THE FARM CREDIT bill that awaits the House on its return contains a provision that was only put there as a sop to the influential commercial banks, insurance companies and others that make farm loans. It transfers much of the risk in such lending from these private institutions -- every one a champion of free enterprise in other contexts -- to the taxpayer. The government is already too deeply involved in the farm economy as guarantor of price and income. Its additional role as guarantor of credit should be minimized rather than enlarged. The provision should be stricken from the bill.
The bill is meant to bail out the Farm Credit System, a little-known but long-established network of several hundred lending institutions that now makes about a third of U.S. farm loans. So many of the system's loans have gone bad that without a federal infusion it will apparently have to default on its bonds. But the banks and other lenders that compete with the system have also suffered grievous farm losses, and their argument is that if Congress helps the system it should help them too.
The bill would do that by creating a secondary market for all farm loans (not just the system's). The market would be similar to those the government has helped develop over the years for home mortgages. The farm loans would be marketed under the auspices of a new corporation. In housing, these corporations -- the Government National Mortage Association, Federal National Mortgage Association, Federal Home Loan Mortgage Corp. -- have come to be known as Ginnie Mae, Fannie Mae and Freddie Mac. Now Farmer Mac would join them.
Only loans with Farmer Mac's seal of approval could be sold in the new market. The government would then help guarantee their repayment. A bank could make a loan, sell it at a slight profit in the secondary market, replenish its coffers and wipe out its risk, all in almost the same stroke. No wonder the banks like the idea.
The administration, which doesn't, says the proposal may end up draining the Farm Credit System, supposed beneficiary of the bill, of its better loans, thereby compounding rather than solving its problems. But the argument against it is more fundamental. Proponents say the secondary market -- and federal guarantee -- will attract more money into farming at lower interest rates. Sure it will, but where do you stop? Why not a Steely Mac for hurting steel, a Greasy Mac for dear old oil, a Threaddie Mae in case of need in textiles? Congress should tell the banks no on this one.