In 1987, American taxpayers generously guaranteed $4 billion worth of bonds so that the Farm Credit System (FCS), overwhelmed by debt brought on by its inappropriate, irresponsible lending activity before and during the 1980s farm crisis, could survive. American taxpayers were willing to forgive the FCS’s abuses and bailed it out.
But agriculture experts are worried that the preconditions for the 1987 bailout may be happening now, thirty years later. National Public Radio reports that, although the overall farm economy is “showing some stability” the “upswing doesn’t extend to all agricultural sectors,” according to the US Department of Agriculture (USDA). This is troubling news.
Farm Credit, as a national entity, will certainly take losses from its customers in struggling agricultural sectors. If Farm Credit’s customers – farmers and producers across the country – are seeing a decrease in cash income, the likelihood of an increase in loan defaults increases. And as more farmers and ranchers default on their loans, the overall portfolios of the FCS institutions serving those farmers and ranchers become weaker. And once their portfolios are weakened, the System as a whole is more vulnerable to collapse.
Farm Credit is a government-sponsored enterprise (GSE) with the implicit backing of the federal government. And it has explicit backing as well – the Farm Credit System Insurance Corporation (FCSIC), designed to help the FCS weather disaster, has a $10 billion line of credit with the Treasury Department’s Federal Financing Bank (FFB). Taxpayers are already guaranteeing at least $10 billion explicitly.
How much are taxpayers guaranteeing implicitly?
The last time the FCS needed a bailout, the funds it was granted were about eight percent of the total size of the System. Today, with the FCS clocking in at $321 billion in total assets, taxpayers would have to shell out more than $25 billion.
Fool us once, shame on you. Fool us twice, shame on us. The FCS and its constituent institutions need reform so that they are stable, can weather market fluctuations and won’t leave American taxpayers paying the price. That can only happen if Congress compels the FCS to follow the same regulations other financial institutions adhere to, regulations put into place to ensure healthy, stable markets. Until then, every American taxpayer is at risk of paying the price.