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$4-Billion Farm Credit System Bailout Passed; Veto Fear Eases

December 20, 1987|Associated Press

WASHINGTON — The Senate on Saturday approved a bailout of up to $4 billion in federally guaranteed bonds for the debt-plagued Farm Credit System and sent the measure to President Reagan for his signature.

The vote on the legislation was 85 to 2, with Senate Banking Committee Chairman William Proxmire (D-Wis.) and Sen. Jake Garn (R-Utah), the top Republican on the banking panel, casting the only no votes.

Concern about a possible presidential veto had slowed progress on the bill. But, before the Senate voted Saturday, Sen. David L. Boren (D-Okla.) said Reagan might sign it after all.

"I've received the welcome news that it is very likely the President will approve this legislation and sign it into law," Boren said.

Lawmakers painted the measure, which has been a year in the making, as aid to the Farm Belt, where some areas are still suffering from a financial crisis that began six years ago.

But the measure will also be a substantial boon for those who hold bonds in the nation's largest farm lender, as well as for banks and securities dealers.

Seeks to Reduce Bond Risk

"The financial integrity of $50 billion in Farm Credit System bonds is going to be at risk" without the bailout, said Sen. Patrick J. Leahy (D-Vt.), whose Senate Agriculture Committee produced the legislation.

Unlike most banks, the Farm Credit System has no depositors but instead borrows money in credit markets to lend to farmers, ranchers and an assortment of other agribusiness concerns.

The bill is expected to cost taxpayers up to $1.5 billion over five years. The Treasury eventually could have to pay the $4 billion plus interest if the entire bailout were implemented and the system folded--but that is considered unlikely.

The veto threat had dogged the bill because of a provision creating a secondary market, under which farm mortgage loans would be pooled and used to back securities sold to investors.

Critics Note Overlap

Farmer Mac, as it is called, similar to the Federal National Mortgage Assn. (Fannie Mae) and other secondary markets in home mortgage loans, would compete with the Farm Credit System and thus work counter to the bailout, critics say.

But a House-Senate conference committee produced a compromise version, and the House approved the measure, 365 to 18, on Friday.

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