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Well Worth SavingHow the New Deal Safeguarded Home Ownership$
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Price V. Fishback, Jonathan Rose, and Kenneth Snowden

Print publication date: 2013

Print ISBN-13: 9780226082448

Published to Chicago Scholarship Online: May 2014

DOI: 10.7208/chicago/9780226082585.001.0001

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The Cost to Taxpayers and Subsidies to the Housing Market

The Cost to Taxpayers and Subsidies to the Housing Market

(p.112) Chapter 10 The Cost to Taxpayers and Subsidies to the Housing Market
Well Worth Saving

Price Fishback

Jonathan Rose

Kenneth Snowden

University of Chicago Press

This chapter reviews the popular conception that the HOLC returned a small profit to taxpayers. In fact, once all of its implicit and explicit costs are taken into account, the HOLC was the source of a modest loss on the order of about 2 percent of its assets. The popular conception is based only the fact that upon liquidation the HOLC returned $214 million to the U.S. Treasury in repayment for the $200 million it had invested in the HOLC nearly twenty years earlier. Although misleading, this one outcome underscores that the Treasury and the general taxpayer were never forced “bail out” the HOLC by making up for shortfalls on the repayment of HOLC bonds that they had guaranteed. The Treasury and taxpayers were not fully compensated, however. The return on the $200 million in capital supplied by the Treasury in 1933, to begin with, was well below competitive market rates. More important was the uncompensated guarantee provided by taxpayers on $2.8 billion of HOLC bonds. On economic terms, taxpayer support of HOLC bonds allowed the program to charge lower interest rates, constituting a significant subsidy to mortgage and housing markets.

Keywords:   HOLC financing, Taxpayers, Subsidies, Capitalization, Bond guarantee, Profit, Interest rates, Government finance

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