May 23, 1966
Page 11184
PARTICIPATION SALES ACT OF 1966
The PRESIDING OFFICER. Under the order of May 19, 1966, the Chair lays before the Senate the unfinished business, which will be stated by title for the information of the Senate.
The LEGISLATIVE CLERK. The motion to agree to the amendment of the House of Representatives to the bill (S. 3283) to promote the private financing of credit needs and to provide for an efficient and orderly method of liquidating financial assets held by Federal credit agencies, and for or other purposes.
The PRESIDING OFFICER. Under the unanimous-consent agreement, further debate shall be limited to 1 hour, to be equally divided and controlled by the Senator from Maine [Mr. MUSKIE] and the Senator from Delaware [Mr. WILLIAMS].
Who yields time?
Mr. MUSKIE. Mr. President, I yield myself 2 minutes.
The PRESIDING OFFICER. The Chair recognizes the Senator from Maine.
Mr. MUSKIE. The motion before the Senate is to accept the House amendment to Senate bill S. 3283, the Participation Sales Act of 1966. The changes made by the House, as I explained to the Senate on May 19, are mainly of a clarifying or technical nature. It may be said that they tighten the provisions of the bill rather than broaden it.
There are three principal differences of substance. One is in the section which specifies the departments or agencies which may establish trusts under this act. The programs under the Farmers Home Administration to be included are described more precisely. The change also specifies certain types of loans on which trusts may not be established, even though made under the involved programs of the Farmers Home Administration. These include specifically housing for the elderly and non-farm recreational programs.
The second substantive change requires that no department or agency listed in the bill may sell any obligations except as provided in the bill or as approved by the Secretary of the Treasury. This provision assures effective coordination of all asset sales by the various departments and agencies of the Government.
The third change is omission in the House version of a definite requirement for an annual report to the Congress by the Secretary of the Treasury as to operations under the bill. On this matter, Senator BENNETT, sponsor of this provision in the Senate bill, has received and put into the RECORD of May 19 a letter from Joseph W. Barr, Under Secretary of the Treasury, giving an assurance that the Treasury Department will in practice make such a report on a voluntary basis in accordance with the intent of the provision included in the Senate version.
Other changes made in the House version were of a clarifying or technical nature. The effect of some of them relate to authorizations for appropriations and are designed to avoid the implication that they might be interpreted as appropriating funds in violation of House rules.
With respect to the second substantive change to which I have already alluded, I wish to make a further clarifying comment.
Section 6(b) of the House version requires the approval of the Secretary of the Treasury after June 30, 1966, before assets held by any of the agencies listed in section 302(c) of the Federal National Mortgage Association Charter Act may be sold under other authority.
This section does not, in my judgment, apply to the insured loan programs of the Farmers Home Administration under the Consolidated Farmers Home Administration Act of 1961 or title V of the Housing Act of 1949. Certainly it was not our intention that it should in any way interfere with the insured loan program of the Farmers Home Administration.
These programs are designed to replace the direct loan programs authorized by these acts, to the extent possible, with private credit guaranteed by the Secretary of Agriculture. A large portion of such guaranteed loans are held by banks in the community where property is located, thus creating a close interest between the holder of the insured loan and the borrower.
The Director of the Bureau of the Budget has assured Representative POAGE that no obstacle will be placed in the way of the full use of the maximum insurance authorization. The letter containing this assurance appears on page 10900 of the RECORD of the House proceedings of May 18, 1966.
It would be inconsistent with the policy established by this bill and general administration policy on substitution of insured loans for direct loans in Federal credit programs, to use section 6(b) as a means of frustrating the operations of the Farmers Home Administration insured loan programs.
Mr. President, I reserve the balance of my time.
The PRESIDING OFFICER. The Senator from Delaware is recognized. How much time does the Senator desire?
Mr. WILLIAMS of Delaware. Five minutes.
The PRESIDING OFFICER. The Senator from Delaware is recognized for 5 minutes.
Mr. WILLIAMS of Delaware. Mr. President, first I wish to say that I agree with the Senator from Maine [Mr. MUSKIE] that the provisions of the bill as passed by the House of Representatives are substantially the same as those passed by the Senate, except that in its amendments the House did spell out more clearly the Senate amendments reducing the authority as requested, from $33 billion down to $10.9 billion.
I am not debating here today the merits of the House bill compared with the Senate bill but rather the principle in both bills of having the Government sell a part of its assets to defray normal operating expenses of our Government.
This procedure is merely a plot to conceal the true size of our deficit.
I know of no better way to point out how dangerous and misleading this policy is and how it can be abused than to call attention to the statement released yesterday by the Executive Branch, wherein the President announced that the deficit for this fiscal year, ending June 30, was expected to be about $2 billion lower than the previous estimate of $6.4 billion, as made in January.
It was intended that this be accepted throughout the country as a great achievement in that it would appear that we are coming closer to a balanced budget. In reality we are not. The books have just been juggled a little.
It is true, as the President pointed out, that our revenues have increased, but at the same time our expenditures have increased more. The deficit is not going to be lower on June 30 than was planned in January. Quite to the contrary. The only difference is that they have sold around $2.4 billion of assets more than they had planned to sell at the time that the President made his speech in January. The sale of these assets will reduce the amount of the reported deficit.
Concealing the true deficit is very dangerous. It invites more inflation. We are not going to cure inflation unless we recognize the cause, and the cause is heavy Government spending and deficit financing.
This year's deficit, instead of being reduced to $4 billion as the President now indicates, is still going to be around $8 billion to $9 billion if we apply the spending to normal income.
I wish to call attention to a few of the items that have been used here to reduce this 1966 deficit to $4 billion. They expect to have $1 billion as nonrecurring profit during this fiscal year by reducing the silver content of half dollars and quarters. The Treasury will make $2.5 billion, $1 billion of this profit to go into this fiscal year and $1½ billion next year.
About 2 months ago we passed a bill accelerating payment of corporate taxes over and above existing law. That will bring in an extra $2.1 billion. The Treasury is selling $2.5 billion more in assets than was planned to be sold at the time of the January message and in the past couple of weeks the Treasury has advanced the payment dates for withheld payroll taxes. This latter change will give them an extra billion this year.
If we eliminate these one-shot gimmicks and if we figure deficit years as we have always figured deficit years we are going to have a deficit for fiscal 1966 of $9 billion.
In my opinion, the President is doing a great injustice to the American people when he tries to camouflage the true deficit and claims that he has solved the fiscal problems of this Government by selling our assets. It is misleading to permit the people to think that we are paying for the Great Society programs under our current revenue when that is not true.
The Treasury Department confirms the point that to the extent that $1 of these assets is sold in the manner being proposed, the national debt and the reported deficit are automatically
reduced by a corresponding amount.
Next year they are planning to sell $4.7 billion of these assets. In addition the Treasury picks up $4.9 billion next year as result of the accelerated payments of individual corporate taxes. Both of these represent nonrecurring income. When that is considered, along with the $1.8 billion deficit already announced, there results a $10 billion to $11 billion actual deficit next year.
However, when this bill passes authorizing the sales of $11 billion in assets, the administration will actually be able to report a balanced budget next year and still spend $10 billion more than it will take in.
This is a deceitful method of financing the cost of the Government.
The American people ought be told the truth. They ought to be told that this administration is currently operating the Government at a deficit which is averaging around $700 million or $800 million a month. If the American people are not told the truth about the deficit the problem of inflation will never be licked.
With the passage of this bill it might well be said that Government has passed the point of no return so far as the fight on inflation is concerned, because once the executive branch is given
the right to camouflage its deficits in this manner, our financial policies will not be brought under control, at least in the near future. This represents a serious blow to the stability of our dollar.
Mr. LAUSCHE. Mr. President, will the Senator yield for a question?
Mr. WILLIAMS of. Delaware. I yield.
The PRESIDING OFFICER. The time of the Senator from Delaware has expired.
Mr. WILLIAMS of Delaware. I yield myself an additional 5 minutes. I yield to the Senator from Ohio for a question.
.LAUSCHE. What was declared to be the anticipated deficit for the current fiscal year, when it was announced in January?
Mr. WILLIAMS of Delaware. The January estimate was $6.4 billion deficit. Since that time the Government has already sold $2.5 billion of our assets, in participation certificates. I understand – and this is only an understanding -- that one reason why the administration wants to have the bill pass quickly is because of its desire to sell another $800 million certificates of the Small Business Administration before June 30. This will further reduce the reported deficit beyond what I have already discussed. To the extent that these assets are sold, it will reduce the deficit, as reported, but it will not reduce the true deficit. If the Great Society sells the Washington Monument and spends the proceeds it does not represent sound financing.
I said the other day that the situation is exactly comparable to that of an individual family whose income is derived from a salary of $9,000 a year. They are spending $10,000 a year, so he goes out and sells his car for $2,000 and comes back and says, “I end up this year with a surplus of a thousand.”
He is not getting ahead. He is gradually going broke. That is exactly what they are doing with the Federal Government , but the only thing is, the administration is not telling the American people the truth. It is misleading the American people as to exactly what these Great Society programs cost. The President makes a great issue about his interest in truth-in-lending and truth-in-packaging. What we need more than either of these is truth-in-Government.
Mr LAUSCHE. Will the Senator kindly repeat the announced deficit as of last January?
Mr. WILLIAMS of Delaware. As of January, the President projected a deficit at the close of the 1966 fiscal year of $6.4 billion.
Mr. LAUSCHE. What was the latest statement?
Mr. WILLIAMS of Delaware. Yesterday he said he would reduce it about $2 billion, which would bring it down to around $4 billion. Later, I would not be surprised to see them sell some of our assets and reduce the amount even more.
Mr. LAUSCHE. Getting to the sale of assets, one, there has been a windfall – if I may so describe it – through the replacement in our coins of a metal as a substitute for silver. How much has that produced?
Mr. WILLIAMS of Delaware. In fiscal 1966, $1 billion. The next fiscal year we will get a nonrecurring profit of a billion and a half. This nonrecurring income is being used to defray regular expenses.
Mr. LAUSCHE. This windfall, through the substitution of a cheaper metal for silver, is being used for the financing of current operating expenses.
Mr.W1LLLAMS of Delaware. That is correct.
Mr. LAUSCHE. No. 2, how much will be picked up through the acceleration of the time in which the income tax must be paid as of year 1966?
Mr. WILLIAMS of Delaware. For fiscal 1966 they picked up an additional $1.2 billion. Already the old law, passed a year ago, brought in an extra $1 billion; but that law, which was passed since the President’s January message, brings in another $1.2 billion. This added to the $2.5 billion in assets being sold means we have $4.7 billion this year in extra income – or in other words, the deficit is still over $8 billion when we pull aside the curtain.
Mr. LAUSCHE. What assets have been sold which have produced the $2.5 billion?
Mr. WILLIAMS of Delaware. Mostly FNMA mortgages.
Mr. LAUSCHE. So that the use of capital is covered by 1 billion of the dollars obtained through the substitution of a cheaper metal for silver, $1 and $2 billion through the acceleration in the payment of taxes which is nonrecurring, and $2.5 billion in the sale of securities by FNMA.
Mr. WILLIAMS of Delaware. That is correct.
Mr. LAUSCHE. Therefore, using capital assets for current operating expenses brings the anticipated deficit down to the $4 billion. label which been declared –
Mr. WILLIAMS of Delaware. That is right. Yesterday the administration in making this announcement presented it to the American people as a great achievement. It is not. What I am concerned about is that this is an open invitation to more inflation, that is, in my opinion, inevitably going to follow this kind of irresponsible financing. This era will be known as the Johnson inflationary period. All those aged who are being pauperized as a result of this planned inflation should know that this is part of the Great Society plan. I do not know of any better language which describes this unsound financial arrangement than to quote from yesterday's issue of Barron's magazine in which they quote an administration official who describes the proposal to sell these assets as follows. I quote from that article:
Originally the administration wanted do even more. Its proposals would have covered the entire Federal loan portfolio for the 100 programs worth some $33 billion. In an unguarded moment of candor, a staunch backer of the bill called this “one of the slipperiest pieces of legislation I have ever encountered.”
Mr. President, I wholeheartedly agree with that statement. This is not only a slippery piece of legislation as this sponsor claims, but it is also fiscally irresponsible.
The PRESIDING OFFICER. The time of the Senator from Delaware has expired.
Mr. WILLIAMS of Delaware. Mr. President, I ask for 5 additional minutes.
The PRESIDING OFFICER. Without objection, the Senator from Delaware is recognized for 5 additional minutes.
Mr. WILLIAMS of Delaware. Mr. President, this program will result in more inflation. When we liquidate our assets and use the proceeds for current expenditures, we are inviting inflation.
There is another point that should be mentioned; that is, the extra interest cost. It will cost at least one-half percentage more to finance the Government in this manner than it would in the normal manner of selling Government bonds. Some claim this extra cost would be only a quarter of a percent. Even if it were only a quarter of a percent, that would be bad enough. But there have been three or four sales this year which have averaged four-tenths to seven-tenths percent extra. The average extra cost has been over one-half percent. That means that for every $1 billion financed this way it will cost an extra $5 million. If we sell the full amount of $10 billion we will be paying an extra $50 million in interest annually.
These participative certificates are 100 percent guaranteed by the Federal Government. Some say that they will be in denominations no lower than $10,000, which means that the Johnson administration will make sure the average John Doe will not collect this 5½ percent interest. He is supposed to put his money into "E" bonds and take 4¼ percent. But the banking industry, knowing that these are 100 percent guaranteed by the Federal Government will have an attractive 5½-percent interest rate.
Certainly good, sound management would dictate that the Treasury should finance the Government in the cheapest manner possible. The reason they do not wish to sell these bonds in the normal way is that it would show up the true deficit. 'They could not deceive the American people in the manner that they can under this particular bill.
Mr. LAUSCHE. Is this calculation substantially correct, that for every $1 billion worth of participation certificates sold, the added increase in the interest cost will be approximately $5 million a year?
Mr. WILLIAMS of Delaware. That is correct.
Mr. LAUSCHE. So that if $4.2 billion worth of participation certificates are sold, the added interest cost to the taxpayers will be over $20 million, a year.
Mr. WILLIAMS of Delaware. That is correct.
Mr. LAUSCHE. Do I correctly understand that we are not selling these mortgages fully and completely, but merely selling participation certificates; thus, the Federal Government still is holding the bag if mortgages go sour in payment at the end?
Mr: WILLIAMS of Delaware. There is no question about it. The agency selling these certificates is bound by the terms of the agreement that if one mortgage goes bad it will be replaced with a good note or paid in cash.
Do not forget that FNMA has the authority to borrow money from the Federal Treasury to make good on its obligations. There is no question on the part of anyone but that these are 100 percent Government guaranteed loans. The only difference in selling them in this manner is that they will cost the taxpayers approximately one-half percent more in interest rates, and it would conceal the true deficit from the American people.
I repeat, this is an irresponsible and unnecessarily expensive way to finance the cost of operating the Government.
Mr. LAUSCHE. May I put one more question to the Senator. What is the limit of the amount that the Government will be allowed to put into the pool upon which they will sell certificates as provided in this bill?
Mr. WILLIAMS of Delaware. Under the bill that was first sent down to Congress the administration asked for the authority to sell up to $33 billion in assets. We amended the bill in the Senate. The House has accepted those same amendments in substance. The bill before the Senate now authorizes the sale of $10.9 billion, but that is wrong. If the pending bill passes in its present form it means that in the next 2 years the administration can sell these assets -- spend, we will say, $10 billion more than it is taking in, and still report a balanced budget to the American people.
If any private corporation issued any such misleading financial report their officers would be sent to the penitentiary.
This entire plan is nothing but a vehicle to get through the 1966 election without having to raise taxes.
The administration, if it could have gotten away with it, wanted to obtain authority to sell $33 billion in assets which would carry them by the 1968 Presidential election. This may be the way they do it in Texas, but it is not the way to run a Government.
I do not think we should dip into the Federal Treasury to buy an election for any political party.
We are already having trouble enough with inflation in this country. The President of the United States ought to tell the American people the truth; namely, that his is the most extravagant administration we have ever had in the White House. The present administration during the past 6 years has spent a total of $36.5 billion more than it collected into the Treasury. That is more than $550 million a month for every month that the Kennedy-Johnson administration has been in office, and right now the present administration is running a deficit at the rate of $750 million or $800 million a month.
The PRESIDING OFFICER. The time of the Senator has expired.
Mr. MUSKIE. Mr. President--
The PRESIDING OFFICER. How much time does the Senator from Maine yield to himself?
Mr. MUSKIE. If yield myself 5 minutes for the time being.
Mr. President, the opposition to the pending bill -- and that has been primarily the Senator from Delaware this afternoon -- persists in referring to it as a means of camouflaging a deficit, financing the public debt, and evading the 4¼ percent ceiling on long-term Government obligations.
In addition, the Senator from Delaware this afternoon has referred to the bill as "misleading," as "failing to tell the American people the truth," as a "slippery piece of legislation." That was some of the colorful language the Senator from Delaware used this afternoon. Mr. President, it is none of these things.
It is, on the contrary, a means of selling certain assets held by the Government. It authorizes use of a technique by which the administration can sell participations -- amounting to about $4.2 billion in fiscal 1967 -- in pools of certain types of direct loans totaling some $11 billion that the Government has made to individuals, business, and institutions in the past. In this way, the Government will reduce the sum of the taxpayers, money tied up in its portfolio of direct loans and increase the role of the private market in Federal lending programs.
I would like to remind the opposition at this time of the efforts of the last Republican administration to sell similar assets.
During the 8 years of the Eisenhower administration, assets consisting of loans totaling almost $1.6 billion were sold.. More than two-thirds of the total was in loans held by the Federal National Mortgage Association. But loans of the Farmers Home Administration, the public housing program, the Veterans' Administration, the Export-Import Bank, and the Small Business Administration are included in the total -- the same programs covered by the pending bill.
And the total of the $1.6 billion does not include some $200 million in reconstruction finance corporation loans and securities that were sold or refinanced.. Also not included are some $47 million in interest-bearing certificates of interest in a $73 million pool of smaller business loans with unpaid balances and commitments, which were sold in 1954.
I ask unanimous consent to have a table showing sales of assets during the Eisenhower administration, together with a note on figures not included in it, be printed in the RECORD at this point in my remarks.
There being no objection, the table was ordered to be printed in the RECORD, as follows:
[TABLE OMITTED]
Mr. MUSKIE. Mr. President, these figures reveal the substantial scope of the assets sales program during the administration of President Eisenhower. They reveal the dimensions of an activity which had the support of almost all members of President Eisenhower’s party in this House.
The program was not different in its broad aims from the program President Johnson is pursuing with the legislation before us. A different technique is involved, but the purposes of reducing the portfolio of direct loans and substituting private for public credit are the same. Also, the budget treatment and effect are the same under the Eisenhower program and under the Johnson program. The budget treatment in effect is the same under the Eisenhower program and under the Johnson program.
If ulterior motives, such as are implied in calling this a slippery piece of legislation, misleading, and untruthful, can be ascribed to the proposal now before us, then the same ulterior motives can also be ascribed to President Eisenhower's program
The PRESIDING OFFICER. The time of the Senator has expired.
Mr. MUSKIE. I yield myself 5 additional minutes.
That program is as subject as the pending bill to the charge that its purpose was to camouflage deficits, finance the public debt by backdoor methods, and evade the 4¼-percent ceiling.
That was not the case, of course. Nor is it the case now.
On this point I cite the 1963 minority report of the House Ways and Means Committee, which in effect directed the administration to sell more assets. That is exactly the purpose of this bill: To sell those assets in an orderly fashion and in a manner most advantageous to the lending agencies and to the taxpayers.
Mr. President, I ask unanimous consent that the statement in the House minority report be included in the RECORD at this point in my remarks.
There being no objection, the extract was ordered to be printed in the RECORD, as follows:
Republican Minority Report, House Ways and Means Committee Report, 88th Congress, 1st Session (May 1963) on H.R. 6000 (to provide temporary increases in the public debt limit)
"The administration also can always reduce its borrowing requirements by additional sales of marketable Government assets . . .
"For example, when the Secretary of the Treasury was before the committee on February 27, we suggested that it was incumbent upon the administration to show "good faith” before coming to the Congress for an additional increase in borrowing authority. We pointed out that the Government held about $30 billion in loans, many of which were readily marketable. In fact, there was a very good market for many of these loans. Instead of increasing its offering of these loans to private lenders, the administration was then acting on the supposition that the Congress would automatically accede to a request for an increase in its borrowing authority . . .
“It was also pointed out to the Secretary of the 'Treasury that the Government had other assets which might be liquidated, such as the stockpile of strategic materials amounting to about $8.7 billion.
"Our refusal to grant the administration's request last February produced results." In the interim of less than 2 months the administration found that it could increase revenues from the sale of loans by an additional $1 billion for fiscal 1963. Now, the administration estimates that it will realize $2.082 billion -- as contrasted with an original estimate of only $0.929 billion less than 2 months ago . . .
The Republican members who signed the minority report were: JOHN W. BYRNES, HOWARD H. BAKER, THOMAS B. CURTIS, VICTOR A. KNOX, JAMES B. UTT, JACKSON E. BETTS, BRUCE ALGER, STEVEN B. DEROUNIAN, HERMAN T. SCHNEEBELL HAROLD R. COLLIER
Mr. MUSKIE. Mr. President, there has been a great deal of reference in the Senate during debate on this bill over the action which took place in 1959 on a related matter. Most of us -- and I do not exclude myself -- have either overlooked or forgotten the real significance of that event in 1959, and consequently we have been misinterpreting it. I am referring of course, to the resolution of August 1959, expressing the sense of the Senate against the exchange of certain mortgages held by the Government for certain long-term privately held Government bonds.
For the benefit of those of us whose memory of that day has faded, let me recall the situation.
During a low-interest period, chiefly if not entirely during the Truman administration, the Government had sold long-term low-interest bonds. Some $7.8 billion of these were outstanding.
The Eisenhower administration, in a substantially higher-interest period, made a proposal concerning $335 million of 2¾-percent bonds, to take place during fiscal 1960.
The bonds in question could be converted to short-term only at an interest rate of 1⅛ percent. They were salable only at a substantial discount.
The administration proposed to exchange $335 million of the bonds for a like amount of prime mortgage paper, bearing 4-percent interest, fully guaranteed, and scheduled or likely to be retired, on the average, in 7 or 8 years.
If this swap was successful, the administration proposed to swap an additional $665 million of the mortgages for the bonds.
The entire transaction would have reduced the Government's portfolio by $1 billion and reduced the deficit by $1 billion.
The administration conceded a substantial loss of the taxpayers money in the transaction. But by putting a heavy discount on the mortgages -- priced for quick sale in a high-interest market and ignoring the 1½-percent rate at, which an appreciable amount of the bonds would have been converted, the administration managed to minimize the loss.
Considering that there were almost $8 billion of the bonds outstanding, one Member of this House estimated the total possible loss at $100 million per year during a 5-year period -- half a billion dollars.
Those opposed to the proposal brought in a resolution that the sense of the Senate was against the proposed transaction.
The question of asset sales was involved, as the Senator from Delaware and I have agreed. However, there were other aspects to the proposal which many thought unwise and questionable. The vote on the resolution was revealing. Only 3 members of the minority including the Senator from Delaware joined 53 members of the majority in voting for the resolution. Twenty-nine members of the minority made up the entire opposition.
The Senator from Delaware has made much of that vote. The debate went on for several hours. It covers 32 pages of the RECORD. In all that time, the Senator from Delaware said not one word in debate.
The Senator from Delaware did not undertake to describe the proposal of the Eisenhower administration in the harsh terms he has used to describe the proposal of the Johnson administration this. afternoon.
During the debate the past few days, the Senator from Delaware has often returned to the following themes: that the bill was a $33 billion authorization that would enable the administration to spend $33 billion without normal expenditure control; that it would empower the administration to sell foreign aid loans; that only his "major surgery" on the bill eliminated or limited those broad, unfettered grants of power.
In his letter of transmittal, the President detailed programs of which assets were to be sold through the participations technique. No foreign aid loans were included; it has been perfectly clear from the beginning that they were excluded. Amendments to which the administration agreed early in the legislative history placed effective congressional control over every sale of participations, through the appropriation process.
In contrast to the 1959 situation, in which our resolution had no force, and in which it would have been necessary to change the law, requiring the agreement of both Houses and the administration, under this legislation the refusal of either House to concur will prevent any proposed sale through participations.
In exercising its power over appropriations, Congress will have complete control of the amounts of money made available and how they are used. It will retain the control it now has over the limitations on the lending programs.
The amendments we have agreed to limit the scope to a group of programs and loans totaling about $11 billion. This was no major or surgery. If is simply our expression of good faith: the President meant what he said in his letter of transmittal and we are willing to demonstrate that fact by writing the limitations into the bill.
In short, the proposal before us has had a well-established basis in the Eisenhower administration and since. It has been approved then and since as a sound way of substituting private money for public money in direct loan programs. As such, it merits our support.
President, I reserve the remainder of my time.
Mr. HOLLAND. Mr. President, will the Senator yield 5 minutes?
Mr. MUSKIE. I yield.
Mr. HOLLAND. Mr. President, I support the position of the distinguished Senator from Maine. I would not have supported the legislation if the changes had not been made in the bill when it was originally discussed in the Senate.
The Senator from Delaware [Mr. WILLIAMS] the Senator from Ohio, and others are entitled to a large part of the credit for the changes that were made at that time. As the legislation now reads, however, this is a worthy approach, and offers an opportunity to use -- for the Nation, in this time of crisis, the assets which belong to the Nation. I shall support the bill in its present form.
Mr. President, I desire to call attention to this fact, also, if I may have the attention of Senators on the other side of the aisle.
I have in my hand a news item that appeared today on the ticker tape outside the Senate Chamber. The article reads, in part:
The Treasury Department asked Congress today to raise the temporary debt ceiling to $332 billion for the fiscal year which begins July 1.
The ceiling -- which was raised by Congress last year to a temporary $328 billion -- would drop to the permanent level of $285 billion if Congress fails to act.
I desire to make clear my position that although I am voting for the measure that is being discussed in the Senate today, I shall oppose the proposed increase of the debt limitation. I do not believe we can run in both directions at the same time.
I believe that an administration is to be commended when it attempts, in a reasonable way, to lessen the debt limitation and I believe that is what we would do if we approved the bill that is before us today.
I believe the administration is unwise in requesting the authority to increase the debt limitation to $332 billion for the coming fiscal year.
Therefore, to make my position entirely clear, I approve the pending legislation because it is a is marshaling of assets. Such action would be commendable by a private institution or a business institution as a method of preventing further indebtedness.
I shall oppose the proposed debt limitation increase from $328 billion to $332 billion, because I believe we cannot run in both directions at the same time. I shall support the pending, bill.
The PRESIDING OFFICER. Who yields time?
Mr. WILLIAMS of Delaware. Mr. President, how much time do I have remaining?
The PRESIDING OFFICER. The Senator from Delaware has 13 minutes remaining.
Mr. WILLIAMS of Delaware. Mr. President, I yield myself 5 minutes.
Mr. President, in response to the Senator from Florida, I desire to point out that without this devious method of financing the President would have to request an increase in the debt ceiling to about $336 billion or $337 billion because under the provisions of the bill, in the next fiscal year he plans to sell $4.7 billion of assets and use the proceeds as normal revenue.
Unquestionably, to the extent that he sells these assets and applies them to normal revenue, the amount of money that the Treasury has to borrow through direct Government obligations is reduced.
But I point out that the Government will still owe money even though it is not counted as a part of the national debt. When one endorses a note it is just the same as when he borrows. The only difference is that the Government will pay more interest. There is only one real way to keep the debt ceiling down, and that is to stop spending.
Liquidating the assets of the Government to defray normal expenses is exactly the same as occurred in the past when Mr. Wolfson bought the local transit system. In the District of Columbia he bought the transit systems and then distributed the assets of the corporation. That was what Mr. Wolfson did with several companies which he headed, leaving the corporations as a shell.
What we are being asked to do to day is to authorize the Federal Government to sell its assets and apply the proceeds to cover daily expenses,
The Senator from Maine [Mr. MUSKIE] said that this measure should go through unanimously just because some Republicans under President Eisenhower's administration tried to do the same thing. I am always glad to hear the Senator from Maine endorse what Republicans did; he should follow them more often. I suggest that he will be more constructive if he votes with the Republicans.
But when some Republicans in 1959 to sought to follow the same procedure as is being advocated today, he opposed the transaction. I voted against it then. I shall state for the record how the Senators on the other side of the aisle, including the man who is now in the White House, described this proposal when it was suggested in 1959. I am quoting from the official record. This report was written in connection with a vote on a resolution, No. 177, on August 20, 1959:
Proponents charged that the purpose of the proposed exchange was to achieve a balanced budget by selling off capital assets of the Federal Government. Such a balance, the proponents contended, would be fictitious and fiscally irresponsible.
The Senator from, Maine and I endorsed that analysis in 1959. I endorse it today I do not care whether this unsound practice is proposed by Republicans, Democrats, Independents, or Socialists. When we sell our assets we are liquidating the Federal Government, and when we apply the proceeds to defray daily current expenses it is wrong. I do not care who advocates the policy; it costs more interest and it is wrong.
In 1959, a good argument was made by the then majority leader, the man in the White House today, against this unsound procedure. He said that it was an unnecessarily expensive and a deceptive way in which to finance the Federal Government. It was misleading as to the amount of the true deficit. I agree with those arguments. I regret however that he changed his mind when he got in the White House.
I yield to the Senator from Ohio.
Mr. LAUSCHE., The issue before Congress in 1959 was substantially identical to the issue before Congress today. A deficit is facing us, and the objective of the administration is to avoid that deficit by selling capital assets,
President Eisenhower made a similar recommendation in order to avoid a deficit in 1959. Is it not a fact that the argument which the Senator from Delaware is making today is substantially the same argument that he made against the Eisenhower proposal in 1959?
Mr. WILLIAMS of Delaware. The Senator is correct. Contrary to what the Senator from Maine said, when the Secretary of the Treasury was before the Committee on Finance I joined with the then senior Senator from Virginia, Mr. Byrd, in condemning this type of program as being fiscally irresponsible.
I said then and repeat now the American people would not be told the truth as to the deficit under such a program.
I point out that there is this difference in today's proposal and the 1969 resolution which I supported. The 1959 resolution condemned something after it had been done. It was not a resolution to stop such sales.
Only $335 million was involved in the1959 transaction. However, the recent request was for $33 billion, and the request now is for $11 billion. As I said and agreed to on the other day, a principle is involved. When we sell assets we should not count the proceeds as regular income. If a man who has a $9,000 a year salary and is spending $10,000 a year sells a corner of his lot for $2000 or sells his car for $2,000, he cannot then brag about the fact that he a balanced budget, or $1000 surplus. He has neither a balanced budget nor a surplus; he is going broke.
Mr. LAUSCHE. I ask the Senator for a bit of advice. If the Senator from Ohio in 1959 voted against the Eisenhower proposal, could be today vote for the Johnson proposal and still claim that he is consistent and following a. sound program?
Mr. WILLIAMS of Delaware. I am glad to note that the Senator from Ohio, who voted against this proposal in 1959, likewise opposed it before the Senate the other day. I am sure that he will join me today and follow a consistent position in opposing it.
My objection goes even further than the extra interest rates. We would be misleading the American people as to the true cost of the Great Society programs. We should tell the American people the truth as to what it is costing to operate this Government.
Much concern has been shown by the administration for high interest charges. When the present administration took charge of the Government in 1960 the total interest charge on all the national debt was between $8 billion and $8.5billion.
Last year the interest on our national debt cost us approximately $11.5 billion. In the fiscal year 1966, it is estimated that it will cost $12 billion.
Next year the interest charge on our national debt is estimated at $12.75 billion. This is over $1 billion per month in interest charges alone.
Do not overlook the fact that 93 per a cent of our $320 billion debt was created under Democratic administrations. It is costing the American taxpayers over $10 billion per year to pay the interest on that part of our national debt created under the Democratic administrations alone.
This bill before Congress this afternoon will raise these interest charges by another $50 million. There has been a 50-percent increase in the past 5 years on interest charges of the national debt.
The members of this Great Society who are always bemoaning high-interest charges should read the record as to what they have done, not for the American people, but to the American people in the last 5 years.
Mr. MUSKIE. Mr. President, may I inquire how much time is remaining?
The PRESIDING OFFICER. The Senator from Maine has 8 minutes remaining, and the Senator from Delaware has 6 minutes remaining.
Mr. MUSKIE. Mr. President, I yield myself 2 minutes.
The PRESIDING OFFICER. The Senator from Maine is recognized for 2 minutes.
Mr. MUSKIE. Mr. President, in order to make the record clear as to the comparison between the program we are now discussing and the Eisenhower program on direct sales, I think it would be very helpful to those who will be looking at the record to read two statements which I have received from the Treasury Department.
The first statement describes the advantages of participation sales of direct sales of loans. I ask unanimous consent that the statement I have just referred to be printed, at this point in the RECORD.
There being no objection, the.. statement was ordered to be printed in the RECORD, as follows:
ADVANTAGES OF PARTICIPATION SALES OVER DIRECT SALES OF LOANS
A question has been. raised as to the desirability of selling participations in pools of Federal. loans, rather than selling the loans outright.
Direct sales of loans are, of course, clearly preferable to Sales of participations in these loans, particularly if the loans can be sold outright without recourse to a Federal guarantee and if the investor is willing to take over the servicing of the loan. The fundamental objective in the financing of Federal credit programs should be to encourage the maximum degree of private lender participation consistent with the basic program objectives and sound financial practices.
As shown in table E-4 of Special Analysis of the budget for the fiscal year 1967, the Administration plans to sell $534 million of loans held by the Federal Government on a direct sale basis. Table E-4 also shows an estimated total of direct sales for fiscal 1966 of $672 million, and for fiscal year 1965 the figure was $814 million.
On the other hand, participation sales, as shown in table E-4, while only $750 million in 1965, are estimated to total $2,635 million in fiscal 1966 and $4,205 million in fiscal 1967.
The reason for the recent growth of participation sales, as compared with direct sales is that the Government is fast running out of loans which are readily marketable on a direct sales basis. This is true partly because the most marketable loans have already been sold under the program, which has been accelerated in recent years, to substitute private for public credit in the loan programs of the Federal Government. Also, current interest rates are relatively high compared with the fixed low interest rates established by the Congress in many of these loan program and the relatively low market interest rates prevailing at the time many of the loans in the Federal portfolio were made. Moreover, in some cases it is necessary or desirable to sell participations, rather than sell loans directly because the borrowers under these Federal programs are not well-known to investors and do not have established credit ratings. In many cases the underlying collateral, the maturities, or other loan terms and conditions are such that Federal loans are not readily salable to private investors on a direct basis or could be sold on terms more advantageous to the Federal Government if they were placed in pools.
The pooling of loans facilitates the adoption of various financial techniques which provide for greater marketability at less cost to the Government; i.e., through the device of a pool, the investor may be protected by providing excess coverage, authority to substitute assets, and other assurances that he will suffer no financial loss arising from the default of any one or more loans in the underlying pool. The pooling device also provides greater flexibility for the timing and amounts of asset sales and for tailoring the maturities and other terms and conditions of participation certificates in light of current market conditions and overall monetary and fiscal objectives.
Looking at the particular pr programs which are expected to be included in the fiscal 1967 participation sales program it is apparent why the participation technique is necessary to facilitate the orderly and most efficient sale of these loans. Loans made by the Farmers Home Administration are generally made to borrowers in rural areas remote from the major sources of loan funds. These borrowers are individual farmers, rural communities, and other organizations which are not well-known and are remote from investors. Moreover, the interest rates on these loans cannot exceed the statutory maximum of 6 percent and in many cases are much lower. Thus these loans cannot be sold in today's market except at sizeable discounts. Also the maturities of many of these loans are very long, in excess of 30 years, and are thus not salable to shorter-term investors. In fact, the Farmers Home Administration has for years been packaging these long-term loans and selling them to large investors with short-term repurchase agreements, with Farmers Home retaining the servicing of the loam and providing a 100 percent guarantee on the "package." The participation technique is a similar but more orderly and less costly means of financing many of the Farmers Home loans.
The college housing and public facility loans are not directly salable primarily because of their low interest rates (statutory maximum rate is currently 3 percent) and their long maturities of 40 and 50-years. The participation technique is a means of converting these heavily subsidized and illiquid obligations into highly attractive and flexible market instruments.
Loans made by the Veterans Administration are generally to borrowers in areas here private loan funds are scarce and the borrower is thus unable to obtain a loan under the VA guarantee program. Also, many of the direct VA loans are made on properties which VA has acquired by reason of defaults on VA guaranteed loans. Thus the VA direct loans are often basically unsalable except through some such method as the participation technique.
The Small Business Administration loan portfolio contains loans made to marginal small business borrowers who are not yet sufficiently established to secure private lender funds. SBA has sold some of these loans on a direct basis, but its experience has demonstrated that future loan sales could be accomplished more economically through the use of the participation technique. The recent sale by SBA of SBIC debentures, for example, was at an interest rate of 5% percent, plus commission, and, although this rate was necessary to market these instruments at the time, the loans could have been sold through the participation technique at a lower interest rate and with no compromise of basic program objectives.
Loans made directly by the Federal Government are for one reason or another unattractive to private lenders -- which is why the Federal assistance was required in the first place. Thus the sale of these financial assets held by the Federal Government cannot be accomplished on terms advantageous to the Government and consistent with basic program objectives unless these loans are converted into risk-free instruments of ready market acceptability.
The participation instrument must be viewed in the context of other Federal financing techniques designed to encourage private lender participation:
1. It is clearly most desirable to have the private lender originate and service the loan, such as under the major programs of the Federal Housing Administration, and, if possible, assume a portion of the loan risk.
2. In some cases, such as in the college housing program, private lenders may be encouraged to buy the early maturities, with the Federal Government picking up the longer maturities. Also, as in the SBA program, private lenders may sometimes be encouraged to participate with the Federal Government on an immediate or deferred basis.
3. In other programs where private lenders are unwilling to originate or service the loans -- which is true of most of the loans made by the Farmers Home Administration, e.g. -- the private lender participation generally takes the form of large investors providing the loan capital with the Federal Government guaranteeing the private investor not only against any loss arising from loan default but also against loss of liquidity through the use of loan repurchase agreements.
4. Where it is not possible to obtain private lender participation at the time of loan origination, which is the case with respect to most of the loans under Federal direct loan programs, the loans can sometimes be later converted from a direct to a guaranteed basis as the borrowers become better established. In such cases direct Federal loans have been and will continue to be sold outright, with or without recourse to the Federal guarantee, depending upon market acceptability. In fact, the Participation Sales Act of 1966 provides in section 2 (b) authority for Federal agencies to purchase outstanding participations in their loan pools so that these agencies will be able to withdraw loans from the pools and sell them outright if market conditions permit.
Mr. MUSKIE. Mr. President, the second statement makes a comparison of the cost of direct loan sales with participation sales. I ask unanimous consent that this statement be printed at this point in the RECORD.
There being no objection, the statement was ordered to be printed in the RECORD, as follows:
COMPARISON OF COSTS OF DIRECT LOAN SALES WITH PARTICIPATION SALES
Direct sales of loans by FNMA and VA in the fiscal years 1965 and 1966 have been at an average interest rate of about 5¼ percent throughout the period. After adjusting for the cost to the purchaser of servicing the loans -- which varies substantially depending upon the amount of each loan but can be estimated as roughly in the range of one-fourth to one-half percent -- the net yield to the investor would be in the range from 4% to 5 percent. This compares with an average interest yield on FNMA participations of 4.3 percent on the November 1, 1964 issue, 4.5 percent on July 1, 1965, 4.7 percent on December 1, 1965, and 5.4 on April 4, 1966. Since neither FNMA nor VA has been selling significant amounts on a direct basis in the calendar year 1966, there is no basis for a meaningful comparison between the interest rate on direct sales and the April 4, 1966 rate of 5.4 percent on FNMA participations. Thus the net yield to investors of 4% to 5 percent on direct sales is roughly comparable with an average yield of about 4½ percent on FNMA's first three participation issues. Accordingly, it would appear that direct sales are more costly than participation sales by an amount ranging from one-fourth to one-half of one percent.
In the Export-Import Bank program the volume of direct sales on a recourse basis in recent years has not been significant relative to the volume of Ex-Im participation sales. Direct sales by Ex-Im on a guaranteed basis in the calendar year 1966 to date, for example, have totaled less than $.4 million, compared with Ex-Im's February participation sale of $364 million. In the calendar year 1964, however, there were $24 million of direct sales during the year on a recourse basis, and the weighted average interest rate was 5.18 percent. This compares with the interest rate of 4½ percent on both issues of Ex-Im participations in the calendar year 1964 totaling $822 million. Thus, although the amount of direct sales in calendar 1964 was only about 3 percent of the volume of participation sales, it is clear that the interest rate on direct sales was significantly above the rate on participations. SBA direct sales experience provides a reasonable basis for comparison with participation sales because of the sales by SBA in March and April this year of $110 million of the 302 debentures at interest yields of 5.75 percent and 6.65 percent. The 5.4 percent rate on the FNMA participation issue of April 4, 1966 was significantly below the rates on SBA's 302's.
SBA has also sold some of its regular business loans, but the sales have been sporadic and most of them were sold without recourse and are thus not comparable with participation sales.
On the basis of the above experience it appears that participation certificates can be sold at interest rates roughly one-fourth to one-half percent below the rates which would be required on the direct sale of the loans in the participation pools,
Mr. MUSKIE. Mr. President, I indicated a few moments ago that the program involved in the pending legislation was well established during the Eisenhower years, not simply for the 1959 budget year, but from 1954 on. As a matter of fact, in the fiscal year 1954, there was a sale of something in excess of $750 million of assets under the Eisenhower programs.
Those were direct sales. The Senator from Delaware has had a great deal to say about the cost of the pending legislation, the direct sale program. It is costly. It involves a greater gap in interest rates between direct Treasury borrowing and direct interest rates than did the former program. The statement which I have had printed in the RECORD will spell out that difference.
Mr. WILLIAMS. of Delaware. Mr. President, will the Senator yield?
Mr. MUSKIE. Our time has expired. We can yield on mutual time and divide the time.
Mr. WILLIAMS of Delaware. In the tabulation which I had placed in the RECORD I did not include direct sales. If I had done so, that would have added another $672 million in such sales for the fiscal year 1966. That would make approximately $3 billion extra that has been raised this year in this unorthodox manner.
We should finance the Federal Government in a businesslike manner by selling regular Government securities in a form where they would be available to every American citizen and not through a program that is available only to the banking industry or to friends of the administration.
Mr. MUSKIE. Mr. President, I reserve the remainder of my time.
The PRESIDING OFFICER. Who yields time?
Mr. WILLIAMS of Delaware., Mr. President, I ask unanimous consent. that there be printed, at this point in the RECORD, vote No. 177 as it was taken on August 20, 1959, and the analysis of the proponents position on that vote as it appears in the official Register, together with the record of those Senators who voted to support the resolution in 1959.
There being no objection, the material was ordered to be printed in the RECORD, as follows:
Subject: Resolution disapproving exchange of FNMA mortgages for Treasury bonds (S. Res. 130). Vote on passage.
Synopsis: S. Res. 130 expressed the Senate's disapproval of an administration proposal to exchange mortgages held by the Federal National Mortgage Association (FNMA) for Treasury bonds.
The administration had proposed that FNMA finance $335 million worth of special assistance functions in fiscal year 1960 by exchanging an equivalent amount ($335 million) of mortgages for Treasury bonds. In this way, the $335 million in special assistance activity would not unbalance the 1960 budget. The mortgages which the administration proposed to have FNMA exchange were held in FNMA's management and liquidation account, which in 1954 Congress had directed be liquidated whenever this could be done with minimum loss to the Government and minimum effect on the home mortgage market.
S. Res. 130 expressed the sense of the Senate that this exchange should not take place.
Proponents contended:
The proposed exchange would result in loss of revenue from the mortgages which would add up to a total loss, over the years, to $13.4 million in revenue to the Federal Government. Furthermore, if the full portfolio of mortgages were ultimately liquidated, the total loss would be about $40 million.
The proposed exchange would also result in lower tax revenues to the extent of $8.4 million in fiscal year 1960 alone. Furthermore, if the full portfolio were liquidated the lose would be about $25 million.
The proposed exchange, proponents maintained, would adversely affect the home mortgage market. Testimony by homebuilders was cited, to the effect that the proposed exchange would soak up funds now available for new housing.
Proponents charged that the purpose of the proposed exchange was to achieve a balanced budget by selling off capital assets of the Federal Government. Such a balance, proponents contended, would be fictitious and fiscally irresponsible.
Proponents charged that private investors would receive an unearned benefit by receiving 4 percent assets in exchange for 2¾ percent assets.
Proponents pointed out that the resolution had been overwhelmingly approved by the Senate Banking and Currency Committee, by a vote of 12 to 3.
Action: the resolution was agreed to.
The result was announced -- yeas 56, nays 29.
[LIST OF SENATORS OMITTED]
Mr. MUSKIE. Mr. President, I ask unanimous consent that the quorum call which I am about to suggest not be charged to either side.
The PRESIDING OFFICER. Is there objection? There being no objection, it is so ordered.
Mr. MUSKIE. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. MUSKIE. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.
The PRESIDING OFFICER (Mr. BARTLETT in the chair). Without objection, it is so ordered.
Mr. MUSKIE. Mr. President, I ask for the yeas and nays.
The yeas and nays were ordered.
Mr. MUSKIE. Mr. President, I yield back the remainder of my time.
Mr. WI1,LIAMS of Delaware. Mr. President, I yield back the remainder of my time.
The PRESIDING OFFICER. All time having been yielded back, the question is on the motion to concur in the amendment of the House of, Representatives. On this question, the yeas and nays have been ordered, and the clerk will call the ,roll.
The legislative clerk called the roll.
The result was announced -- yeas 50, nays 20, as follows:
[ROLL CALL LISTING OMITTED]
So the motion to concur in the House amendment was agreed to.
Mr. LONG of Louisiana. Mr. President, I move to reconsider the vote by which the motion was agreed to.
Mr. MUSKIE. Mr. President, I move to lay that motion on the table.
The motion to lay on the table was agreed to.