Uncle Sam in Pinstripes

Evaluating U.S. Federal Credit Programs

It is a long-held perception that America is a nation where the government typically stays out of day-to-day business activities. Yet the U.S. federal government is in many ways the biggest and most influential financial institution in the world, with $10 trillion in federal guarantees and loans going to the private sector. Even before recent implementation of massive interventions meant to stave off financial calamity, the federal government directly or indirectly provided significantly more credit than any of the country’s largest private sector banks. And, of course, the government’s credit activities have recently expanded far beyond this core of traditional programs in the face of economic crisis. What does the true picture of this sector look like, and how does it affect the overall economy?

Uncle Sam in Pinstripes is an accessible primer on U.S. federal lending, providing an instructive look at one of the most important interfaces between the U.S. government and its citizens as well as the transactions that result. Douglas Elliott’s introductory chapter makes clear the critical importance of federal credit programs and hints at some of their complexities. The remainder of this book fills in the details—the how, what, why, and the ramifications—allowing readers of all stripes to understand the history, current state, and key policy issues surrounding federal credit provision. No picture of the U.S. economy is complete without a fuller understanding of this increasingly important sector.

There is considerable evidence that taxpayers are not receiving the value for money that they should. The author believes that a number of steps should be taken to increase the effectiveness and efficiency of federal credit programs. These are explained in the final chapter and include the following actions, among many others:

  • Target borrowers more carefully.
  • Take into account more fully the relative risk of different loans.
  • Use the same budget rules for all federal credit programs.
  • Use risk-based discount rates for federal budget purposes.
  • Create a federal bank to administer all credit programs.

Praise for the book:

"Federal credit programs are as confusing and misunderstood as they are important. For the past decade, Douglas Elliott has been the conscience of federal interventions in pensions, flood insurance, deposit insurance, housing, and many other financial transactions. Now he has delivered a lucid, timely review and critique of everything from decades-old farm lending to the massive federal response to the 2008 financial crisis. This is a must-read for anyone serious about federal policy."—Douglas Holtz-Eakin, president, American Action Forum, former Director of the Congressional Budget Office

"Doug Elliott provides a comprehensive and insightful look into Uncle Sam's role in the credit business. His book describes a number of past mistakes and current challenges. It also outlines a range of sensible suggestions to help create a better future."—David Walker, founder of the Comeback America Initiative, former Comptroller General of the United States

"In this timely book, Douglas Elliott provides an insightful analysis of the pervasive but underappreciated role of the federal government in U.S. credit markets. Uncle Sam in Pinstripes is a must-read for anyone who wants to understand the reach of federal credit policies and the challenges that they create."—Deborah Lucas, Sloan School of Management, Massachusetts Institute of Technology, former Chief Economist for the Congressional Budget Office

"This is an extremely useful analysis of important, but too-often ignored, government interventions in credit markets."—Rudolph G. Penner, Urban Institute, former Director of the Congressional Budget Office

"This study of the current state of government credit programs explores the wide range of agencies and programs run by the federal government involved in the direct or indirect provision of credit and credit guarantees. Well written and accessible to the lay reader, the work covers the scope of existing programs and offers a discussion of ways in which policy changes could improve programs or rearrange the mechanisms of federal credit practices to protect taxpayers and improveefficiency and regulation. Elliot is a fellow in economic studies at the Brookings Institution, a leading policy think tank."—April 2012 edition of Reference & Research Book News