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n. Illinois | I read Mr. Harl's piece from front to back.
He on page 20 & 21 talk about the Farm Credit system and how quickly its net worth disappeared ( he calls it Reserves ) it went from 11.8 Billion in 1984 to 5.6 billion in 1986 (just two years and it got cut in half) and decline even more into 1988 when the Farm Credit Bailout was approved by Congress. I was there at the time. A lot of the decline in net worth was self imposed by the system itself to make it look broker than it really was.
From about 1986 on till the bail out we were going through and re-evaluating a farm's value every quarter based upon what we were seeing going on in your local land market. IE if land prices had declined 5% from last quarter then every farm we had a mortgage on lost 5% of its value in this paper exercise; this then resulted in a lot of loans where we had more money loaned on the farm than the farms current value if we were to get it back. So the big wigs in power then used this to justify massive write downs which comes right out of the net worth of the organization as all of the loan loss reserves had been written off by the end of 1983.
The PCA I worked at wrote off enough loans in the 4th quarter of 1982 to eliminate all of the loan loss reserves that they had accumulated in their 1st 50 years of being in business. So any future loan losses had to come out of the earnings being earned at the time. resulting in much higher interest rates to the borrowers.
Anyway they manufactured their financial reporting to reflect that if they were to get all of these farms back and if they had to sell them into the current land market that they would suffer a horrible losses and were insolvent. So Congress passed the bailout bill in 1988 (I believe it was a 3 billion line to the treasury that they could borrow on) Magically the requirement to reevaluate every farm every quarter ended. Then they took the next 2-3 years to re captured losses that they had written off and now claimed that they would not suffer solving their financial crises and I do not think they ever tapped the treasury for the full 3 billion and whatever they did borrow was fully paid back in a few short years.
You have to know that this was done on every farm and even if you had current financial information on the borrower and even if the borrower had never missed any payments and his information told you that he would never miss any payment If you had loaned $1500/ac on $2500/ac ground at the time the loan was made and now it was $1400/ac on $1000/ac you were reporting a $400/ac loan loss write down. Again he never missed any payment and you knew based upon his financial he would never miss any payment ever.
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Lessons we learned twice last century
