The Comstock Report

David Kruse
President, ComStock Investments (With Permission to Reproduce)
Copyright 2010@ CommStock Investments, Inc., David Kruse

Farm Credit System works and works well, which really annoys anti-government ideologues. They offer customer friendly terms at competitive interest rates and as they operate as a cooperative, the customers benefit from patronage as the system makes money. The private sector has its farm Banks and they play a critical role in financing agriculture too. We don’t want to get rid of either one. There is a good balance between the Farm Credit System and Ag Banks. The Farm Credit System has primarily provided farm mortgages but has widened its mandate, annoying private banks.

I recently re-financed a home and condo with the Farm Credit System.

The FCSA refinanced the whole works taking them from the private mortgage companies, who in my opinion, deserved losing the business. They had maintained restrictions to re-financing which were self-serving ways to keep their customers paying high rates. Mortgage companies hate the Farm Credit System and lobby Congress to clamp down on the farm lending cooperative every opportunity they get in Washington because they don’t like what they consider to be unfair competition. They would like to move congressional oversight of the FCS from Agriculture to the Banking committee where the private banks believe they have more political clout.

As a Government-Sponsored Enterprise (GSE), the FCS gets access to funds at low interest rates but I haven’t found rates to be the decisive factor as to where to source lending. Private farm mortgage lenders don’t want small loans less than $400-500K. The Farm Credit System acts more like a public entity that is there to serve the needs of borrowers.

With the poor way that much of the private home mortgage sector often works with borrowers, without the FCS to compete with the private sector, frankly, helping to keep them honest as much as they do by providing another lending option, it’s hard to imagine how screwed that we could be.

Actually it’s not hard to imagine at all … just look at our health care system. It’s a great example as to what happens without competition in the private sector. The anti-government ideologues decry the thought of a Government sponsored health insurance provider to compete with the private sector. I haven’t been able to understand what exactly it is that they like about the status quo in health care … is it the annual insurance rate hikes several times the rate of overall inflation, or the arbitrary control that the insurers exert over the entire system including doctors and treatments.

I think that the private health insurance industry makes private mortgage lending companies look competent and benevolent by comparison. The Farm Credit System did not take over ag lending any more then a similar health insurance entity would take over health care.

To suggest that a government sponsored health insurance entity like the Farm Credit System would be worse than what we have now is an irrationally biased conclusion. President Obama and the Democrats screwed up health system reform by opting for another entitlement plan instead. What they did will have no positive impact on cost management. They produced their positive budget results with the same smoke and mirrors using Medicare “savings” that they previously criticized the Republicans for in their budget balancing maneuvers.

We need competition in the health care industry. That is the critical component lacking that is in need of reform. The health insurance companies supported Obamacare and they would not support real reform so it had to be flawed. Businesses find funding health care benefits progressively oppressive reducing U.S. global competiveness. Competition in the health care industry virtually does not exist but has denigrated into a system of regional monopolies.

The Des Moines Register reported that Wellmark raised rates 13.1% in 2006, 4.3% in 2007, 9.3% in 2008 and again in 2009, 18% in 2010 and 11% planned for 2011. Nothing is comparable to that. The overall inflation rate is nearly flat, yet health care system inflation is running at double digits. Every day they go to work at health insurance companies to find ways to deny coverage because that is where the incentive is. There is nothing that health care subscribers can do because there are no real insurance alternatives.

When private home mortgage lenders tried to screw me, the FCS was the alternative. In the health care field there is no one. The market can’t work without alternatives and competition. The market can’t work if consumers are not making the choices. Obamacare just feeds the pigs, it doesn’t create competition. Unless controlled, it will consume us all.

The problem is … the problem is …the problem is – no competition. The status quo is intolerable. The health care cost price spiral will eat us alive. Fixed ideology won’t solve it. Ideology may well worsen the crisis.

First of all, we have to protect the Farm Credit System from the ideologues who would like to kill it and eliminate competition from Ag lending. Next, we need an FCS-like entity to bring some competition to the health care industry.

To me this is how government is supposed to be used. The private Ag lending sector is not threatened by the FCS. It is improved by it. The same concept is transferable to the Health care system. DK

David Kruse is president of CommStock Investments,Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet. CommStock Investments is a registered CTA, as well as an introducing brokerage. Mr. Kruse is also president of AgriVantage Crop Insurance and Brazil Iowa Farms, an investor owned farming operation in Bahia, Brazil. (Futures Trading involves risk. Past performance is not indicative of future performance.) For information on subscribing to the daily CommStock Report, contact: CommStock Investments, Inc., 207 Main St., Royal, IA, 712-933-9400, www.commstock.com. E-mail to: info@commstock.com