The Farm Credit System’s moves to lend far beyond the farm pose risks to taxpayers, ABA President and CEO Frank Keating said in an op-ed today in the Grand Forks, N.D., Herald. He noted FCS lenders’ financing for telecommunications mega-deals and luxury estates for the wealthy — even as the FCS enjoys federal tax subsidies and a federal line of credit should its risky deals go sour.
“This federal backstop calls to mind what happened to other government-sponsored enterprises such as Fannie Mae and Freddie Mac, which needed to be rescued by taxpayers after they overextended themselves and exceeded their core missions,” Keating wrote. “Thanks to the federal guarantee for Fannie and Freddie, home prices lost touch with reality. Could the Farm Credit System’s loans — made artificially cheap by taxpayers — be distorting prices in the farm sector?”
If the FCS gets in over its head, Keating said, it wouldn’t be the first time — the FCS was bailed out by taxpayers in 1987 after an agricultural boom-and-bust cycle it had fueled. “The FCS is a century-old solution to a century-ago problem,” Keating said. “To let it continue unreformed would be dangerous for taxpayers.”