The New Debate
Edited by Tyler Cowen and Eric Crampton
Chapter 8: Do informational frictions justify federal credit programs?
1 Stephen D. Williamson Through federal agencies, the US government administers a wide array of credit programs, which alter the allocation of credit (and the distribution of income) in the United States in important ways. In this chapter, we will consider the credit market effects of three types of federal credit programs. First, we examine direct government lending, which takes place in the United States through several federal agencies, including the Farmers Home Administration (FmHA) and the Small Business Administration (SBA). Second, we consider loan guarantees, which are an important form of federal government intervention in credit markets. Much of the activity of the SBA is accounted for by loan guarantees, and the mortgage insurance programs of the Federal Housing Administration (FHA) are essentially loan guarantees. Third, we study the promotion of secondary markets in private loans, an area in which the federal government has been active, especially in regard to the mortgage market. The Government National Mortgage Administration (GNMA) buys FHA-insured mortgages and packages these as Ôpass-through securities.Õ GNMA pass-through securities are backed by the US government. The Federal National Mortgage Administration (FNMA) is a privately owned corporation which performs a role similar to GNMA. The mortgages backing FNMA passthrough securities are conventional rather than insured, and these securities have no explicit government backing. However, it is generally recognized that the liabilities of FNMA are implicitly backed by the US government; i.e. FNMA is Ôtoo big to fail.Õ When efficiency arguments are used to justify federal credit programs, there...
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.