I’ve covered Social Security, Medicare, Medicaid, welfare and tax credits in my previous posts.  These programs all have cost many times more than originally projected and are the main factors in our country’s financial mess.  You might think that these massive programs would have been sufficient to keep politicians and their constituents happy enough.  You might think that since these programs have gone so out of control, Congress might have been leery of creating any more monsters.  You would be wrong on both counts.  There are many other programs, too numerous to mention, that have been created to keep voters happy and our politicians re-elected.  And many of them have had similar disastrous results.  I’ll discuss two of them from the Best of America’s Funniest Congressional Bloopers.

 

Having a country of well fed, healthy citizens living in good housing might be enough for most countries, but not for our Congress.  Not when some people didn’t even own their own home.  This horrible situation was remedied by the creation of the Federal Housing Administration, which provided government insured mortgages requiring down payments as low as 3%.  The government also created two other organizations, commonly called Fannie Mae and Freddie Mac, to buy these insured mortgages with implicit government guarantees.  Then they added guidelines to banks requiring lending to poorer segments of society.

 

Why would anybody lend money on property with only 3% down?  Well, because they knew that the price of homes would never go down!  However, as we all know, housing prices actually did go down in most areas of the country.  Oops!  It seems that loose government monetary policy and home ownership incentives led to a real estate bubble.  Thousands of these borrowers have lost their homes from foreclosure.   Now the government is on the hook for backing about half the outstanding mortgages in the country, a total of about $5 trillion.  Losses to the government from these lending programs could total $400 billion. 

 

Now we’ll go back to 1970’s, when farmers were doing very well, as exports and crop prices steadily rose.  So this would mean a cut in government subsidies, right?  Of course not.  The farmers’ good fortune was bad for the voters who had to pay higher food prices at the grocery store.  The government decided to “help” farmers by greatly increasing the availability of low cost, 90% guaranteed loans.  These loans only went to farmers who could not qualify for loans from conventional lending sources.  Farmers used the money to expand their farm acreage and crop production. 

 

As a former banker, I saw the flimsy lending guidelines for these loans.  Not to worry, they said, the price of farm land would never go down!  (Where did I hear that before?)  Well, you probably know what happened.  Farmers grew more crops, President Carter embargoed grain to Russia, crop prices fell, interest rates rose,  oil prices rose,and many farmers lost their farms to foreclosure. And of course, the government lost $billions from bad loans.