Did you know that the U.S. government created an agency colloquially known as “Farmer Mac?” Yep, in 1988 Congress chartered a company to do in agriculture exactly what Fannie and Freddie have done in the mortgage market. Farmer Mac, a “private” company, is “allowed” to purchase loans from agricultural lenders and then repackage them into asset backed securities. This “private” corporation is responsible for “guaranteeing” these loans to investors. In other words, if an underlying farm loan goes bad, Farmer Mac will pull it out of the loan pool, compensate the investor with cash, and then take on the risk of the bad loan itself (or ultimately write down its value).This is exactly what Fannie and Freddie do with mortgage loans. They buy them from lenders and mortgage originators, and then pool them into mortgage backed securities. If the mortgages go bad, Fannie and Freddie buy back the mortgage from the MBS holders, and then take the risk themselves.
Of course, just as the law stated that none of Fannie and Freddie’s obligations should be construed as being supported by the government or taxpayers, I am sure that none of Farmer Mac’s obligations are backed up by the US government. After all, it is a private company. After all, if the government says it won’t back up these claims, it would never back them up, right?
Economists have a fancy term for this perversity, but it is best illustrated by this:
Just as Fannie and Freddie were tools of the government to promote “affordable” housing goals and to pursue housing industrial policy, would it surprise anyone if Farmer Mac were used for similar ends? I have a prediction – I bet a lot of the new “green energy” policies will be promoted through this agency. I should probably open an ethanol operation now, I am sure I can get some good cheap credit for it through Farmer Mac – and that is separate from the subsidies I would get directly from Uncle Sam to be part of Green Revolution 2.0. This kind of closet socialism is far more nefarious than outright full blown socialism. I am much happier knowing, for example, that Uncle Sam owns GM and Chrysler. That way, it is clear to all Americans what is going on. When Congress hauls in the Toyota CEO, we all know what that is about. When Congresspeople refuse to allow plants in their towns to close, we know what that is all about. And when the companies are “encouraged” to build greener cars, we know what that is all about. Imagine if there was an entity called Lugnut Mac?