Planned Banking and Credit

Planned Banking and Credit

Because of the importance of banking and credit to economic enterprise, the banks were among the first businesses to fall under governmental supervision and regulation. We have already noted in earlier chapters how in the United States the Federal Reserve System was established by the government in order to provide an elastic currency, credit facilities operated for the public interest, and an integrated banking system. But the government has not stopped at this point. As a result of the need for agricultural credit, a system of federal land banks was established in 1916 to enable farmers to secure credit for the purchase of land and the planting or marketing of crops. Capital for these credit functions was obtained in part from federal appropriations and the sale of tax exempt bonds backed by the government.

This pattern of government credit was put to further use in the depression of the 1930's. The Reconstruction Finance Cor­poration was created to extend government credit to munic­ipalities, banks, and industrial enterprises whose financial posi­tion was sound, but which for one reason or another were unable to secure credit through private sources. In this way the govern­ment became creditor to banks, railroads, insurance companies, building and loan associations, and manufacturing companies. The original endowment of $500,000,000 by the federal govern­ment grew into several billions, and the R.F.C. became a super-credit agency. The functions of the R.F.C. were greatly expanded in the period of the war when it lent money to private industry for wartime expansion, and to foreign countries to provide funds for their purchase of American-made goods.

Further extensions of government credit were in the field of housing. One part of the government program involved the Fed­eral Housing Administration which guaranteed mortgages made by local banks for purposes of home construction and renovation. The local bank made the loan; by meeting certain requirements, however, the person securing the mortgage loan could have the mortgage guaranteed by the federal government up to 90% of its face value. In case of default, the government paid the bank and assumed title to the mortgage. The government might then work out a program of payments more suitable to the home owner. If that measure should fail the government might assume full title to the property and endeavor to dispose of it through a sale on the open market. The Home Owners Loan Corporation, a temporary semi-public corporation set up by the government during the depression, followed the above procedure in an effort to stave off the mass foreclosures of mortgages against home owners and the consequent insolvency of banks.

The second part of the federal government's housing program involved both the extension of credit and outright subsidization to local communities which wanted to develop a publicly owned and operated low-rent housing project. The United States Hous­ing Authority, beginning as a division of the Public Works Ad­ministration in the early days of the depression of the 1930's, soon achieved independent status. The authority was empowered to advance as much as 90% of the cost of a public housing project to be repaid over a period of sixty years. In addition it paid small annual subsidies to pay for the interest on government loans and use of public utilities in the community.

The role of planning in the field of housing includes far more than mere granting of subsidies and extension of credit. All of the larger cities in the United States have established community plans, to be carried out through application of zoning ordinances, the demolition of slum areas, and the construction of express highways, parks, and playgrounds. This type of planning goes considerably beyond the original ideas of economic planning.