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Washington, D.C. — Today the Center for American Progress released a report finding that the U.S. government is very effective at managing risk in loans and loan guarantees. The analysis, entitled "Managing Taxpayer Risk," finds the majority of government credit programs actually cost taxpayers less than originally estimated, not more.
“Conservative critics often portray a world in which government bureaucrats haphazardly issue loans and loan guarantees without considering taxpayer exposure to risk. Our analysis overwhelmingly proves that is simply not the case,” said John Griffith, co-author of the report and Policy Analyst at the Center for American Progress.
Among other things, the U.S. government’s federal credit programs help college students afford tuition, first-time homebuyers access affordable mortgages, and budding small businesses get the capital they need to expand. The report explains how the government prices credit risk in the federal budget, how well those cost estimates have reflected reality over the years, and why the government is in a particularly good position to assume certain types of risk.
Richard W. Caperton, co-author of the report and Director of Clean Energy Investment at CAP, added, “While opponents of federal lending have latched onto Solyndra’s high-profile bankruptcy as evidence that the government can’t manage risk, the data says the exact opposite. Attacks on federal credit are misguided, and the consequences of scaling back cost-effective credit programs would heavily impact some of our most vulnerable populations and critical industries.”
The report reviews federal government credit programs back to 1992. The analysis shows that on average the government is quite accurate in its risk pricing. In fact, the majority of government credit programs cost less than originally estimated, not more.
Key findings from the report include:
- Based on initial estimates over the past 20 years, the government expected its credit programs to cost taxpayers 79 cents for every $100 loaned or guaranteed. Based on recently updated data, those cost predictions were reasonably accurate but slightly underestimated. The current budgetary impact of these programs is about 94 cents per $100 loaned or guaranteed.
- There is little evidence that credit programs are biased toward underpricing risk. In fact, a little more than half of all nonemergency federal credit programs will cost the government less than what they are expected to over the life of the program.
- The remainder is accounted for by the losses suffered by the Federal Housing Administration on loans made in 2008 during the peak of the housing crisis. Excluding that book of loans, all nonemergency federal credit programs cost slightly less than expected.
Read the report:
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