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any day but what we see an insult has been made to the United States by demanding thousands of dollars for a ransom. So that is our contention with regard to the position of the Secretary of State. I don’t believe it is tenable. I think it is directly against our interests as American citizens. Mr. Rose. There is one thing that strikes me. It strikes me as queer that the Secretary of State of the United States should be pleading for the interest of some foreign country rather than the interests of 60,000 citizens of the United States. Mr. HAYDEN. That is not a fair attitude in which to place the Secretary of State. He is compelled to frequently deal with the Government of Mexico with regard to the rights of Mexican citizens in the United States and the rights of American citizens in Mexico. He wants to be in position to treat with them about all matters of mutual interest. It is entirely proper for the Secretary of State to advise that there are relations between the two Governments which deserve fair consideration by Congress. You think only of the Imperial Valley situation, which is deplorable; but you must remember, Mr. Rose, that the Secretary of State has to deal with a great many other situations which are just as difficult, with probably as large interests involved, in which he must act fairly by the Mexican Government. Mr. Rose. But the Mexican people haven't asked anything. He comes in and makes the suggestion, evidently provoked to do it by large interests in the United States. Mr. HAYDEN. I do not think your inference is warranted for the reason that away back in 1912 Secretary Lansing states that negotiations were pending between the United States and Mexico regarding the waters of the Colorado River. Mr. Rose. Mexico turned them down. It was Otis. He asked them for an equitable division. They asked him what that meant. Equal division, he told them. They said no; they didn't want an equitable division, but an equal division. There isn't anything on record, and we have asked for it and searched for it, where they have asked for an equitable distribution. Mr. HAYDEN. If the situation was changed by the passage of the pending bill do you believe that the Mexican Government would then want to negotiate for a distribution of the waters of the Colorado River? Mr. Rose. That is another thing I want to say. By the passage of this act, if it was taking all of the water out of the Colorado River and making it impossible at any time in the future to negotiate, it would be different, but the facts before this committee show that there is enough water in this river to irrigate the land of both countries, and if we build the canal there is yet opportunity for the Mexican interests to get it by building storage, and you still have the opportunity to negotiate with them for a division of the water. Mr. YAGER. All we ask is that we sever connection with Mexico, and if they want to come to the United States and negotiate for this water I think it will be all right. But as for us going on for years and years paying their bills I don’t think it is just and I don’t think this Congress should stand for it

I would like to state a word in regard to the position of the Secretary of the Treasury in regard to this matter. You have his letter filed with this committee objecting to certain portions of the bill, more particularly the form of underwriting the bonds of the district, accepting our bonds and issuing certificates of the Treasury in lieu of that. In our attempt to provide here in this bill some adequate way in which the districts can go ahead and pay for their own irrigating system and build up their own land at their own expense, we have met with a great many objections. One of them we find in the Farm Loan Board. The Imperial Valley has, of course, made application for farm loans and have received a great many thousands, believing they were justified in taking advantage of the opportunity of getting a cheaper rate of interest the same as other districts, and I will say right here, in the 19 years that the Imperial irrigation district has been in existence they have created a valuation there of over $100,000,000. Last year they produced out of that district produce of the value of over $50,000,000. Imperial Valley is the third largest shipping center in the State of California, including San Francisco and Los Angeles. So we have a valuation there that is entitled to at least the consideration of our Government and our Government's departments in making loans. The building up of this territory has been done not through the help of the Government but through the tenacity of the farmers and Americans who have gone down there and taken it as a desert plain and built it up to what it is; and notwithstanding the valuations created here, when we attempt to make farm loans we received such letters as this. I don’t believe this has been read into the record or brought to the attention of the committee as a committee. It is a letter from the president of the Farm Loan Bank at Berkeley, who has jurisdiction over that district in California, to Judge Charles E. Lobdell, who was then and is now chairman of the Farm Loan Board here, and reads: MY DEAR JUDGE: Following the suggestion you made during your last Visit here, I recently went to Los Angeles and had a long conversation with Mr. Harry Chandler, of the Los Angeles Times. You will probably recall that Mr. Chandler and his associates are large landowners in the Imperial valley, and especially have tremendous holdings across the line in Lower California, Mexico. These lands are deriving their water through the main canal which supplies the most of Imperial Valley. It will be impossible for me to recite all the subjects and points discussed, but I simply want to say that I finally asked him this question. If he were in my position, knowing all the circumstances, conditions, menaces, and uncertainties which exist in the Imperial Valley, and knowing the type of farmers with which we have to deal, would he make long-term loans in that country? Or if he were in the mortgage business, would he lend his own money there on the same terms as Our loans are made? He answered flatly that he would not ; that the situation was indeterminate; that the farmers, generally, were undecided, were pioneers, and largely or that class of people who made no permanent homes; that very few of them had any conception of the dangers that constantly menaced them, both from flood and from lack of water; that they were contentious, quarrelsome, and unreasonable. I know positively that Mr. Chandler would not want to be , quoted in this, and that he gave me his views as man to man and on account of the very friendly relations we have maintained for many years past. I do not want to make any further loans in the Imperial Valley until the water conditions are settled, and this may require two or three years. Furthermore, I believe it would be unwise to give as our reason for refusing to make these loans that it is on account of an unfavorable report made by our engineer. This would, of course, do that country a great deal of damage.

My idea at present is that the situation should be handled with tact and diplomacy; that methods be used which would cause the least comment and friction, and that these methods must be evolved from time to time to fit the situations as they confront us. It seems necessary for me to add that I feel competent to handle the matter in such a way that your board will not be embarrassed, and that our bank will not be subjected to any great amount of adverse criticism. Mr. Chandler is in a position now to advise with his associates to show that it would be unwise to precipitate a frank expression on our part as to our reasons for being unwilling to make loans in Imperial Valley. In other words, the crowd of Los Angeles capitalists are well aware that I am in possession of information which, if publicly expressed, would not redound particularly to their advantage. This was rather a delicate matter, but I am very glad to say that I left Mr. Chandler on terms, more intimate and friendly possibly than have heretofore existed. Our understanding is, I think, very clear. As the question of loans in the Imperial Valley will come up again the latter part of this month or the first of next, may I ask that your board instruct me in the matter. You will note that I have written this letter in the first person. The reason for this, of course, is apparent to you. Yours, very truly, • W. H. JoycE, President.

Mr. BARBOUR. That is a carbon copy of the letter? Mr. YAGER. That is a carbon copy of the letter. Mr. BARBOUR. Absolutely authentic? Mr. YAGER. Yes, sir. And I should like to incorporate this letter together with these others into the printed record. Mr. HAYDEN. Where did you obtain it? . Mr. YAGER. I would rather not state. Mr. HAYDEN. This committee has a right to know where you obtained that letter and whether it is authentic. Mr. Rose. We took it up with the board here and they admitted it was authentic. We submitted it to the chairman, they admitted it was authentic and asked us “What can we do? Now, gentlemen, what do you want us to do to square this thing up?” Mr. HAYDEN. What did the Federal Farm Loan Board offer to do? Mr. Rose. To send a committee again; they said we did this on the report of the engineer. I told them that you didn't do it, this was made a year before that; the engineer told you he was glad you did it because he couldn’t make up his mind to do it. Mr. HAYDEN. This is a copy of a letter obtained from the files of the Federal Land Bank of Berkeley' Mr. Rose. Yes, sir. Mr. HAYDEN. Mr. Lobdell said that the text of that letter was correct, word for word? Mr. Rose. Mr. Norris was vice chairman; Lobdell had gone to the West then. . Mr. HAYDEN. To whom did you talk? Mr. ROSE. Mr. Norris and Mr. Lever. Mr. HAYDEN. Did Mr. Lever know anything about this letter himSelf? Mr. Rose. No; not himself, but Mr. Norris did. Lever was just recently appointed. Mr. HAYDEN. You present a matter of such importance that the committee ought to satisfy itself as to the authenticity of the letter. Mr. YAGER. If there is any question as to its authenticity I think your committee can get it from the files, to see if that is correct, but

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I want to bring to the attention of the committee that it is a deplorable situation we are presented with for a Government department to say that it would not redound to the benefit of a crowd of capitalists of Los Angeles and San Francisco to make loans to us. When those capitalists bought 43-year bonds in the valley at 83 per cent and sold them in a few weeks at 97 and advised the farm loan bank that they couldn't make 40-year loans in that valley.

Mr. HAYDEN. What kind of a board of directors did you have that permitted a deal of that kind to be made whereby your bonds were sold at 83 and then resold within 90 days thereafter at 97?

Mr. YAGER. I would say what kind of a Government department have we. These interests had the financial control of that district, as that correspondence shows, and Imperial could not get any more; you couldn't get any inore than they would allow. Imperial had to take what they could get. It was a matter of life and death with Imperial whether they sold the bonds or not.

Mr. HAYDEN. Do you mean to say that the Imperial irrigation district was compelled to do business through certain people in Los Angeles and if they did not take your bonds nobody else in the United States would purchase them?

Mr. YAGER. It seems they controlled not only the bond market of that district but directed the farm loan bank's policy.

Mr. Rose. That is very largely true. If our credit was not impaired by those interests who own lands in Mexico and controlled we would need no legislation to put the canal through, you might say. You have heard the testimony that has been testified to in the former hearing that we sold our bonds at 83 cents and they sold them at 97 cents in 90 days time. Recently the same trust company, Los Angeles, bid 95.15 cents for $2,500,000 on bonds of a recent issue. The Southern Trust & Commerce Bank of San Diego has bid 95 cents. Mr. BARBOUR. What kind of bonds?

Mr. Rose. They are all the same kind of bonds; Irrigation District bonds. I attribute the difference in the price bid to the disclosures made before this committee.

Mr. BARBOUR, Bonds for what purpose ? Mr. Rose. Bonds for building a canal and so forth in Mexico. And these bonds that were just sold were for the purpose of paying off a million and a half of registered warrants.

Mr. HAYDEN. So you have recently refunded your floating debt ? Mr. Rose. Yes; it was a short-time floating debt bearing a high rate of interest and we preferred to refloat it and paying a low rate of interest.

The school bonds and even the water-flood bonds sold above par; all the rest of the bonds were depending upon the same water system. But they were small bonds, but when you get up to a million and a half there are very few concerns in the West that could bid on these bonds.

Mr. HAYDEN. But recently a bond issue of more than a million and a half dollars was sold for more than 85 ?

Mr. Rose. They have sold for 95.15. Three bids were submitted to the board, each for the full amount of the bond issue, $2,500,000, as follows: Blankenhorn, Hunter & Julen, $2,378,756, or to net 95.15 per cent of par, the successful

The second highest bid was that of the Southern Trust & Commerce Bank of San Diego and El Centro, $2,375,000, 95 per cent of par, offered to accept the full issue.

Bank of Italy, Los Angeles, $2,354,625, 94.18 per cent of par was the third and low bidder.

They bought the bonds instead of San Diego. Mr. BARBOUR. Why couldn't you now issue $30,000,000 in bonds and sell them almost at par?

Mr. Rose. For this reason, the bonds were for work already done in Mexico for which they are receiving benefits.' If it wasn't for the opposition those people are able to bring in the bond market I think we could do it. I don't think we would be here at all. But I don't think we could sell them for 95 or 85 with their opposition. I believe if the Government would pass legislation saying that if they were not sold at par the Government would buy them at par we would need no further legislation. It is not a question of security. They bought those other bonds themselves through manipulations that cost the farmers of that valley $100,000 that they would have sold for if it had not been for the fact of the manipulation. The farmers of the Imperial Valley have been a mighty easy mark for the capitalists of that country because it was on such a large scale it took large capital to handle it. The Government has spent $125,000,000 to irrigate less than twice the area which we have irrigated at a cost of between $15,000,000 and $20,000,00. It cost us less than $20,000,000 all told and we put it in as we went along, we didn't have it all at once.

Mr. HAYDEN. You certainly must have had very poor business men for directors when they allowed your bonds to be sold for 83. I know that the water users would not have permitted anything like that to happen in the Salt River Valley.

Mr. Rose. If you were in our situation you would have done what we did. We had good business men. We had a better business board than we have to-day. In fact we have three of the men to-day that we had then and I don't think the men did anything but the best they could. They advertised in the New York Bond Buyer. They advertised in two of the papers known as “bond-buying” papers in the East. They advertised them just the same then as they have advertised them now; but one thing the Imperial Valley has got better advertised and the breaking up of this clique has made them ashamed to bid on it. I think the very fact of the appearance before you has resulted in a saving of $100,000 to the people of Imperial Valley ?

Mr. YAGER. That is the condition exists there. It is a condition that exists in the Treasury Department, in the Farm Loan Division. We are branded not through an engineer's report but by Harry Chandler who owns land down below the line in Mexico and is a Los Angeles capitalists, and who says that it is not a good place to make loans (the Imperial Valley) from the farm loan bank, while those same interests have bought and control the bond issues of Imperial Valley.

Mr. BARBOUR. Let me ask a question right there. If the situation as it exists down there now, so far as the water in Imperial Valley is concerned, is to the advantage of Harry Chandler, what would be his object in trying to depreciate the credit of Imperial Valley ?

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