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Fannie/Freddie Bailout Betrays Taxpayers, Citizen Group Says
For Immediate Release July 15, 2008
Pete Sepp, (703) 683-5700
(Alexandria, VA) -- As the White House and Congress began crafting a bailout package to keep Fannie Mae and Freddie Mac afloat, the 362,000-member National Taxpayers Union (NTU) today urged policymakers to protect taxpayers from sinking in a sea of red ink. NTU has long called for cutting federal ties with Fannie and Freddie, and subjecting the lending giants to the laws and free-market competition that truly private firms face.
"Between the proposed giveaway to Fannie and Freddie, and legislation to fatten the Federal Housing Administration's (FHA) loan portfolio, Congress and the President could soon be saddling taxpayers with more than half a trillion dollars in new liabilities -- or nearly $2,000 for every American," said NTU Vice President for Policy and Communications Pete Sepp. "If even part of this amount is eventually written off the government's balance sheet as a loss, taxpayers will be left to clean up a financial scandal not seen since the S&L crisis."
Initial reports suggest the Treasury may be given authority to extend as much as $300 billion in credit to Fannie Mae and Freddie Mac, as well as be allowed to buy shares of the companies' stock. "For years, politicians have debated whether Government Sponsored Enterprises (GSEs) are more like federal agencies or private companies," Sepp observed. "But to taxpayers, calling it either bureaucratic bungling or the single greatest instance of corporate welfare in history is a distinction without a difference. They're on the hook no matter what -- for more federal debt or shares of GSE stock. That's not just an explicit guarantee -- it's an obscene one."
Despite a few improvements in their financial reporting, Fannie Mae and Freddie Mac remain in a precarious position compared to many private institutions, which have much lower debt-to-equity ratios. In addition to opposing recent legislation allowing FHA to assume new mortgage burdens, NTU supports extending federal securities laws to more fully cover Fannie Mae and Freddie Mac, thus increasing accountability. NTU has also advocated capping GSE salaries at federal executive schedule levels until these entities are fully privatized.
In 2000, NTU testified before Congress in favor of legislation that would have added modest curbs on the financial risks GSEs would be permitted to take. The testimony warned that many of the conditions that triggered the S&L crisis were developing around GSEs. "Years of favor-trading and well-funded lobbying on the part of GSEs derailed the reforms that could have prevented the meltdown at Fannie Mae and Freddie Mac," Sepp concluded. "Overburdened American families shouldn't have to pay for these mistakes."
NTU is a nonprofit, nonpartisan citizen group founded in 1969 to work for lower taxes, less wasteful spending, and accountable government at all levels. Note: More information on NTU's work in the area of GSE policy is available at www.ntu.org.