It’s more accurate to say it runs the shipbuilding-loan division of a much larger bank-in fact, America’s largest bank
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David Matsuda had never been a e the head of the U.S. . He had been a government lawyer and a congressional staffer, focusing on railroad issues; the ringtone on his phone was the choo-choo of a train. Matsuda had never been a banker, either. S. shipbuilding since the Great Depression. When Matsuda took the helm, the program was sinking again, heading for its worst defaults since a massive loan to help the billionaire investor Sam Zell build cruise ships had gone bust in 2001. Whatever Matsuda’s Washington career had prepared him for, it hadn’t prepared him to be Uncle Sam’s repo man on the high seas.
“It was like walking into a nightmare,” says Matsuda, 42, a former transportation adviser to the late Democratic Senator Frank Lautenberg. “I looked around and said, ‘Guys, what’s happening?’”
The Bush administration’s last MarAd loan guarantee, a $140 million deal to help a politically connected firm build two “superferries” to shuttle passengers around Hawaii, imploded shortly after Matsuda arrived. MarAd got stuck with the ferries, which it eventually offloaded to the Navy. Then a marine services outfit with a MarAd loan went bankrupt, prompting panicky meetings about whether seizing its collateral-a supply boat at work in Nigeria’s offshore oil industry-would spark an international incident. Then another dying shipping company missed a payment on a loan secured by four double-hulled oil tankers. After weeks of confusion, MarAd’s lawyers informed Matsuda he needed to arrest the four football-field sized ships.
This is what can happen, Matsuda says, when a little marine agency like MarAd is assigned to evaluate big-money credit deals
MarAd struggled just to locate the tankers, which were scattered around the Gulf of Mexico and the Eastern Seaboard. One captain apparently turned off his transponders to evade detection. “They were moving from port to port to avoid us,” an official recalls. “We’d go looking for a ship, they’d be gone before we got there.” The four ships were finally tracked down in three states; federal marshals had to board them, place them under arrest and claim them for the government. MarAd ended up selling them for scrap, recovering just $7 million of the $88 million it was owed.
This was relevant because MarAd, in addition to its basic duties involving vessels and ports, ran a perennially troubled $2 billion credit program that had propped up U
“It’s never going to lure financial talent away from Wall Street,” says Matsuda, who left the government in 2013 and is now a transportation consultant in Washington. “It’s not a bank.”
That bank currently has a portfolio of more than $3 trillion in loans, the bulk of them to about 8 million homeowners and 40 million students, the rest to a motley collection of farmers and fishermen, small businesses and giant exporters, clean-energy firms and fuel-efficient automakers, managed-care networks and historically black colleges, even countries like Israel and Tunisia. It has about 120 different credit programs but no consistent credit policy, requiring some borrowers to demonstrate credit-worthiness and others to demonstrate need, while giving student loans to just about anyone who wants one. It runs a dozen unconnected mortgage programs, including ericans in need, veterans in need and, yes, Native American veteran borrowers in need. Its problems extend well beyond deadbeat shipbuilders.
For starters, its goal is not profit, although it is profitable on paper, and its loans are supposed to help its borrowers rather than its shareholders, better known as taxpayers. Its lending programs sprawl across 30 agencies at a dozen Cabinet departments, with no one responsible for managing its overall portfolio, evaluating its performance or worrying about its risks. The closest it gets to coordination is an overwhelmed group of four midlevel Office of Management and Budget employees known as “the credit crew.” They’re literally “non-essential” employees-they were sent home during the 2013 government shutdown-and they’re now down to three, because their leader is on loan to the Department of Housing and Urban Development. When I suggested to OMB officials that the crew seemed understaffed to oversee a credit portfolio 25 percent larger than JPMorgan Chase’s, someone pointed out that it’s hiring an intern.