, section 23 - anything that affects net earnings affects the power to pay dividends. If I understand corporate existence at all, this would be fundamental, that the first duty of a board of directors of a corporation, whether that corporation be manufacturing, transportation, banking, or any other business function where capital is invested, it is to pay dividends; and their duty is to so conduct the business of that corporation that dividends may be paid. I think, Mr. Chairman, that is fundamental. If you can not pay dividends you can not get capital. It does not make very much difference what the dividend is, so long as it is a reasonable return on the capital. But capital is entitled to a regularity in the payment of dividends and assurance of it, and any regulation or rule which unnecessarily hampers the directors in the payment of a legitimate dividend is an uneconomic and unwise rule, if you want the system to function.
It is noteworthy that William Selleck does not acknowledge the tax-exempt nature of his bank, and any responsibility for giving back to taxpayers what they have foregone so that his bank can maximize dividends. Congress, wisely in my opinion, took away the tax-exempt status of these banks in 1933.
He also undermines arguments set forth earlier that his bank was sympathetic to farmers — that apparently happened only when there was an angle for the bank, or its directors, to profit.
Several properties along West Superior were financed and foreclosed by the Lincoln Joint Stock Land Bank. One was once owned by the daughter and son of the bank's last president and is again owned by a bank that is out of step with its current neighbors over the area's future. The neighbors do not consider return to capital as "entitled" and think that environmental and climate concerns are more important than a bank's sense of duty to its own enrichment. Local government officials, out of habit, continue blindly to follow the siren of "growth" and reflexively pay tribute to capital's asserted entitlement, at their own environmental peril.
Also of note: Selleck Quadrangle at UNL is named for William A. Selleck's son, John Kent Selleck, not for the father. William A. Selleck's and William E. Barkley's other bank, the Lincoln National Bank and Trust Company, was robbed in 1930 in an infamous heist at 12th and O Streets and subsequently closed.
In a future blog post, I'll look at the legacy of joint stock land banks in terms of forerunners of Government Sponsored Enterprises (GSEs) and how some of those ventures did not turn out well, either, at least for the public. There are disturbing parallels with similar entities that were created to provide student-loan credit but wound up abetting a national student-loan crisis for tens of millions who took out loans for college.
