Memorandum Requesting a Study of Means of Financing Federal Loan Programs Through Private Capital

Memorandum to the Director, Bureau of the Budget

At the July 27 Cabinet meeting, I asked for an evaluation of the Federal Government's direct loan programs and its portfolio of financial assets. To make the best use of scarce budgetary resources we should seek the substitution of private for public credit wherever this is compatible with the achievement of the basic purposes of our various Federal credit programs. This should be done in the most economic way possible.

The evaluation I have requested should be available in time to assist in the formulation of the fiscal 1967 budget. To reach this objective, I request:

1. That you prepare, in cooperation with the Federal departments and agencies involved, an inventory of those Federal loan programs which might appropriately be financed through the private capital market. You should specify the financial techniques by which private finances can be secured, indicate how the basic objectives of the various loan programs can be preserved, and state any changes in legislation which would be required. In addition, you should specify which loan programs cannot appropriately be financed through the private capital market and provide an explanation, in each instance, of the reasons.

Include in this inventory a statement of existing and projected Federal holdings of financial assets, specifying the amounts which can be prudently sold to private investors.

2. That this review encompass a broader reexamination of difficulties in existing procedures for the sale of financial assets and the financing of Federal loan programs, including any problems in coordination or direction and any inefficiencies or excessive costs resulting from present procedures. All possible improvements in the financial techniques by which private financing can be secured should be explored with the Secretary of the Treasury, such as the conception of centralized financing for all Federal loan programs.

3. That you consult with the Secretary of the Treasury and the Chairman of the Council of Economic Advisers in the development of this inventory and in the broader review of techniques and problems, and in the evaluation of its monetary and financial implications.

4. That you present to me, in our deliberations on the 1967 budget, the results of this evaluation, together with specific recommendations for administrative action and legislative proposals. Your report should, of course, include the views of the Secretary of the Treasury, the Chairman of the Council of Economic Advisers, and the heads of the departments and agencies involved.

I believe that we should seek, wherever possible, to encourage the participation of the private capital market in those Federal programs whose primary objective is the extension of credit. While there are some programs whose very nature makes this impossible, I believe that wider private participation in Federal credit programs is a highly desirable objective.

First, it economizes on scarce Federal budgetary resources.

Second, by bringing private lenders into contact with individuals and groups whose major source of credit is now the Federal Government, it can substantially increase the availability of credit for these individuals and groups.

I am confident that this careful and detailed evaluation will substantially improve our Federal credit programs and I trust that you will begin the evaluation at once.

LYNDON B. JOHNSON