As I’ve said before, if you’re looking to assign blame for the financial crisis, you’ve got no shortage of candidates, from the rating agencies, to the big banks, to fraudulent borrowers. They all messed up big-time. But don’t forget that the crackup never would have happened in the first place but for the federal government’s misguided policy of pushing homeownership for all, regardless of the borrower/homeowner’s social and economic background. That’s what drove enactment of laws like the Community Reinvestment Act and, worse, the loosening of underwriting guidelines by the GSEs at the start of the last decade. Once the government began to aggressively encourage the easing of lending standards, new money flooded into the housing market as waves of new and unqualified borrowers entered it. Prices rose broadly, and then rose some more as speculation and outright fraud got underway. Soon enough, we had a bubble on our hands. As you recall, it did not end well.
That’s what happens when government meddles too much in the allocation of credit. It’s almost always a bad idea. You would think that policy makers would have gotten the message by now-but you would be wrong. Instead-and I hope you’re sitting down as you read this-bankers have begun lobbying Congress, as it takes up a new farm bill, to consider raising the federal-guarantee limit on agricultural loans by $1 billion, to $2.5 billion.
Have these people learned nothing? To begin with, one reason private lenders are leery of making ag loans without a federal backstop is that land values are already through the roof, thanks to soaring agricultural commodity prices. But agricultural commodity prices are of course highly cyclical–as are, by extension, farmland values. So the government is considering getting more involved in agricultural lending at exactly the wrong time in the cycle. You can almost be certain that raising the guarantee limit will end up saddling taxpayers with losses.
For that matter why is the federal government in the business of guaranteeing farm loans at all? The government’s homeownership-for-all policy may have turned out to be wrongheaded, but at least there was a certain logic to it. People with a true ownership stake in their communities can be expected to be more responsible and upstanding citizens. But the free market should take care of the allocation of credit to farmers. There’s plenty of lending capacity for good credits without loan guarantees. It’s simply another sop to another interest group: in this case farmers and community bankers. If bankers think they can profitably make ag loans without federal help, they should go ahead and make them. By plumping for a bigger federal backstop, they’re implicitly admitting that agricultural lending in the current environment is too risky. Sorry, that’s the way the marketplace works. Why should taxpayers step in to help bankers make loans that they think are too risky without a government guarantee?
The ag-loan guarantee program is of course tiny compared to what the government was stuck with after the housing market blew up, but the principle is the same. Bad things happen when the government meddles in markets. You think the people in Washington would have learned by now. And the bankers lobbying for this handout are hypocrites for complaining about excessive regulation. What a bunch of idiots.
What do you think? Let me know!