Hearing of the Committee On Banking, Housing, and Urban Affairs - Turmoil in US Credit Markets: Recent Actions Regarding Government Sponsored Entities, Investment Banks and Other Financial Institutions
DOLE: FINANCIAL OVERSIGHT "FATALLY FLAWED"
U.S. Sen. Elizabeth Dole today in a Senate Banking Committee hearing reiterated her skepticism about the financial sector "bailout" proposal and its cost to the taxpayers. She expressed her frustration that weak oversight of Fannie Mae and Freddie Mac was allowed to persist, despite the fact that she and a handful of fellow Senators repeatedly warned of the systemic risk these entities posed to taxpayers and the overall economy.
Dole made the following statement:
I have very strong concerns that this "rescue" proposal will unfairly hold taxpayers responsible for the costly and reckless decisions of investment bankers on Wall Street. I, like the North Carolinians I am hearing from, am very skeptical of this proposal and frankly, I'm extremely frustrated that we find ourselves in this position.
So much of what is happening - with regard to the credit crisis, the housing slump, the bankruptcy and dissolving of major financial institutions - can be linked to the mismanagement of Fannie Mae and Freddie Mac, which was made possible by weak oversight and little accountability.
Since arriving in the Senate, I have been one of a handful of members pushing for stronger oversight of Fannie Mae and Freddie Mac. I've helped introduce, as have Senators Chuck Hagel, John Sununu, Mel Martinez, and Richard Shelby, legislation to strengthen oversight, and I've raised the issue in Banking Committee hearings time and time again. Unfortunately, Fannie and Freddie dispatched an army of lobbyists, reportedly spending more than one hundred million dollars to gain protection in Congress and this committee to oppose our legislation.
As we know, one of my committee colleagues proclaimed in April 2005 that Fannie and Freddie have done, and I quote, "a very, very good job." It was only two months ago that our bill was finally included in the Housing Stimulus Package, so it took five years to finally get appropriate action. This problem could have been resolved years ago.
It is astounding that despite the years of widely-publicized mismanagement at Fannie and Freddie despite our group of United States Senators sounding the alarm about the lack of oversight despite Alan Greenspan in 2005 urging Congress to act, warning that, "We are placing the total financial system of the future at a substantial risk "
Despite the preponderance of red flags, it took, of all things, the investment banking division of Morgan Stanley, hired by the Treasury Department, to "uncover" that Fannie and Freddie were still using overly aggressive accounting techniques to inflate their capital adequacy positions.
Now, my constituents, and indeed taxpayers across the nation, are asking how we arrived at this crisis. It is infuriating.
We need to end the existing structure of an implied government guarantee. We need to end the practice of private rewards at public risk. I fully support the mission of affordable housing and believe the government will continue to play an important role in this area. That said, it is abundantly clear that Fannie and Freddie have utterly failed to deliver on their intended purpose. In fact, because of their Congressional apologists, Fannie and Freddie have effectively done just the opposite. They have put us on the brink of a situation in which almost no one can obtain financing for a home.
One of the big casualties in all this mess is AIG. As we know, Treasury had to swoop in with an $85 billion loan to prevent the largest company failure in history.
The AIG downfall was caused in large part by the hemorrhaging credit default swaps on mortgage backed securities. Consistently throughout the year, I have been one of the few members who have called for more oversight and tougher reporting requirements for the $60 trillion credit default swaps market, which we now know also played a significant role in the collapse of Lehman Brothers.
I reference this as yet another example of what is now painfully obvious - the federal government's oversight structure for the financial sector is fatally flawed. And I am not at all convinced that this bailout plan - which appears incredibly expensive and hastily concocted - is the answer.
I welcome today's hearing, not only for us lawmakers to get answers, but for the taxpayers - who need to understand in no uncertain terms why they are being asked to foot this bill.