Op-Ed: Senate Majority Leaves Taxpayers On The Hook For Fannie, Freddie

Op-Ed

Fifty-six members of the U.S. Senate had an opportunity to take a courageous stand to protect taxpayers from the unlimited bailout of Fannie Mae and Freddie Mac.

Instead of standing-up for taxpayers, however, they voted against the GSE Bailout Elimination and Taxpayer Protection amendment to the Obama-Dodd financial reform bill now being debate in the Senate and left taxpayers on the hook for the failures of the two largest, most influential regulation-avoiding, bailed-out institutions in America. The amendment was introduced by Sen. John McCain, R-AZ.

Perhaps the most glaring shortcoming in the financial regulation legislation is what is not included in either the House or Senate bills - fundamental reform of the two largest recipients of taxpayer bailouts, Fannie Mae and Freddie Mac.

These two Financial Frankensteins weren't located on Wall Street, but in Washington, D.C., just miles from the Capitol Hill lab in which they were created. To date, their failures have directly cost taxpayers over $146.9 billion, with the potential to cost hundreds of billions more.

The American people are tired of paying for the failures of others, but today, the Senate majority chose to dodge real regulatory reform and continue the government's Get Out of Jail Free cards for the two worst players in the financial meltdown of 2008.

On March 19, I introduced H.R. 4889, the GSE Bailout Elimination and Taxpayer Protection Act, a version of which was included in the regulatory reform alternative bill offered last year by House Republicans.

My bill would have ended the conservatorship for both GSEs within two years and, if they are financially viable, allow them to resume operations for a transition period of three years where they would be subject to phased-in new limitations, including smaller portfolio holdings, increased minimum capital requirements, minimum loan down payment requirements, and tighter limits on the size of mortgages that could be securitized.

My bill would also permanently repeal the GSEs' misguided affordable housing goals mandate, which encouraged the purchase of poorly underwritten loans for which taxpayers are now footing the bill.

At the end of the transition, the GSEs' government-granted charters would expire, and they would be required to operate on a level playing field with their private sector competitors, without government subsidies.

Ending the taxpayer subsidies may not be the only way to reform the GSEs, but, given the current options, it is clearly the best way. Other options like nationalizing them or concocting a public utility model simply do not solve the anti-competitive market distortions the GSEs have caused, nor do they protect taxpayers from the hundreds of billions of dollars in possible bailout costs they now face.

Many of these same concepts were included by senators McCain, Richard Shelby, R-AL, and Judd Greg, R-NH, in the GSE Bailout Elimination and Taxpayer Protection Amendment that was defeated today by the Senate majority.

Instead of developing a true plan to reform Fannie and Freddie, the House-passed bill specifically exempts the GSEs from the very regime it claims will end too big to fail, and the White House has labeled calls to include Fannie and Freddie reform in the Senate bill a "campaign of distraction."

Protecting taxpayers is not a distraction; it is a paramount goal of any true regulatory reform effort. Unfortunately, and despite the vigorous advocacy of McCain, the majority in the Senate chose to continue what has now become business as usual in Washington -- continue the bailouts and thereby ensure that the big get bigger, the small get smaller and the taxpayer gets stuck with the bill.

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