If you were in the market for a new credit card or needed a loan to buy a car, would you think to go to some federal agency to get one?
Not right now, maybe, but we seem to be headed in that direction—and very quickly, too.
And the idea isn’t all that far-fetched when you come to think of it. The federal government is already heavily involved in consumer lending, either directly or indirectly. It’s the biggest player by far in the two biggest consumer loan businesses. Getting into new areas like credit cards and auto loans isn’t a terribly big leap.
It’s fairly safe to say that the residential mortgage market would barely exist were it not for the government-sponsored enterprises like Fannie Mae and Freddie Mac, plus other government agencies like the FHA, VA, and USDA. While these agencies don’t make loans themselves, they buy them from private lenders, stamping a federal guarantee on them in the process. Before the global financial crisis, there was a thriving market for private mortgages through a private secondary market, but since then that market has largely ceased to exist, except for a smattering of securities backed by jumbo loans, those too large for the federal agencies to buy. That leaves the government with about a 90% or more market share. Prior to the financial crisis, the government still commanded a market share of about 50%. Continue reading "Coming Soon: Uncle Sam's Credit Cards"