I frequently discuss the unregulated government lender, the Federal Financing Bank (FFB). I keep writing about its activities in the hope that someone in the MSM will pick up the story and run with it. So far, no luck.
The FFB story is an example of how the Obama Administration is using off-balance sheet financing to further its goals.
The FFB’s holdings as the date Obama took office and as of June 2012 are listed below.
The loans outstanding have risen by $25Bn (65%) in three and a half years. The largest increases are in these categories:
Post Office – $6.1Bn–93% increase
Electric cars – $6.7Bn – 100% increase
Solar/Wind – $4.3Bn – 100% increase
Rural Utilities – $10.9Bn – 42% increase
The PO loans are garbage. There is no way that the PO can pay it back. Congress will have to do a bailout. The Congressional guarantee on the PO loans will be honored (it has to be) so the taxpayers will take the full loss.
Electric car loans probably will be paid back in full at some point. I say that because the borrowers of the cheap money from the FFB are actually companies in good credit standing. But that is the point. If companies are capable of funding their own growth and research, why does the government have to give them a hand out? In June another $385Mn flew out the door. This is just another screwy subsidy for a few successful companies.
The largest increase comes from loans to Rural Utilities (+20Bn). I have no clue what is going on in this category of lending. This is a very big program. The potential problems are there. I doubt anyone is really looking at this.
A total of $525Mn of loans to rural utilities were rolled over in June 2012. The interest rates are as low as 0.10% (Lake Country Power, Brazos Electric, Nelson Telephone Coop). The maturities extend to 2046 (Highline Electric, Orcas Power, East Kentucky Power and Little Ocmulgee Electric.)
These borrowers are not big players that can finance their own operations. So they are stuck on the federal teat. The following pictures show the names of the borrowers that hit up the feds for new money (or a rollover of old) in just one month. Many borrowers are involved. (Note: There are too many names to make a readable list. If you want to see details, go to the FFB report (Link).
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Most troubling is the non-stop stream of new loans to solar and wind projects. Obama is going to call this effort a “big success” this fall. He will say that the construction has created jobs, and that it is a good “investment” for the country to develop alternative energy.
Here are the names of the solar/wind projects that have borrowed $4.3Bn (so far) from the FFB:
This will sound “good” to Obama’s supporters. But the questions are,
(1) who is getting rich off of this lending, and
(2) what is this going to cost the taxpayers?
The answer to #1, is that big shots are getting rich. Guys like Warren Buffett have a winning ticket (Link). Many of the “winners” are connected back to Obama.
The second question is impossible to answer. The payoffs for the taxpayers (if any) are several decades away. The losses are already being realized.
Solyndra, the Administration’s “show pony” investment that went sour, is now working its way through the Bankruptcy Courts. Not surprisingly, the FFB advances show up in the court papers as being “Impaired.” That’s a legal way of saying they are worth about 10 cents on the dollar.
Lets hope the hard working folks in the MSM take this as their opportunity to look at the FFB. I think there are many questions that need to be asked. I’ve highlighted a few. Here’s another:
In June, Xavier College rolled over $127Mn of its FFB IOUs at 0.14%. Dillard University rolled over $135Mn at the same rate.
I’m not objecting to federal assistance to these schools. I’m asking why the FFB is involved as a “lender”? These “loans” are actually grants. The near zero interest rates, and the perpetual maturities, prove that they are not viable loans. This is just a charade.
If America chooses to invest in new technologies, or selected Universities, then the money should be appropriated in the year that the money is spent. Creating unpayable debt to fund losing propositions (AKA – the PO), is just kicking the can down the road. The FFB facilitates the process.
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Post Service needs to make changes until they stop losing money. Or just let UPS and Fedex have the business. I believe they’ve suggested closing post offices, but Congress shot that one down. You have a huge business like the Postal Service and Congress is managing it? No wonder it loses money!
Close Post Offices AND reduce delivery to every other day. Those two changes would do it. But Congress, in their infinite stupidity will not allow either.
Congress is NEVER going to shut down the Post Office. Can you imagine the union members coming after every congressman who voted to cut off funding for the PO? Whoever voted to close the PO would instantly be voted out of office! The American unions have a very large voting block and they vote entirely as a liberal/democratic party block. Ain’t never going to happen pimaCanon!
you are right. There is no better organization at creating a huge mess than the US Congress. But what a joke. They have the Postal Service set up to be non-profit. Nothing wrong with that. But what IS wrong is that they won’t let the head of the Postal Service manage it so that it doesn’t run a huge deficit.
I have a love/hate relationship with Unions. They gave us the 40 hour work week and all kinds of other benefits for workers. But when it comes to necessary layoffs or reductions in hours, they can be pig-headed like any other organization that wields power.
Postal workers don’t want layoffs? Fine, reduce their work week to 4 days or even 3, and reduce salary and benefits by same proportion.
Bruce-
Thanks for continuing to push this story. It’s a crime against tax payers and it would be nice if someone in the MSM was responsible enough to pick it up.
Side note – It’s easy to fix the post office. Cut half the staff and deliver mail every other day. There’s no reason not to do this and if it was a private company it would be done immediately.
So I guess the way it works is that we elect a president and he can do anything he wants to. Who is to stop him? Well, the threat of impeachment by the Senate like with Bill Clinton. But today it doesn’t seem possible to stop Obama from acting like Christina Kirchner.
Another key part of Solyndra and some of the other “green” projects is that the loans are set up such that the the taxpayers are not first in line to get any leavings when the firm goes into bankruptcy.
Little more than page-18 whispers from the media. These days, I assume we’ll have to elect a Repub if we want the media to keep tabs on government fraud.
“The PO loans are garbage. There is no way that the PO can pay it back. Congress will have to do a bailout.”
And yet the liars like the head of the letter carriers union say that the PO doesn’t receive any federal assistance, and hasn’t since some time ago (can’t remember the date). Continuing to insist that the only thing wrong is the health care funding that’s required. Actually saying that the operational finances are just great.
And not once have I heard somebody in the media call them on that B.S. by pointing out these “loans” given by the FFB. What a joke.
Thanks Bruce, always good info.
Is the National Rural Utilities Coop Financing Corp involved in any of this?
(Preferred tickers are NRC, NRU)
Bruce, Thanks for what you do. Is the Mojave Solar that is listed affiliated with the Chinese company ENN Mojave Energy that Harry Reid is promoting in Nevada. His son is one of the attorneys on the deal. Hmmm.
As an example:
” Corn Belt Power approved for $55.8 million loan
U.S. Agriculture Secretary Tom Vilsack announced loan guarantees July 10 to rural electric cooperatives and utilities in 15 states, including Corn Belt Power Cooperative, which will receive a $55.8 million loan. The loan will help finance generation system improvements and minority ownership in the Walter Scott, Jr. Energy Center Unit 4. The loan includes $22.8 million in environmental improvement projects.
Included in the list of projects is the addition of a scrubber and baghouse at Neal 4, Sioux City. Corn Belt Power jointly owns Neal 4 with MidAmerican Energy Company and other utilities. The project at Neal 4 also includes a low-pressure steam turbine replacement, which will improve the efficiency of the unit.
“Maintaining and upgrading rural electric systems creates jobs and supports economic development,” Vilsack said. “These loans I am announcing today will have a lasting impact on the rural landscape for generations to come. They will help ensure that rural areas can retain existing businesses, support new ones and have reliable, up-to-date infrastructure.”
The USDA Rural Development’s Rural Utilities Service provides the $287 million in loan guarantees. The funding helps electric utilities upgrade, expand, maintain and replace rural America’s electric infrastructure. USDA Rural Development also funds energy conservation and renewable energy projects.”
Link is: http://www.cbpower.coop/aspx/News.aspx?NewsID=1878
Honestly, I’d rather have these small power & transmission providers getting the developmental loans then the big boys sucking at the teat of Washington, D.C. At least these folks will be getting a job done, even if it is to comply with ever expanding and vastly more burdensome federal regulatory requirements.
Isn’t MidAmerica Energy Warren Buffett? Hardly a “little guy” in my opinion