If seems as if all businesses now require some type of welfare program. The definition of economic development is grants or loans or special tax breaks given by our government to businesses. Banks get their welfare indirectly – from loan guarantees from many government programs. Of course our farmers must be protected from losses by government – through crop insurance subsidies that not only cover natural disasters, but actually protect against price declines. All types of energy companies receive special tax credits or tax breaks. The biggest manufacturers in Iowa receive large tax credits for research. Now, Mediacom and John Deere want a grant of $800,000 from the federal government to help bring high speed internet to farmers who buy high-tech, internet connected tractors that cost hundreds of thousands of dollars. We should say no! We need to reverse the trend of expecting taxpayers to fund all types of economic development. Just as with with individuals and families, welfare for businesses create dependency. Our economy will continue to grow sluggishly as long as we look to government to manage our economic development.
President Obama and both houses of Congress are calling for an end to Fannie Mae and Freddie Mac, the two government owned entities that guarantee most of the home mortgages in the U.S. Real estate agents, home builders, mortgage brokers, wall street bankers, and others who have a vested interest in keeping our government in the mortgage guarantee business are scared to death. They have all become so addicted to government guarantees that they can’t imagine a world without them.
When Fannie and Freddie are closed down, and private lenders are left to decide what risks they will or will not take, It is likely that 30 year fixed interest rate mortgages will become more difficult to obtain. It is also likely that when lenders risk their own money, they will want things like significant down payments, accurate appraisals, and borrowers who have a proven ability to make the monthly payments. ( Back in the olden days, before government guarantees, mortgage bankers used to do something called “underwriting” before deciding whether or not to make a loan – you can look it up on Wikipedia.)
Still, there are businesses such as life insurance companies, annuity companies, pension plans and others that need to invest large sums for long periods of time in secure investments like home mortgages. So, there is no reason to believe that mortgages will not be available in a private market.
It may be that mortgages in the future will have fixed interest rates for only 10 to 15 years, and will need to be refinanced at the end of that time. But, the monthly payments can still be based on a 30 year payoff schedule. This has been the situation in parts of Europe for many decades. There is a risk to the home owner that interest rates will be significantly higher at the time of refinance, but the principal balance will be paid down significantly, so the risk of having to make significantly higher monthly payments fairly low, and the ability to get a refinance should be fairly easy.
So, don’t believe those who have a vested interest government guaranteed mortgages when they tell you that housing markets will fall apart if Fannie and Freddie cease to exist. Fannie and Freddie still allow all of the players in the home mortgage marketplace to shift much, if not all, of their risk to taxpayers. If Fannie and Freddie had never existed, it is likely that we never would have had the housing crisis and the great recession that followed. When people are required to pay for their own mistakes, people make fewer mistakes. We need to get our government out of the mortgage guarantee business.
The Farm Bill should not pass until the following changes are made:
Stop subsidizing crop insurance. Make farmers pay 100% of the cost. If that raises the price of food, so be it. If it reduces farmers’ incomes, so be it. Subsidizing crop insurance is not a proper role for our government. Today’s federally subsidized crop insurance not only covers losses due to unforeseen disasters, it also covers drops in revenues! If farmers had to pay the full price for their coverage, they might prefer higher deductibles and lower levels of coverage. But to add insult to injury,many farmer who receive subsidies are also very wealthy. There is no good reason why wealthy farmers should be subsidized, even for crop insurance. If our goal is to help poor farmers, then surely the subsidy should be phased out as a farmer’s wealth and income increase.
Establish a maximum amount of subsidy that can be received by any individual or commonly owned group of farms under all farm subsidy programs combined. Again, we shouldn’t be subsidizing big farmers or farm organizations.
Don’t place tariffs on imports unless the country of origin first places tariffs on our exports to that country. Free trade is beneficial to all. It is voluntary! It requires no intervention by government other than to resolve disputes. Free people should not be forced exchange or be prevented from voluntarily exchanging with another party. Amazingly, under the current Farm Bill, we pay Brazilian cotton farmers almost $150 million per year as compensation for the damage done to them by the subsidies we provide to our U.S. cotton farmers! Is that not insane trade policy?
Separate the “rural development” programs from farm subsidies. Again, the tens to hundreds of millions of dollars spent in this area are hidden within the much larger primary subsidy programs. It is questionable whether or not rural economic development is even a proper role of government. In any event, consideration of spending for rural economic development should not be mixed with farm subsidies.
Tie environmental practices to any subsidies granted. We shouldn’t expect perfectly clean water in our lakes and rivers. Wild animals have defecated in them forever. But, it reasonable to expect farmers to not fowl the water down stream from them, and to pay for damages when they can be reasonably determined. The idea of requiring minimum buffer strips between farms and rivers and lakes is reasonable.
Thanks to the Des Moines Register for the article, “Crop insurance payment soar” on 3/14/2013. It is not right that we taxpayers are required to subsidize crop insurance premiums for farmers. I can accept our government administering a crop insurance insurance program if there is no viable private market. But I cannot understand why taxpayers should subsidize the crop insurance program. Farmers make higher than average incomes. Many farmers and farm owners are very wealthy. Both large corporate farms and wealthy absentee owner investors get Insurance premium subsidies. Fees and commissions paid to crop insurance companies and sales representatives appear to be very generous. We need to stop the farm welfare. Charging the full cost of the insurance to farmers will cause farmers to help keep cost down and prevent abuse.
Contrary to the letter by Jack Hatch, the Obama administration and Congress were wrong in the way they handled the auto manufacturer’s bailout. (See The Des Moines Register, 11/3/2012, “Auto bailout saved many Iowa jobs, too”) Romney is correct that we should have followed established bankruptcy laws. The bankruptcy process would have allowed the companies to remain open and the jobs to not be lost. The companies could have reorganized their debt and equity and emerged from bankruptcy stronger. What actually happened was that politically favored creditors, such as unions, were given unfair preferences, and some unfavored creditors were cheated out of their lawful security. It is quite likely that Iowa manufacturers would have continued to supply their parts to the industry even if the law had been properly followed.
Today, the Sunday Register headline read, “Did Latham benefit from TARP while he decried it?” (Latham has a significant investment in a bank that took TARP bailout money.) This headline revealed The Register’s bias against U.S. Rep. Tom Latham. Why didn’t they use the following headline: “Latham stands on principle, votes against his own best interest!” If Latham had voted FOR the TARP bailout, his would have been rightly criticized for voting for his own financial gain. Instead, he voted for what he believed was right for the country and against his personal financial interest. We should thank Rep. Latham for is exercise of integrity.