The 2022 Inflation Reduction Act includes a massive expansion of a little-known loan guarantee program offered to Native American tribes; this change has nothing to do with deficit reduction or inflation.
Under current law, the Department of Energy has the authority to guarantee Indian tribes up to 90 percent of the remaining principal of a loan for energy development. The current law limits the amount that can be guaranteed to $2 million.
The Inflation Reduction Act removes the first restriction entirely, so lenders no longer have to be “look in the game” when lending. This means that the US taxpayer, not the lending financial institution, is responsible for any damages.
Economists believe that risk holding by lenders is an important test of credit quality. Many federal laws, including the financial reforms of the Dodd-Frank Act that followed the 2008 financial crisis, require banks to retain the mortgage risk on their loans. The Inflation Reduction Act removed this protection.
The bill increases the amount that can be guaranteed tenfold, from $2 million to $20 million, further increasing the risk to taxpayers.
The guarantee program is unrelated to the bill’s deficit reduction, inflation or climate change goals. The loans provided under the program are not intended to support renewable energy sources, but to strengthen the “self-confidence of the tribes”.
Source: Breitbart
