Rural Bonds are Sound Security

Sun (Auckland), Volume 1, Issue 72, 16 June 1927, Page 10

Rural Bonds are Sound Security

ANSWER TO CRITICISM STATE GUARANTEE NEEDLESS

(From Our Resident Reporter.)

WELLINGTON, To-day. TT is true that bonds issutd under the rural credits scheme are not to be guaranteed by the Government. They are not, be cause there is no need, said a hioh financial authority to-day, j n answer to a statement on the'subject by Mr. Harman Reeves, chairman of the Dunedin Stock Exchange. The scheme must be operated on sound lines. It w ill be operated o£ the basis of the production value of the land, and there is a limit as to the amount which may be advanced There is no reason why it should -w be as successful in the future as tie State Advances scheme has been ° It must be noted that the bonds uf local bodies are not guaranteed by t 36 Government, though they are a 6m charge against rates, but it is doubt, ful whether the Government woty allow default to he made, because of the effect this would have on the Do. minion’s credit abroad. »fhe a(lme would apply to these bonds, which could, hardly' be made sounder by * Government guarantee, because thev draw their own worth from the sane source which, in the ultimate analysis, provides the credit of the State the productive value of the land itself. It comes to this: If first mortgage* ar« bad security, then bonds issued hy land banks or under the rural credit schemes are no good. To clear up prevailing misconception as to circumstances of the iesue of bonds here and abroad, the following statement is issued:— All over the world these mortgage bonds are issued under proper authority, and. whether guaranteed or not guaranteed by the State, are found ranking with State securities. If it is sound to lend money on first mortgage under proper valuation, It should follow- that such securities, when pooled, have increased rather than diminished in value. The value of the bonds necessarily depends on the correct valuation of the security and If the production value of the land be taken for a term of years, as basis of such valuation, this security should possess the necessary qualifications to make It popular with investors. Perhaps the most important feature of such bonds is the ability readily to convert them into cash at something like par. The United States has been mart successful in marketing these bends, which are there received as approved collateral in all transactions. in the Argentine an equivalent of New Zealand’s State Advances scheme operates, and bonds have a State guarantee. In Denmark bonds are a standard form of investment, but, are not guaranteed by the State. Neither are they in Holland or Belgium.