TABLE 1.-EXECUTIVE CONTROL OVER MAJOR FEDERAL AND FEDERALLY ASSISTED BORROWINGS IN THE PRIVATE MARKET Type of borrowing A. Securities issued by Governmentsponsored agencies (nonbudget agencies): 1. Federal National Mortgage Association. Treasury control FNMA is required by law to obtain Treasury approval of market borrowings, including debentures, notes, mortgage-backed securities, and subordinated obligations. Treasury may purchase up to $2,250,000,000 of FNMA obligations. (12 U.S.C. 1719.) 2. Federal home loan banks... Required by law to obtain Treasury approval of timing and terms of market borrowings. Treasury may purchase up to $4,000,000,000 of FHLB obligations, (12 U.S.C. 1431.) Treasury approval not required by law (31 U.S.C. 868) but agencies consult with Treasury as a matter of practice on proposed market borrowings. 3. Farm Credit Administration: Banks for cooporatives; Federal intermediate credit banks; Federal land banks. 4. Federal Home Loan Mortgage Corporation (title III, Public Law 91-351). 5. National Railroad Passenger Corporation (title Ill, Public Law 91-518). 6. Securities Investor Protection Corporation (Public Law 91-598.) B. Securities issued by Government agencies (budget agencies): 1. Export-Import Bank.. 2. Rural Telephone Bank.... See footnote at end of table. No provision in law but has consulted with Treasury on proposed borrowings. No provision in law, but has consulted with Treasury on proposed borrowings. Secretary of the Treasury has 2 representatives on the financial advisory panel to advise NRPC on ways and means of increasing its capitalization. (Public Law 91-518, sec. 501, 502.) No provision in law and no experience to date. SEC may borrow up to $1,000,000,000 from Treasury for loans to SIPC. (Public Law 91-598, sec. 4.) Required by law to obtain Treasury approval of timing and terms of market borrowings. (31 U.S.C. 868.) May issue to Treasury up to $6,000,000,000 of obligations. (12 U.S.C. 635d.) Required by law to obtain Treasury approval of timing and terms of market borrowings. (7 U.S.C. 943, 31 U.S.C. 868.) Other control President appoints of board of directors and may remove any director for good cause. (12 U.S.C. 1723.) Secretary of HUD has general regulatory power, including approval of stock and other security issues (12 U.S.C. 1723a, 1723c) and the ratio of debt to capital (12 U.S.C. 1719). President appoints the 3 members of the Federal Home Loan Bank Board which supervises the federal home loan banks, (12 U.S.C. 1437, note.) President appoints 12 members to the Federal Farm Credit Board (the 13th member is appointed by the Secretary of Agriculture) (12 U.S.C. 2247), which provides policy guidance for FCA, (12 U.S.C. 2243.) Board of Directors is composed of the members of the Federal Home Loan Bank Board. (Public Law 91-351 sec. 303.) President appoints 8 (1 of whom must be the Secretary of Transportation) of the 15-member board of directors (Public Law 91-518, sec. 303). Secretary of Transportation may guarantee up to $100,000,000 of NRPC obligations. (Public Law 91-518, sec. 602.) President appoints 5 of the 7-member board of directors. Federal Reserve Board and Secretary of the Treasury each appoint 1 member. (Public Law 91-598, sec. 3.) Now excluded from the budget totals (Public Law 92-126) but still subject to control through the regular budget review process. Inclusion in the budget provides a means for control through the regular budget review process. TABLE 1.-EXECUTIVE CONTROL OVER MAJOR FEDERAL AND FEDERALLY ASSISTED Type of borrowing B. Securities issued by Government agencies (budget agencies)-Con. 3. Tennessee Valley Authority.. 4. U.S. Postal Service. (Public Law 91-375, reenactment of 39 U.S.C.). C. Guaranteed securities sold (asset sales) by Farmers Home Administration, HEW, HUD (except GNMA), VA, Export-Import Bank, and SBA. D. Other securities guaranteed by Gov ernment agencies: GNMA mortgage-backed bonds, new community debentures, public housing notes and bonds, urban renewal notes, merchant marine bonds, asset sales by GNMA and other agencies not included in C above. E. Other obligations guaranteed by Government agencies but generally orginated and held by private lending institutions rather than sold in securities market. These are largely guarantees by the Federal Housing Administration, VA, HEW, Eximbank, and SCA. Treasury control Required to obtain Treasury approval of timing and rates on market borrowings of 1 year or more. If Treasury does not approve, may issue interim obligations (1 year or less) to Treasury. Also may issue interim obligations to Treasury if TVA determines that bonds cannot be sold on reasonable terms. Interim obligations held by Treasury may not exceed $150,000,000. (16 U.S.C. 831 n-4.) Required to advise and consult as to amount, timing, and terms of proposed market borrowings. Treasury may elect to purchase such obligations. May require Treasury to purchase up to $2,000,000,000. May request Treasury to pledge full faith and credit of United States to payment of principal and interest on USPS obligations. (39 U.S.C. 2006.) Law requires Treasury approval. (Public Law 89-429, sec. 6.) No provision in law and generally no consultation in practice except on certain occasions when new instruments are designed or special marketing problems arise.1 No provision in law and generally no consultation in practice except for establishing interest-rate ceilings in certain programs. Other control Do. President appoints the Governors of the Postal Service. Postal Service outlays, are included in the Federal budget but such outlays are largely financed through permanent appropriations which are not subject to the normal budget review process. Programs are subject to regular budget review process but asset sales offset budget outlays. Programs are subject to regular budget review process but guaranteed loans do not affect budget totals except for debt service grants, defaults, and administrative expenses. Programs are subject to regular budget review process but guaranteed loans do not affect budget totals except for debt service grants, defaults, and administrative expenses. Also, these programs are generally more subject to overall restraints on private institutional lenders than programs financed directly in securities markets under A-D above. 1 The Secretary of Commerce and the Secretary of the Treasury have agreed to consult on a continuing basis concerning the timing, terms, and other financial arrangements of offerings of guaranteed merchant marine bonds. Source: Office of Debt Analysis, Office of the Secretary of the Treasury (revised June 8, 1972). TABLE 2.-OUTSTANDING DIRECT LOANS, AND GUARANTEED AND INSURED LOANS FOR FEDERAL CREDIT 1 Effective Jan. 1, 1973, rural electrification loans were converted from the regular REA program to insured loans under the Rural development insurance fund of the Farmers Home Administration, with total program increases of $200,000,000 each for 1973 and 1974. 2 Excluded from budget totals by statute on Aug. 17, 1971. 3 Excluded from totals to eliminate double counting with guarantees of underlying mortgages. The contingent obligations of the Federal Government approximate an additional trillion dollars of potential debt including: Government guarantees, insuring private lenders against losses, FHA, VA, etc.). Insurance commitments, (Overseas private investment corporation insurance, etc.) Unadjudicated claims (Corps of Engineers, HEW, IRS)-- Other contingencies not included above (Export, Import, Total $135, 157, 000, 000 773, 589, 000, 000 3, 623, 000, 000 7,258, 000, 000 13, 506, 000, 000 933, 135, 000, 000 Although a considerable portion of this trillion dollar liability is not likely to become debt, it is reasonable to expect that liability is likely to result on at least 5 percent of this debt, or $50 billion. In recent years, the contingent liability in "high-risk programs" appears to be growing much too rapidly. The Price-Anderson Act provides a potential liability of $10 billion, while the rest of the atomic energy program provides a potential liability of $90 billion more. At the present time, there are 20 commercial nuclear powerplants in operation. The liability on each plant in case of a nuclear incident is $560 million. Although there is a small insurance payment by utilities, a contingent liability of tremendous dimension is shifted to the public. The overseas private investment corporation is another case in point. In fiscal year 1971, $9,847 billion in insurance was issued to American companies to encourage them to invest in high risk areas abroad. The cost of this insurance to the companies amounted to $33 million in fiscal year 1971. In 1971, $16.5 was paid to these companies in claims by OPIC. The takeover of mineral interests in Chile could increase claims to over $500 million. If these claims are sustained, the investors will have an immediate claim on the taxpayers. The Export-Import Bank has a contingent guaranteed loan obligation of $1,395,000,000. The CHAIRMAN. Congressman Pepper. Mr. PEPPER. I want to commend the able gentleman for his initiative in bringing our attention to this matter. I would have thought the Treasury or somebody would have had some overall authority to determine how much money the agencies or the departments of the Government would have. If not, if the Treasury doesn't have that, or somebody, it might be well for you to consider some sort of an overall authority being created through whom they would have to go, saying they want to float a bond issue of $100. They would say, "Wait a minute, we don't want to put more than so much on the market now or we don't want to get too much outstanding. We will have to see how much the other people want to put on the market." Mr. VANIK. Let me say that the administration did come along with a Federal financing bank proposal. Let me tell you what they did in that proposal. They asked for $15 billion more in authority. We thought the language was presented to us as an effort to just tie together all of these various borrowings, so that the Treasury could have some monitoring. We found out in our hearings that what they were asking for was a doubled-up authority. They said it was just a mistake. I just want you to know how very loose control there is. I was shocked. It was a $15 billion mistake. People with integrity in Government don't come in and offer legislation with that kind of mistake. The CHAIRMAN. Congressman Matsunaga. Mr. MATSUNAGA. Doesn't the general debt ceiling place any kind of control over this? Mr. VANIK. No. These are outside the debt. Mr. Volcker's testimony before our committee, a few months ago, was that the Federal Government's borrowing for fiscal 1973 outside the debt will total $27 billion, by Government agencies. Mr. MATSUNAGA. Any time a Government agency borrows I would think that it creates a debt for the Federal Government. Mr. VANIK. Of course. Mr. MATSUNAGA. Why wouldn't that be within the debt ceiling? Mr. VANIK. We made it outside of the debt, you and I as legislators. We passed laws that made it exclusive of the debt. Mr. MATSUNAGA. So we did. Mr. VANIK. So it is outside the debt ceiling. Mr. CLAWSON. We have to assume part of the responsibility for it. The CHAIRMAN. Del, did I overlook you? Mr. CLAWSON. I wanted to ask two very quick questions. One is in connection with the guaranteed loans. Some of those would affect tens of thousands of students, too, wouldn't they? Mr. VANIK. No, that is not the type of program I am talking about. Mr. CLAWSON. Well, this is one of the items that you mentioned. Mr. VANIK. No, we are talking about loan guarantees by some of these so-called independent agencies. For example, the guarantees that are made by the Export-Import Bank. |