May 3, 1966
Page 9592
PARTICIPATION SALES ACT
The Senate resumed the consideration of the bill (S. 3283) to promote 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 other purposes.
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 President, I ask unanimous consent that the order for the quorum call be rescinded.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. Without objection, it is so ordered.
Mr. MUSKIE. Mr. President, over the years successive administrations and we in the Congress have endeavored to promote the flow of private savings and credit into uses that will help accomplish necessary and desirable social purposes. In addition to the flow of such funds through the private institutions of the market, the Government, and its agencies have helped to channel and direct the flow of funds into worthwhile purposes -- private, as well as public.
By facilitating the channeling of private funds into programs now supported by Government loans, the intervention of Government can bring into more effective use the vast capital resources of the private market. It can reduce the need for expanding the Federal budget to accomplish desired ends. It can also make use of the flexibility, ingenuity, and competitive forces of the private market in serving the economy's needs.
Mr. WILLIAMS of Delaware. Mr. President, will the Senator yield?
Mr. MUSKIE. I am happy to yield to the Senator from Delaware.
Mr. WILLIAMS of Delaware. I wonder if the Senator would not wish a quorum call in view of the fact that there are not many Senators present.
I understand this bill deals with the authority to dispose of $33 billion worth of assets. In my opinion it is one of the major bills coming before this session of Congress because if the bill is enacted, as I understand it, it would be possible for the administration to spend up to $33 billion without including it as a part of the national debt or without including it as normal expenditures.
In other words, if this bill is passed it would be possible for the administration to operate with $30 billion deficits between now and 1968 and not show a deficit so far as the American people are concerned. I believe that we should have a quorum call and have Senators present to let the people know with what we are dealing. This is the greatest camouflage and coverup of deficits ever proposed in Congress. I am therefore wondering whether the Senator would not wish to have a quorum call before he begins his remarks in support of the bill.
Mr. MUSKIE. The Senator's request for a quorum call is pretty well camouflaged by an argument against the bill but, nevertheless, I am happy to accede. The fact is, I discussed the advisability
of having a quorum call before I began my remarks, and both the Senator from Delaware and the Senator from Utah [Mr. BENNETT] felt that it was not necessary. However, I am happy to suggest the absence of a quorum.
The PRESIDING OFFICER (Mr. STENNIS in the chair). The clerk will call the roll.
The PRESIDING OFFICER (Mr. HARTKE in the chair). A quorum is not present.
Mr. MUSKIE. Mr. President, I move that the Sergeant at Arms be directed to request the attendance of absent Senators.
The PRESIDING OFFICER. The question is on agreeing to the motion of the Senator from Maine.
The motion was agreed to.
The PRESIDING OFFICER. The Sergeant at Arms will execute the order of the Senate.
[LISTING OF SENATORS PRESENT OMITTED]
The PRESIDING OFFICER (Mr. JORDAN of Idaho in the chair). A quorum is present.
Mr. MUSKIE. Mr. President, effective fusion of public credit and private credit has been accomplished through the combination of various Federal lending programs with borrowing by the lending agencies or the sale of their assets to private investors. The asset-sales program has received great impetus since the mid-1950's.
The policy of asset sales has been endorsed by the distinguished Private Commission on Money and Credit, of which Secretary of the Treasury Fowler was a member and which issued its authoritative report in 1961, and by President Kennedy's Committee on Federal Credit Programs, of which former Secretary of the Treasury Dillon was Chairman. I might add that it was given high priority repeatedly in President Eisenhower's budgets and was urged in a minority report of the House Ways and Means Committee in 1963.
But despite major efforts to draw on private credit, the portfolio of direct Federal loans outstanding held by the Government and its agencies has increased in recent years. It was $25.1 billion on June 30, 1961, and $33.1 billion on June 30, 1965.
This has direct consequences on the Federal budget and, thus, on the policies followed by any administration. Money for direct lending programs must be budgeted. This means that it must be matched by tax revenue or by additional debt, or else that it must take the place of some other program, which then must be postponed or dropped. The money appropriated to a direct lending program, although it comes from current receipts, is tied up, often for years, in direct loans to individuals, businesses, and institutions, regardless whether there are private funds available which could take its place.
This situation led originally to the program of direct sales of federally held assets, which had the objective of reducing the portfolio of direct loans held by the Government. But problems occurring with the direct asset-sales program have become increasingly troublesome.
For one, we sometimes have as many as half a dozen agencies selling their loan paper, frequently to a limited market, and often in competition with each other. These agencies have greatly different degrees of experience and expertise in the field: some are very well qualified to carry on the sales, and some are less so. Finally, we have found that the direct, uncoordinated sale of assets can conflict with the Treasury's debt management operations. This is very disturbing.
The best technique we have at hand to cope with all these problems is to group assets consisting of loan paper into pools and to sell shares or participations in the pools. This is proposed in the participation sales legislation which we have received from the President.
The pools can gain diversity from the grouping of various kinds of loans. The sales will be centralized, expertly handled, and coordinated with the Treasury. Further, the participations will constitute an excellent and sought-after investment commanding a broad market.
The technique is not new. The Export-Import Bank of Washington has used it, since 1962, to sell about $1.7 billion of its direct loans which otherwise might not have been marketable. The Federal National Mortgage Association, "Fannie May," acting under the Housing Acts of 1964 and 1965, has sold $1.6 billion of participation certificates in its own mortgage holdings and those of the Veterans' Administration.
The basic provisions of the President's proposal are taken directly from the Housing Acts of 1964 and 1965. The earlier act authorized FNMA to act as trustee for the sale of participations in pools of first mortgages. The 1965 act extended this authority.
The Participation Sales Act before us -- S. 3283 -- which is designed to carry out the President's proposal, will broaden use of the pooling technique by extending it to all agencies of the Federal Government which hold financial assets. Sales of participations will be managed and coordinated by FNMA, serving as trustee.
The cost of selling participations through FNMA, judging from past experience, may be about one-fourth to three-eights of 1 percent more than direct Treasury borrowings for comparable maturities. This is not a negligible difference. But it is a modest one, considering the gains from strengthening private credit flows into our programs. In time, as the participation certificates gain wider acceptance and marketability, they are likely to command rates closer in line with Treasury issues. And, of course, asset sales through participation certificates will command lower rates. than would the direct sale of the underlying loans.
Moreover, because of the 4¼-percent ceiling on the interest rate that may be paid in new issues of Federal Government bonds, the Treasury, in the present state of the market, must confine its offerings to securities maturing in less than 5 years. As a consequence of this and other market conditions, interest rates on longer term securities are now generally somewhat lower than shorterterm rates. Since issues of the proposed participation certificates may have longer maturities, their sales could tap that sector of the market at relatively favorable rates. Issues of longer term securities would give a broader maturity distribution in the debt structure and attract funds from a wider range of investors.
The resulting lessened reliance on shorter term issues would help avoid increasing the liquidity of the economy and thus exert an anti-inflationary influence.
The proposed legislation preserves -- and in some cases strengthens -- congressional control over the Federal credit programs. No new credit program or enlargement of a credit program is involved in it. Existing limits on the amount of new loans that can be written in a particular year and on the amount of loans outstanding at a given time will remain.
Perhaps the most important control written into the bill is this: No assets of any program can be pooled under it without explicit congressional authorization in advance. Specific appropriation acts must precede -- and set the size of -- sales of participations in the loans of any of our credit programs. This is an addition to present congressional control.
In this connection, let me pause to deal with one note of criticism which has been voiced in connection with this legislation. The administration has been charged with attempting to provide for back-door financing. I assume back-door financing means financing programs without having to budget for them.
The congressional controls written into the bill are there for all to see. There is no way to finance a program -- or a part of a program -- under this bill without congressional authorization.
The budget effect of this proposal is clear
In fiscal 1964 we replaced $1.1 billion in public credit with private credit.
In fiscal 1965 we replaced $1.6 billion.
In fiscal 1966 we expect to replace about $3.3 billion. With the participation sales act, we will be able in fiscal 1967 to substitute private credit in the fashion I have described for about $4.7 billion in public credit -- more than four times the total in fiscal 1964.
The increase will result largely from broadening the use of the participation sales technique to include assets of the Farmers Home Administration, the Office of Education's academic facilities loan program, the college housing loan program and the public facilities loan program of the Department of Housing and Urban Development's Community Facilities Administration, and the Small Business Administration. Sales of assets from these programs will supplement the presently operating participation sales programs based on home mortgages held by FNMA and by the Veterans' Administration and on loans by the Export-Import Bank.
Mr. BENNETT. Mr. President, will the Senator from Maine yield at that point?
Mr. MUSKIE. I am happy to yield to the Senator from Utah.
Mr. BENNETT. The Senator has been listing a number of agencies which are holding obligations, which obligations would be covered by this Participations Act. In our hearings the other day, 51 programs were included in this authority. If the Senator does not have the list, I would be glad to ask unanimous consent at this point, that page 18 of our report containing this list of 51 agencies be printed in the RECORD, because I believe it is important that the complete record be made.
Mr. MUSKIE. I have no objection to that inclusion and, Mr. President, I ask unanimous consent to have it printed in the RECORD.
There being no objection, the list was ordered to be printed in the RECORD, as follows:
[LIST OMITTED]
Mr. MUSKIE. Let me say to the Senator from Utah that what I have just said describes the plans which the administration has to make use of this authority in fiscal year 1967.
Mr. BENNETT. I wanted to be clear that they were in a position to extend it to all the other agencies, so far as the authority given by the bill is concerned.
Mr. MUSKIE. The Senator is correct.
Mr. McGOVERN. Mr. President, will the Senator from Maine yield?
Mr. MUSKIE. I am happy to yield to the Senator from South Dakota.
Mr. McGOVERN. I invite the attention of the Senator from Maine to the concern which has been expressed by some rural electrification groups, several of which have talked to me about their fears that obligations issued to the REA might be involved under the terms of the proposed legislation. It is my understanding that the legislation is drafted in such a way as not intending to apply to obligations of the REA. Could the Senator give me assurances that that, in fact, is the intent of the proposed legislation?
Mr. MUSKIE. There is printed in the committee report a letter from Mr. Schultze, Director of the Bureau of the Budget, which discusses the question raised by the Senator. One paragraph in that letter reads as follows:
I can assure you that in no event under the legislation now before your committee will any participations be sold in any REA loans.
That letter was written to the chairman of the committee, the Senator from Virginia [Mr. ROBERTSON].
It is not the intent to cover soft loans or low-interest loans of that kind. This has particular reference to the REA proposal. It would not cover, and there is no intent to cover, for example, foreign aid loans which now amount to about $10 billion, which are included in the $33 billion cited by the distinguished Senator from Utah.
That $10 billion will not be included. There are other very low interest-rate loans which it is not intended to try to program under the bill.
Mr. McGOVERN. I had intended to offer an amendment which would make it clear that no part of this act would apply to any obligations issued to the Rural Electrification Administration. However, in view of the assurances given me by the Senator from Maine, and also the statement which he has just quoted from the Director of the Bureau of the Budget, I shall withhold my amendment. However, I do wish to be very sure that it will not be necessary to offer my amendment.
Mr. MUSKIE. I thank the Senator.
Mr. President, I ask unanimous consent to have printed in the RECORD the text of the letter written by Mr. Schultze, Director of the Budget, to the Senator from Virginia [Mr. ROBERTSON] chairman of the Committee on Banking and Currency, on April 29, 1966.
There being no objection, the letter was ordered to be printed in the RECORD, as follows:
EXECUTIVE OFFICE OF THE PRESIDENT,
BUREAU OF THE BUDGET,
Washington, D.C.,
April 29,1966.
Hon. A. WILLIS ROBERTSON,
Chairman,
Committee an Banking and Currency,
U.S. Senate,
Washington, D.C.
DEAR MR. CHAIRMAN You have inquired whether there is any intention on the part of the administration to seek the congressional authorization which would be required to include any rural electrification or telephone loans in participation pools established under the provisions of the Participation Sales Act of 1966,
As you know, the President has proposed legislation to establish Federal banks for rural electrification and telephone systems in order to provide supplementary financing for the Rural Electrification Administration program. We believe that favorable congressional action on this proposed legislation will assure a fully adequate supply of credit to meet the needs of rural electric and telephone cooperatives.
I can assure you that in no event under the legislation now before your committee will any participations be sold in any REA loans.
Sincerely yours,
CHARLES L. SCHULTZE, Director.
Mr. MUSKIE. Mr. President, before the colloquy with the distinguished Senator from Utah [Mr. BENNETT] and the distinguished Senator from South Dakota [Mr. McGoVERN] I had listed the administration's program for sales under the proposals if enacted in fiscal year 1967.
Sales of assets from these programs will supplement the presently operating participation sales programs based on home mortgages held by FNMA and by the Veterans' Administration and on loans by the Export-Import Bank -- participation sales programs which I indicated earlier have previously been authorized by Congress and have been previously operated successfully.
Further, this bill will enable us to stop the upward trend in the total of direct Federal loans outstanding.
In fiscal 1966, we expect to hold the total to just over $33 billion -- -only $200 million above the level of fiscal 1965. In fiscal 1967, we expect to reduce the total outstanding to approximately $31.5 billion. In later years, there may even be a declining trend in the volume of Federal resources immobilized in loans.
Mr. BENNETT. Mr. President, will the Senator from Maine yield?
Mr. MUSKIE. I yield.
Mr. BENNETT. I have a poor memory, but it seems to me that in our hearings we were told they expected the total of the Federal loans in fiscal 1967, about which we are talking, to reach $39 billion.
Mr. MUSKIE. In the event the proposed legislation is not enacted and no sales were made under existing authority in fiscal 1966 and fiscal 1967.
Mr. BENNETT. No -- I believe whether it is enacted or not.
Mr. MUSKIE. That is not my recollection. I attended the hearings. Of course, the record of the hearings will speak for itself on that point.
Mr. BENNETT. I want to make this point clear -- and perhaps I should wait until my turn to speak -- that we may be talking about balances. The Senator may be talking about the total of loans minus the volume of participations out against them. But I am sure the Senator from Maine knows that the loans are still the property of the Federal Government and that the participations do not wipe out the loans.
Mr. MUSKIE. The Senator is correct on that point. In the same way, FHA obligations are obligations of the Government, totaling I believe -- what is it -- the guarantee?
Mr. BENNETT. The guarantee?
Mr. MUSKIE. It is many billions of dollars. It seems to me that that figure approaches $100 billion for all types of guaranteed and insured loans. Thus, in that same sense, there will be a Federal guarantee, or at least an agency guarantee behind these participations to save the purchasers from loss. But, in terms of the accounting which we have traditionally used in measuring the direct loans outstanding, the figures I have just read are accurate.
Mr. BENNETT. Then the Senator means that the velocity or the volume of the loan programs will be cut down deliberately on account of policy, that there will be fewer loans made for college housing.
Mr. MUSKIE. That is not--
Mr. BENNETT. That is the point I am trying to clear up.
Mr. MUSKIE. The point I am trying to make is that the total of direct Federal loans outstanding--
Mr. BENNETT. Yes.
Mr. MUSKIE, It is hoped will be reduced
Mr. BENNETT. That would only be by–
Mr. MUSKIE. By the use of the participation sales.
Mr. BENNETT. The participation sales have nothing to do with the amount of Federal direct loans outstanding. Federal direct loans are made by the agencies and they can only reduce those already made, and only reduce them when they are paid off. Total volume can only be reduced at a rate -- move at a slower rate if the Treasury or the administration begins to taper off the program.
Mr. MUSKIE. I understand the point the Senator is making, and I am not trying to distort it. Perhaps I can put it this way: I believe that we agree on what the impact of this will be, that the total of direct loans outstanding, outside of those involved in participation pools which have been sold, will be the figures which I have indicated.
Mr. BENNETT. But those involved in participation pools have to be sold. They are still on the books.
Mr. MUSKIE. That is another argument. We are talking now about the validity of figures which I am trying to explain. I would be able now, and at a later point, to get into a discussion of whether there have been sales or not, sales of the paper that is involved, but we are now talking about the meaning of the figures I have given. I have tried to make that clear. I am not interested in trying to distort. The Senator is right when he says that the paper which makes up these pools will continue to be obligations. The loans will continue to be serviced by the agencies which hold them and will continue to be contingent liabilities of the Government in the way that I have tried to describe. But, under these pools, participation certificates will have been sold. No one has said today, on this side, that we are selling paper. We are selling certificates in the participation pools.
Mr. BENNETT. That is right.
Mr. MUSKIE. I believe that point should be made clear. The Senator is right when he says that would be clear
Mr. BENNETT. It is clear to me.
Mr. MUSKIE. And I hope that the RECORD following our colloquy will make it clear.
Mr. BENNETT. I appreciate the patience of the Senator from Maine. I probably should not have interrupted him at the point that I did. Later on, I should like to return to this same issue and develop it from my own point of view.
Mr. MUSKIE. I do not object to the interruptions. May I say to the Senator that I am getting educated in the process. I think, since we are not going to get to a vote today, any colloquy on this subject may be useful to Senators who will read the RECORD, which may enlighten them in connection with the vote when it comes.
Mr. BENNETT. I thank the Senator.
Mr. MUSKIE. In connection with the programs to be affected by this bill, let me mention another unfounded criticism which has been made. It goes something like this: Selling these Federal assets amounts to turning over worthwhile programs to the profit-motivated designs of operators in the private money markets.
If this were true, we would be well advised not only to look askance at the legislation before us but also to rethink the asset sales policy of the last 10 years or more. But this charge has no foundation in fact.
Sales of pool participants would not give the buyers any control whatsoever over the programs under which loans are made.
We in the Congress would enact the programs and maintain control over the administering agencies. Further, the agencies responsible for administering the lending programs would retain their responsibility.
The question we face is not whether we want to turn control of Federal lending programs over to the private market. It is whether we want programs in which we have a keen interest to become increasingly subject to the fiscal squeeze that growing demands place upon the Federal budget.
There have also been charges about "budget gimmickry" in relation to the bill. This accusation relates to the budget treatment of assets when they are sold.
As we should all know, the sales of assets are treated in the budget as negative expenditures, rather than as receipts. Those who level the charge of budget gimmickry should realize that this procedure is neither something new with this bill nor something new with this administration. It is nothing more or less than the conventional budget treatment given the entire program of asset sales dating back to the mid-1950's or earlier.
An argument against the method of accounting used in handling asset sales in the Federal budget is less an argument against this bill than against the entire asset sales program already authorized by Congress.
We have at hand a useful technique which broadens the bridge between the private market and our Federal lending programs. We owe it to the taxpayers, to the many people who need the assistance our credit programs can provide and to the private enterprise economy which has sustained us so well throughout our history to take fullest advantage of the vast resources of the private market.
Let me close by quoting from the President's letter transmitting the legislation to us. No one can speak more forcefully for this bill than the President himself:
The participation sales act of 1966 will permit us to conserve our budget resources by substituting private for public credit while still meeting urgent credit needs in the most efficient and economical manner possible.
It will enable us to make the credit market stronger, more competitive, and better able to serve the needs of our growing economy.
But above all, the legislation will benefit millions of taxpayers and the many vital programs supported by Federal credit. The act will help us move this Nation forward and bring a better life to all the people.
Mr. WILLIAMS of Delaware. I wish to ask if the Senator does not feel that this method of financing will cost substantially more to the American taxpayer than the ordinary way of borrowing by floating bond issues.
Mr. MUSKIE. I have explained that in my prepared statement. It would cost more -- I suspect there would be a difference between us as to just how much more -- through the use of participation sales than by direct Treasury borrowing; but I point out that this method has been in effect since the mid-1950's, and we have decided that it is desirable in order to reduce the commitment of public money to these loan programs.
Mr. WILLIAMS of Delaware. If the Senator from Maine will yield further, has he changed his mind since 1959? At that time we had up before the Senate a resolution which condemned the sale of mortgages in this way. At that time I notice that the Senator from Maine supported the resolution condemning this very practice on the ground that it represented an unnecessary cost to the taxpayers. I am wondering why the Senator has had a change of heart since that time.
Mr. MUSKIE. I am glad to reply to the Senator. He is correct if he says that my stand in 1959 as compared with at this time is a record of inconsistency, but I merely point out that, on the SBA measure which was before this body earlier this year, there was a record of inconsistency on both sides. I recall that on the vote in 1959 the vote on the Senator's side of the aisle was 29 to 3 against the position of the Senator from Delaware. The Senator from Delaware was able to convince only three Senators on his side of the aisle as to the merits of voting as he voted.
I think it is interesting to indicate that the Senator from Delaware had nothing to say on that proposal. Whether his silence at that time in comparison with his discussion this afternoon is inconsistent is for him to decide.
I may point out that in 1959 I had grave reservations about this particular device, although there was a difference in the amount, but the same fundamental question was involved. I am not quibbling over the difference as long as the Senator does not quibble over it. If neither one of us quibbles over the differences, then I will say I had grave reservations in 1959. Since that time I have become convinced that the growing loan money in the Government's portfolio of direct loans is a problem which must be dealt with.
I am persuaded that I was wrong with respect to the fundamental objective then and that my position now is right. Since the present administration is a Democratic administration, and the one involved at that time was a Republican administration, I can probably be accused of inconsistency directly attributed to party loyalty, but that is not the case. I have become convinced as a matter of merit.
Mr. WILLIAMS of Delaware. I feel at this time, as I did in 1959 under a Republican administration, that this is not the proper way to finance the Federal Government. I so voted at the time, as the Senator knows, and I shall vote in the same manner this time.
Mr. MUSKIE. But the Senator did not oppose it very vigorously then.
Mr. WILLIAMS of Delaware. I said it with the greatest vigor I know how by a "no" vote.
Mr. MUSKIE. If the Senator from Delaware will confine himself to the same kind of opposition
at this time, and vote "no"--
Mr. WILLIAMS of Delaware. The Senator from Maine is making an eloquent argument. If he likewise will vote "no" I would be willing to have him forgo his oratory.
Mr. MUSKIE. Is the Senator ready to go to a vote this afternoon?
Mr. WILLIAMS of Delaware. If we can win. I am always ready to go to a vote when I think we have the votes. The man who is now in the White House then led the fight as a Senator against this same procedure. It was argued then that this was an expensive way to finance the debt, that it was confusing, and that it was a way to dodge and avoid showing what the true deficit was. I agreed with Mr. Johnson at that time. I agreed with him that the purpose was to try to camouflage from the American people the true deficit. The only difference is that in 1959 we were under a Republican administration, and today we are under a Democratic administration. But it is still wrong. I wish the Senator from Maine would follow that same argument which his party advanced in 1959, and let us defeat it overwhelmingly.
Mr. MUSKIE. The then majority leader was not persuasive with 29 Members who voted on the other side of the position taken by the Senator from Delaware in 1959. Those Senators were not persuaded by the position of the Senator from Delaware until the Small Business Administration bill came to this body a few weeks ago. So there is a record of inconsistency on both sides of the aisle; almost 100 percent.
Mr. WILLIAMS of Delaware. No, not quite. I voted against this proposal in 1959 and will vote against it again today.
Mr. MUSKIE. Let us get it straight.
Mr. WILLIAMS of Delaware. I am hoping that merely because this method is now proposed by a Democratic President, Members of the Senate on that side of the aisle will not all click their heels and follow what the President wants. I hope they will examine the merits of this measure and realize that there is no difference fundamentally between what the issue was in 1959 and what it is now. As an example of what it is costing, it has been brought out that the American taxpayers will have to pay one-half of 1 percent additional in interest rates.
Mr. MUSKIE. May I just make a reply to what the Senator has just said?
Mr. WILLIAMS of Delaware. Yes.
Mr. MUSKIE. I would urge the Senator, if consistency is the objective for which he now argues, to persuade the colleagues on his side of the aisle to prove their consistency.
Mr. WILLIAMS of Delaware. I am not dealing with consistency. We are debating a $33 billion sale of Government assets. When the Senator from Maine said that Senators have changed their positions 100 percent, I point out that I have not changed my position today.
Mr. MUSKIE. I suggest it is inconsistent that when there is a Republican administration in office, the Senator from Delaware is strangely silent, and merely casts a "no" vote, as he did in 1959; and yet today he is articulate on the subject. I say that is being inconsistent.
Mr. WILLIAMS of Delaware. If the Senator will look at the remarks I made at that time he will see that when the Secretary was before the Finance Committee I joined the chairman of our committee and condemned the Secretary of the Treasury for endorsing exactly what the Johnson adminstration now proposes. The Secretary was before our committee to request an increase in the national debt ceiling. The amounts are different, but the principle is the same. The amount involved was $335 million.
Mr. MUSKIE. There is no quarrel with that
Mr. WILLIAMS of Delaware. Here we are dealing with $33 billion. So there is a difference there.
Mr. MUSKIE. May I say to the Senator on that point that it was not just $335 million involved in 1959. The administration had authority to deal with much more money.
Mr. WILLIAMS of Delaware. I agree with that.
Mr. MUSKIE. So if we are going to talk about this, let us not talk about $335 million. Let us talk about whether the same kind of contention was made in 1959. I do not have that figure, but it was several billion dollars.
Mr. WILLIAMS of Delaware. I agree as to authority.
Mr. MUSKIE. The Senator is talking about the authorization figure. I said on the floor we were talking about $4.7 billion for fiscal 1967, a part of which would be covered under existing authorization without the need for the passage of this bill. We are not talking about $33 billion. If the Senator wants to talk about $335 million we will talk about that also and not about $33 billion, but that part of the $4.7 billion we were discussing for 1967.
Mr. WILLIAMS of Delaware. Thirty-three billion dollars is in the figure.
Mr. MUSKIE. It is not the figure I quoted. I have not used that figure.
Mr. WILLIAMS of Delaware. I have, but whether it be $335 million or $33 billion we have substantially the same principle. It is not identical, but it is substantially the same principle involved.
Mr. MUSKIE. That is one point on which we agree thus far in the colloquy.
Mr. WILLIAMS of Delaware. I was voting against it in 1959, and I shall vote against it this time.
I agree fully with what the then majority leader, the man who is now in the White House, said at that time. It was argued then that it was a method of camouflaging a direct deficit. Under the Eisenhower administration it was such a vehicle, and today it is the same camouflage multiplied tenfold.
Mr. MUSKIE. To complete the record on the inconsistency issue, I have before me a record of the vote on the sale of participations in the SBA loan. On the vote to recommit, 26 Republicans voted "yea" -- which I interpret, since we agree that the 1959 issue is fundamentally the same as this issue -- there were 26 Republican "yeas" contrasted with 29 Republican votes on the other side of the issue in 1959. There were no Republican "nays" on this vote on the SBA loan pool.
I admit my own inconsistency and I undertook to explain that. My credibility on that point may not satisfy the Senator from Delaware any more than I can help entertain such reasons for his silence in 1959, which is in some contrast to his figures articulated here this afternoon.
Mr. WILLIAMS of Delaware. The Senator will admit in 1959, on vote No. 177, taken on August 20, 1959--
Mr. MUSKIE. The Senator voted "no."
Mr. WILLIAMS of Delaware. I was joined in that "no" vote by the Senator from Maine and the Senator from Texas, Mr. Johnson, along with 100 percent of the Members on his side -- I do not believe any of them voted the other way. We voted for the resolution to condemn this practice as an unsound and misleading method of camouflaging the true deficit. It does not represent "truth in Government."
Mr. MUSKIE. Does the Senator condemn those on his side of the aisle who are inconsistent in 1966--
Mr. WILLIAMS of Delaware. I am not condemning anyone.
Mr. MUSKIE. With their votes in 1959?
Mr. WILLIAMS of Delaware. We are not censuring Members of the Senate.
Mr. MUSKIE. Would the Senator chastise them the same way he did the President of the United States?
Mr. WILLIAMS of Delaware. No. I am merely stating the record. Perhaps they had a change of
heart.
Mr. MUSKIE. Other Senators have, and that seems to be a virtue on this issue.
The Senator from Delaware may stand as the only Senator on this issue when the vote is over.
Mr. WILLIAMS of Delaware. No. For example, there is a member of the committee who filed minority views on this same bill who was consistent through the vote.
Mr. MUSKIE. I am for consistency, when it is a virtue.
Mr. WILLIAMS of Delaware. The Senator from South Carolina signed the minority views against the bill. He voted similarly in 1959.
Mr. MUSKIE. So we are going to have two consistent Senators when this vote is over.
Mr. WILLIAMS of Delaware. I pointed out that this bill will cost one-half percent more in interest charges to the taxpayers. Since that time, authority to sell the SBA notes has passed and a block of FNMA mortgages have been sold at a cost of six-tenths of 1 percent more to finance. That means, if there are sold another $8 billion it is going to cost the American taxpayers several million dollars more to finance the Federal Government than it would if it were done in the normal manner. At the same time this would reduce the true amount of the deficit.
Mr. MUSKIE. Mr. President, we are departing a little bit from where we were in my speech when we engaged in this colloquy, but it is interesting to pursue the points raised by the Senator from Delaware.
I indicated earlier in colloquy that the Senator and I would undoubtedly disagree as to the cost of the program. I base that comment on the table which he put in the RECORD in the course of the debate on the SBA program.
Mr. WILLIAMS of Delaware. The Senator is correct.
Mr. MUSKIE. In that table he undertook to compare actual costs of FNMA participation with the interest rate on outstanding treasuries.
I am assured by the Treasury that if there had been no offerings of treasuries at that time, in the unsettled state of the market, those rates would have been higher than those in the table of the Senator from Delaware.
I have two tables and I would be glad to put them in the RECORD so that the Senator from Delaware may digest them between now and the next time this matter is taken up.
I have a table on yields on selected issues of securities, based on market prices of April 29, 1965. The source is the Morgan Guaranty Trust Co. Bond Department.
Mr. President, I ask unanimous consent that these figures may be inserted in the RECORD at this point.
There being no objection, the table was ordered to be printed in the RECORD, as follows:
[TABLE OMITTED]
Mr. MUSKIE. On short-term treasuries, the coupon rate for securities with a maturity date of November 15, 1967, was 4⅞, and the yield to maturity at the bid price was 4.96. That is short-term securities.
On participation securities, from 1967 to 1981, the issue yields were 5.4, 5.5, and 5.25, but the yield to maturity at market prices for comparable securities was 5.12, 4.99, 5.03, and 5.07, compared with the 4.96 on short-term treasuries.
Mr. WILLIAMS of Delaware. Mr. President, will the Senator yield?
Mr. MUSKIE. The Senator may look at those tables.
Mr. WILLIAMS of Delaware. Mr. President, will the Senator yield on that point with regard to the table?
Mr. MUSKIE. I yield.
Mr. WILLIAMS of Delaware. What yield did they have quoted for bonds maturing in 1980 and 1981?
Mr. MUSKIE. 4.68 on Treasuries.
Mr. WILLIAMS of Delaware. That is correct.
Mr. MUSKIE. On FNMA participation certificates---5.07 percent.
Mr. WILLIAMS of Delaware. Is a difference of 0.7 on the longest about 0.4 on the short terms.
Mr. MUSKIE. But treasuries cannot be issued on the long term.
Mr. WILLIAMS of Delaware. Now we are getting to the point at issue.
Mr. MUSKIE. It is a point that I am not trying to dodge.
Mr. WILLIAMS of Delaware. There is a legal ceiling of 4¼ percent on Government bonds maturing beyond 5 years. The administration, under the guise that it is promoting cheaper interest rates, does not want to ask Congress to remove this artificial ceiling; so they are in effect selling only short-term Government bonds. Not only is this monetizing the debt, but it is costing more than if they would repeal that ceiling and sell in normal channels.
Under this bill they can dodge this ceiling and sell 15- and 20-year participation certificates. Thus they get around the ceiling on interest rates and get around the responsibility of reporting the true deficit, but as far as the taxpayer is concerned they are paying 6.60 percent interest.
Mr. MUSKIE. The increased cost is also involved in the direct sale of assets which President Eisenhower in several budget messages urged upon Congress, and which the minority in the House Ways and Means Committee in 1963 urged upon the Congress.
They were not concerned about the 4¼-percent ceiling. They urged direct sale of these direct loans to avoid increasing the debt ceiling.
This was the argument made by the minority in the House of Representatives.
The minority spoke for both sides of Congress. It was a different tone. I shall read from the minority views of the House Ways and Means Committee report, 88th Congress, 1st session -- May 1963 -- to provide temporary increases in 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.
The Senator from Delaware said earlier the proposal in 1959 and this proposal were fundamentally alike; that they involved direct sale of Government paper, but they are fundamentally alike.
We can say that the admonition given to the administration by the minority of the House Ways and Means Committee in May 1963 supports this legislation. That report was signed by the following members of the minority: 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. SCHNEEBELI, HAROLD R. COLLIER.
There has been no attempt to describe this as not involving some cost. Of course, it involves cost, just as direct sales involve cost. Does this mean we should hang onto these loans forever and never attempt to sell them on the market, because they involve some cost to the Treasury to free these public moneys for use in other desirable programs? Of course it involves cost. The Senator from Delaware and I disagree up to this point on what that cost is.
The Senator has placed his figures in the RECORD and I have submitted some. I now offer another table and ask unanimous consent that it be included in the RECORD. I invite the Senator's examination of this table.
There being no objection, the table was ordered to be printed in the RECORD.
[TABLE OMITTED]
Mr. MUSKIE. Mr. President, it is important to nail down the cost. It is important that we not minimize it and that we not exaggerate it. I have no desire to distort the record on this issue. I believe that when the record is clear and when the Senator and I fully understand our opposing points of view, he and I are going to disagree as to its wisdom. Nevertheless, I think it should be clear.
There is an additional cost. We can agree on that point, which is the second point we have agreed on this afternoon. How much that cost will be is the question.
Mr. WILLIAMS of Delaware. Mr. President, will the Senator yield?
Mr. MUSKIE. I yield.
Mr. WILLIAMS of Delaware. The Senator is correct about the minority views that were filed in 1959, and I am familiar with them. But that does not mean that I agree with those views.
When this question was before the Committee on Finance, the chairman of the committee, the former senior Senator from Virginia, Mr. Byrd, led the fight against this proposal, and I joined him at that time, as the record will show, in condemning it. I did not go along with the minority views when they were before the committee, and the Senator from Virginia led this argument.
I still say that there may be arguments on both sides, but I still feel, as I did in 1959, that this is not the proper way to finance the Federal debt. We both agree that it is going to be more expensive. I will admit that neither of us can project into the future and tell exactly what the higher cost will be. All we can do is to look at what happened in the past.
The one sale to which I referred perhaps was higher than the average, but that one sale averaged better than onehalf of 1 percent. Perhaps later this will come closer to one-quarter of a percent, as the Secretary of the Treasury projected. No one knows. But why pay this one-quarter of 1 percent when it is not necessary? That is the point I am making. One-quarter of 1 percent is $2½ million for each billion dollars, and if the Government sells $8 billion worth of bonds it is putting out $20 million a year. Why pay this extra interest? The money goes to no source except the banking industry. There is no advantage in this situation to the taxpayers, and it is an unnecessary cost.
In addition, the American people are given a f alse sense of security by being led to believe that the Government is operating and paying for the cost of all these Great Society programs without creating a deficit. We are creating a deficit. The Senator will admit, I am sure, that if we sell $1 billion of these bonds under this formula it will reduce the reported deficit to the American people by exactly that same amount; it will reduce the amount of the national debt by that much as is reported to the public.
Mr. MUSKIE. To the best of my knowledge, all of the obligations of the Federal Government never have been totally reflected in the figures in the national debt.
In connection with the FHA, there is a contingent liability, which we are not worried about, because the FHA-guaranteed loans have been good. The default experience has been good. Nevertheless, it is an obligation.
If the Senator wants to be technical about it, the Government sold this paper directly all during the administration of President Eisenhower. That had the same effect. As a matter of fact, the purpose of the $335 million proposal in 1959 was to reduce the impact on the Federal debt ceiling. The Senator knows this.
Mr. WILLIAMS of Delaware. The Senator misunderstood my question. Perhaps I did not state it clearly. My question is: Does not the Senator agree with me that to the extent that bonds were sold under this formula or under the formula used by the other administration -- I am not distinguishing between them -- for each $1 billion we sell it would have the net effect of reducing by exactly that much the deficit as it is reported at the end of the fiscal year? It also reduces the necessity of increasing the national debt by that much. That is the point. Whether we sell $1
million worth, $1 billion worth, or $10 billion worth, the reported national deficit of the Government is reduced. Is that not true?
Mr. MUSKIE. Let me describe the other side of the situation; then I will answer the Senator's question.
When the loans are made, and when appropriation is made for them, the total amount is included as expenditures.
Mr. WILLIAMS of Delaware. That is true.
Mr. MUSKIE. Even so, it is a capital expenditure, although it is going to be repaid.
So if it is proper to include the amount as an operating expenditure when it is made, it is appropriate to give a credit against that expenditure when it is sold as it is under this bill.
Mr. WILLIAMS of Delaware. I am not questioning the propriety of the method. I am merely trying to get it straight,
Mr. MUSKIE. I believe I can set the record a little straighter this way than by answering the Senator's question "Yes" or "No."
Mr. WILLIAMS of Delaware. If the Senator were to answer the question he would agree with me that the only answer he could give would be "Yes," that the reported deficit of the Government is reduced by the exact amount by which the bonds are to be sold.
Mr. MUSKIE. I do not think the deficit will be reduced. It will be offset by the receipt of an asset.
Mr. WILLIAMS of Delaware. Now we are in complete agreement. The deficit would not be reduced 1 penny although it would appear to be when reported by the administration.
Mr. MUSKIE. We are not in agreement as to the words and the emphasis the Senator uses.
Mr. WILLIAMS of Delaware. The Senator spoke my thoughts better than I could.
Mr. MUSKIE. I could not do that.
Mr. WILLIAMS of Delaware. I agree that it does not reduce the deficit. It merely covers up the amount of the deficit so that the American people will not know the true deficit. In other words, if there is a $5 billion deficit normally, and an extra $5 billion of bonds is sold, a balanced budget can be reported under this system. That is misleading the American people.
Mr. SALTONSTALL. Mr. President, will the Senator yield, partly for a question and partly for an observation?
Mr. MUSKIE. I yield.
Mr. SALTONSTALL. I recently joined in the debate on this problem with relation to small business. Without going into a long discussion at this time, I invite the Senator's attention to S. 1013, a bill which I introduced and which the Senate passed several months ago. Although the bill has been passed by the Senate, it has been held up in the House Ways and Means Committee, because the Treasury Department is not in favor of it.
I believe the bill is of value because it affords an opportunity to know what the full debt -- the full liability of the Government -- of the Government may be.
The statutory debt, as the Senator knows, is approximately $320 billion. I invite the Senator's attention to that undisclosed or unreported debt. I cite only two or three examples, because I do not want to burden the RECORD with many.
As of June 30, 1962, the total loans guaranteed or insured by the Government agencies amounted to $60,792 million, and they had on hand to offset that $725 million.
That is one set of figures that I give the Senator. Then on the annuity and pension systems of the Civil Service, the Federal Government, as of March 7, 1966, had an actuarial deficit of $37,738 million.
Without debating the merits of the bill, which I did debate with relation to the small business loans -- which involves the same principle -- I believe that we should have some knowledge periodically, on either a semiannual or annual basis, of the undisclosed or nonstatutory debt of the Government. This debt involves a very substantial figure.
The Committee on Finance reported the bill twice. The bill was passed by the Senate twice. I hope that before this session of Congress is concluded the bill, either in its present form or in a different form, will be passed by Congress and sent to the President.
This would give the people of the country as well as Members of Congress information on the total obligations of the Federal Government.
By carrying out the purpose of the bill, we would increase the undisclosed or nonstatutory debt of the Government. I shall not argue that question any further today. However, the purpose of the bill is to give us knowledge of the debt. As I understand it, the bill that the Senator from Maine is advocating would increase the undisclosed and unreported debt of the Government.
Mr. MUSKIE. Mr. President, S. 1013 has a most laudable objective. However, it should be pointed out that the kinds of programs we are discussing with respect to the pending bill are fully disclosed. For example, the Bureau of the Budget each year issues special Analysis E, a 14 page booklet disclosing the Federal credit programs.
On the very first page appears a chart which indicates, over the period from 1956 to 1967, the annual growth of direct loans outstanding, the growth in the amount of new commitments made each year for direct loans and for guaranteed and insured loans. The growth indicated for the guaranteed loan has been sharper and larger than that for the direct loan program.
Mr. SALTONSTALL. What is the total figure?
Mr. MUSKIE. The total figure for commitments for 1967, which is an estimate, is $36.3 billion.
Mr. SALTONSTALL. That certainly is not the full obligation of the Federal Government.
Mr. MUSKIE. On page 57 of that analysis is a listing of all of the outstanding direct loans and guaranteed and insured loans for major Federal credit programs, classified by agency or program. In that table, the 1967 estimate of guaranteed and insured loans is $108 billion.
Mr. SALTONSTALL. In addition to that, the nonstatutory debt of the Government includes all the actuarial deficits relating to pensions and so forth.
Mr. MUSKIE. The Senator is correct.
Mr. SALTONSTALL. I believe we should have a record once or twice a year of the total obligations of the Government.
Mr. MUSKIE. I believe this analysis is such a record. However, the Senate obviously desires it in a different form. I would have no objection to that.
Mr. SALTONSTALL. I desire a full report which would include all actuarial deficits, which are responsibilities of the Federal Government.
Mr. MUSKIE. I understand the point of the Senator and I would agree.
Mr. SALTONSTALL. I debated the same question with relation to the small business loans for the same reason that I believe the Senator is now advocating the pending bill, to give the Government a chance to sell to banks and private individuals, through certificates, some of its obligations.
Mr. MUSKIE. I thank the Senator.
The PRESIDING OFFICER (Mr. MONDALE in the chair). The Senator from Louisiana is recognized.
Mr. LONG of Louisiana. Mr. President, I do not believe we would have much of a problem involved here if the Government were to keep a dual-entry set of books, as any private business would do.
We have heard a lot of conversation about the debt we owe, and the Government does owe quite a bit of debt. However, if one were to borrow some money from a bank, he would submit a statement of his net worth. He would first list his assets and then his liabilities. He would subtract his liabilities from his assets and come up with a figure of net worth, if that is an accurate statement.
Unfortunately, for one reason or another, we are required by laws passed over the years to record nothing but liabilities. The statement does not list the assets of the Government or attempt to keep up with the assets.
If the Senator were to try to make a decision on whether to put more money in his business or borrow more money or invest more capital or have stock issued for the purpose of going into any venture, the first thing he would want to know is his financial worth, or assets over liabilities.
I insisted on amending the Saltonstall proposal to provide that, in addition to knowing what all these contingent liabilities are, we should have a list of the contingent assets.
I suspect that we would find that approximately $75 billion of the assets are assets which the U.S. Government owes to the U.S. Government. We would list them as assets.
If we compared the financial statement of the Senator from Maine--
Mr. MUSKIE. Mr. President, I am not sure that I would want my financial statement to be compared with that of the U.S. Government.
Mr. LONG of Louisiana. If the Senator were to own a small bank and all the bank stock, and if the bank were to owe the Senator $100,000 because the Senator had that much money on deposit in the bank, as far as the Senator would be concerned, that would be $100,000 that he owed to himself.
Approximately $75 billion of the national debt consists of obligations that the United States owes to the United States. That is a rather ridiculous way of counting up the national debt, since $75 billion is offset immediately.
The last time that I looked into the situation, approximately $25 billion in bonds were held by the Federal Reserve Board. The Federal Government owns the Federal Reserve Board. That $25 billion consists of assets of the U.S. Government. Yet that is counted as part of the debt.
There is approximately $50 billion in trust funds. These trust funds are supported by regular contributions of employees, and taxes are levied by the Government.
It can be argued that we have contingent liabilities which the balances on hand support, but we do not propose to reduce the amount in the funds. We propose to increase the amount. It will have to be increased as interest payments coming out of general revenue, or the funds will have to be increased by taxes or employee contributions.
In any event, to the extent that we hold the $50 billion, we are that much ahead of where we would be if we did not have that amount on hand. That is $75 billion of national debt that the Federal Government owes to the Federal Government.
In addition to that, no one ever bothers to put down what the value of our physical assets are. We have many physical assets. The real estate values alone, if one looks at the value of the land that we hold and the improvements that have been placed on the land, would greatly exceed the amount of the national debt in that one item alone -- real estate value plus improvements on real estate that the Government owns.
I understand that that item is on the books as acquisition cost. The Louisiana Purchase, for example, was only 3 cents an acre. We debated the tidelands off Louisiana and the Senator from Louisiana had a grossly inflated idea of its cost, but it is still worth a great deal of money.