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).
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.