For many years he had been growing corn and raising livestock on several hundred acres of Iowa's most fertile land. Until the last months, he had earned a decent living--not great wealth, but enough to provide comfortably for his wife and three children, whom he had reared as honest, churchgoing sons and daughters of the prairie.
The Farm Belt recession ended all that. When the farmer could no longer feed his family, he did something that rasped against his moral grain--and the law. He butchered a cow after telling his bank that the animal had been lost. It was a lie that prevented the bank from seizing the cow and selling it to pay his debts.
"It makes you feel like you're really crooked," said the farmer's wife, who has put beef from the cow on the table for nearly a year, "but you've got to do what you've got to do."
Old Ways Fading
Across the Farm Belt, where the struggle for survival is the fiercest since the Great Depression, the dark, rich topsoil is not all that is eroding. Trust, honesty and good will--values long considered part of the fiber of American farmers and their compatriots on the rural landscape--seem to be slipping away.
"In the depths of the Depression, trust and integrity were still the most important elements in farm people's lives," said Neil E. Harl, an agricultural economist at Iowa State University, "but in the current crisis they are eroding, and that is disturbing, profoundly so. I suspect the problem won't decline quickly, and those values probably will never go back to where they were.
"It's the kind of cancer that eats away at the community."
Here in Iowa, the epicenter of an economic quake that has lasted five years, the deterioration of values and relationships has bred division and confrontation.
Mediation Gains Popularity
There are hopeful signs, to be sure--down-and-out farmers coming to each other's aid, for example. Some borrowers and creditors, encouraged by a new state mediation service, have begun working more cooperatively to settle debts short of foreclosure.
Yet desperation, bitterness and breakdown persist. One-tenth of Iowa's farmers have already been forced out of business; of the survivors, fully one-tenth are facing almost certain bankruptcy and another quarter of them are suffering from financial stress. Banks are failing and farm-dependent businesses are going under.
The erosion of values, first noted by University of Minnesota economist Michael Boehlje at a congressional hearing two years ago, is most easily seen in business relationships gone sour.
"What causes all the damn problems is money," said Dick Zaun of Indianola, a longtime farm equipment dealer who was forced out of business last year. "Money is, indeed, the root of all evil."
The changes have several dimensions.
- The trust once symbolized by a handshake in rural communities has deteriorated substantially. Merchants are demanding more legal documentation of transactions. Farmers are insisting on getting credit pledges in writing. Bankers are requiring far more collateral and farmers are threatening to go bankrupt to gain concessions from lenders who used to be their hunting and fishing companions.
- Honesty, though still prized in the Farm Belt, has suffered under withering economic pressure. Hiding and converting assets to shield them from bank seizure, misrepresenting loan security agreements, exploiting loopholes in government programs--these and other strategies have been widely observed to circumvent legal and ethical standards.
- Good will--a unifying force that helped farmers get through the emotional strain of the Depression half a century ago--has begun to yield to a growing split between those who are relatively prosperous and those who are not. Neighborliness, in many situations, is but a nostalgic memory.
"Everybody was having trouble in the '30s," Harl said. "There were relatively few who escaped unscathed. In this current phenomenon, not everybody is facing jeopardy, and I think there is among some a feeling of unjustness about this."
Moreover, he added, many of today's farmers believe their troubles are "aided and abetted by the fact that corruption is everywhere, in government and business."
Chuck Ryan, rural life director for the Roman Catholic Diocese of Des Moines, put it this way: "People say, 'Hell, they're ripping it off at the top, and I'm simply trying to feed my kids here.' "
Father John F. Cain, a Catholic priest in Dow City who counseled the family that butchered the "lost" cow, said he has given hard-pressed farmers this advice: "When you don't have food for today's table, the food that's around becomes common property in an ethical way."
When the economic shock waves hit, trust was the first casualty.
"In the past," said Iowa Assistant Atty. Gen. Tam B. Ormiston, "farmers probably shared more with their lender than they shared with their family doctor, relatives and close friends. It was a cooperative venture in every respect: The farmer did well, the banker did well.
"When agricultural economics came off the tracks, a part of that wreckage was the farmer-banker relationship.
"The lender started saying to the farmer, 'Well, you borrowed the money, you have to repay it. You didn't tell us last year that you were as deep in the hole as you really are. You're lying to us.'
"On the flip side, the farmer was saying, 'Here at the very time I need you most, you're stabbing me in the back. I've banked with you for 20 years and you're letting me down.' "
From this breakdown, arms-length relationships developed.
Going by the Book
"In a time of prosperity, people share gains cheerfully," agricultural economist Harl observed. "When you're sharing losses, nobody shares anything cheerfully. They do it through gritted teeth and by the book, and you've got to be crossing every 't' and dotting every 'i' or they'll sue you.
"We'll probably never see the same kind of trust in financial arrangements that we had during the '50s, '60s and '70s. And that isn't all bad, because I think it is important for people to be fairly formal. You never know what's going to be coming."
John and Regina Lally learned that the hard way. They lost their 620-acre corn and livestock farm near Denison three years ago but got back 40 acres of it last summer.
"At one time, if your banker said jump in the well, you'd just about jump in the well," John noted.
"You completely trusted them," Regina agreed.
"That's changed considerably," he said. "People are getting a lot smarter about business, and they keep records. Therefore, when they go to the banker, they can dispute this point and that."
"We were guilty of not keeping good records," she acknowledged. "So today, we keep records of everything we do and we take copies of everything we sign at the bank."
Advice to Borrowers
Pete Brent, hot-line coordinator for Prairie Fire, a Des Moines-based farmer advocacy group, said he tells farmers in distress: "When you shake hands with your banker and get your hand back, you want to count your fingers. You can trust bankers to a certain point, but we need to move into the 21st Century and start doing business like everybody else in the country: Get everything in writing and keep diaries and notes."
Alan R. Tubbs, speaking from the other side as president of First Central State Bank in DeWitt, said: "The days of unsecured lending, where you did business on a handshake, are pretty much gone." Lenders, he said, "are looking much more at management and how it shows up in past performance: income tax records, crop records. We're approaching everything in a much more businesslike manner."
Even though trust may be shaken and ethics eroding, tales of honesty still can be found. Neal Conover, chairman of First National Bank of Creston, told of one farmer who negotiated a huge debt reduction with Conover's bank and later made a killing in the Illinois lottery. Although the farmer was not legally required to do so, he paid off his bank debt in full, Conover said.
Still, as Conover said, there are also plenty of cases of farmers who have slipped over the line. Courtney and Marge Siglin, who are scrambling to hold onto their 1,200-acre farm near Corydon, have seen their debt-ridden neighbors conceal assets "both legally and illegally" to protect themselves from seizures by foreclosing lenders.
Loophole in the Law
"Maybe some of it was legal," Courtney Siglin said, "but wouldn't have even been considered a few years ago because it didn't seem ethical."
For example, he said, security agreements farmers sign with banks frequently fail to mention some assets that could be seized if loans were not repaid. So farmers facing foreclosure might sell off stock or transfer it to a relative without their bankers ever learning about it.
Another tactic is to convert assets into life insurance and then file for bankruptcy. Iowa bankruptcy laws place two things off limits to creditors: life insurance and up to $10,000 worth of "tools of the trade" which include a musket, a suitcase, a mattress and a horse and buggy.
Accordingly, one besieged farmer recently liquidated some assets and bought a $250,000 cash-value life insurance policy that can be cashed in after he enters bankruptcy. The farmer will be able to walk away from a pile of debts--and make a robust new start.
"Now, that's $250,000 that creditors will not be able to get to," Richard E. Retz, vice president of Merchants National Bank in Cedar Rapids, noted sardonically. "It's legal. Is it ethical? I'm sure that fellow would have one opinion, and I'm sure I'd have another."
House Lost, Destroyed
Faced with foreclosure, some farmers have found destructive ways to strike back. Harl, for instance, tells of a close friend--a skillful farmer who had borrowed heavily to bring his son into an expanded operation--who was losing everything because of declining land values, crop prices and exports. As a foreclosure sale approached, the enraged farmer demolished the inside of his house so that no one else could get what he could not keep.
"The power to hurt is all that's left for a lot of these people," said Ginna Booth, regional head of the Iowa Farmer-Creditor Mediation Service in Cedar Rapids.
For many farmers driven to dishonesty, it is a matter of succumbing to the survival instinct.
Phyllis Hughes of Manchester, a retired corporate lawyer who helps farmers with legal problems, said the survival instinct runs especially strong in farmers because "saving the farm is closely tied to heredity and posterity. There's a great pride in Iowa of having the century farm, and there's a strong sense of guilt when that fifth generation starts losing that farm."
Some bankers can understand that. "What's integrity?" asked John Chrystal, board chairman of Bankers Trust Co. in Des Moines. "I don't mean to be downplaying it because it's pretty goddamn valuable to a banker, but, you know, they're protecting their family."
Slipping integrity is not confined to the borrowers. Reports of lender abuses also abound.
Tricked by Bank
John and Regina Lally were once told by their bank that their son, Mike, had illegally sold mortgaged cattle and was going to prison unless they could come up with $48,000. The Lallys paid the $48,000--and lost their own farm as a result.
The Lallys sued the bank, charging extortion and coercion, and convinced a jury that the bank had lied to them. Evidence showed that Mike had not sold any cattle at all. The Lallys won a $62,000 judgment and used some of the money to buy back part of their farm.
"We don't hold any grudges," said the sprightly Regina Lally, who has seven other children and 25 grandchildren. "Lenders made mistakes, but we made mistakes too."
Similarly, Bob Merchant of Garrison, head of a group called Farmers Helping Farmers, told of a neighbor who had been promised a crop-planting loan by the Production Credit Assn., an arm of the federal Farm Credit System. When planting was done and the farmer tried to pick up his loan money to pay seed, fertilizer and fuel bills, the PCA man said no, he had changed his mind.
"Farmers have been taught a good lesson," Merchant said. "They have found out from their lenders that a handshake or anything oral is not binding. . .so everything's put on paper now."
Lawyers also stand accused of contributing to the tensions, by using a form of reorganization bankruptcy known as Chapter 12 to force lenders to negotiate with struggling farmers.
Lenders protest that Chapter 12 has encouraged legal confrontations that frustrate efforts to rebuild trust with borrowers.
Lawyers Get Some Blame
Orville Bloethe, a tax lawyer from Victor who represents many besieged farmers, agreed that there have been abuses. He said that certain law firms' promotional campaigns have lured many hapless farmers into a "false hope" that they can be saved through a Chapter 12 reorganization of their debts.
Often, these farmers either cannot qualify for relief under Chapter 12 or eventually go under even if they do qualify, Bloethe said. In the process, they usually pay out more than $10,000 in legal fees, and their lenders "get smashed."
Joan Blundall, a counselor at the Northwest Iowa Mental Health Center in Spencer, said she knew of one lawyer who had caused a client to lose his farmhouse.
Negotiations between farmer and banker appeared to be heading for an amicable settlement until the lawyer got involved, Blundall said. Then, she said, the farmer suddenly told the banker: "To hell with you, I'm declaring bankruptcy." The banker responded, "You're going to lose your house. We don't want you to lose the house." But his plea was ignored, Blundall said.
As the banker related this story to her, she continued, "his eyes filled up and he said, 'I can't walk into the local cafe because I'd be the bastard who took his home away.' But he said, 'That lawyer will be $7,000 wealthier. . . . We're all losing.' "
Good will has fared no better than honesty in the Farm Belt recession. Ryan, the Des Moines diocese's rural life director, lamented the bitter division between haves and have-nots.
"You'll hear the old-timers say that, in the Depression, everybody was in trouble," Ryan said. "They were all in it together and so there was much more unity about what the problem was and how to be mutually supportive."
The hard times, he said, have brought out "a real streak of hardness and self-righteousness" in relatively prosperous farmers, who go around saying of their less fortunate brethren: "They didn't know how to farm. . . . They expanded at the wrong time. . . . If I borrow money, I pay it back. . . . It's just tough."
"I'm terribly, terribly concerned about the erosion in good will," said Father Norman White, Ryan's counterpart in the Dubuque diocese. "Instead of a love-your-neighbor attitude there is greed, vindictiveness and judging."
Maurice (Moe) Russell, head of the federal Farm Credit System loan office in Newton, said the schisms are being aggravated by deals that lenders such as his agency are cutting with delinquent farm debtors. He said that relatively prosperous farmers who sit on his lending agency's advisory board express the following complaint:
"You wrote off a couple of hundred thousand dollars on this account--restructured the loan--and the guy's still farming. He's got a new Ford diesel pickup and a new tractor and his 17-year-old kid is driving a new car to school, and my kid can't afford a car and I'm still making my payments, and we're upset about that."
Russell said that attitudes were different in the 1960s, when he was growing up on the farm. "We couldn't afford a combine," he said, "so the neighbor did our combining and we baled his hay. Back a couple of decades prior to that, the community would get together and build a barn for a farm family.
"We don't see that today. It's more of a dog-eat-dog world, and farmers don't care about their neighbors. A lot of the customers that we have left, who I would call survivors, don't care about the fact that their neighbor went broke.
"The shift is from a farm community in which everybody helped everybody out to one in which independent businessmen are out there in a very competitive environment."
Oran Watson is one of the farmers on Russell's advisory panel who has little sympathy for debt-ridden colleagues getting an easier ride from creditors. Climbing down from his harvester in a rolling cornfield near Montezuma, Watson cut loose:
"There are farmers who probably don't spend much money, don't have very good equipment," he said. "I don't mind seeing them get a break with the bank, but for everyone like that, there are five that take their living first--they'll go buy new pickups, new tractors, new combines, and then they'll get a break on their interest rate or get a restructured loan.
"I guess I'm paying enough interest to the Federal Land Bank that it gripes me when I see other people getting a break, and I'm sick and tired of paying their debts off."
Support Groups Formed
Though there is some division between the relatively prosperous and the hard-pressed farmers, there is a growing unity among the sufferers. "They are circling their wagons a bit as they come under siege," said University of Missouri sociologist William Heffernan.
The Rev. David Shogren, a Methodist minister who served in three rural pastorates before he came to Ames last year, confirmed that there is "a rallying around one another that can be very community-building and sustaining."
Evidence of this can be seen in farmer support groups, organized mostly by farm wives, to talk out problems and pick up survival advice from outside speakers.
"Support groups are really helpful. You need to know you're not the only person going through this terrible trauma," said Ruth Wagoner, a farm wife who runs a group in Adel and answers phones at the Rural Concern Hotline in Des Moines.
Some neighbors are also pooling labor and machinery. "By cooperating, they get done much more timely and they do a better job," banker Retz said. "They also have backup for each other if there's an illness or if there's a desire to get away from it for a while."
Alarmed at what they see as the mutually destructive consequences of increasingly bitter relations between borrowers and lenders, some rural bankers are beginning to explore ways to work out their problems voluntarily, away from courtrooms and auction blocks.
Key to this development was the creation last year of the Iowa Farmer-Creditor Mediation Service, which helps warring parties pursue compromise when foreclosure is imminent. It has worked far better than expected. Agreements have been struck in nearly two-thirds of the cases brought before the mediators.
"One of our real successes has been overcoming the buildup of mistrust," said Booth, who heads the Cedar Rapids mediation office.
"We're all in a leaky little rowboat in a very threatening ocean," said Assistant Atty. Gen. Ormiston, "and we'd all better be bailing together and realizing we're jointly at risk rather than, to use a different image, having a gunfight at the OK Corral."
Some creditors have decided to negotiate without going through mediation. Retz, the Cedar Rapids banker, worked out a deal with Jerry and Jan Ohm to avoid foreclosing on their corn, soybean and sheep farm near Vinton.
Kept Part of Farm
Ohm got to keep without lien the 40 acres where his new house sits and all his livestock, buildings and equipment. In exchange, he gave 560 acres to the bank, but he now rents it back and has the option to repurchase it within three years. In addition, he is mortgaging another 40-acre plot.
"We've really been blessed knowing Dick Retz and having his help and support," Jan Ohm said. "That relationship is based on the old values. We can trust Dick and, hopefully, he can trust us."
Retz said he once had a hard view of farmers who didn't pay their debts, but now recognizes that both sides have assumed risks and must share losses. Besides, he said, there is a practical question:
"Do we throw away those hard-working people who have demonstrated intelligence and courage--and then run in another group that are afraid of their shadow, and try and feed the world with them?"