|FCRA = government valuation; Fair-Value = market cost|
But student loans are just one example of misleading accounting. Virtually all government credit and insurance programs receive budgetary treatment that ignores market risk. The example most in the news lately is the federal subsidy for crop insurance. As I wrote for National Review today:
The federal government not only pays most of the farmers’ premiums to private insurance companies, it also reinsures those companies against large payouts to farmers. Most egregiously, the future cost to the taxpayers of the reinsurance is systematically low-balled by the government, using accounting practices that ignore the risk that payouts may be larger than expected.Read the whole thing here. Also, see my Forbes article that goes into more detail about fair value accounting.
Admittedly, projecting the future cost of insurance is no easy task, but voters need at least ballpark estimates to make informed decisions. Right now, the cost of almost every government credit or insurance program – from crop insurance, to student loans, to public pensions – is underestimated. The movement for “fair value” accounting is intended to fix that problem.
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