Further insurance against risk is afforded by the fact, that the mortgages securing each series of bonds are upon different farms in various localities throughout the district of the federal land bank which issues the bonds. Should one of the mortgagors experience a bad season or other misfortune, his troubles are not likely to be shared by the other mortgagors, all of whom may be at some distance from him, even in different counties or states.

For example, assume that federal land bank No. 9 is at Aberdeen, S. D., that its district includes the two Dakotas, Montana and Wyoming, and that it is about to issue Series No. 1 of its bonds in the sum of $100,000. By that time it may own say 400 giltedge first mortgages, each of which complies in every respect with the law. These mortgages may range in size from $500 to $5000, aggregating some $600,000. They are upon farms in all sections of the four states constituting the district.

Out of all these mortgages, suppose that 75, amounting to $100,000, are chosen to secure the bond issue of $100,000. It is hardly possible that any considerable number of the carefully selected and widely scattered farms

covered by these mortgages could all be seriously affected the same year by drouth, frost, flood or other adverse conditions. Some will be stock farms, some dairy farms, some grain farms, some truck farms, some devoted to general farming or to diversified agriculture. Even if the price of wheat should be low, it would directly affect only some of the mortgagors, but their debt is so small relative to their assets, that the grain-growing mortgagors would have no difficulty in meeting their dues of both interest and principal. The same is true in a general way of each of the other classes of farmers.

Collective Security. All of these 75 mortgages will be the collective collateral which secures the $100,000 of bonds. As each farmer pays in his installment upon principal every six months, it will be set aside as a reserve fund to meet the bonds at maturity, or bonds will be bought in and retired in corresponding amount. If ultimately any one mortgagor fails to meet his principal or interest, then the default must be made up by the national farm loan association of which he is a member.

Should it fail to make good, then the federal land bank must supply the default. If it is

unable so to do, then the federal farm loan board may require each of the other 11 federal land banks to contribute their due proportion of the sum in default.

It seems impossible that any bondholder could ever lose a penny of interest or a dollar of principal. Yet each borrower's note and mortgage is not responsible for the debts of others. Each borrower's farm is liable only for the one mortgage upon it, and is free from any joint obligation or several liability. In a word, ample safety is secured, yet the farmer's liability is strictly limited to the debt upon his own farm, and to his own share in his own land bank or in his own national farm loan association.

CHAPTER EIGHT

TAX EXEMPTION

HE farmer's real estate cannot escape

TH

taxation. It cannot be hidden. The

local assessors of values for taxation know about what the farm is worth. Usually the assessor also has a very complete idea of the personal property which the farmer owns, in the form of equipment and live stock.

Not only is all the farmer's property taxed, but in some states the method of taxation is such as to throw onto real estate an undue proportion of the whole amount of the public revenue which has to be raised by direct

taxes.

Avoid Double Taxation. Since it is utterly impossible for farm real estate to escape taxation, and since it too often pays an undue proportion of taxation, it is essential to the farmer's welfare that he be not doubly taxed.

For this reason, the law provides that the borrower under the federal farm loan system, shall not be obliged to pay any tax whatever upon the note and mortgage which secures the

long-time loan upon his farm real estate. Not only are these exempted from taxation, but the money which the farmer has invested in shares of his national farm loan association, also all shares in the federal land bank, are exempt from taxation.

Total Exemption. Furthermore, the capital and reserve or surplus, and the income derived therefrom, in every federal land bank and every national farm loan association "shall be exempt from federal, state, municipal and local taxation, except taxes upon real estate. What real estate may be held by either is strictly limited and subject to the same taxation as all other real estate.

The law goes still further and declares: "First mortgages executed to federal land banks, or to joint stock land banks, and farm loan bonds issued under the provisions of this act, shall be deemed and held to be instrumentalities of the government of the United States, and as such, they and the income derived therefrom shall be exempt from federal,, state, municipal and local taxation."

Sound in Principle. This total exemption from taxation of every dollar invested