Bypassing the Budget

One of the most pronounced characteristics developed by the Eisenhower Administration is an especial affinity for dreaming up esoteric financial strategems which make it possible for the government to dip into the nation’s private long-term savings for federal spending outside the legal budget. Probably the most common of these is the “insured loan.” What the government does is develop new programs for achieving various ends through loans from insurance companies, banks and pension funds. The lending institution is induced to make a loan for a longer period, in a greater ratio of value, for a lower rate of interest solely because of government insurance which protects it against any loss of principal or interest in the event of a default.

In a free market this kind of loan would not be made. Furthermore, the state or federal authorities which supervise banks and insurance companies would not ordinarily permit them to make such liberal loans without the safeguard of government insurance. This development, of course, is not new with the Eisenhower Administration. Roosevelt first introduced the idea with the Federal Housing Administration plan to force out a large volume of housing mortgage money on terms much easier than were ever available before. Where the Eisenhower team has shone is in the initiative with which it has developed this strategem. There is a vast difference, for example, between a loan up to only 80 per cent of the cost of a house, with a twenty-year repayment period, and a loan up to 100 per cent of its cost, with a forty-year repayment term.

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Lawrence Stafford

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One of the most pronounced characteristics developed by the Eisenhower Administration is an especial affinity for dreaming up esoteric financial strategems which make it possible for the government to dip into the nation’s private long-term savings for federal spending outside the legal budget. Probably the most common of these is the “insured loan.” What the government does is develop new programs for achieving various ends through loans from insurance companies, banks and pension funds. The lending institution is induced to make a loan for a longer period, in a greater ratio of value, for a lower rate of interest solely because of government insurance which protects it against any loss of principal or interest in the event of a default.

In a free market this kind of loan would not be made. Furthermore, the state or federal authorities which supervise banks and insurance companies would not ordinarily permit them to make such liberal loans without the safeguard of government insurance. This development, of course, is not new with the Eisenhower Administration. Roosevelt first introduced the idea with the Federal Housing Administration plan to force out a large volume of housing mortgage money on terms much easier than were ever available before. Where the Eisenhower team has shone is in the initiative with which it has developed this strategem. There is a vast difference, for example, between a loan up to only 80 per cent of the cost of a house, with a twenty-year repayment period, and a loan up to 100 per cent of its cost, with a forty-year repayment term.