AG AT-LARGE: Recalling another dayRemembering another economic crisis
By: Mikkel Pates, Agweek
FARGO, N.D. — As I think about the financial recession we’re in, my mind drifts back to the quaking and shaking in this region during the farm credit crisis of the 1980s.
One of my favorite memories from the crisis came in about 1985. I was a reporter at the Forum of Fargo-Moorhead. There was a news conference in Fergus Falls, Minn., held by the group Communicating for Agriculture.
The talking head at the news conference was Rollie Lake, who was president of the farm advocacy group’s board of directors. Lake had been a vice president with First National Bank of Fergus Falls, where he’d headed the ag department.
Here was one of the people I want in the room during a crisis.
Lake had served in the U.S. Army Air Corps in World War II and had flown bombing missions as a B-24 pilot. I later learned he’d survived two missions where his planes were shot down in action. He’d come out of the war and taught vocational agriculture before going into lending. Lake explained that he and others at CA came up with something called the “CA Modified Debt Recovery Program” and this press conference was about that.
This small-town community banker carefully explained what he thought should happen with these farm debts. He said the government should cooperate with banks and other lenders and consider writing down significant amounts of the farm debt and restructure the loans so that the farmers could repay them.
After Lake explained the program in dry, “bankerese,” a Fargo television reporter-photographer (who was proud to note that he held a doctorate in economics) asked Lake a question: “What would you say if I said this program sucks and it’ll never fly in Congress.”
After an uncomfortable silence, a beet-red Lake started to speak.
Passionately, he explained that — in his decades of banking experience — a write-down was precisely what needed to happen. Lake explained that if there were no write-downs, the nation’s intellectual capital — some of its brightest farmers who had expanded during the 1970s — would simply go away. We couldn’t afford that, he said.
Unlike the TV reporter, I didn’t feel qualified to judge Lake’s plan. I just reported it. (Hey, I’d only minored in ag economics.)
Funny, though. I noticed it wasn’t long before I was reporting that Lake was traveling to Congress and meeting with the Bank of Co-ops and the then-Federal Land Banks. Soon, then-Rep. Arlan Stangeland, R-Minn., helped incorporate those ideas into what became the 1987 Farm Credit Act.
Among other things, it required the Farm Credit System and the (then-) Farmers Home Administration to restructure loans if loan losses were less than the foreclosure losses, calculated on discount rate, length of comparison and cash flows.
Funny, today’s big bailout rings of Lake’s plan. (I don’t know if the TV guy noticed.) Lake died in 2004 at age 80. He and his plan helped people in this region who probably don’t even know it.
The old farm credit plan sounds remarkably like what the federal government is trying today, with regard to home mortgages. But it doesn’t sound so much as the massive bailouts for auto makers.
I’ll stick my neck out to say the auto company bailouts so far seem too vague. I think U.S. bankruptcy court is the proper place to deal with the big auto makers. Let’s use it. Bankruptcy protection and reorganization are best left to the professionals in the U.S. judiciary — not in a politically sensitive and motivated Congress. The market will decide when the companies produce products consumers want and need.
Editor’s Note: Mikkel Pates welcomes comments about his column. Mail comments to him at 714 Park Drive S., Fargo, N.D. 58103. E-mail him at firstname.lastname@example.org or phone him at (701) 297-6869. Pates is a staff writer for Agweek.