May 5, 1966
Page 9936
PARTICIPATION SALES ACT
Mr. MUSKIE. . . . . This bill involves points upon which Senators on the Republican side of the aisle and Senators on my side of the aisle have agreed; relatively few amendments and nothing involving the kind of major surgery of which the Senator speaks.
The major amendment involved is simply implementation of the program which the President spelled out in the same detail as is found in the amendment, which we are introducing when we have time, and the programs that are to be covered.
The President's letter of transmittal was dated April 20, 1966. It spells out the loan programs which were to be included in the next fiscal year if this legislation is enacted.
The major amendments, which we were about to introduce when the Senator from Delaware has finished, simply incorporate what has been the intention right along. There is no new intention whatsoever.
We have offered the amendment for the purpose of reassuring the Senator from Delaware and others that we meant what the President said in his letter of April 20.
The Senator says because we offer an amendment to reassure him that that offer is evidence in and of itself that the bill needs major surgery. Perhaps we should not undertake to make amendments to develop a meeting of the minds and consensus to the extent we can.
The amendment is offered in a helpful way, trying to reassure the Senator that what the President said on April 20 was what the President meant and what the agencies would do if it is enacted.
The other amendments are relatively minor.
Three offered by the Senator from Utah [Mr. BENNETT] are technical amendments involving nothing like major surgery.
The most important of those three is an amendment designed to place before Congress annually a record of what transpired under the program in the preceding year. This does not involve major surgery, as I see it.
There is one other amendment which I think was originated by the Senator from Nebraska (Mr. HRUSKA], undertaking to set a limit of 1 year on this authorization. The Senator from Utah and I agreed to the modifying amendment to set a limit of 2 years.
The PRESIDING OFFICER (Mr. LAUSCHE in the chair). Will the Senator repeat the last statement?
Mr. MUSKIE. I said that the amendment originally suggested to me by the Senator from Nebraska [Mr. HRUSKA] would have placed a minimum of 1 year on the authorization. I agreed to accept the amendment, provided the Senator would modify it so as to provide for 2 years. We are prepared to accept that amendment. This does not involve major surgery.
So we have considered and discussed with the Treasury all the points that have been raised prior to today by the Senator from Utah, the Senator from Delaware, and other Senators, and we are prepared to offer amendments now to implement them. No other difficulty requiring major surgery on the bill has been brought to my attention.
Mr. WILLIAMS of Delaware. Mr. President, we are told that some of the amendments are just minor and technical but--
Mr. MUSKIE. Mr. President, that is not at all an accurate paraphrase of what the Senator from Maine said. The record speaks for itself. I spoke of the major amendment, and I described it at some length. I did not call it minor or technical, and the Senator from Delaware knows I did not.
Mr. WILLIAMS of Delaware. Mr. President, I hope the Senator will control his blood pressure.
Mr. MUSKIE. My blood pressure is about the same as that of the Senator from Delaware, and will remain at that level. I submit to the Senator that he is in no position to read what is in this Senator's mind. I suggest that he confine himself to what is in his own mind.
Mr. WILLIAMS of Delaware. I make no effort to read what is in the Senator's mind.
The bill as it was reported carried authority to sell $4 billion of the REA loans. I am reading from the report. We are told that that will be deleted.
The bill as it is reported provides authority to sell $2,115 million worth of Commodity Credit Corporation notes. We are now told that this item will be deleted.
The bill as reported by the committee provided authority to sell $8,897 million worth of Department of State or AID loans. We are told that that item will be deleted.
I also understood that the amount of the British loan would be deleted. I intend to obtain the proper understanding on all these items before we vote on this bill.
Mr. President, I send to the desk a motion and ask that it be given immediate consideration.
The PRESIDING OFFICER [Mr. BURDICK in the chair]. The motion will be stated.
The LEGISLATIVE CLERK. The Senator from Delaware [Mr. WILLIAMS] moves that S. 3283 be recommitted to the Committee on Banking and Currency.
Mr. WILLIAMS of Delaware. Mr. President, on this motion, I ask for the yeas and nays.
The yeas and nays were ordered.
Mr. LAUSCHE. Mr. President, may I ask a question of the Senator from Delaware?
Mr. WILLIAMS of Delaware. I yield to the Senator from Ohio.
Mr. LAUSCHE. Does the bill contain a limitation on the dollar quantity of the bonds that may be put into the pool?
Mr. WILLIAMS of Delaware. The limitation under the bill, as I have been apprized by all authorities concerned, is $33 billion, as the bill was originally reported.. Now we are told that the limitation will be modified downward. As to around $11 billion. We need another committee report to state exactly what will be left in the bill.
I am glad to get this $20 billion reduction which means that two-thirds of the first required authority will be eliminated.
Mr. LAUSCHE. Mr. President, will the Senator from Delaware yield, so that I may ask a question of Senator MUSKIE?
Mr. WILLIAMS of Delaware. I yield.
Mr. LAUSCHE. What is the understanding of the Senator from Maine as to whether there is a limitation on the dollar quantity of the bonds and securities that can be put in the pool?
Mr. MUSKIE. Mr. President, will the Senator from Delaware yield so that I may answer the question?
Mr. WILLIAMS of Delaware. I yield.
Mr. MUSKIE. The proper answer to the Senator's question involves two points: First, what would be authorized? Second, what is planned to be done under the authorization?
On the authorization, the bill as now written would cover roughly $33 billion worth of loans. Under the bill as it would be amended, if and when we reach the point of amending the bill, the authorization would cover programs involving $10.9 billion worth of loans.
Mr. LAUSCHE. Would the amendment requiring a 2-year limitation also be included in the bill?
Mr. MUSKIE. I have that amendment ready to offer, yes.
With respect to what would be used under the authorization, it is planned, and has been planned right along, as indicated in the President's and in the administration's communications to the committee, in fiscal year 1967 -- that is the next fiscal year -- to program $4.7 billion worth of loans.
Of that amount, some portion -- $1.8 billion or $1.9 billion -- could be sold in this way under existing law. Actually, under the authorization we are considering now, of the $4.7 billion that it is planned to program next year, $2.8 billion would be added by the proposed legislation.
These are the best figures I have.
Mr. BENNETT. Mr. President, at this point the Senate may be interested in a little current history.
The companion bill in the House has been before the Committee on Rules today, and that committee adjourned without giving the bill a rule. The inference is that the Committee on Rules will consider the bill again, no sooner than 1 week from today; so if it would be more effective for the Senate to recommit the bill to committee and make the proposed changes, in effect the other body has given us practically 1 week to do so.
Mr. President, if the Senator from Maine will yield, I wish to ask him a question or two.
Mr. MUSKIE. I shall be delighted to answer.
Mr. BENNETT. First, let the Senator from Utah say that if the bill is recommitted, the committee will have an opportunity to examine all the proposed amendments. If the bill is not recommitted, the amendment will be discussed on the floor of the Senate and disposed of there.
On Tuesday, I gave to the Senator from Maine a number of amendments to the bill that I thought should be considered. He graciously had them checked, and we have now reached a satisfactory arrangement as to most of them. However, the Senator from Utah has just become aware of the answer given by the Treasury to his proposed amendment on page 4, which would strike these words:
The effect of both past and future sales of any issue of beneficial interests or participations shall be the same, to the extent of the principal of such issue, as the direct sale of the obligations subject to the trust.
I am sure the Senator is aware of the amendment, but I wish to discuss with him the answer the Treasury gave regarding its implications, in order to determine whether I have the same understanding of the meaning of that answer.
Mr. MUSKIE. Would the Senator pause for a moment, until I get my copy of that answer?
Mr. BENNETT. Yes.
Mr. MUSKIE. Is the Senator referring to the language on page 4?
Mr. BENNETT. Yes; lines 7 to 10.
Mr. MUSKIE. The Senator is correct.
Mr. BENNETT. As a background for our discussion, let me read the answer of the Treasury Department so that the other Senators can hear it. It reads:
The purpose of the provision which this amendment would delete is to make absolutely clear that a sale of a participation in a pool of loans is the same as the direct sale of a loan, and should be treated as a direct sale of a loan in the Government's accounts.
I assume that there is a difference between the two. I continue to read:
The provision is included to avoid the contention which might be made that as long as the Government retains the paper evidencing the loan, even though it has sold an interest in the loan to someone else, the total face amount of the loan must remain a charge against any limitation placed on the total amount of loans which may be made.
Then the letter goes on to make an illustration as follows:
The effect of the provision can best be illustrated in the case of FNMA. The total amount of mortgages that FNMA may purchase, or commit itself to purchase, under its special assistance functions is limited, currently to approximately $3,700 million. Whenever FNMA (special assistance functions) purchases a mortgage, or agrees to purchase a mortgage, the face amount of that mortgage is charged against the total purchase authority, and the available purchase authority is reduced.
I think that is perfectly clear.
Mr. MUSKIE. The Senator is correct.
Mr. BENNETT. I continue to read from the letter:
When a mortgage payment is made, or when a mortgage is sold, the charge against the purchase authority is reduced, and the purchase authority is restored. If FNMA bought a participation in a mortgage (as it has authority to do), the amount of the participation bought would be charged against the purchase authority, even though the Government did not take possession of the paper evidencing the underlying loan.
I can understand that. I continue to read:
If the participation were subsequently sold, the charge against the purchase authority would be reduced.
We are talking about participation in a particular, single loan and not about an issuance of participation certificates.
Mr. MUSKIE. The Senator is correct.
Mr. BENNETT. I continue to read from the letter:
This provision insures that a participation sold by FNMA is considered in the same way as a participation bought by FNMA.
That is perfectly clear to me and I have no question about it. I continue to read from the letter:
If this amendment were adopted and this provision were eliminated from the bill, the action might be interpreted as congressional intent that a sale of participations in an asset was not to be treated in the same way as a direct sale of the asset.
To the extent that they are referring to participation in single loans, I have no problem. However, I suggest a hypothetical situation that could exist under the bill, and this is what gives me a problem. Suppose that agency X has an authorization limit, not an appropriation limit, of $100 million, and suppose that it is loaned to its limit so that it has no further authorization available.
If this bill were to pass, and the agency were to take $12 million of its loans and place that amount in a pool and sell participation of $10 million against that, would that action free $10 million? Title would not pass to the loan.
Would that action create a situation in which the agency could actually have $110 million worth of loans outstanding because it has sold $10 million worth of participation, and could the agency thus break through the authorization ceiling?
The purpose of my amendment was not to interfere with FNMA participation -- I do not want to use the word "involvement" -- in a joint loan program with somebody on the outside with respect to a single loan. I hope this bill will not be interpreted to the point at which it can be used to break through authorization ceilings.
Mr. MUSKIE. I probed this question rather thoroughly myself because many programs with different substantive laws or charters are involved.
Mr. BENNETT. The Senator is correct.
Mr. MUSKIE. I found that it was most difficult to categorize them with respect to the question -- the very proper question -- that the Senator asked.
I shall try to give an answer that is as responsive and as understandable as I can on the basis of my understanding of what has been told me.
The question basically that the Senator asks is whether the proceeds of these participation certificates can be used by the lending agency for additional loans.
Mr. BENNETT. Beyond the authorization ceiling.
Mr. MUSKIE. I wish that the Senator would withhold that part of the question.
Mr. BENNETT. All right.
Mr. MUSKIE. The question the Senator asks is whether the proceeds of these participation certificates would be available for additional loans. My answer is that it would depend completely upon what the program's basic legislation provides.
There are two broad categories that I think we can distinguished on this point, First, there are programs in which there is a ceiling on the total amount of the outstanding loans. Second, there are programs in which there is no ceiling, but in which there is a limit on the amount of new loans that can be created each year. There are these two broad categories.
Mr. BENNETT. I want to clarify those two categories. Is the Senator referring in the second category to a kind of moving ceiling?
Mr. MUSKIE. For example, in the Farmers Home Administration and the academic facilities program, two of which would be included under the bill when the amendment is agreed to, there is a stated amount of new loans that are authorized each year.
Mr. BENNETT. It would grow by increment rather than by ceiling.
Mr. MUSKIE. The Senator is correct with respect to that, as I understand it; that the increment cannot be enlarged by the proceeds of participation certificate sales from existing loans. Do I make that clear?
Mr. BENNETT. That is perfectly clear.
Mr. MUSKIE. So as to that category of loans, which covers two of the eight programs which are involved, the answer to the question of the Senator is "No."
Now, with respect to programs which have a ceiling on the total outstanding loans, there is a different answer. Let me list those which are involved. They are the Small Business Administration, college housing, FNMA, Export-Import Bank of Washington, public facilities, and VA direct loans.
With respect to Small Business Administration, the answer is "No." This has been the position taken by the SBA in its interpretation of its lending authority, so that even on the direct sale of these loans, it does not regard the proceeds of such direct sales as eligible for new loans without authorization from Congress.
So that with respect to SBA the answer is "No." With respect to the other five programs, the answer is the same as it would be for direct sales of these loans, and direct sales of course can be with or without recourse.
As to the direct sales with recourse to the Government, which are comparable in terms of the continuing Government liability, the answer is the same as it would be under the pending bill with regard to the sale of participation certificates.
Now, with respect to sales of these loan papers without recourse, those cannot be used -- I think I am correct on this -- under existing law to renew or to enlarge the lending authority and, of course, would not be covered under this legislation.
Now let me see if I can summarize what I have said to the Senator. His basic question, as I understood it, was whether or not the proceeds of the sales of participation certificates can be used for new loans.
Mr. BENNETT. Above
Mr. MUSKIE. Well, whether it is above or below the ceiling is something that is argumentative.
Mr. BENNETT. All right; leave that out.
Mr. MUSKIE. If we leave that out, it depends upon, first of all, whether or not there is a ceiling on the agency's total outstanding loans. If there is no ceiling, and the agency's program is governed by limits on the amount of new loans that can be made each year, the sale of certificates cannot be used to enlarge those limits.
With respect to SBA where there is a ceiling on total outstanding loans, the proceeds of the sale of participation certificates cannot be used for new loans. With respect to other agencies where there is a ceiling on total outstanding loans, they would be treated under this legislation in the same way that the proceeds of direct sales of the loan paper would be treated.
Mr. BENNETT. This leads me to wonder whether we should not have more language in the bill to deal with the problem. That is a very simple statement; but behind the statement are two or three variations of treatment.
Mr. MUSKIE. May I make one other point before I forget it?
Mr. BENNETT. Yes.
Mr. MUSKIE. It is a point that I think is very pertinent on the question which the Senator has raised. Under the bill, the WIDNALL amendment requires specific appropriation acts to authorize the creation of participation sales pools to be implemented under this act. As the Appropriations Committee considers requests from the administration for specific authority, which the WIDNALL amendment requires, the facts -- bearing upon the point that the Senator has raised -- will, of course, be taken into consideration, and the Appropriations Committee can decide to what extent the requests made by the administration for authority are to be limited or reduced by the law bearing upon the use of proceeds of such sales in the agencies involved.
Mr. BENNETT. I think I understand the Senator's explanation. But the Senator from Utah really wonders whether we should not write these distinctions into the bill, rather than depend on a very simple phrase which, on its face, is not clear and requires a very careful explanation every time somebody reads it and asks, "What does this mean?"
Mr. MUSKIE. The difficulty with writing it into the bill, as the Senator knows, is that there are as many charters as there are programs, some 51 in all. There are about 10 under this bill. To try to capsule the existing state of the law with respect to each agency would, I think, entail an impossible legislative task.
Mr. BENNETT. The Senator made it clear that there are essentially two categories of agencies, those that operate under a ceiling and those that operate under annual increments; and then we have a subclassification -- those that are sold with recourse and those that are sold without recourse.
If this is an accurate and complete analysis of the problem we are facing, that does not seem to me to be insuperable.
Mr. MUSKIE. Whether it is accurate or complete, of course, depends upon this Senator's expertise and understanding of this field. I have not tried to mislead the Senator.
Mr. BENNETT. I am well aware of that.
Mr. MUSKIE. I have spent a good deal of time attempting to get the facts, so that I could answer this question, which I expected to be asked, as clearly and precisely as I could. But as to further legislation dealing with this point, I think it depends upon whether or not the Senator wishes to change the present state of the law. I think if we wish to change the basic state of the law on it, there are probably two approaches: First, to amend each of the substantive statutes involved, or second, an across the-board, meat-ax approach which may produce undesirable results.
The intent of the bill -- and this I can state clearly -- is that as to those programs where the proceeds of the sales of direct loans can be used for new loans under present law, it is the intent of this bill that the proceeds of the sale of participation certificates could be used to the same effect.
Mr. BENNETT. As though they were sales of the loans themselves?
Mr. MUSKIE. That is correct. In those programs where that is possible now, that is the intent of this bill.
Whether or not such proceeds are in fact used for new loans can be controlled by the Appropriations Committees in the first instance, at the time that they authorize the sale of the participation certificates for the pool arrangement that is proposed; and, second, of course, the agency itself may choose not to use the available funds for new loans.
Mr. BENNETT. I understand that. But let me return to my original question, and limit it with respect to those loan programs that are governed by a ceiling which has been set by law which the Senator identifies for me as the Small Business Administration, College Housing, FNMA, Export-Import Bank, Public Facilities and VA direct loans.
Is it not theoretically and in effect actually possible that, since the Federal Government is to retain title to the loans, the actual volume of loans in the agency's portfolio can have a face value higher than the ceiling?
Mr. MUSKIE. Well, as the Senator knows, under another amendment that he has proposed, which he will offer and to which I have agreed, the legislation will provide that title will have passed to FNMA. I think that was the effect of the Senator's amendment.
Mr. BENNETT. All right.
Mr. MUSKIE. Title will have passed to FNMA.
Mr. BENNETT. But FNMA is in this list.
Mr. MUSKIE. FNMA as trustee with respect to agencies outside itself.
Mr. BENNETT. Yes. I still return to the question: Are we creating a situation under which, as far as the record goes, the actual face value of loans held by FNMA as trustee or held by FNMA for its own sake, or any other agency governed by a ceiling, the actual dollar volume of the loans in the portfolio will be higher than the ceiling?
Mr. MUSKIE. That depends, of course, upon what accounting method a given Senator prefers.
Mr. BENNETT. Yes.
Mr. MUSKIE. Under the present state of the law, when paper is sold on direct sales, with recourse to the Government, that paper is not listed as part of the national debt.
Mr. BENNETT. It is gone. It has been sold.
Mr. MUSKIE. But still the Government is obligated. It is sold with recourse to the Government if the paper goes bad.
So the situation I am talking about, under the proposed legislation, would be exactly the same. The accounting, presumably, should be about the same, because it is a contingent obligation of the Government.
Most of the loans will be repaid -- at least the history is that most of them have been -- so that the liability of the Government is contingent and much smaller than the face amount, and there is participation by the private sector.
How is this paper to be accounted for? Different Senators will have different preferences. Schedule E of the budget, which now discusses, in 13 pages of detail, the Federal credit programs, presumably would continue to disclose what is happening under this program.
Then, in addition, another amendment which will be offered by the Senator would require reporting to the Congress, so that the information would be available to us.
The Senator and I both regret that it is not possible to show the budget of the United States on a single page. It would be possible at a glance to see the total assets of the Government, the total liabilities of the Government; but minor as are the financial operations of the Senator from Maine, I cannot show mine on one page. Therefore, I believe that most of the space is taken by liabilities rather than by assets. Nevertheless, it is a difficult thing to do.
(At this point Mrs. NEUBERGER took the chair as Presiding Officer.)
Mr. MUSKIE. Madam President, I appreciate the desire of the Senator from Utah -- and I concur and support it -- that we try to make the record of what we are doing under these programs as clear as we can. Unfortunately, because of the details involved and the number of programs and the variations involved, if we were not to tell the whole story, we would be deceiving the American people because we would be hiding the variations and the details.
How do we compromise between full disclosure which will give so many details as to be confusing, or partial disclosure? When we get to that point, what do we disclose or what do we not disclose, which would perhaps give a clearer picture to the extent that it would ignore the details and thus be slightly inaccurate -- I do not use the word "deceptive," but "inaccurate."
The problems of accounting are not simple. We should try to make the accounting as simple as possible, of course, but should recognize that we cannot make it as simple as we might like.
Mr. BENNETT. I appreciate the help of the Senator from Maine in discussing this problem. I am still puzzled and a little bothered. Perhaps, with a little time, we could find a solution which would make this clearer; but, as of now, I still feel that on the basis of the standards of present accounting, we will find ourselves facing a situation in which we will have to decide how much margin we still have under the ceiling. I believe that it would be simpler if we could find some kind of system by which the selling of participation certificates, while we still hold the assets, would not impinge on this problem of, "Have we bumped our head against the ceiling?"
Mr. LAUSCHE. Madam President, will the Senator from Utah yield for a question of the Senator from Maine?
Mr. BENNETT. The Senator from Utah has the floor, but I will be glad to yield the floor at this time.
Madam President, I yield the floor.
Mr. LAUSCHE. Madam President, I will take the floor then.
The PRESIDING OFFICER. The Senator from Ohio is recognized.
Mr. LAUSCHE. Madam President, in 1959, there was before the Senate a bill embodying the principle substantially as it appears in the pending bill today. President Eisenhower contemplated and proceeded to exchange mortgages held by FNMA for Government bonds so that he would have moneys to finance 1960 operations.
A resolution was submitted in the Senate condemning President Eisenhower's program of disposing of FNMA securities at a return less than would be obtainable by the Government if it continued possessing them.
In 1959, with 56 other Senators, I joined in disapproving what President Eisenhower had a right to do. The vote was 56 to 29. The Senator from Delaware [Mr. WILLIAMS] disapproved of the President's program, and I disapproved.
My question to the Senator from Maine is: If, in 1959 I disapproved of the disposition of FNMA mortgages for the purpose of financing current operations, can I consistently vote today to support President Johnson's proposal that he dispose of Government securities in FNMA or other organizations to finance current operations?
Mr. MUSKIE. Of course, that is a question which the Senator from Ohio will have to decide for himself. There may very well have been changes in the Senator's view of the problem, changes in the problem itself, and changes in market conditions then and now. Perhaps other conditions are different now than they were then, and the Senator from Ohio might wish to take them into consideration which conceivably would lead him to a different conclusion. That is a question for the Senator to determine.
We had an interesting colloquy on the floor on Tuesday on this point of consistency, with the Senator from Delaware [Mr. WILLIAMS], and I agree that the vast majority of Senators, on both sides of the aisle, are still inconsistent with the issue which has been raised.
Mr. LAUSCHE. Madam President, in 1959, the Senator from Maine Stated that President Eisenhower was wrong in what he was trying to do, but today he argues that President Johnson is right in trying to do the same thing which was wrong when recommended by President Eisenhower. Is the answer that conditions have changed?
Mr. MUSKIE. Again, the Senator from Ohio missed a very enlightening discussion of the position of the Senator from Maine which took place on Tuesday afternoon, wherein was raised the same question which the Senator is now raising. I must say, on the record, I am inconsistent.
The Senator from Delaware asked me why I take the position that I take now. The answer I made to the Senator is that I have been further exposed to the problems which have become more aggravated since 1959. The problem keeps climbing, so I finally have come to the conclusion that it was necessary to do something to devise some reasonable uses, which I outlined to the Senator from Ohio, as I did to the Senator from Delaware on Monday. That is the record. I can be accused of partisan expediency. Whether I am or not will depend upon how credible my explanation is to the Senator.
Mr. LAUSCHE. Madam President, the only reason I raise the issue is that the Senator from Maine threw me into consternation a short time ago
Mr. MUSKIE. I did that privately, not publicly.
Mr. LAUSCHE. He talked to me about taking an inconsistent position. The fact is, I opposed President Eisenhower's proposal and today I am opposing President Johnson's proposal. I will be consistent on the item -- that is, I take the position that we cannot start selling capital assets to finance current operations; we cannot start selling assets to avoid deficits; we cannot start selling capital assets to escape the limitations on the right to incur debts on the ceiling adopted by the Congress which now is $328 billion; nor can we do so to escape the interest limitation of 4¼ percent which is now allowed to be paid on the borrowing of money.
Madam President, I wish the record to show that I was greatly relieved after the Senator from Maine said, "You are inconsistent," to go to the record and find that I am completely consistent.
Mr. MUSKIE. Madam President, will the Senator from Ohio yield further?
Mr. LAUSCHE. I yield.
Mr. MUSKIE. I believe that I should say, partly in justification of myself, and partly to reassure the distinguished Senator from Ohio, that what I might say in private was only to "needle" him.
However, the record is something different from what I would say in private, seriously to challenge his record. It is not my intention to make any such challenge to him. There were a number of votes on the issue. I suppose an interpretation of those votes, of mine and of the Senator's, or anyone else's, could involve considerable controversy, as to whether a Senator is consistent or not; but that is not my purpose. The Senator's vote would be consistent with his 1959 vote on the merits of the bill, if he were to vote against the administration's proposal.
Mr. LAUSCHE. I want to concede to the Senator from Maine that, finally, we have to decide whether there are new circumstances, because of the war in Vietnam, that might require a different vote in 1966, when we are acting on President Johnson's recommendation, compared to the vote which was cast when we were voting on President Eisenhower's recommendation.
But as for myself, Madam President, whether it was Eisenhower, the Republican or Johnson, the Democrat, my vote will be consistent.
Mr. LONG of Louisiana. Madam President, will the Senator yield?
Mr. LAUSCHE. Madam President, I have the floor.
Mr. LONG of Louisiana. I will wait for the Senator from Maine to conclude.
Mr. LAUSCHE. If the Senator from Louisiana wishes to comment on my remarks, I yield to him to do so.
Mr. LONG of Louisiana. Madam President, may I address myself to the Chair?
The PRESIDING OFFICER. The Senator from Louisiana.
Mr. LAUSCHE. Madam President, I yield the floor.
Mr. LONG of Louisiana. Madam President, for the life of me, I cannot understand why Senators should insist that the Federal Government should engage in deceptive bookkeeping.
Take my State. Moneylenders make small business loans. They are permitted to charge 3½ percent a month. That works out to be about 42 percent. With carrying charges it sometimes amounts to 100 percent a year on loans.
Those moneylenders do not want to compete with any legitimate Federal loan. They do not want the Federal Government to lend money to the small businessman or a poor man. So they contrive this method to show that the Government lends money to the REA, so that an electric line may be built on to a small businessman, to help him stay in business, no matter how distressed he may be, so he can cut down his complete loss. It is put down on the books as though the Government had lost every cent of that loan.
The Government has not lost money. It may lend it at 3 percent, and may earn 5 percent on that money, and get most or all of that money back. But our lenders friends, headed by that great institution, the Federal Reserve Board, want it written as though the Government had lost every penny of that loan. In the way our friends who back the moneylenders would like to get it on the books as if every penny of that loan had been lost.
With ingenuity, contrivance, and genius, they want it to appear that the money lent to poor people, every penny of which may be paid back by an honest, poor man, amounts to a loss of millions of dollars.
They and their lender friends, some of whom make the magnificent sum of 100 percent per year in interest, want it to appear that the Government is losing money because it makes the loans. Wonderful. If I were working for those moneylenders, I would be working hard to make people believe the same thing.
On the other hand, if I were trying to help a little businessman, a farmer, a small fellow trying to get a power line so he could have an electric light in his home, then I would do my best to make it appear that that loan was not lost -- that what the Government did was borrow money from the public, which includes that particular person, and loaned it to that little fellow, who wanted to improve his condition.
Certain Senators can engage in this mischief and do all they want to continue to do what has been done through the years and have an act passed by the Congress to say that this country is $325 billion in debt and has not 1 penny of assets; but we are the richest Nation in the world.
If one wants to borrow from a bank, he goes to a bank, and lists his assets first, and then he lists his liabilities. Then the liabilities are subtracted from the assets, and they show his net worth, and the banker will check out those assets.
By the time the banker subtracts one column from the other, the borrower ends up with having quite a bit, and he can be loaned a lot of money on that showing.
Our friends on the other side stand up and fight for the moneylenders who make 100 percent interest per year on the poor man who wants to bury his mother. By the time he gets around to paying his debt after 5 or 6 years, and having it refinanced, he ends up having paid the full cost and still owing more than what the original loan was on the day he buried his mother.
What are we trying to do? We are trying to say that if money is owing, the Government will be able to sell that note, so that the small businessman can be helped, so that the man who was in a "tight," who needed some money, who might have a little cotton gin in my part of the country, who could not get money from any bankers, who was trying to protect his creditors, who could have gone into bankruptcy, but did not want to, who was fighting to stay in business and pay off his debts in an honest way, who was willing to work himself down to a frazzle so he could stay in business, would be able to get a loan. Instead of a small bank going broke, for example, to the detriment of the people who own some of that bank stock, this small businessman gets another chance to make a living and pay off his honest debts.
How do we do that? We say, "Take the note. We will guarantee it. If you cannot make it, we will pay it off. Then we will sell the note and guarantee that the buyer will get every penny that the note states."
Here is another fellow. We will pay off the creditor. We will pay off the note. Everybody will be better off.
What is the only objection? Some of our friends on the other side of the aisle who represent moneylenders, who get handsomely rich off these people, say, "We must get rich, and every time the Federal Government helps a poor man, whatever is loaned to him must be counted as adding to the public debt and counted as a liability. Do not count the assets."
That is all we are talking about.
If we want to do so, we can even see to it that when a poor man is in a tight spot, he cannot borrow money from the Government. But if we want to help the small businessman, if we want to help the poor little fellow who is trying to pay off his honest debts, we should stand by our friend, the Senator from Maine, and stand up for the Small Business Administration, for the little man, and try to bypass all this complicated argument that is produced by the money lenders and their friends that when the Government lends money it should be considered as if it had lost every penny of it.
Why do they want it that way? Because if they can keep the Government from making loans, the loan sharks will be able to make a 100 percent return per year on their loans to these same hardworking Americans.
We talk about honest bookkeeping. This country is the richest nation in the world. Does anyone know of any country whose bonds yield a lower interest rate than ours? We are the richest nation in the world.
Our people are too well informed and they are too sophisticated to believe those stupid arguments that we are poor.
Now, we hear the Senator from Delaware stand on the floor and make speeches that if we want to help the small business people we must increase the national debt by that figure, even though they pay it back.
I hope that some day we will engage in honest bookkeeping, and we will set up an account, when we loan somebody money or if we borrow money, to show the difference in what we are paying them and what they are paying us. If we are subsidizing them, all right; that is what we are doing and we are willing to pay it.
On the small business loans we lost some money and we were happy to do it. We are standing by the working man and the little man, the kind of people we Democrats represent. I hope that we will stand up and fight for these people.
Mr. WILLIAMS of Delaware. Madam President, will the Senator yield?
Mr. LONG of Louisiana. I yield.
Mr. WILLIAMS of Delaware. I listened with a great deal of interest and amusement to the remarks of the Senator from Louisiana. I always enjoy them even though they do not have anything to do with the issue that is before the Senate today.
Mr. LONG of Louisiana. It is a fundamental question. The Senator comes from Delaware. One group elects him in Delaware. I assume that the best people in that State are informed, and they do not need small business loans. The people who vote for me in Louisiana do. I represent a different class of people.
Mr. WILLIAMS of Delaware. Again I thank the Senator from Louisiana. I always enjoy his remarks and I shall yield to him any time he wishes.
This measure does not affect one iota the amount of money that could be loaned under the small business program. The only question before the Senate is the fact that some $33 billion worth of these loans have already been made. The Government holds the notes and now wants to sell them and apply the proceeds to pay daily expenses of Government.
The question before the Senate is: Will the Government sell those notes under participation certificates, put the money in the general revenue and spend it as though it were additional income?
There are $33 billion worth of assets in small business, the REA, and various other agencies, and if the bill is passed as it was reported, the Government could, under the authority of this bill, sell this $33 billion worth of assets, put the money in general revenue, and conceivably for the next 3 years spend $10 billion more than it was taking in, and report to the American people that there was a balanced budget. That would be a deceitful practice.
The Senator from Louisiana and Senators on his side of the aisle made statements about the moneylenders getting rich in 1959, when President Eisenhower suggested this on a much smaller scale, and I joined them in opposing the measure.
I quote one authority as to what this bill does:
The purpose of the proposed bill is to balance the budget by selling off assets of the Federal Government
That statement was made by a member of your own party, the majority leader, who is now the President of the United States. Both the Senator from Louisiana and I agreed with him in 1959.
Why does the Senator from Louisiana defend an action he condemned so bitterly only 7 years ago?
I still agree with that statement. It is fiscal irresponsibility. It is not truth in government; it is nothing but a windfall for the bankers as it was described in 1959. They will get an extra six tenths of 1 percent in interest.
Mr. LONG of Louisiana. Madam President, will the Senator yield for a question?
Mr. WILLIAMS of Delaware. I yield to the Senator for a question or for a speech.
Mr. LONG of Louisiana. If the Senator would like to help the rank and file people of this country; would be willing to join me in an effort to reverse the action of the Federal Reserve Board when it increased the rate of interest, in order to see if we cannot save this Government that $3 billion, and save the kind of people who work for a living about three times that much, or about $10 billion? Would he be willing to join in that effort? If he would, I think we might get somewhere.
Mr. WILLIAMS of Delaware. I am always interested in proposals of the Senator from Louisiana.
Mr. LONG of Louisiana. The Senator from Delaware will be the next chairman of the Committee on Finance when the Republicans take over.
I would be curious to know if he would be willing to join me in making that fight so that the people can pay a lower rate of interest, which is as much as 7 percent on housing.
Mr. WILLIAMS of Delaware. I will reply to the Senator in the same manner as I did when he argued against interest rates under the Eisenhower administration. By the way, interest rates are higher today than they were then by 1 percent. Money is a commodity. As long as there is a greater demand for money than there is an available supply, the interest rates are going to go up.
The best way to cut back interest rates is to stop deficit spending by the Federal Government, so that we will not have to borrow so much of it and be in competition with private industry.
As long as the Federal Government insists on spending $6 billion to $10 billion more than its income, it will have to go out into the money market, and there are bound to be higher interest rates.
Since 1961 this administration spent $36 billion more than it took in. That is $500 million a month deficit for every month since 1961. When the Government runs a deficit it has to borrow that money.
The way to cut back is, as President Johnson suggested the other day, only he did not go far enough. He said that if the cost of pork chops is too high, stop buying them. I say if the cost of money is too high, stop spending it, and then you will not have to borrow so much.
The President insists that the reason he cannot cut spending is because Congress is increasing appropriations. That may be true. There is only a minority of us trying to hold the line, but why does he not veto these bills? I will join in raising a collection to buy a box of veto pens to send to the White House so the President can veto these bills.
But as long as the President keeps signing every spending bill I am not interested in his pious statement as to how much he is against spending. The only way to stop spending is to veto the bills. In Congress the only way to stop spending is to vote against the proposal. The way to bring down the interest rate is to stop deficit spending.
I will gladly join the Senator from Louisiana if he wants to make the effort and I suspect I will be leading the way.
Mr. LONG of Louisiana. Franklin D. Roosevelt and Harry Truman showed us how to keep interest rates low back at a time when demand was very high. They were viciously criticized by the moneylenders. I have not heard the Senator criticize them.
As far as I am concerned, I would like to keep interest rates low.
A man and his wife today who sign a mortgage have to pay 20 percent more by the time they get through paying for their home than they paid under the Truman administration. That is a big penalty to pay.
I would like to see the interest rate go back to where it was under those two Presidents. We had control then, in time of war. We had regulation acts to limit consumer buying on what one could buy in wartime.
As far as the rank and file of people were concerned, under those two Presidents they had a real interest in the money borrower, the little fellow, and the rate of interest was kept low. If they signed a 30-year mortgage, they could pay it out, and they were protected by a President who was on their side.
The Senator can be sure I will support any effort made to reduce interest rates. I did not hear him say that.
He did refer to various other things, such as putting taxes on them and engaging in various tactics, but I did not hear him say that he would use his best efforts to reduce the interest rate.
Mr. WILLIAMS of Delaware. The only way to reduce interest rates is to remove the cause for the interest rates being higher; that is, cut down on the demand. If there is too much air in a tire, it is not corrected by pumping in more air.
President Johnson recognized this at a recent conference at the White House. He appealed to the businessmen to cut back on plant expansion and the elimination of every project possible. He asked the housewives to cut back on their spending, but he failed to say that he would lead the way and cut back on Government expenditures.
He is insisting on the Federal Government continuing every Great Society program that he ever had. Perhaps some of these plans are meritorious but they can wait until we have won the war in Vietnam.
It is necessary to cut back when the money is not available. The President, rather than appealing to the businessman alone, would do much better to lead the parade and say, "I am going to cut back on Government spending. You join me." I would like to see him lead the parade. Instead, he is saying, "I want you to cut back, but I want the extra money you save so that I can spend it."
This is a situation in which we all have to cut back on some programs. I would have to agree to cutting back on programs in the State of Delaware, the Senator from Louisiana would have to agree to cutting back on some programs in Louisiana, and we would have to wait until the money was available to spend. Let us face it; we do not have the money today, when we are fighting a war in Vietnam.
I am hoping that my good friend, the Senator from Louisiana, will join me in this proposal for economy, because I think he has struck at the heart of the question. Cut back on spending.
If the President is disappointed with what the members of his party in Congress are doing, and if he will veto those bills, we in the minority will sustain his veto and save him from the spendthrift policies of some of his own party.
Mr. LONG of Louisiana. My recollection is that there was a great deal of spending when Franklin Roosevelt was President and when Harry Truman was President. Notwithstanding that spending, a little man could borrow money and finance a home at low interest rates. The same was true of people who had to borrow money generally.
The Senator from Delaware gives me lengthy answers. From my point of view, all we are saying is that we would like to lend some money to some little fellow, a small businessman, who cannot borrow money at all. We would like to give him an honest, decent loan at the going rate of interest. In order to do that, we would like to sell some of the notes we presently hold.
It is fine to engage in semantics, but it boils down to one thing: The Senator would like to say that every time the Federal Government goes to the aid of a poor man, a farmer, a small businessman, every dollar that is borrowed is to be regarded as a loss, presumably never to be collected.
What we are saying is that if a note is sold for what it will bring, the Government will get back that much money. To that extent, we refute the Senators presumption that the money never will be repaid.
Mr. MILLER. Madam President, will the Senator yield?
The PRESIDING OFFICER. Does the Senator from Louisiana yield to the Senator from Iowa?
Mr. LONG of Louisiana. I yield.
Mr. MILLER. Madam President, I have followed the discussion with a great deal of interest. The arguments of the Senator from Delaware are much more persuasive to me, particularly because he has premised his case on the same arguments that he used in 1959.
I was not a Member of the Senate in 1959, but recently I saw some figures, issued by the Federal Government, indicating that in 1960 a person could buy a house for $12,000. But in 1965, 5 years later, as a result of the inflation which has grown during the 5 years of this administration, that same home costs $13,300.
In addition, the inflation that ensued during those 5 years brought the interest rate up. At the present time, a person who buys a $13,300 home with say, an 80 percent, 20-year mortgage, will spend $1,700 more in interest.
So as the result of the fiscal policies of this administration. a home that cost $12,000 in 1960 now costs $3,000 more.
Mr. LONG of Louisiana. Madam President, will the Senator yield?
Mr. MILLER. In a moment.
The Senator from Louisiana talks about poor people. The poor people are the ones who are getting stuck the worst with the inflation that has been caused by the so-called fiscal policies of this administration. The President has said that inflation hurts worst those who can least afford it -- the poor people.
If the Senator is really concerned about poor people, why does he not put into effect fiscal policies that will stop inflation? Unless that is done the poor people will become poorer. It does not make any difference if their wages go up a little. It will be more than offset by inflation. That is why the President, the Senator’s President, said what he said.
Mr. LONG of Louisiana. Madam President, will the Senator yield?
Mr. MILLER. I yield.
Mr. LONG of Louisiana. Let us consider the man who borrows $7,000. Everyone knows that when inflation struck, the first thing that went up was wages, so his wages doubled or more than doubled. That meant that so far as his income was concerned, the burden of the mortgage was half what it had been. As far as he was concerned, he was benefitted by inflation. As a matter of fact, he probably paid it off and was done with it because of the increase in wages.
It was all I could do, as chairman of the Finance Committee, to defeat amendments to automatically raise payments just this year and thereby prevent the social security payments from going up, with a resulting progression of inflation.
One amendment was offered on the Senator’s side of the aisle the Republican side and another was offered by a Democrat.
The Senator says that when inflation hits, the cost of living goes up and the social security payments suffer. If wages go up by more than that amount, then the wage earner actually wins. Inflation does not always hurt a poor man. If his wages go up, the price he is paying on a mortgage is actually reduced by inflation. If inflation takes 3 percent from his purchasing power and he is paying 7 percent, and if his wage goes up by 3 percent, then he should be paying only 4 percent, this puts him back at the 4 percent rate, provided his wages went up when inflation hit.
The Senator from Iowa should tell us whether he is for the moneylender or for the borrower. We are talking about making money available for borrowing by the man who needs it.
Mr. MILLER. The Senator has been making a big fuss about the poor man, the borrower, and the moneylender. I do not know of much difference on either side of the aisle on this point. There may be a lot of demagogic speeches on this subject, but I do not believe any Senator wants the borrower to pay an excessive amount of interest, any more than he wants the lender to receive an excessive amount of interest.
The Senator from Louisiana tried to cover the point I made by assuming that a poor man’s wages have gone up twice. If he is attempting to beg the question, nobody will win that argument. The point is that that is not what is happening to many hundreds of thousands of such people. As a matter of fact, last year, when the social security tax was increased 7 percent, the proposal sounded good to the social security pensioners; but even with that increase, they do not have as much purchasing power as they had in 1958. Think of the hundreds of millions of dollars of cost to that segment of society as a result of the inflationary dollars of this administration.
Mr. LONG of Louisiana. The Senator from Vermont [Mr. PROUTY] offered that amendment. He said if the cost of living went up, the social security payment would go up. It was all I could do to head off that amendment and try to be fiscally responsible. The point is that Congress has increased the social security payments to offset the increase in the cost of living.
Mr. MILLER. It was not offset even with the 7 percent increase. That is the trouble.
During the consideration of the medicare bill last year, the Senator from Iowa proposed an amendment to give the social security pensioners an automatic cost of living increase, but the Senator from Louisiana would have none of it, even though he knows that that group of people can least afford to bear inflation.
I want to make this point, Madam President; then I shall yield the floor. The pending measure sounds to me as though it will aggravate a high interest situation.
In my State of Iowa money is terribly tight at the present time. Businessmen would like to expand their plants to provide more job opportunities for people. Many people need loans in Iowa today. Many farmers need loans. We now propose to lay a foundation for taking private money out of the private sector and putting it into the public sector, into Government participation certificates.
I think it will make money even tighter. I believe that, regardless of one’s philosophy on whether we should sell assets to help pay for operating expenses, this is perhaps the worst time at which we could engage in this kind of activity.
If the Senator from Louisiana has people in his State who are interested in getting loans to help them get along in farming or in small business, I suggest to him that the interest rate will get higher if this bill passes.
Mr. LONG of Louisiana. Madam President, I accept the challenge, and on an appropriate occasion, I shall offer an amendment to reduce interest rates. If I get a majority on the Republican side of the aisle, I will clap my feet in the air.
[INTERVENING DEBATE OMITTED.]
The PRESIDING OFFICER. Without objection, it is so ordered. The amendments will be considered en bloc.
The amendments offered by the Senator from Maine [Mr. MUSKIE] are as follows:
On page 2, delete line 25, and on page 3, delete lines 1, 2, and 3, and substitute therefor the following:
"(2) Subject to the limitations provided in paragraph (4) of this subsection, one or more trusts may be established as herein provided by each of the following Departments or Agencies:
"Department of Agriculture: Farmers Home Administration;
"Department of Health, Education, and Welfare: Office of Education (with respect to loans for construction of academic facilities);
"Department of Housing and Urban Development (including the Federal National Mortgage Association);
"Veterans' Administration;
"Export-Import Bank;
"Small Business Administration.
"The head of each such Department or Agency, hereinafter in this subsection called the 'trustor', is authorized"
On page 2, strike lines 3 through 12 and insert in lieu thereof the following:
"(3) by striking out the words 'offered to it by the Housing and Home Finance Agency or its Administrator, or by such Agency's constituent units or agencies or the heads thereof, or any first mortgages in which the United States or any agency or instrumentality thereof' in the first sentence thereof and by inserting 'and other types of securities, including any instrument commonly known as a security, hereinafter in this subsection called "obligations," in which any Department or Agency of the United States listed in section 302(c) of this Act' "
On page 3, line 17, strike out "be deemed to have passed" and insert in lieu thereof pass".
On page 5, line 8, beginning with "Any" strike out all through the period in line. 9, and insert in lieu thereof the following: "Any such authorization shall remain available only for the fiscal year for which it is granted and for the succeeding fiscal year,"
On page 10, line 7, after "See. 8." insert (a) ".
On page 10, after line 16, insert the following:
"(b) The Secretary of the Treasury shall each year make a report to the Senate and House of Representatives setting forth
"(1) the net increase or decrease during the preceding fiscal year (A) in the aggregate principal amount of obligations acquired by the executive departments, agencies, and instrumentalities of the United States which may be subjected to a trust under section 302(c) of the Federal National Mortgage Association Charter Act, and (B) in the total amount of outstanding beneficial interests or participations in such obligations; and
"(2) the extent to which the sale of such beneficial interests or participations reduced the deficit or increased the surplus realized by the Government in its operations during the preceding fiscal year."
Mr. MUSKIE. These amendments, Madam President, would do these things:
One amendment would reduce the coverage of this bill from the $33 billion of outstanding direct loans in the Federal portfolio, involving some 51 agencies or programs, to a little less than $11 billion, involving 6 agencies.
Mr. BENNETT. Six.
Mr. MUSKIE. Six agencies. Those agencies are listed in the amendment as follows: Department of Agriculture, Farmers Home Administration; Department of Health, Education, and Welfare, Office of Education, with respect to loans for construction of academic facilities; Department of Housing and Urban Development, including the Federal National Mortgage Association; the Veterans' Administration; the Export-Import Bank; and the Small Business Administration.
The second amendment would limit the authorization contained in this bill to 2 years. This is an amendment offered by the distinguished Senator from Nebraska [Mr. HRUSKA], which I have cosponsored.
The third amendment, offered by the Senator from Utah [Mr. BENNETT], would require reporting the activity under this bill to the Congress each year. The Senator from Utah may wish to describe it in greater detail.
There is another amendment, which is a technical amendment on the question of the passage of title from the lending agency to the Federal National Mortgage Association. The amendment which I offer in behalf of the Senator from Utah [Mr. BENNETT] clarifies that point, to make it clear that title passes.
Those are the amendments now being considered, which have been carefully reviewed by Senators on both sides.
Mr. MUNDT. Madam President, will the Senator yield?
Mr. MUSKIE. I yield to the Senator from South Dakota.
Mr. MUNDT. Will the Senator state whether, in this condensed form, the authority does or does not cover REA or RTA?
Mr. MUSKIE. It does not cover rural electric or telephone loans made by the REA.
Mr. HOLLAND. Madam President, will the Senator yield?
Mr. MUSKIE. I am happy to yield to the Senator from Florida.
Mr. HOLLAND. The Senator said he has conferred with Senators on both sides. Has he conferred with the chairman or ranking members of the Senate Agriculture and Forestry Committee, with reference to the Farmers Home Administration?
Mr. MUSKIE. I have not; no. But the legislation has been--
Mr. HOLLAND. Madam President, I happen to be a member of that committee, and I have heard nothing of any conference on this subject. I also happen to be chairman of the Senate Subcommittee on Appropriations which handles agricultural appropriations; and I am not prepared to say, with reference to the Farmers Home Administration, that this is good policy.
If the Senator from Louisiana [Mr. ELLENDER] or the Senator from North Dakota [Mr. YOUNG] have been conferred with, and have agreed that this is good policy, that is something else. But as far as I am concerned, I have heard nothing of this item. I hope that the distinguished Senator will advise us whom he has conferred with on both sides of the aisle with respect to this particular agency.
Mr. YOUNG of North Dakota. Madam President, will the Senator yield? This is the first I have heard of it.
Mr. MUSKIE. May I say to the Senator, the agencies I have described have been covered by this bill from the moment it was introduced. No question such as that suggested by the Senators has been raised in discussion of the proposed legislation until this moment.
When I said that there had been conferences with other Senators, I meant conferences with other Senators involved in the debate on the proposed legislation on the floor of the Senate during the last 2 days. This includes the Senator from Utah, the Senator from Nebraska, and the Senator from Delaware, all of whom raised questions which are involved by the amendments which we have reviewed with them, and which we have checked with the Federal agencies involved in order to try to bring to the Senate a responsible judgment on the validity of the amendments.
If there is a basic question on the bill itself which concerns the Senator from Florida and the Senator from North Dakota, I wonder why it has not been raised before. I have not conferred with any Senator about a question of which I was unaware.
Mr. HOLLAND. The Senator probably is justified in feeling that all Senators should know what is included in the bill. It happens that I have been busy today in three or four other committee matters. I was busy yesterday on similar matters. Today, among other things, I sat in the conference committee on the Supplemental Appropriations bill, and have been in hearings all afternoon on the Public Works Appropriations Subcommittee. Then, since that committee adjourned a few minutes ago, I have been talking with some agricultural people about my duties as chairman of the Subcommittee on Agricultural Appropriations.
I invite the attention of the Senator from Maine to the fact that other Senators not on the Banking and Currency Committee can have no possible way to know about the heavy coverage of this bill unless it is called specifically to their attention. When the Senator stated that he has conferred with Senators on both sides of the aisle, I started out believing he had talked with the Senator from Louisiana [Mr. ELLENDER] and the Senator from North Dakota [Mr. YOUNG], or both of them, or the distinguished Senator from Vermont [Mr. AIKEN].
Apparently, he has talked with no one who has any special knowledge of the agricultural situation. I therefore want the Senator to know that the Farmers Home Administration administers many different classes of obligations. Although it does deal with many different types of loans affecting farmers, some of these new type loans recently authorized under new legislation deal with problems that do not relate to farmers at all, necessarily, but with small communities and even country clubs. I had notice day before yesterday from the Farmers
Home Administration that they just granted a loan for a water system to a golf course in my State.
To bunch all these together and say that they can liquidate these obligations and then pursue their very great field of activities, almost unregulated by Congress, is something that I would not wish to agree to at all.
I hope that the Senator will withdraw this particular field of activities from the bill.
The Farmers Home Administration deals with many different types of direct and insured loans. It has long since departed in a clear way from its original field of activities and objectives which were to help tenant farmers buy their properties; to help small farmers enlarge their properties; and also to help farmers build their barns and silos and things of that kind; and for production loans.
If we were limited to that kind of activity now, I would have little, if any, objections, now. But I do not think the Farmers Home Administration should be turned loose to borrow from wherever it can get funds, as against this tremendous outstanding file of obligations in a dozen different fields. I would not want that authority to be granted at all without a very close and very thorough study by the people who know something about the business of this very variegated -- if I may use that word -- agency.
Thus, if no one having any comprehensive knowledge of the operations of this particular, important agency has been conferred with or consulted at all, I would have to object rather strenuously to the inclusion of that file of securities within those involved by this act.
Mr. HRUSKA. Madam President, will the Senator from Florida yield?
Mr. HOLLAND. I yield.
Mr. HRUSKA. Madam President, I can say that the Senator from Nebraska is not in a position of authority in the fields to which the Senator from Florida refers. I am not on the Agricultural Legislative Committee. I am a member of his very illustriously chaired Subcommittee on Agricultural Appropriations. An effort was made by the committee to get a limitation in the very field to which the Senator refers, however, and the Senator front Maine, who is the Senator in charge of the bill, has agreed to accept this limitation.
Originally subsection 4, page 5 of the bill, read as follows:
Beneficial interests or participations shall not be issued for the account of any trustor in an aggregate principal amount greater than is authorized with respect to such trustor in an appropriation Act.
Then comes the language which I understand is to be amended:
Any such authorization shall remain available until used.
That was what was known as the WIDNALL amendment and was included in the House bill at the instance of the gentleman from New Jersey. An amendment that would be accepted is this: The last two words in that second sentence would be stricken, and the following lan
guage would then be a part of the bill as amended:
Any such authorization shall remain available only for the fiscal year for which it is granted and for the succeeding fiscal year.
So that there is, first of all, the necessity for an authorization and it is that authorization that applies to any participation in one of these pools during that fiscal year and the following fiscal year, rather than indefinitely until it is used. To that extent, an effort has been made to build a fence and use some braking power on an otherwise unlimited use of the participation pool procedure.
Mr. HOLLAND. I appreciate the fact that the distinguished Senator from Nebraska has endeavored to bring that much of a limitation into the bill. My objection goes a good deal further than that, because we have just finished, in our subcommittee, having hearings on the request of this agency, and they are requesting greatly increased appropriations -- I do not recall the exact amount now, but it is a large increase, including large increases for these new fields -- for supplying small water plants to folks who are not farmers at all but merely happen to have their home or business either in the country or in towns of not more than 5,500 population.
Their field of operations is simply immense -- almost unlimited -- and to say that they can pyramid or pile up this kind of fund in the way intended by the pending bill, as I understand it, is something of which I could not approve at all.
If it were limited, as I say, to those loans which have to do with the original purpose of the Partners Home Administration, which were excellent and which I have always strongly supported and helped to liberalize greatly through the years, as those members who have served on various committees assigned to it know, I would feel kindly disposed toward inclusion of the Farmers Home Administration, provided there were written into the bill the limitation suggested by the Senator from Nebraska which made congressional control complete and continuous; but to say that their whole field of securities can be hypothecated and that they can take that money and build up this tremendous field which they have made possible by, I think, an injudicious act of Congress, I could not give consent to that.
I would have to ask that the bill go over until tomorrow morning to give me an opportunity to present in some detail my feelings on the question of including the Farmers Home Administration within the scope of the bill.
Mr. HRUSKA. Madam President, will the Senator from Florida yield?
Mr. HOLLAND. I yield.
Mr. HRUSKA. My citation of the proposed amendment which has been accepted or on which indication has been made for acceptance, was not to dispute or to controvert the position taken by the Senator from Florida.
I cited it only to show some effort had been made to limit somewhat, the rather broad and unlimited procedures contained in the bill as introduced. There was no intention to suggest that that amendment would in any way deal with or satisfy the remarks which the Senator from Florida has made and has made so well.
His record on the type of thing to which he refers is well known in this Congress and elsewhere; but it is not covered and it is not specifically the objective to which I referred.
Mr. HOLLAND. I reiterate my strong approval of the intention of the Senator from Nebraska and the coverage of his amendment. I call attention to the fact that it does not really go to the scope of my objection, which is another point. We have recently embarked on new programs, which are on trial, and here in the very beginning of them we are asked to expand them immeasurably in the Appropriations Committee, and we are expanding them in the field of coverage and in the legislative field. Perhaps that is wise, but, on top of that, to say that we can pile up these securities and, ad lib, pyramid them, as anyone may wish to do, is something different.
Mr. MUSKIE. Madam President, will the Senator yield?
Mr. HOLLAND. I yield.
Mr. MUSKIE. This bill does not, as the Senator said in his last sentence, permit anyone, ad lib, to take the securities and pyramid them as much as might be wished.
On the point of who was consulted in connection with this bill, I shall be very glad to give the Senator such information as I have. There are some 51 agencies or programs listed as direct loan programs. The administration undertook to contact those which might be involved in those programs or those who might be concerned or interested in the legislation with respect to the FHA program and the Farmers Home Administration. Both the Treasury and the Budget Bureau contacted the chairman of the Agriculture and Forestry Committee, the Senator from Louisiana [Mr. ELLENDER], and discussed it with him. Presumably they received no objection.
In addition, the Bureau of the Budget has written a letter, which may be of interest to the Senator, to Hon. W. R. POAGE, dated May 2, 1966, which reads:
DEAR MR. POAGE: I understand that you are concerned about the manner in which the insured loan programs of the Farmers Home Administration are to be treated under the Participation Sales Act of 1966 (H.R. 14544).
The programs of the Farmers Home Administration, as authorized by the Congress, will in no way be adversely affected by any provision of H.R. 14544, nor by any action that it is proposed to take under that bill. On the contrary, the proposed bill will make a positive contribution toward financing the credit programs of the Farmers Home Administration.
The agency will continue to operate both the agricultural credit insurance program and the rural housing insurance program as in the past. When the paper generated in these programs can be sold to the private market on favorable terms, this will continue to be done, as it has been done in the past.
May I say, parenthetically, as could be continued to be done without passage of this bill, with reference to $1.9 billion of direct loans. The approximately $2 billion of loans could be sold in this way without passage of the proposed legislation before us.
To continue with the letter:
When the Farmers Home Administration is not able to place its paper directly on terms comparable to those on the participation certificates issued by the Federal National Mortgage Association, then Farmers Home will pool its loans and arrange for FNMA to sell certificates of participation in that pool.
If it should become possible later to sell the loans in the pool directly to private investors, the bill provides a procedure by which loans can be withdrawn from participation pools and a corresponding amount of participation certificates retired by purchase in the market.
May I say, in addition, that in the bill as introduced in the Senate, S. 3283, which is before us, positive control is given to the Appropriations Committees of both Houses, requiring specific authorization of the total principal amount of certificates of participation which can be issued in behalf of any agency. That is a specific authorization that is required in an appropriation act.
Those are safeguards in the legislation. This is the impact upon the Farmers Home Administration program, as described by the Director of the Bureau of the Budget to Representative POAGE.
As I have said, this legislation was discussed by the representatives of the Treasury and the Bureau of the Budget with the distinguished Senator from Louisiana [Mr. ELLENDER], chairman of the Agriculture and Forestry Committee of the Senate.
Mr, HOLLAND. I thank the Senator for that statement.
I am looking now at page 18 of the report. I see, as I am not surprised to see, that there is no division made at all in listing the securities held by the Farmers Home Administration between those directly involved with their very sound original purposes and their recently, newly authorized activities, which are new and very venturesome. The table simply lists the total amount held by the Farmers Home Administration on the day the bill was prepared, I assume, in the amount of $1,990 million. That is in direct loans. That is in notes.
As to what part of them would lie in the scope of activities that are not new, and as to what amount would lie in the scope of activities that are highly new, venturesome, and admitted to be on a kind of trial-and-error basis, I do not know. The fact is not disclosed in the listing,
I am referring to page 18 of the report, under the heading "Direct loans." That means paper for direct loans made, and the amount is $1,990 million. This is no inconsiderable amount, considering the fact that in recent years, we have not only entered into new programs, but also have given this agency insurance power. The Farmers Home Administration program has already been granted guaranteed and insured loans in the amount of $727 million, which would indicate that the Farmers Home Administration has not been at a loss for ways in which to make good loans. It should not be at a loss to do so, but we want Congress to have some continuing control over the new programs. This same activity is now asking for greatly expanded lending power as to where the loans can be made. This has been brought out in the course of recent hearings before the subcommittee of which I have the honor to be chairman, and of which the Senator from North Dakota [Mr. YOUNG] serves as ranking minority member.
We know this is the situation. My feeling is it is unwise to include approximately $2 billion of securities now already made within the scope of the bill.
I hope the Senator will be willing to do one of two things: either to remove this particular agency from the list of those included -- he has apparently omitted 40 agencies already -- -or else let this matter go over until tomorrow morning, so I can show the Senate some of the facts and figures relative to the Farmers Home Administration,
Mr. YOUNG of North Dakota. Madam President, will the Senator yield?
Mr. HOLLAND. In closing, if Congress has been kind to any agency, it has been the Farmers Rome Administration. They were brought into numerous new fields, such as housing for the elderly, increased housing for rural people, whether they were farmers or not; and financing all activities, bringing recreational activities in the country areas, and these that I mentioned a while ago, putting in water plants and similar systems in connection with activities that have no relationship whatever to agriculture, but simply happen to be either in the country or towns up to 5,500 in population.
Mr. YOUNG of North Dakota. Madam President, will the Senator yield?
Mr. HOLLAND. I yield.
Mr. YOUNG of North Dakota. This would include housing in all towns and cities up to 2,500 population. It would include direct loans and insured loans. It seems to me that this is going a long way in the field of agriculture.
When we only represent 7 percent of our total population, I suppose we do not count any more, especially in a day when agriculture is condemned by top people in the administration for providing food and fiber at prices as low or lower than we did 20 years ago. This at a time when the costs of farm operations have increased sharply year after year with no end in sight,
Mr. HOLLAND. I thank the distinguished Senator from North Dakota.
I have spoken unduly long on this matter but I feel keenly about it.
I have supported very strongly the Farmers Home Administration and I remember other Senators have also on this floor. We have liberalized three times under my chairmanship the activities of this program. It is well recognized we have tried to help legitimate country people in many ways.
I did not support one or two of these latest ventures because I thought they were getting so far away from any relation to agriculture or agricultural activities. But I have supported everything else in the scope of the activities of this committee. I have supported it year after year and our committee recommended that we increase the figures recommended in the other body so that they could reach other people.
But when it comes to turning over this entire field of securities regardless of where they came from, the Senator from Florida would not want to see that done. Rather than have it done he would want it carried over until tomorrow morning so we can get more factual information as to what is involved in connection with this activity.
I thank the Senator for his courteous answers to the points that I raise.
I wish I could agree wholeheartedly with him. I might say if he limited his request to those activities of the Farmers Home Administration in the field of long tradition I would have little objection. But when he makes one request covering all of their activities, including these expanded, highly liberal, and heretofore untried fields of activity, it goes a long way from any legitimate interest of agriculture. I cannot stay with him on that at all.
I thank the Senator.
Mr. COOPER. Madam President, may I ask one question?
Mr. MUSKIE. May I respond to the Senator from Florida?
Mr. COOPER. My comment would probably take care of it.
I notice one of the amendments offered would reduce the number of agencies to six or eight.
Mr. MUSKIE. Six agencies.
Mr. COOPER. The bill would include six agencies. I ask this question.
If participation certificates were sold in the FHA or any of those agencies, could the proceeds of those participation certificates be transferred between the six agencies or would they be required to use them in the agency which issued the obligation?
Mr. MUSKIE. The proceeds would go back to the lending agency which owned the loan in the first place.
Mr. HOLLAND. I understood that was the case. That was not my point at all. My point was between the various activities carried on within the particular agencies. Apparently there is no differentiation between them. I have distinct reservations about some of the new activities carried on by the Farmers Home Administration.
We were told a few days ago that applications had been filed in connection with some of these newer activities running up to about four times the appropriation of last year. I will get these figures in detail for tomorrow morning, if necessary.
It seems to me we are going very f ar afield trying to meet every need arising from some legitimate development. There are needs in towns of up to 5,500 population. I admit that. There are needs of people who want to establish a golf course or yacht club. In the case of a little community in Destin, Fla., which is sandy, but quite attractive -- and where I go to fish every chance I get -- there are only a few trees that can be grown in that area, much less agricultural crops. And yet that is one of the places marked for granting of a loan to accomplish some of these highly desirable new community developments, having no relation whatever to agriculture. It is located on Choctawhatchee Bay, removed 4 or 5 miles from the mainland, where nothing but a few hardy trees could grow.
Things have gone so far afield from the original purpose of FHA. I protested them. My committees have authorized some of the enlarged activities and I stood by the committee because I thought the majority had some meaning. I know every member of the committee -- because I talked to them sooner or later -- had misgivings about these new programs.
One of the things proposed was putting in a water system in a community for elderly people. This has no more relationship to agriculture than the Senate Chamber does to the production of wheat in the State of North Dakota, which is so ably represented by the distinguished Senator from North Dakota.
And yet, they were going in these projects and putting in facilities because those people who went in these new areas and bought lots might find it difficult to establish a basis for credit unless we take care of them.
That is the situation that prevails because of this new activity. I hope that we can limit anything we do by way of refinancing to the Farmers Home Administration.
I hope we can limit it to proven fields which benefit the farmer such as tenants, small farmers, and people who wanted to rebuild their homes, or a barn that has been burned.
I do not believe that we ought to let them refinance and refinance.
Mr. YOUNG of North Dakota. I am sure the Senator is concerned over bringing up all of these programs under the agriculture budget, which totals some $7 billion, over one-half of it having little relationship to agriculture, and through this means safeguard the refinancing of a considerable part of its lending activities.
It looks like we are not to be consulted as to how programs are to be financed in the future.
Mr. MUSKIE. Madam President, will the Senator yield?
Mr. HOLLAND. I yield.
Mr. MUSKIE. I would be happy to answer the question of the Senator from North Dakota, if he will let me do it.
Talking about golf course loans, let me say to the Senator from Florida that under this bill as written, if passed, before any program involving golf course loans can be financed, this legislation comes before the Senate Appropriations Committee and it cannot be implemented under this program unless the Senate Appropriations Committee specifically authorizes such a program. This is what the legislation provides.
This bill does not give anybody the right to take the securities into the open market, behind the back of Congress, and to pyramid in an unhealthy amount the authorization for the program. The Senator from Florida would have specific supervision over the financing of programs involving the golf course loans or any of the others that he does not like. That is the purpose of the amendment -- to give the Senator control. A blank check is not given to anybody under the provision of this bill; none whatsoever.
I understand the concern of the Senator. The fields he mentioned are experimental fields, which are to be entered into carefully, which are to be supervised carefully by Congress, and which ought not to be expanded undesirably or unwisely.
I agree with the Senator on this point. But the bill gives the Senator that control. The administration cannot pool a single golf course loan for participation sales without the specific authorization and the specific legislation approved by the Agriculture Committees of both Houses of Congress.
Mr. HOLLAND. I believe that this type of legislation ought to be considered by the committees that are well acquainted with the subject.
When the Farmers Home Administration loan was set up with a revolving fund, they came before our committee. We considered the proposal very carefully, and we gave that administration the right, under specific limitations, to set up the fund. Perhaps it was unwise, but we set it up, it is working, and I believe it is working reasonably well. But to have this kind of proposal for hypothecating securities from every source of activity, to bring in that money, and then to use it again in something I do not see at all.
I hope the Senator from Maine, through the action of one committee, will not attempt to override or bypass or ignore the jurisdiction of another group of committees.
I do not have the honor to be a member of the Committee on Banking and Currency, but I do have the honor and responsibility to be a member of the Committee on Agriculture and Forestry, the legislative committee. I am the secondranking member of that committee and the chairman of its most important subcommittee. I have the honor of being a member of the Committee on Appropriations and of being chairman of the subcommittee that deals with agriculture and related appropriations.
I am sure that every Senator serving on those two committees will bear out my statement that I have been highly friendly to the Farmers Home Administration in almost every particular and have built it up very largely -- perhaps too largely -- from the small basis on which it operated at the time that I came into these two positions of responsibility.
I think it is a wrong approach to this situation to allow a committee which has no knowledge at all of the methods of operation of an agency, with all its farflung branches, responsibilities, and fields of action, to make the determination with reference to the hypothecation of all its paper and move ahead with its business in an unrestrained way. We should have an opportunity to examine the proposed legislation and to examine the testimony that we have just completed taking, to see just what is being requested now. We largely increased their insurance power just last year.
Mr. MUSKIE. The proposed legislation does not affect that.
Mr. HOLLAND. It does not affect it, but the reason I make that statement is that there is a very large field to service. Demands are made on them. Congress set up their revolving fund, and they have that to draw upon. We have increased their appropriation in every respect but one or two, with my full consent, approval, and recommendation.
But to pass the proposed legislation, without knowledge on the part of anyone who is familiar with this operation and the way in which the agency serves so many different activities -- some of them having no relation whatsoever to agriculture -- I believe is wrong. When I compare it with other activities that are listed here, I see a great basis for difference.
Mr. MUSKIE. Madam President, will the Senator yield?
The PRESIDING OFFICER (Mrs. NEUBERGER in the chair). Does the Senator from Florida yield to the Senator from Maine?
Mr. HOLLAND. I am glad to yield.
Mr. MUSKIE. The Senator has made his point, and has made it clearly, as to anything that would be done, or any action that would be taken, under the bill if enacted.
The specific limits which, as I understand, apply to all types of Farmers Home Administration loans would be absolute limits which could not be enlarged upon by the bill, nor could the administration recommend its enlargement. The limits are established by the committee and by Congress and cannot be expanded. All that can be loaned in the programs which concern the Senator from Florida are the specific amounts authorized by Congress on legislation introduced into Congress and referred to the Senator's committee, wholly independent of this action.
It is apparent that I have failed to explain the bill as clearly as it should be explained. All I can say in summing up my response to the Senator from Florida is that the fears he has expressed -- and I certainly sympathize with the reasons that prompted him to express them -- are in no way supported by anything that is in the bill, as I understand it, and I say that to him in all honesty.
Mr. WILLIAMS of Delaware. Madam President, will the Senator yield?
Mr. MUSKIE. I understand the concern of the Senator from Florida that all bills that affect his committee do not necessarily come to him. I see proposed legislation all the time that goes to other committees of the Senate and in which committees of which I am a member have some interest. Fifty-one programs are included in this bill. Is the Senator suggesting that committees having jurisdiction over each of those programs should separately conduct hearings on legislation of this kind before the Senate can act?
The administrative agencies have taken every step possible, well in advance, to inform Senators with special interests about the provisions of the bill.
The safeguards are here. The Senator from Florida ought to be reassured by the safeguards that are here. This matter is in the palm of his hand, as a member of the Committee on Agriculture and Forestry.
There is nothing I could do, if the bill is passed, that would divert any of these programs from the attention of the Senator from Florida. There is nothing in this proposed legislation that would give the President such power. The Senator from Florida would have the first look and the last look at legislation that would be proposed to implement this authorization, if it is enacted.
Five amendments are pending before us en bloc. These amendments would not affect the question proposed by the Senator from Florida. The Senator from Delaware wishes to ask some questions about the amendments.
If we could dispose of the five amendments and the discussion in which the Senator from Delaware wants to engage, perhaps by the time we are through with that the Senator from Florida in one way or the other might have received enough information so that he would be reassured as to the point he has raised.
Would it meet with the approval of the Senator from Florida if we were to turn now to a discussion of the five amendments so that I might engage in a discussion with the Senator from Delaware and perhaps dispose of the amendments?
Mr. HOLLAND. Madam President, I am willing to turn to any business which the distinguished Senator in charge of the bill wishes to bring up. However, I shall strenuously object to any vote on the bill tonight. I serve notice of that because I do not understand at all that it would encompass the limited field that the distinguished Senator believes. I do not understand that this has been referred to people who know about the Farmers Home Administration. If it had been referred to anybody, it should have reached me, as one. I am not hurt by the fact that I was not reached. Others could have been reached on the matter. However, apparently it has not been referred to anybody, either on the majority or minority side, on the Senate subcommittee that handles agricultural appropriations.
Madam President, to make my point abundantly clear -- and I am afraid that my distinguished friend has missed my point, instead of my missing his -- there are several agencies listed here which we would need to include within the purview of the bill, which do a simple business compared to that done by the Farmers Home Administration. For example, there is the Veterans' Administration, which makes housing loans and other types of loans. However, the loans are all to veterans and are all within a very circumscribed field, whereas the Farmers Home Administration is not proscribed in its lending to agricultural people or objectives at all. It has a very broad field of operations. Some of its operations are frankly on an experimental basis now, as has already been stated by my distinguished friend, the Senator from Maine.
While the Senator from Florida is perfectly willing to proceed with the matter and go ahead in any manner suggested or directed by the Senator in charge of the bill -- who is amply able to say where he wishes the discussion to go -- the Senator from Florida would still oppose any action on the bill until he has had a chance to look further into the matter.
I hope that no move will be made to go further than to make a statement on it.
Madam President, I yield the floor.
Mr. MUSKIE. Madam President, I state to the Senator from Florida that it is my intent to undertake to get a vote on the five amendments which are now pending, which vote I expect to be a voice vote, unless the Senator objects, after we have completed our discussion. It will not be a vote on final passage. It will be a vote on the five amendments.
Mr. HOLLAND. Madam President, I reserve the right to ask for a live quorum when we have had a discussion on the first amendment.
Mr. WILLIAMS of Delaware. Madam President, will the Senator yield?
Mr. MUSKIE. I yield.
Mr. WILLIAMS of Delaware. Madam President, I think I understand what the amendments would accomplish, but I want to get it clear in the RECORD.
The bill, as reported by the committee, provided for the authority to sell approximately $33 billion worth of securities. It is my understanding that the amendments now being offered would eliminate from the bill the following programs, and I should like to enumerate them if the Senator will follow me and see if I am correct. Commodity Credit Corporation under the bill has $2,115 million of securities which could be sold. That amount would be eliminated if the amendments are agreed to.
Mr. MUSKIE. The Senator is correct.
Mr. WILLIAMS of Delaware. REA has $4,072 million in securities which could be sold under the pending bill. However, agreement to the amendments would eliminate those.
Mr. MUSKIE. The Senator is correct.
Mr. WILLIAMS of Delaware. Under the State Department, AID, there is an item of $8,907 million worth of securities that could be sold under the authority of the bill. Agreement to these amendments would eliminate that authority.
Mr. MUSKIE. The Senator is correct.
Mr. WILLIAMS of Delaware. There is an item under Treasury Department, "Foreign loans," $3,763 million, which includes the British war debt and others. Do I understand that agreement to the amendments would eliminate those from being sold?
Mr. MUSKIE. The Senator is correct.
Mr. WILLIAMS of Delaware. College housing has listed under the bill $1,927 million in notes. Could these be sold if these amendments are adopted? Would that amount be eliminated by agreement to these amendments?
Mr. MUSKIE. The college housing loan is $2,170 million.
Mr. WILLIAMS of Delaware. I have it listed as $1,927 million.
Mr. BENNETT. The Senator from Maine gave the Senator from Utah a listing of loans under HEW.
Mr. MUSKIE. College housing is under HUD.
Mr. BENNETT. Is it Federal National Mortgage Association, or is it HUD, including FNMA?
Mr. MUSKIE. It is this list here which I shall have printed in the RECORD later.
Mr. WILLIAMS of Delaware. Do I understand that college housing would not be eliminated by agreement to these amendments?
Mr. MUSKIE. That would be included under the program. Would it be helpful if I were to read the loans included in the amendment, or would the Senator prefer to proceed in his own way')
Mr. WILLIAMS of Delaware. I am trying to cover this list. The Department of Commerce has two items, $126 million and $109 million. The Defense Department has $79 million listed. Do I understand correctly that all three of those items would be eliminated?
Mr. MUSKIE. The Senator is correct.
Mr. WILLIAMS of Delaware. Would the $139 million in loans to District of Columbia be eliminated?
Mr. MUSKIE. The Senator is correct.
Mr. WILLIAMS of Delaware. I shall now recapitulate these items to be eliminated from the bill. That is $2,115 million, Commodity Credit Corporation; $4,072 million, REA; $8,997 million, AID, the State Department; $3,763 million, Foreign Loans, under Treasury Department; $126 million and $109 million, under the Department of Commerce; $79 million under the Defense Department; and $139 million under loans to District of Columbia. Would all of those amounts be eliminated if the amendments were agreed to?
Mr. MUSKIE. The Senator is correct. I think we have mutually identified the programs that the Senator is discussing, and, to the best of my knowledge, they would be eliminated.
I believe it would be helpful to list those programs that are covered.
Mr. WILLIAMS of Delaware. That would be of assistance. There were a few others such as the OEO, $17 million, and other miscellaneous items that I did not enumerate, all of which will be eliminated. However, it is my understanding that the total is approximately $21,500 million to $22 billion that would be eliminated by agreement to these amendments, and that would leave a little less than $11 billion in the bill if the amendment were agreed to. Am I correct on that point
Mr. MUSKIE. The Senator is correct.
Madam President, I ask unanimous consent that there be printed at this point in the RECORD a tabulation of the loans and other financial assets owned by Federal agencies which would be covered by the bill if amended by the pending amendment.
There being no objection, the tabulation. was ordered to be printed in the RECORD, as follows:
[LIST OMITTED]
Mr. WILLIAMS of Delaware, I thank the Senator. I think our tabulation is in agreement. I had not mentioned Department of the Interior reclamation loans of $90 million, which were eliminated. I merely wished to get the record straight, so that we would understand just what we have taken out of the bill and what we have left in.
To summarize it again, by accepting these amendments we will have reduced the total authority under this bill to sell Government assets from about $33 billion to between $10½ billion and $11 billion.
I thank the Senator from Maine for his cooperation. This is a major step in the right direction. I personally regret we cannot go further, because I still think this is a bad principle in financing. It is far more expensive to the taxpayer and does not give the American people the true picture as to the exact deficit; because, to the extent that even this $10 billion is sold, it will have the effect of reducing the national debt by that much, and it will also have the effect of reducing the reported expenditures. This is misleading the taxpayers as to the true expenditures.
For those reasons, I shall not support final passage of the bill. As I stated before, I opposed this legislation in principle when it was first proposed in 1959, and I oppose it today for the same reason. What is greatly needed in this country is more truth in Government, giving the American people the real truth as to the cost of their Government's operations.
I will not be a party of such deception as this bill proposes.
However, we have made progress by eliminating at least two-thirds of the original intended coverage of the bill; and for his cooperation in achieving that much, I again thank the Senator from Maine.
In this connection, Madam President, I ask unanimous consent that there be printed at this point in the RECORD an article appearing in the Washington Star, describing the recent sale of FNMA offerings, entitled "Record Interest Set for FNMA Offering," which points up rather dramatically the additional interest which this type financing will cost.
There being no objection, the article was ordered to be printed in the RECORD, as follows:
RECORD INTEREST SET FOR FNMA OFFERING
Federal National Mortgage Association today offered $250 million of 14-month, 5.3-percent secondary market operations debentures at 99 29/32 to yield 5.38 percent, highest yield in FNMA's history.
The issue will be dated March 10 and mature on May 10, 1967, and will be issued in coupon form only, in denominations of $1,000, $5,000, $10,000, $50,000, and $100,000.
Proceeds will be used to redeem $107,850, 000 of 3 ½-year 3.75-percent debentures maturing March 10, 1966, and to repay borrowings from the Treasury for secondary market operations.
The yield on today's offering is the highest borrowing cost in FNMA's history. The previous high of 5.35 percent was set in December 1959. The agency marketed $150 million of 1-year, 5-percent secondary market operations debentures last January 25.
Mr. WILLIAMS of Delaware. I also ask unanimous consent to have printed in the RECORD at this point an article appearing in the Washington Star of May 2, 1966, written by Mr. Eliot Janeway, entitled "Johnson Resourceful in Tax Alternative."
There being no objection, the article was ordered to be printed in the RECORD, as follows:
JOHNSON RESOURCEFUL IN TAX ALTERNATIVE (By Eliot Janeway)
NEW YORK. Whatever President Johnson's critics may fault him for they can't deny that he is resourceful. Certainly, the gimmick he's relying on as an alternative to higher taxes is an artful one. It calls for the sale of Government assets to private investors.
What puts the authentic L.B.J. stamp on this maneuver is that it gets the President off the horns of the trilemma confronting him. Horn No. 1 is fiscal: the rising cost of the Vietnam war has run the Government out of money, and it needs more than even the boom is bringing in at current tax rates.
Horn No. 2 is political. The rising cost of living and of doing business has alerted consensus-taking politicians to the danger of adding the higher cost of Government to the burden of inflation-pinched taxpayers. All hands agree, for example, that Johnson's political losses from plumping for emergency war taxes would erase most of his winnings from civil rights and related victories. The political answer to the fiscal question comes through loud and clear: If the administration needs money for Vietnam, any way to raise it is smarter and safer than by emergency taxes.
BORROWING IS PROHIBITIVE
Horn No. 3 is prestigious: The rising cost of money has made borrowing prohibitive for everybody -- including even the Government. To finance the war by borrowing would therefore be bad business, but it would also be bad public relations.
For Johnson has been building his image of prudent progressivism by pointing with pride to his modest budgetary deficits and by contrasting them with the Eisenhower and Kennedy deficits, which mushroomed into $12-billion failures of political finance. Neither the Eisenhower image nor the Kennedy image led the public to expect business management from either personality, and the temper of the times did not particularly require it.
But the public does expect Johnson to pass the pragmatic test and so does the emergency that has developed in Vietnam. A "Johnson deficit" in wartime of the proportions of the peak peacetime Eisenhower and Kennedy deficits would look bad, and it would be bad.
NEW TRIPLE PLAY
Hence L.B.J.'s shrewd new asset-selling triple play. It will get him off the hook fiscally by flooding the treasury with a bigger cash windfall than a preliminary war tax would have brought in. It will get him off the hook politically by finding the money needed for Vietnam without taking it from the taxpayers. And it will get him off the hook prestigiously because the substitute he has hit on for borrowing is selling, which means that the deficit won't go up even though billions will be raised without raising taxes.
Admittedly, financial purists will object that cash raised by the selling of assets is not bona fide income which balances expenditures and really, avoids deficits. But, in terms of the practicalities of political image merchandising, L.B.J. has pulled off another one of his miracles. He can continue to point with pride to his businesslike management, and the customers won't start complaining.
NOT TO JOHNSON
At least to him, for while the administration's new asset-selling device does get Johnson out of his immediate fiscal political and prestige trilemma, it does not get the economy out of the 1966 money squeeze. On the contrary, the administration's new money-raising deal will give the screw another turn -- in fact, the cruelest turn yet.
In order to make room in the liquidity-parched private sector for the billions in Government paper the administration proposes to dump on the money market, a suitable incentive will have to be provided. This means that the rate of return on Government-backed investments will have to rise again -- the column believes to above 6 percent and, quite possibly, to 6½ percent, an interest-rate level which Congress would never authorize the Government to pay on new issues. A 6- to 6½-percent rate on Government issues is a peril point rate for the entire economy, beginning with the already suspect stock market.
Mr. WILLIAMS of Delaware. The Janeway article outlines very clearly the reasons why this proposal was made in the first place, and points out the danger which can result from its adoption.
Again I thank the Senator from Maine for his cooperation. We have made progress as the result of the debate of the last 2 days. I only wish we could have convinced the administration to go the whole way, and defeat the measure entirely.
Mr. MUSKIE. Madam President, I wish to touch upon the questions raised by the Senator from Florida just briefly. I say at the outset, I appreciate the constructive nature of most of the discussion this afternoon. On occasion there has been more heat than light on both ,sides, which is understandable when we are dealing with a controversial question; but I think there is sufficient record for Senators' consideration and enlightenment, and I am grateful for the cooperation of the Senator from Utah [Mr. BENNETT] and the Senator from Delaware [Mr. WILLIAMS].
On the point raised by the Senator from Utah, I think it will be very useful for Senators reading the RECORD tomorrow to refer to the colloquy between myself and the Senator from Utah earlier in the afternoon, when he raised the question of to what extent, if any, the proceeds of the sale of these participation certificates could be used for new loans. I shall not undertake to repeat that colloquy, which was lengthy, but it reflected the fact that we have a diversity of programs with a variety of basic statutory authority, which precludes a simple "yes" or "no" answer to that question.
But I think it is possible to give a simple "no" answer with respect to the programs of the Farmers Home Administration, because a "no" answer is applicable. As I understand those programs, there is specific ceiling, or a specific authorization each year for each program for new loans. As the Senator from Utah will recall from the colloquy earlier in the day, it is my understanding that when that is the case, the proceeds of the sales of participation certificates cannot be used to enlarge the authority granted by such specific authorizations. Does the Senator from Utah recall that to be the substance of our discussion earlier, or at least my side of it?
Mr. BENNETT, The Senator from Utah does so recall it.
Maybe we could nail it down if I asked the Senator another question, Since it is the understanding of the Senator from Maine that the proceeds of sales of participations from programs of the type that depend on annual increments of lending authority cannot be used to increase that authority, what happens to the money from those participations? Does it go into the Treasury?
Mr. MUSKIE. Yes, it does.
Mr. BENNETT. The money from sales of those participations goes directly into the Treasury, and has no further effect on the lending capacity of the agency?
Mr. MUSKIE. Yes, through repayment by the agency of its obligations to the Treasury. To the extent that there is unused lending authorization, the funds can be used to implement that authorization, but cannot be used to add to the authorization.
Mr. BENNETT. I think that may help to clarify the point.
Mr. MUSKIE. Does the Senator from Indiana have a question?
Mr. HARTKE. Madam President, if I may ask the Senator from Maine, as I understand, when these participations are sold, instead of the money going back into the general fund for general purposes, the funds will be earmarked specifically for the agency from which the original amounts were taken into the pool. Is that correct?
Mr. MUSKIE. As a practical matter, the proceeds go to the Treasury, and they are credited to the agency.
Mr. HARTKE. Can they be used for other purposes?
Mr. MUSKIE. To the extent that they are not used by the agency legitimately and appropriately under its spending programs, for cash, and so on -- the same purposes for which money is otherwise obtained from the Treasury for the agency's spending programs -- they are available to the Treasury for the general cash needs of the Government, just as the proceeds of Treasury borrowing would be, the same way that postal revenues or cash from any source would be.
Mr. HARTKE. Then exactly the contrary is true; although the funds are earmarked for the agency, they can be used for any purposes whatsoever, as any other revenue going into the general fund?
Mr. MUSKIE. Not used as revenue. As cash that is available. It is available in asset form one minute, and in cash form the next minute. It is available, as cash, for general purposes.
Mr. HARTKE. The difficulty arises because there is no capital budget; I understand that. But my understanding was that the funds would be earmarked by the Treasury for the agency involved. That is not true, then; there is not even a separate account established within the fund itself ?
Mr. MUSKIE. There are bookkeeping accounts between the agencies and the Treasury now, on which the proper entries would be made, as I understand it. The agency, however, has additional borrowing authority available for future use when needed.
Mr. HARTKE. Yes. There are separate accounts kept now for them.
Mr. MUSKIE. Well, the entries would be made on those separate accounts.
Mr. HARTKE. But can the funds be withdrawn from that account, under the authority of this bill?
Mr. MUSKIE. Whenever an agency needs cash to carry on its program, I assume it goes to the Treasury for that cash from its unused borrowing authority. This cash will have been commingled; it is available, the same as any other cash.
Mr. HARTKE. Of course, this is merely a bookkeeping transaction, and the whole purpose is to obviate the necessity of increasing the debt limit?
Mr. MUSKIE. I do not agree with that. If I may state it very simply -- and that is the only way I can state these issues -- it is this: We have here some assets, and they are assets that were charged off, when they were acquired, as though they were operating expenditures of the Government. Those budget dollars, which were not really expenditures and never will be, or at least 90 percent of them never will be really expenditures of the Government, are frozen. They cannot be used, and the money cannot be spent for any other purpose.
So now the intent is to take private dollars and substitute for those budget dollars, so that we can use them. Since we have charged -- and I think improperly -- the initial loans against our spending or operating budget, when we recover the proceeds of such a loan, it seems to me we have a right to offset that figure, which was placed against the budget, with an offsetting receipt.
That is what it amounts to.
(At this point Mr. INOUYE: took the chair as Presiding Officer.)
Mr. HARTKE. Not correspondingly listing, though, an increase in the national debt as a result of selling these participations.
Mr. MUSKIE. Not now, when we sell this loan paper directly, which we have authority to do and which we have been doing for over a decade.
Mr. HARTKE. I understand.
Mr. MUSKIE. When we sell these loans directly and get the proceeds of them, this reduces our borrowing requirements.
Mr. HARTKE. Let us come back to this point: The truth is, if we did not sell these items, we would have to do one of two things; namely, either tax the people in order to raise additional funds, or borrow funds, or borrow the money to make a direct dollar-for-dollar transaction, so far as the public is concerned.
Mr. MUSKIE. The Senator poses a question as though, somehow, this was an alternative to those two.
Mr. HARTKE. I think there is more to it than that.
Mr. MUSKIE. There must be an alternative, a proper transaction to recover for which the dollars have been tied up.
Mr. HARTKE. But if we did not take this alternative, we would either have to increase taxes or increase the deficit, dollar for dollar.
Mr. MUSKIE. I would not say that necessarily follows. If we wish to follow that line of argument, I can accept that precise analysis, but I will say, if it were not done, the alternative would have to be to request borrowing from additional sources to get revenue. But to say, dollar for dollar, it would be exactly the same, I am not prepared to accept that conclusion.
Mr. HARTKE. It seems more expensive, because we pay a premium
Mr. MUSKIE. There is another alternative which is more expensive, and that is direct sales of assets, which we have authority to do without legislation. That is more expensive.
Mr. HARTKE. The point is, if we move in this fashion, we are bound by the 4¼ percent interest limitation.
Mr. MUSKIE. We can borrow in the short-term market, if we wish to pay interest rates.
Mr. HARTKE. I understand.
Mr. MUSKIE. We are talking about alternatives available to us under existing law.
Mr. HARTKE. This is an expensive alternative.
Mr. MUSKIE. It depends on what we call expensive. There has been considerable discussion in the last 2 days of what the spread is. If we are talking about long-term Treasury borrowings,
which we cannot make -- under existing circumstances -- in law, then we are limited to short-term Treasury borrowings. Thus, we are comparing the results of short-term Treasury borrowings and long-term maturities on participation certificates which may very well be less expensive than Treasury borrowings.
Mr. HARTKE. I believe that perhaps the Senator from Maine is right, for the reason that the Treasury has boxed itself into this position. That is why I intend to support the bill, because it is the only alternative to getting out of a bad situation.
Last week, the Federal Reserve System stated that money is as tight as it has ever been. This is reflected in the current newscasts coming over the ticker this afternoon. I have seen three items within the spread of about five situations here. One of them is the announcement by General Motors that they are cutting back drastically in the production of their automobiles. The second is that there is a renewed wave of selling which clobbered the stock market, and the third is that FNMA stated tonight that it purchased a record $797.8 million in mortgages during the first 3 months of this year because of the tight money market.
Mr. President, this tight money market which has been instituted by the Federal Reserve Board under William McChesney Martin has gotten the Treasury Department into a tight squeeze. I am interested in helping out . However, the real answer is to go back to the Federal Reserve and start talking sense to them down there. When that has been done, perhaps we can start going in the right direction. The difficulty is, these are very bad signs. I do not know what caused them. I am not going to say that they are the result of tight money. The items on the ticker, Nos. 153, 154, and 155, to which I have referred, may be some of the things to which the administration was referring as some of the horizons which were not too bright.
Let me assure the Senator from Maine that I intend to support the measure, but I believe that the policies being pursued at the present time can only aggravate the situation.
Let me ask one more question of the Senator from Maine: When they attempted to sell the export-import issues, approximately $750 million, and the subscription was for less than half of that amount, is that true?
Mr. MUSKIE. I do not have the answer. I would have to get that.
Mr. HARTKE. Let me say that it is true; that I know it is true.
Mr. MUSKIE. Then the Senator should not have asked me that question.
Mr. HARTKE. The point is, I wanted to state that as a premise for my question.
Mr. MUSKIE. I assure the Senator, I am not trying to embarrass him.
Mr. HARTKE. Of course not. I am not trying to embarrass the Senator from Maine, either. I know the answer to the question, which I asked in the Finance Committee.
Admitting that this is true, and I have the record in my hand, if the Senator from Maine would like me to read it, the point is that to the extent they were not sold, the Secretary of the Treasury indicated it would increase the deficit of the United States to that amount -- to the extent of $350 million. Is this true? Let me go ahead and say that it is true, and I will answer the question. The point is, if we do not wish to sell the $4.7 billion, where are we going to get the money, then?
Does the Senator have any suggestions or, that?
Perhaps that question should be left unanswered. I think probably that is the best way to leave it.
Mr. MUSKIE. I thank the Senator from Indiana.
Mr. HARTKE. Mr. President, I ask unanimous consent to have printed in the RECORD the three items, Nos. 153, 154, and 155, which came over the Senate's ticker this afternoon.
There being no objection, the material was ordered to be printed in the RECORD, as follows:
[No. 153]
DETROIT.-There had been previous slowdowns or shutdowns in various GM units, but these were due to things like supplier strikes or a railroad strike.
Disclosure that three GM plants -- Chevrolet in Ypsilanti, Mich., and Van Nuys, Calif., and a GM assembly plant in South Gate, Calif -- worked only 3 days this week, while an Atlanta, Ga., plant was on 4 days, came as a surprise to the rest of the industry.
American motors has been plagued by such shutdowns in recent months but it worked a regular 5-day week this time while GM was having difficulties. Chrysler was on a 5-day week and Ford had 10 of its 17 assembly plants listed for overtime work this Saturday.
GM's cutback announcement came shortly after reports of the four auto companies showed April sales totaled 761,606 cars, off the 799,102 April pace of a year ago.
Sales for the opening 4 months of the year were 2,963,292 cars, again behind the 2,991,609 units sold in the comparable 4 months last year.
[No. 154]
NEW YORK. -- A renewed wave of selling clobbered the stock market late today, knocking it down to its lowest level of the day at the close.
A heavy wave of selling was triggered initially by news of General Motors production cutbacks. That, combined with confusing statements from Washington about the possibility of a tax boost, were cited as factors in the decline.
The day began with a moderate rally but the GM news reversed this.
[No. 155]
WASHINGTON.-The Federal National Mortgage Association said tonight it purchased a record $797.8 million in mortgages during the first 3 months of this year because of the tight money market.
Value of the 61,739 mortgages was almost double the previous record set during the last 3 months of 1965, FNMA reported.
First quarter purchases of mortgages guaranteed by the Veterans' Administration or insured by the Federal Housing Administration compared with the sale of only six mortgages, valued at $62,000, FNMA said.
During the October-December quarter of last year, Fannie Mae bought 34,271 mortgages for $405.4 million.
In its secondary market operations, FNMA buys FHA and VA mortgages when mortgage money is scarce on the private market. The money Fannie Mae pays private lenders for the mortgages is in turn used by the mortgage bankers for new loans.
Fannie Mae sells mortgages to private lenders when mortgage money is plentiful.
The PRESIDING OFFICER. The question is on agreeing en bloc to the amendments of the Senator from Maine [Mr. MUSKIE].
The amendments were agreed to en bloc.
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. MANSFIELD. Mr. President, I ask unanimous consent that the order for the call of the quorum be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. HRUSKA. Mr. President, I rise in opposition to the proposed Participation Sales Act of 1966.
S. 3283 would establish a new means of refinancing Federal spending which will be costly, which will deceive the American taxpayer as to the true status of the financial condition of the Government, and which will have far-reaching implications for the future conduct of governmental activities.
The purported objective of this legislation is to promote private financing of governmental credit needs and to replace public credit with private funds. The bill would authorize participating departments and agencies who presently have direct loan programs to enter into trust agreements with the Federal National Mortgage Association whereby FNMA would sell participation certificates based on a pool of Federal loans. These certificates would be sold to the investing public at prevailing market interest rates.
HIGHER INTEREST RATES
Mr. President, there are numerous reasons why this bill should not be enacted.
First is the fact, openly conceded by the measure's proponents, that this bill would mean increased cost for Government borrowings. The following table appears on page 20 of House Report No. 1448.
Mr. President, I ask unanimous consent that this table be printed 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. HRUSKA. Mr. President, this table indicates very clearly an interest rate differential average one-half of 1 percent over current Treasury borrowings.
This differential will mean added and unnecessary borrowing costs amounting to $5 million per year for each billion dollars of participations sold.
BUSTED BUDGETS CAN BE BALANCED
S. 3283 would establish a new system of subsidized financing, the main effect of which will be an effort to turn def icits into surpluses.
For example, let us consider the pending budget for fiscal year 1967. The administrative budget for fiscal 1966 contemplates a budget deficit of $1.8 billion. However, to achieve this low figure the administration proposes to sell $4.7 billion of its financial assets. Over $4 billion of this so-called sale is to be achieved by participation sales. The proceeds, since they will be reported as "income" though in reality a liquidation of capital assets, will then be used to offset expenditures that otherwise would have to appear in the budget. This means that, if these sales are not made, the budget deficit would be $6 billion in place of $1.8 billion. By using the scheme contemplated in this bill, the administration could easily have wiped out its $1.8 billion deficit and could have come to Congress indicating that we would have a surplus rather than a deficit. All that would be necessary was to have a projection of additional participation sales amounting to $1.8 billion.
In other words, we are merely authorizing bookkeeping juggling and manipulation to make a mockery of the administrative budget.
DECEIVING THE PUBLIC ON THE DEBT
In the same fashion in which budget expenditures can be juggled, the same technique can be applied to the Federal debt limit.
To be sure, the Government would still have the indebtedness represented by the participation certificates of FNMA. However, these certificates are outside of the Federal debt limit. Thus, by using the unlimited authority of FNMA to draw on the U.S. Treasury to finance these borrowings, significant portions of the Federal debt can be refinanced and taken outside of the Federal debt limitation.
INCREASED FEDERAL SPENDING
With deficits being converted to surplus and pressures being taken off Government spending to be within current debt limitations, the way would be cleared for more and more Federal spending in all areas to take up the slack left by this phony financing. There would be an open invitation to Congress to support spending programs which would otherwise be eliminated or substantially reduced.
THE REPUBLICANS DID IT -- WHY CAN’T WE?
Mr. President, proponents of this bill have argued that the proposal here is nothing more than an extension of practices inaugurated by the Eisenhower administration. It is true that in fiscal year 1960 FNMA did exchange $311 million of its low interest mortgages for $316 million of nonmarketable Treasury investment bonds owned by the public, but this was a straightforward action in which the mortgages were sold on a competitive bid basis and paid for by bonds held by investors. The bonds acquired by FNMA were then turned over to the Treasury and canceled. Treasury then reduced FNMA's indebtedness by a like amount. There was no circumvention of the budget in this transaction. Incidentally, in the Senate the Democratic majority passed a resolution which expressed its disapproval of the plan.
Proponents of this measure also cite a House Ways and Means minority report of 1963 and indicate that the Republican signatories of that report endorsed this kind of financing. However, there was a significant and very vital difference. The comments in that report were directed at actual sales of marketable assets. No comments were directed to the so-called participation sales. The House Republicans did not endorse this program then and they are vigorously opposed to the program now.
HASTY ACTION
Mr. President, this bill is being ramrodded through Congress with only the scantiest of consideration being given to it. One day of hearings was held in the House committee. Only two administration witnesses were heard. No representatives of the commercial financial world were heard nor were their views solicited. Essentially the same tactic was followed on the Senate side. A Senate committee hearing was held on April 26 in which two administration witnesses were heard. On the following day, S. 3283, the subject of the hearing, was introduced. On the following day, April 28, another hearing was held in which two witnesses were heard. The only industry witness testifying in either House of Congress on the bill presented his statement with less than 1 hour's notice.
S. 3283 was ordered reported from the Senate committee on the same day. So here we have the spectacle of a bill involving billions and billions of dollars, affecting multifarious Federal lending programs, being given less consideration by Congress than most persons give to buying a used car. A total of about 3 hours of committee hearings served as foundation for reporting the bill.
Mr. President, for the reasons I have indicated, I cannot in good conscience support this measure.
Mr. HARTKE. Mr. President, today we are being asked to consider the Participation Sales Act of 1966, S. 3283. As Under Secretary of the Treasury Joseph Barr said in his testimony before the Senate Banking and Currency Committee:
This bill would provide an efficient and orderly method for liquidating financial assets held by Federal credit agencies and would help to promote private financing of Federal credit programs.
To me, this particular piece of legislation represents a major and permanent change in the method of financing the operations of the Federal Government.
And because this legislation does represent such a change, I feel there is an uncertainty as to the intent and purpose of the bill, as well as its timing and effect upon our national economy.
I can see the sale of these participations as having a twofold effect upon our national budget. The first being in the field of revenue. Beginning in fiscal 1967 some $4.7 billion worth of participations of pooled Government loans will be sold to the private sector of the economy. This means that almost $5 billion in revenue will be coming into the general fund of the Treasury.
At first I questioned the intended use of these funds. I waited to be sure that the funds received from the participation sales would not be used for other purposes, for example, helping to finance the war in Vietnam.
But Treasury officials have made assurances that if the Small Business Administration or the Veterans' Administration, or any of the other lending groups that are pooling their loans are successful in selling these participations, then the money received from the sales will be credited to their account in the general fund.
It is our duty to make sure that the Congress does not lose control of the expenditure of these funds. Because, after all, gentlemen, we are talking about almost $5 billion in ready cash that could be used for any purpose. But, as I stated above, the Treasury Department assured me that these funds will be credited to the accounts of the Small Business Administration, or the VA, or the FHA, for their use only.
The second effect the sale of these participations would have upon the budget is in the realm of bookkeeping. When you sell $4.7 billion worth of participations in Government guaranteed loans, you immediately decrease the loan liability you carry on your books by a like amount. This means that the contingent liability side of the Federal budget will be decreased by almost $5 billion. You have not actually lost the liability you undertook when you guaranteed these loans, but in effect you have passed that liability on the buyers of the participations in the loan pools. And incidentally, you have also decreased any prospective deficit in the budget by a like amount.
As I understand the procedure outlined in the bill relating to the sale of the participations, the buyers of the participations will be paid bad their principal and interest as the Government is paid the principal and interest on the loans in the pool.
Since these participations are not backed by the full faith and credit of the Federal Government, the private investor assumes some risk when he buys one. For this reason the participations will have to be made attractive to the private investors. How attractive I would not want to guess. All I can do is recall the statements of the Secretary of the Treasury Fowler when he appeared before the Finance Committee to testify in behalf of the Tax Adjustment Act of 1966. Our discussion centered around an attempt by the Export-Import Bank to sell some $700 million worth of their own participations. I would like to read that portion of the testimony into the RECORD:
Senator HARTKE. NOW, we have just gone through a nice experiment on that with the Export-Import Bank situation.
Secretary FOWLER. We have found the Export-Import Bank -- they offered $700 million of participation at a rate of 51/2 percent to commercial banks, and a little more than half, $360 million, was taken up by the banks.
Senator HARTKE. This was for 18 months, is that not correct?
Secretary FOWLER. Put-and-call feature at that point.
Senator HARTKE. Put-and-call feature at 18 months and the rate was 51/2 percent?
Secretary FOWLER. Correct.
Senator HARTKE. Which is a substantially high rate for this type of obligation.
Secretary FOWLER. It was higher than it had been through-
Senator HARTKE. Higher than we had ever offered before, and yet the public response to that was less than half; is that not true?
Secretary FOWLER. That is right.
Senator HARTKE. Now, how do you account for that?
Secretary FOWLER. Money is tight.
Senator HARTKE. Money is tight, is it not; very tight and getting tighter?
Secretary FOWLER. Well, money is tight. Whether it is getting tighter or not is a judgment I will not make.
Senator HARTKE. 'Now, is money tight partially as a result of the action of the Federal Reserve Board in your opinion?
Secretary FOWLER. I think that the primary cause of the tightness of money is the greatly increased requirements for credit and the desire for credit on the part of many elements in the economy.
Senator HARTKE. Some places are rationing credit; is that not true?
Secretary FOWLER. As we both know, the policies of the Federal Reserve Board in handling the various facets of monetary policy have a very important and significant relationship to the tightness of money. Therefore, in a sense, you could say the total complex of policies of the Federal Reserve Board against the background of the very large demand for money result in what we call a tight money situation.
Senator HARTKE. Now, as a result of this offering only being partially sold, this was quite a disappointment to the Treasury, was it not really?
Secretary FOWLER. I would not characterize it as quite a disappointment. The Export-Import Bank went out trying to find a market for this paper. We were willing to sell under the terms that Mr. Linder announced. We were willing to sell and would have been pleased to sell $700 million. We did not have the expectation that the total amount would necessarily be sold.
Senator HARTKE. Well, now, how much of this $4.7 billion does the Treasury anticipate that it will not be able to sell?
Secretary FOWLER. I have no estimate of that as of now. This looks ahead for 18 months and I do not know what the situation in the market will be during that 18-month period.
Senator HARTKE. Now, back on this $4.7 billion. As I understand, you said now, just to get us back where we were, at this time it is impossible to say whether or not the participation will meet the same fate as the $700 million offering of the Export-Import Bank.
Secretary FOWLER. That is right. Although it would certainly be our expectation that we would be able to market the securities on suitable terms between now and June 30, 1967.
Senator HARTKE. Does the Secretary anticipate that they will have to be offered at a higher rate than the 51/2 percent?
Secretary FOWLER. I have no anticipation along that line, one way or the other,
Senator HARTKE. Or at a shorter term?
Secretary FOWLER. I have no anticipation along that line either.
Senator HARTKE. But if you wanted to make them more attractive, that would be one
Secretary FOWLER. One way to
Senator HARTKE. One of two ways to approach that situation.
Secretary FOWLER. That is correct.
In keeping with the matter at hand, I note on page 43 of the hearings before the Senate Banking and Currency Committee that the largest single item making up the $4.7 billion of participations to be sold are Export-Import Bank loans of $975 million. The money market conditions in effect at the time of the tax hearings have not changed. In fact, they have gotten worse. And yet the
Treasury Department continues to ignore these warning signs of high interest rates and continues to compound the difficulty.
So this brings up the question of how attractive the participations will have to be made in order to sell them. And also how much of an additional interest cost will have to be borne by the taxpayer. The New York Times estimated that it would cost the Government between $30 - $44 million over the next 2 years, and the interest cost would continue to grow as more of the participations are sold.
The overall questions raised by the increase in interest rates last December 6, 1965, is a separate matter, but one which should nevertheless not be ignored in this context.
But what I wanted to stress here today is that these participations will have to bear a premium interest rate to be sold. A rate far in excess of the interest being earned on the loans in the pool. In drafting the bill, the administration has attempted to cover this "interest gap" by obtaining the approval of the two Appropriations Committees for the added interest costs prior to the sale of the participations. it seems unfortunate that the Government has worked itself into a position where it has to pay literally exorbitant interest rates to sell its obligations.
And finally, what effect will these sales have upon the availability of funds in the money market? Money is the tightest since the end of the Eisenhower recession back in 1960, according to the Federal Reserve Bulletin. Rather than ease the strain upon the availability of funds in the United States, the administration seems intent upon further restriction of that supply. This is what the sale of these participations will do. We have already enacted the corporate speedup on income tax payments, and the speedup of personal income tax withholding which helped to dry up available funds. Now, on top of the already overburdened money market operations, the passage of this bill removes $4.7 billion of available funds out of the private sector for use in the public sector.
This further constriction of the funds available to the private sector can only result in higher interest rates. It is a never ending upward spiral being encouraged by the actions of the Federal Reserve Board and the Treasury Department.
Mr. HART. Mr. President, the able Senator from Maine [Mr. MUSKIE] has developed clearly the issues drawn by the pending proposal, as now amended. The bill has my support. I believe there is value in reading the editorial in the Newark Evening News on the President's request for permanent authority to broaden private participation in the Government's multibillion loan business.
The paper points out that this "would not be an innovation in Federal finance," and adds that "sale, on a limited scale, of Government financial assets originated in the Eisenhower administration and has since been national policy."
It is the opinion of the paper that "the pool sales certainly would have an anti inflationary affect by draining off several billions from the economy."
The editorial bears on the issue and, I ask permission of my colleagues to include the article in its entirety in the RECORD.
There being no objection, the editorial was ordered to be printed in the RECORD, as follows:
[From the Newark (N.J.) Evening News, Apr. 23, 19661
U.S. LOAN POOL
President Johnson's request to Congress for permanent authority to broaden private participation in the Government's multibillion loan business would not be an innovation in Federal finance. Sale, on a limited scale, of Government financial assets originated in the Eisenhower administration and has since been national policy.
The administration's purpose is to expand the sales. The legislation would authorize creation of a giant pooling of Government holdings in about 100 lending programs. Participations in the pool would be sold to individual investors, as well as financial institutions such as banks and insurance companies.
The pooled loans would include those made for a variety of purposes, among them private housing, education, college dormitories and small businesses. The device is already in use by the Veterans' Administration, Federal National Mortgage Association, and the Export-Import Bank.
Mr. Johnson's hope to sell $4.7 billion of loans through the pools in the next fiscal year may, however, be delayed in Congress which is split on the proposal along party lines. His explanation that the sales would "permit us to conserve our budget resources by substituting private for public credit" is precisely the reason a number of congressional Republicans have attacked the plan.
They see the proposal as a bookkeeping expedient to make his budget look good. In effect, proceeds from the pool sales would show up as a reduction in Federal expenditures. Thus, instead of the $6.5 billion deficit Republican critics now foresee for the budget, the red ink could amount to only $1.8 billion as Mr. Johnson estimated in January.
Another major objection is the added cost to taxpayers. Presumably the pool participations will be sold at a higher rate of interest than the original loans. The most recent sale of FNMA certificates, for example, provided yields up to 5½ percent.
Republican objection to the higher interest rate is not quite according to form. In surprising contrast, is acceptance thus far of Mr. Johnson's proposal by the cheap money bloc led by Representative WRIGHT PATMAN, of Texas, chairman of the House Banking Committee.
If Mr. Johnson succeeds in keeping the deficit down by means of the pool sale, or even the simple method of reducing actual spending, he would, of course deprive the GOP of an issue in the November election. Yet whatever virtues or shortcomings his proposal may have, the pool sales certainly would have an anti-inflationary effect by draining off several billions from the economy.
Mr. MUSKIE. Mr. President, I ask unanimous consent that the amendment on page 2, just adopted, be reconsidered, so I may propose a modification.
Mr, WILLIAMS of Delaware. Mr. President, I ask unanimous consent that there be an order to offer the amendment.
The PRESIDING OFFICER. Without objection, it is so ordered.
The adoption of the amendment is reconsidered.
Mr. MUSKIE. Mr, President, I would like to modify the amendment that we adopted, on page 2, which listed the programs specifically which would be included under the provisions of the bill that has to do with Partners Home Administration loans, to restrict them to loans for farm ownership, rural housing, and crop production.
The PRESIDING OFFICER. The clerk will report the change.
Mr. WILLIAMS of Delaware. Mr. President, will the Senator yield for one question?
Mr. MUSKIE. I would be happy to yield to the Senator.
Mr. WILLIAMS of Delaware. I will state the objection.
The PRESIDING OFFICER. The modification of the amendment will be stated.
The LEGISLATIVE CLERK. In the amendment on page 2, subsection 2, fol lowing the words "Farmers Home Administration," it is proposed to delete the semicolon and insert the following: "(with respect only to loans for land acquisition, rural housing, and crop production) ; ".
Mr. MUSKIE. I yield to the Senator from Delaware,
Mr. WILLIAMS of Delaware. Mr. President, it is my understanding that this will further restrict the authority and reduce it somewhat from the $10.9 billion.
This is a further restriction, and, therefore, I congratulate the Senator. I hope that we can restrict it further. However, this is a step in the right direction.
Mr. MUSKIE. I thank the Senator.
Mr. HOLLAND. Mr. President the Senator from Florida has mixed feeling about this, but he has only agreed to this amendment, so far as he is concerned.
This would restrict the hypothecation of paper in the hands of the Partners Home Administration to that acquired by reason of direct loans only for three traditional and normal activities of the Farmers Home Administration; namely, land acquisition, crop production, and rural housing.
That leaves out the emergency loans which are approximately $100 million right now. It leaves out soil and water loans which are small in amount now, but which the agency is trying to increase greatly in scope of activity.
It leaves out loans for recreational development. It leaves out all other, what I would call, untried experimental loans that are being made, such as housing for elderly, and other type loans which really are new and untried, or have no legitimate connection with agriculture.
Mr. HRUSKA. Mr. President, will the Senator yield?
Mr. HOLLAND. I would like to have the Senators understand two things. First, this agreement is made only for myself; and, second, I recognize the fact that this leaves three of the largest groups of securities under the coverage of the bill.
I think there is more case for leaving those three under the bill. That is the reason why I have agreed to do it.
I wish to put a note of warning in the debate at this time. It is my belief it will be found that this class of securities will not be highly useful when it comes to hypothecation. I remind the Senate that every dime recommended by the Farmers Home Administration in its traditional activities is on a substandard loan.
In other words, if a person who wishes a loan can get it from a commercial bank he cannot borrow from Farmers Home Administration.
If he can get it from Farm Credit Administration he cannot borrow from the Farmers Home Administration. That being the case, everybody knows that their portfolio of securities is a portfolio of substandard securities, and I think it is the least useful one of the group of securities included in the provisions of this very broad bill.
I am willing for the Farmers Home Administration to remain in the bill, provided the activities in the bill are limited to these three traditional fields of operation.
Mr. HRUSKA. Mr. President, will the Senator yield?
Mr. HOLLAND. I yield.
Mr. HRUSKA. What type loan is included in the category "land acquisition"?
Mr. HOLLAND. My understanding is that it would include the original Bankhead-Jones purpose loans of helping a tenant acquire his farm and later extension of that under which small farmers have been helped to enlarge their holdings to reach an economic size for production.
That is my understanding. If the Senator from Maine has a different understanding I would be happy to have him state it.
Mr. HRUSKA. Would it be for agricultural purposes as opposed to newer purposes of land acquisition?
Mr. HOLLAND. My purpose and hope was to confine it to traditional activities for agricultural purposes. I do not know if that is the word. It is limited to that. We could not get a copy of the bill.
I am willing to state for the record my understanding of the amendment.
This would confine it to land acquisition. It would confine the paper to land acquisition that is within the original scope of helping the tenant to acquire his farm or helping him to enlarge his uneconomical farm. It is not for recreational use or those uses not within the original purview of the Farmers Home Administration.
Mr. HRUSKA. That description as part of the legislative history will be helpful.
Mr. HOLLAND. I can speak only for myself. If the Senator from Maine has a different point of view, he can explain it.
Mr. MUSKIE. The Senator from Florida stated my understanding of the provision. It includes farm ownership loans, direct operating loans, and rural housing loans.
The PRESIDING OFFICER. The question is on agreeing to the amendment, as modified.
The amendment, as modified, was agreed to.
The PRESIDING OFFICER. The bill is open to further amendment. If there be no further amendment to be proposed, the question is on the engrossment and third reading of the bill.
The bill (S. 3283) was ordered to be engrossed for a third reading.
The bill was read the third time.
Mr. DIRKSEN. Mr. President, is a rollcall now in order?
The PRESIDING OFFICER. Yes.
Mr. DIRKSEN. Have the yeas and nays been ordered?
The PRESIDING OFFICER. Yes.
PARTICIPATION SALES ACT OF 1966
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. LAUSCHE. Mr. President, in 1959 1 voted against a proposal substantially identical to the one that is before the Senate tonight. President Eisenhower sought to dispose of capital assets in order to procure liquid dollars with which to operate the Government. His program was opposed. I voted against his proposal because I thought it was unsound to sell capital assets in order to finance current operations. Today, President Johnson is asking for the same right that was embodied in the program of President Eisenhower in 1959.
I voted against the proposal of President Eisenhower, and I shall vote against the proposal of President Johnson. I disagree with the proposal that it is possible to finance current operations by selling capital assets. It is wrong in the home, it is wrong with the individual, and it is wrong with Government.
The PRESIDING OFFICER. The bill having been read the third time, the question is, shall it pass? 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 39, nays 22, as follows:
[ROLL CALL VOTE LISTING OMITTED]
So the bill (S. 3283) was passed.
Mr. MUSKIE. Mr. President, I move to reconsider the vote by which the bill was passed.
Mr. MANSFIELD. Mr. President, I move to lay that motion on the table.
The motion to lay on the table was agreed to.
Mr. MANSFIELD. Mr. President, the distinguished junior Senator from Maine [Mr. MUSKIE), handled the participation sales measure with skillful and articulate advocacy of the highest order.