Banks Warn Bernanke Of The First Two Bubbles: Student Loans And Farmland

Tyler Durden's picture

A panel of bankers warned the Fed in February that their extreme monetary policy is forcing institutions to "accept greater credit-risk" than "makes sense" and student debt and farmland prices are in a bubble. We first started to explain the bubble in student debt over two years ago and since then the bubble has become larger (and the underlying structure much more fragile as delinquencies soar). Farmland rose in price over 16% last year (according to the Chicago Fed) and has surged 8% per annum over the past decade. Credit risk is now at levels associated with the CDO-driven liquidity excess of 2006. "Further accommodation is not warranted," the minutes of this meeting show - uncovered by Bloomberg via the FOIA. The comments should cause Bernanke and his merry men to pause for breath but of course it is likely what he wanted all along. "Growth in student debt... has parallels to the housing crisis," and "agricultural land prices are veering further from what makes sense," are just two of the bankers' comments, adding that this "will ultimately result in higher loan losses," which is odd since every bank is adjusting down its loan-loss-reserves and juicing earnings.


The credit bubble...


The Farmland bubble...


The Student loan bubble...


Via Bloomberg,

A Federal Reserve panel of bankers warned policy makers in February that record stimulus was pushing financial institutions to take on more credit risk and creating a “bubble” in the price of U.S. farmland.


“The margin pressures that the low-rate environment has put on financial institutions, coupled with dramatically increased compliance and other infrastructure costs, have caused many to seek higher returns by accepting greater interest-rate or credit risk,” the bankers said on Feb. 8, following a Federal Open Market Committee meeting on Jan. 29-30.




Bloomberg News obtained the minutes in a Freedom of Information Act request.




Still, several bankers warned Fed officials in February that “uncertainty over health-care costs, tax policy, and the mounting U.S. debt” were among the reasons commercial and industrial loan growth remained “tepid” and credit lines were “chronically undrawn,” according to the minutes.


The panel also said in February that farmland valuations posed an asset-price bubble caused by unusually low interest rates, ...


“Agricultural land prices are veering further from what makes sense,” according to minutes of the council’s Feb. 8 gathering. “Members believe the run-up in agriculture land prices is a bubble resulting from persistently low interest rates.”




Data compiled by the regional Fed banks have documented a rapid run-up in farmland prices, particularly across the Midwest’s Corn Belt. The Kansas City Fed said irrigated cropland in its district rose 30 percent during 2012, while the Chicago Fed reported a 16 percent increase.




At a meeting in February 2012, the council said “growth in student-loan debt, to nearly $1 trillion, now exceeds credit- card outstandings and has parallels to the housing crisis.”


Student lending shares features of the housing crisis including “significant growth of subsidized lending in pursuit of a social good,” in this case higher education instead of expanded home ownership, the council said.




“Further accommodation is not warranted,” the bankers said, according to the minutes.


The advisory council warned of distorted bond prices resulting from the Fed’s purchases, limited impact on the economy, and “uncertain effects” from an eventual unwinding of the balance sheet, including “risks to price and financial stability.”




“The combination of a sluggish economy and muted credit demand, very low interest rates, abundant bank capital and liquidity, reduced fee income and dramatically increased regulatory and compliance costs is causing some aggressive banks to lead a broader relaxation of risk/reward tolerances,” the council said.


“Aggressive pricing and looser underwriting, including extended terms and weaker transaction structures, are likely to persist and even get worse,” the bankers said in December 2011. “These accumulating risks, including interest rate risk mismatches, will ultimately result in higher loan losses.”



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thismarketisrigged's picture

can someone please tell me what time the pomo is today? thank you, there is no bubble, this is all '' great fundementals''.


source- cnbc

SafelyGraze's picture

jim rogers told me to buy farmland

aint no fortunate son's picture

that panel of bankers obviously needs to be investigated for anti-American propagandizing... the nerve of them to question the great man

hedgeless_horseman's picture



Speaking of farming and debt, our Mortgage Lifter Heirloom tomatoes are looking great!

Fuck you, Bernanke!

MilleniumJane's picture

Those are beauts!  Are you caging them, or staking them?  I have heard pros and cons both ways.

camaro68ss's picture

The bernake just needs to print $170 billion a month. That should fix things for a little bit

hedgeless_horseman's picture



Radiator Charlie’s Mortgage Lifter Tomato


This tomato was developed by M.C. Byles (went by Charlie) of Logan, West Virgina in the 1930s. Charlie owned a radiator repair shop and had no plant breeding experience - this tomato was the only breeding work he ever did. Charlie took 10 tomatoes and put them in a circle with a German Johnson tomato in the center. He collected pollen from the 10 outer tomatoes in a baby’s ear syringe and then squirted it on the flowers of the German Johnson. After seven years he had a stable tomato with the qualities he wanted. He was a good marketer and sold his seedlings for $1 each. After 6 years he was able to pay off the $6,000 mortgage on his house. This tomato’s story has helped keep the strain alive.

MachoMan's picture

Hedgeless is right in that the fruit must get off the ground... 

However, our traditional method is to cage initially, then move to fencing once more developed.  It's simply a matter of practicality and how many plants you have...  if you're in the 50+ tomato plant category, then it's a lot easier/cheaper to just put up a wire fence and tie the plants to it with the branches up (and weave them through the fence).  The problem with caging over the life of the plant is that it confines growth...  stakes are just...  awkward.

Strut's picture

We grow 1,000s of plants a year and have found that cages are best, as long as you use the right ones. Most welded wire fencing is much too tightly woven to work well for tomatoes, the best thing we have found is concrete reinforcing wire. It’s the right height, large enough openings for both plant growth and fruit collection, and they will last many years. One full roll will make ~80 cages and run you about $80.

hedgeless_horseman's picture



Are you caging them, or staking them?

Tall stakes with trusses spread between them, under the vines, for support.  Getting the fruit up off the ground seems to be important.

With so much horseshit flowing through the economy, if we aren't growing something, then we are missing out.

Rustysilver's picture

I have done both: a wire cage and a stake.  What you want to do as the plant grows use a soft cloth strips and tie it to the cage or stake. Sometimes I use more than 1 stake.

If you have an old bed linen tear it into 1 inch strips and various lengths.

Kirk2NCC1701's picture

Now you're cooking. Or will be.

That's the kind of Asset Diversification I can sink my teeth into: No counter party risk, little risk of nationalization/seizure or manipulation, and nice yield curve. And even Francis will like the fact that I own the 'Joos', it does not own me. ;-)

Cook you, Bernanke!

AlaricBalth's picture


In History of the World, Mel Brooks hilariously stated "It's good to be the King."  (.09 seconds)

Well it is obviously good to work for the king as well. Below is a list of public sectors vocations which are eligible for student loan cancellation if you are employed in a public-service job at the time of such forgiveness and have been employed in a public-service job during the 120-month period (excluding time served as a Member of Congress).

 Public-service jobs:

  • Emergency management
  • Government
  • Military service
  • Public safety
  • Law enforcement
  • Public health
  • Public education
  • Social work in a public child or family service agency
  • Public interest law services
  • Early childhood education
  • Public services for individuals with disabilities or for the elderly
  • Public library sciences
  • School-based library sciences and other school-based services
  • Faculty member at a Tribal College or University and other faculty teaching in high-needs subject areas or areas of shortage


Kirk2NCC1701's picture

And you wonder why people want Gov jobs. Even the C students have figured out the System, and that Free Enterprise is much harder than proclaimed.

Fact: > 90% of new businesses fail in the first 2 years. < 0.6% of new banks fail in that same period. Paging Peter Schiff, paging Peter Schiff, to Line 1 on your new bank phone please.

RaceToTheBottom's picture

5 years ago.  and you would have had that run-up.  Fabor was also saying it.

Freewheelin Franklin's picture

jim rogers told me to buy farmland


Not in the US.

Cursive's picture

This is like telling your mom you don't like your allowance because you think it makes you lazy.

Jason T's picture

wealth without work .. .one of Ghandi's seven deadly sins.

Kirk2NCC1701's picture

He was wise and shrewd, but he just re-spun Jesus's parable if the rich man, the needle and the camel.

Funny how few 'Christians' truly are Christ-like. JC has become a mass-market mascot and brand for products & services, than as a way of life. Start down-arrowing, you hypocrites!

ebworthen's picture

The FED is encouraging higher farmland prices because it increases taxes and pushes out familiy farms making it so only corporations can run farms.

The student loans are mostly underwritten by J.P. Morgan Chase and Wells Fargo - so guess who will get more taxpayer money via bailouts?

otto skorzeny's picture

There are no young farmers(unless it's family land) because they can't afford the $12k/ acre for decent farmland. And if they do farm leased land they are essentially sharecroppers.

Rustysilver's picture


That's what I calculated: 400 acres * $12k /acres= $.5 mil.  Not including building machinery, etc.  Unless your dad or mom own a farm there is no way.

Dr. Engali's picture

Bingo. The fed is doing all it can to force consolidation into large corps. They know that they are forcing prices ( land, grain, or fertilizer, and fuel) making it harder for the family farms to compete. You add the high price of land to the mix and farmers are taking the opportunity to sell.

otto skorzeny's picture

Don't forget about all of the tax breaks and write-offs that owning farmland entitles one too- Congress is full of people that own a little farmland just because they know all of the tax loopholes you get to take advantage of.

otto skorzeny's picture

dupe-I fucking hate this new Chrome.

kito's picture

We all need to be farmers....a little plot in the backyard and we have a victory garden.....small victory over tptb who look to strip us all of independence for the greater collectivist state........

fonzannoon's picture

I go outside and stare at my tiny garden everyday. It makes me happy.

edifice's picture

Sorry, I read that as, "A little pot in the back yard."  I do live in Colorado...

Meat Hammer's picture

Damn right, Kito!  My 5 y/o and 2 y/o sons are growing corn in a 2x2 raised bed....there will be no debt slaves in this family.  Mrs. Meat and I have a 4x8 bed with all kinds of victory garden goodies in it.  

Freedom, bitchez.

Urban Redneck's picture

The higher taxes don't push the smaller farmers out as fast as the convenient over-leverage from the Banksters turning against the borrowers who then flip their foreclosure acquisitions to their Cargill clients.  Then of course there's that re-instated death tax - which only supposed to affect the evil greedy rich bastards, but in fact results in more independent farmland being sacrificed and flipped to the immortal evil greedy rich Mega Farm Inc. - at the expense of independent farmers.  


NotApplicable's picture

Factor in the KC Fed's report of 30% price appreciation of farmland in their region, and it doesn't take much to push a farm into the "have to sell to cover taxes" category.

Urban Redneck's picture

That depends on the exact structuring of the land-use tax statute/exemption in a specific jurisdiction, which can be more closely tied to commodity pricing than land price, but it does vary.

tango's picture

The FED is encouraging higher farmland prices because it increases taxes and pushes out familiy farms making it so only corporations can run farms.


Obviously you have never been around farms.  The VAST majority of farms (I have one) were either inherited or bought by individuals seeking to either diversify investments or as a safe haven (both counts for us).  The price of farmland is controlled by many factors - geographic location, access to water and utilites, type of soil, inflation.  I am familiar with over 1,000 farms in Tennessee and not one is owned by a "corporation".   

LOL  Why in the hell would a corp want a farm?  It's a hell of a lot of work for little return unless you get on the gov't dole with all their imaginative ways to give out money to those who don't work.  

MachoMan's picture


It's also specious at best to claim that big corps get all the tax breaks on farms when phase outs happen to ensure they don't and the "warm body" rules. 

I would also add farmers to the list of folks who buy land...  farms are being consolidated into the hands of the most successful farmers...  (many of whom got their start with inherited lands).  Unforunately, they have few replacements waiting...  the primary issue is that farming, although simple in concept, is incredibly difficult to do at a professional level...  there are so many facets to the discipline that most people can't hack it.  Some of the smartest people I know are farmers who received little or no formal education.  (this also explains why so many farmers fail...  it isn't the weather, it isn't the evil companies, it's the fact that you can't manage an incredibly broad business).

If you go to any yokel money manager or bank and ask who has the most money of the locals, 7/10 will be farmers.  (of course, other people tend to have as much revenue, it's just that farmers tend to be more frugal in their personal lives...  the succesful ones anyway).

PS, with vertical farming, people can grow vastly more produce/crops in their back yard than large scale farmers per acre...  so this is not a reason for crowding out of the small guys (it actually benefits the small guys because they're more efficient).

Big Corked Boots's picture

You are correct on all points.

In my area, the people who have true wealth are not the assholes in leased BMW's - they are the muddy booted locals with paid-with-cash $25k second owner F250's and paid-off $250,000 combines.

They are a hell of a lot nicer people, too.


MeelionDollerBogus's picture

PLENTY of return when partnered with Monsanto

Dr. No's picture

High price farmland = high price food.  Thankfully a simple change to CPI calcualtion can remove human food from the formula.  This will keep inflation in check.

DosZap's picture

Dr. No

Thankfully a simple change to CPI calcualtion can remove human food from the formula.


FOOD nor FUEL has ever been factored in the CPI #'s,therin lies the lie about TRUE consumer costs of living.

emmadavis's picture

You can get car loan without down payment regardless of your credit status. Car loans bubble is coing soon.

MilleniumJane's picture

96 month car loans seem to be touted more and more on tv and radio.  What I can't believe is that people are actually falling for it just to keep up appearances with the neighbors. 

Case in point, our neighbors, who probably make as much money per year as my husband and me.  Both are in debt to their eyeballs via credit cards and have elderly parents who are constantly asking them for money to pay for prescription meds and the bills.  Both have purchased brand new vehicles in the last two years.  They have been very candid, talking about the stress this has placed on their family, but neither seem to really want to put the brakes on their spending.  I guess once it gets to a certain point, one just doesn't care anymore.

If I remember correctly, Lee Iacocca was the originator of auto loans.  20% down, 36 months to pay off.  It's just unreal how far this country has fallen. 

otto skorzeny's picture

Same here- neighbors just bought 2 new cars last year and the wife heard that their car payments are $800 a month on 1 salary for an accountant. I don't feel sorry for fucking anyone any more.

MilleniumJane's picture

I really understand the frustration.  It seems like we are continually losing ground by going head-to-head against the MSM machine, with their flashy and mesmerising advertisements, and Government & Fed Reserve policy.  It gets very hard to feel sympathy for people when they continually refuse to acknowledge the truth.

madcows's picture

Your neighbors may be smarter than you(us).  They've loaded up on assests with free money.  When the collapse happens, they can default on their loans and sell the crap, while we "live within our means" folks will have to foot the bailout bill.

MilleniumJane's picture

I must say that this has crossed my mind many times over the last couple of years.  I guess I was raised differently.  I watched my mother struggle with credit card debt when I was young, and the entire family had to make sacrifices for her to pay that off.  It took her seven years, making the minimum payments, to pay off two credit cards:  one with a $300 limit, the other with a $250 limit.  On top of that were hospital bills, plus time missed from work for caring for my dying grandfather.  Some months, all we had to eat were beans and rice, bread and milk.  I swore then (and now) that I will never put my kids through that.  Credit card offers are always filed in their proper place:  the woodstove.

MeelionDollerBogus's picture

It’s a choice. A person can choose to never get credit, or can choose to make large payments, or can choose to ONLY use the credit system for a credit card that has no secured collateral and deliberately default on it (bankruptcy) to pay less/none on it and keep all the assets yet feel no real punishment so long as further use of the credit system is something you would avoid anyhow.

MeelionDollerBogus's picture

You can’t sell what you don’t own. A car on lease / financed is not in your name and it’s grand-theft-auto to sell cars that belong to someone else but not on their consenting behalf.

tango's picture


Alas, this is the norm.  I volunteer at a food bank and you would not believe the cars folks drive up in to get free food.  I even go so far as to suggest selling their car and buying a good, used cheaper one with better gas mileage.  ("I know I should but,,,")  Car loans are the new adjustable mortgage loans - no money down, anybody that breathes can get one.  The folks who can least afford it are paying 30-40% more for a car they shouldn't have in the first place.