Ebook: Government Risk-Bearing: Proceedings of a Conference Held at the Federal Reserve Bank of Cleveland, May 1991

The u.s. government bulks large in the nation's financial markets. The huge volume of government-issued and -sponsored debt affects the pricing and volume ofprivate debt and, consequently, resource allocation between competing alternatives. What is often not fully appreciated is the substantial influence the federal government wields overresource allocation through its provisionofcreditandrisk-bearing services to the private economy. Because peopleand firms generally seekto avoid risk, atsomeprice they are willing to pay another party to assume the risk they would otherwise face. Insurance companies are a class of private-sector firms one commonly thinks of as providing these services. As the federal government has expanded its presence in the U.S. economy during this century, it has increasingly developed programs aimed at bearing risks that the private sector either would not take on at any price, or would take on but atapricethoughtto besogreatthatmostpotentialbeneficiarieswouldnotpurchase the coverage. Today, roughly three-fifths of all nonfederal credit outstanding is 1 assisted by some form of federal program. The federal government provides insurance of many private pension plans through the Pension Benefit Guaranty Corporation, subsidizesand implicitly guarantees the liabilitiesofseveral agencies dominating secondary loan markets (for example, the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and Student Loan Mar­ ketingAssociation),andeithermakesdirectloansorguaranteesprivatelygenerated loans through a varietyofcreditprograms to farmers, exporters, home purchasers, and others.

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The federal government wields substantial influence over resource allocation in the economy through its provision of credit and risk-bearing services to the private economy. As the federal government has expanded its presence in the U.S. economy during this century, it has increasingly developed programs aimed at bearing risks that the private sector either would not accept at any price, or would take on but at a price thought to be so great that most potential beneficiaries would not purchase the coverage. In addition to the allocative effects these federal credit and risk-bearing programs impose on the economy, they also expose taxpayers to losses when program revenues do not cover costs. A recent example of this problem is the federal government's payments to depositors at a large number of insolvent financial institutions.
Government Risk-Bearing is based on a Federal Reserve Bank of Cleveland conference and deals with the concept and performance of the Federal government as a risk-bearing enterprise. The authors in this volume - primarily experts on insurance products in which the federal government has some involvement - consider the rationale for a federal presence in these markets and discuss the resulting effects on market performance and taxpayer exposure. This volume provides better understanding of the government as a risk manager and will assist public discussion about the appropriate role for government in the provision and administration of deposit insurance.

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The federal government wields substantial influence over resource allocation in the economy through its provision of credit and risk-bearing services to the private economy. As the federal government has expanded its presence in the U.S. economy during this century, it has increasingly developed programs aimed at bearing risks that the private sector either would not accept at any price, or would take on but at a price thought to be so great that most potential beneficiaries would not purchase the coverage. In addition to the allocative effects these federal credit and risk-bearing programs impose on the economy, they also expose taxpayers to losses when program revenues do not cover costs. A recent example of this problem is the federal government's payments to depositors at a large number of insolvent financial institutions.
Government Risk-Bearing is based on a Federal Reserve Bank of Cleveland conference and deals with the concept and performance of the Federal government as a risk-bearing enterprise. The authors in this volume - primarily experts on insurance products in which the federal government has some involvement - consider the rationale for a federal presence in these markets and discuss the resulting effects on market performance and taxpayer exposure. This volume provides better understanding of the government as a risk manager and will assist public discussion about the appropriate role for government in the provision and administration of deposit insurance.
Content:
Front Matter....Pages i-xvii
Institutional Control and Large-scale, Long-term Hazards....Pages 1-19
Ambiguity and Government Risk-Bearing for Low-Probability Events....Pages 21-44
Public Insurance of Private Risks: Theory and Evidence from Agriculture....Pages 45-70
Government Risk-Bearing in the Financial Sector of a Capitalist Economy....Pages 71-107
Perspectives on the Role of Government Risk-Bearing within the Financial Sector....Pages 109-130
Government Risk-Bearing: What Works and What Doesn’t....Pages 131-144
The PBGC: A Costly Lesson in the Economics of Federal Insurance....Pages 145-166
Recent Federal Efforts to Measure and Control Government Risk-Bearing....Pages 167-176
Information and Incentives to Improve Government Risk-Bearing....Pages 177-182

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The federal government wields substantial influence over resource allocation in the economy through its provision of credit and risk-bearing services to the private economy. As the federal government has expanded its presence in the U.S. economy during this century, it has increasingly developed programs aimed at bearing risks that the private sector either would not accept at any price, or would take on but at a price thought to be so great that most potential beneficiaries would not purchase the coverage. In addition to the allocative effects these federal credit and risk-bearing programs impose on the economy, they also expose taxpayers to losses when program revenues do not cover costs. A recent example of this problem is the federal government's payments to depositors at a large number of insolvent financial institutions.
Government Risk-Bearing is based on a Federal Reserve Bank of Cleveland conference and deals with the concept and performance of the Federal government as a risk-bearing enterprise. The authors in this volume - primarily experts on insurance products in which the federal government has some involvement - consider the rationale for a federal presence in these markets and discuss the resulting effects on market performance and taxpayer exposure. This volume provides better understanding of the government as a risk manager and will assist public discussion about the appropriate role for government in the provision and administration of deposit insurance.
Content:
Front Matter....Pages i-xvii
Institutional Control and Large-scale, Long-term Hazards....Pages 1-19
Ambiguity and Government Risk-Bearing for Low-Probability Events....Pages 21-44
Public Insurance of Private Risks: Theory and Evidence from Agriculture....Pages 45-70
Government Risk-Bearing in the Financial Sector of a Capitalist Economy....Pages 71-107
Perspectives on the Role of Government Risk-Bearing within the Financial Sector....Pages 109-130
Government Risk-Bearing: What Works and What Doesn’t....Pages 131-144
The PBGC: A Costly Lesson in the Economics of Federal Insurance....Pages 145-166
Recent Federal Efforts to Measure and Control Government Risk-Bearing....Pages 167-176
Information and Incentives to Improve Government Risk-Bearing....Pages 177-182
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