Its $3.2 trillion in debt doesn’t even include another $15 trillion worth of pension insurance, deposit insurance, Fannie Mae and Freddie Mac mortgage insurance, and other government exposures that aren’t officially considered credit programs. I interviewed about 50 sources inside and www.americashpaydayloan.com/pawn-shops-ri outside government about the bank of America, and few of them think it is well-designed, well-managed or well-understood, even if much of what it does is well-intentioned.
Ultimately, loans and loan guarantees of the sort that have proliferated in recent years are merely tools in Washington’s kit. They can address national priorities, like expanding access to homeownership and higher education, and finance major projects, like America’s first new nuclear plant in decades and the widening of the Washington Beltway. But they’re more complex tools than direct government grants or tax breaks, creating more risks and unintended consequences. Federal agencies, uniquely insulated from the market pressures faced by private lenders, aren’t usually well-suited to underwrite, originate, service, monitor and foreclose on loans. Their employees don’t get fired when their loans go bad, or rewarded for good decisions. They’re not even bound by the federal regulations governing risk management at other financial institutions.
“The government is a gigantic financial institution, operating in a black box,” says Deborah Lucas, a former Congressional Budget Office official who now runs MIT’s Center for Finance and Policy. “People should understand what it’s doing. They really don’t.”
In 2013, the Federal Housing Administration had to draw $1.7 billion from the U.S. Treasury, because a spike in defaults on mortgages it had guaranteed during the Great Recession had burned through its reserves. The move was widely reported as FHA’s “first-ever taxpayer-funded bailout.” But Douglas Criscitello, the former chief financial officer at HUD, told me that in fact the FHA had been receiving silent taxpayer-funded bailouts throughout President Obama’s first term, bailouts that went unnoticed because of the odd process the government uses to calculate the budget costs of credit programs. (more…)