The following column on financial market reform by Congressman Bachus was published in the Politico on April 26. Bachus is Ranking Member on the House Financial Services Committee.
During a House Financial Services Committee hearing on Fannie Mae and Freddie Mac, the two housing finance giants bailed out by taxpayers and taken over by the federal government, Chairman Barney Frank (D-Mass.) said, "You can't really tear down the old jail until you've built a new one."
Jail is a suitable metaphor for what congressional Democrats have created for generations of American taxpayers, now shackled to hundreds of billions of dollars in debt.
It also describes what the Obama administration has in mind for Fannie and Freddie -- a massive and more permanent version of what was a key factor in the collapse of the financial markets, and one that could be the most costly of the 2008 bailouts.
Taxpayers have been forced to give $127 billion to these government-sponsored enterprises, and are on the hook for hundreds of billions more. We now own at least 80 percent of the them, and guaranteed more than $1.7 trillion in Fannie and Freddie debt and $5 trillion in mortgages.
On top of that, the Obama administration announced on Christmas Eve that they were writing a blank check to the two companies -- removing any limit on the amount of taxpayer exposure to future losses.
Fannie and Freddie's principal mission is to buy mortgages and resell them to investors, freeing up funds for banks and other lenders to make new mortgages.
However, like drug addicts, these two GSEs became hooked on easy money and cheap credit. Democrats fed that addiction by writing prescriptions in the form of "affordable housing mandates" and through relentless political pressure to drive down lending standards. This trapped millions of households in mortgage debt they could not afford, and ran up housing prices to unsustainable levels.
While the administration has acknowledged they have a problem, they stubbornly refuse to address it. Instead, they continue to feed this addiction with cheap capital and taxpayer guarantees -- a toxic combination that could further entangle taxpayers in the housing market and prevent a real recovery.
More than a year ago, as negotiations were underway for a financial reform package, Christina Romer, President Barack Obama's chairwoman of the Council of Economic Advisers, said reform of Fannie and Freddie is "certainly going to be an issue going forward. I think it should be part of the overall financial regulatory reform, to figure out what is the best way."
White House Press Secretary Robert Gibbs said months ago, "Obviously, as part of financial regulatory reform, GSE reform is going to be part of that."
They were right to say the GSEs must be addressed; but wrong in predicting that the administration would take any action.
No plan was written into the budget. It's not included in the House-passed regulatory reform bill. It's not mentioned in Senate bill negotiations.
What's even more outrageous is that Treasury Secretary Tim Geithner has contradicted these calls to action, punting the issue to 2011 -- after the Democrats push through their financial reform. And after the mid-term elections they so nervously await.
The debate over how to structure our nation's housing finance system comes down to two competing philosophies.
Congressional Republicans want to restore market discipline and competition. We want to ensure that credit is extended to those who can pay it back and that taxpayers never again foot the bill for a misguided public policy of privatized profits and socialized losses.
The Obama administration and congressional Democrats want to build, as Frank proposed, a bigger and better debtor's prison for taxpayers to fund even greater bailouts as the party seeks to fulfill its political objectives.
Given the role that Fannie and Freddie played in the collapse of our financial system, and the role of political leaders in enabling them, the American people have a right to expect that fixing these GSEs would be at the center of the administration's regulatory reform agenda.
But instead of reforming the GSEs to create a sustainable mortgage finance system that does not put the taxpayer at risk, the administration is doubling down on this failed model.
But House Republicans have introduced a number of measures over the last 18 months to address the failures of the GSEs. It is time to end the disastrous experiment of "public mission, private ownership" on which Fannie and Freddie were built.
We need to establish a framework to reinvigorate housing finance that does not rely on government guarantees; that does not make private investors and creditors wealthy while saddling taxpayers with losses, and that does not set the stage for the next financial crisis.
We owe that much to the American taxpayers, their children and their grandchildren.