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It's Dumb

December 30, 1985

We could understand the Reagan Administration's wanting to sell off some old battleships to help cut the budget deficit. Battleships usually are not big profit centers.

But its present plan is to hang onto its battleships and give serious thought over the next year to selling the Federal Housing Administration, created during the depression of the 1930s to keep the housing industry from being buried under a landslide of mortgage defaults and foreclosures. That's dumb.

In the first place, the agency--which wrote insurance against default on something more than 10% of all mortgages outstanding this year--makes money. As a kind of national yardstick agency, it helps keep private costs of mortgage insurance down for everybody, not just those whose mortgages it insures directly.

The housing agency is a public service--one way that government helps make it possible for young people to buy homes. A lot of public services are going private these days as a means of cutting costs. Public hospitals are being sold to private hospital chains. Private companies operate prisons in several states. But in none of these cases has the policy function been sold. Nobody has sold its bureau of prisons. Or a department of health.

The agency, which is actually just a big insurance company, could bring as much as $3 billion at auction--except that mortgage-default rates are going up, and for now mortgage insurance is not a particularly good business to be in.

It could be that the proposal would be made just to allow the budget director to deduct $3 billion from the projected deficit for some future year--on paper at least. For years budget directors have made the deficit look smaller by calculating sales of offshore oil leases twice or three times as large as they really expect them to be.

Then there is the question of what would happen to the $3 billion in the unlikely event that Congress took such a proposal seriously. The Administration probably would go out and buy some more battleships with it.

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