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Letter


Grassroots Coalition Urges Congress to Deal with Fannie Mae and Freddie Mac

February 3, 2005

An Open Letter to the 109th Congress:

We, the undersigned taxpayer, consumer, and policy groups representing hundreds of thousands of Americans, applaud the 109th Congress for addressing the long-term unfunded liabilities of the Social Security system. But, we urge you to also focus on another looming threat to taxpayers ? the potential liabilities inherent in America?s two Government-Sponsored Enterprises, Fannie Mae and Freddie Mac.

The past year has offered story after story of financial mismanagement and accounting scandals at the two government-backed lending giants. Of even greater concern to taxpayers, however, is the potential cost if either of these entities faces bankruptcy or default. Financial columnist Robert Samuelson recently summarized the situation quite well:

In financial markets, both Fannie and Freddie are seen as quasi-government agencies. Their debt enjoys low interest rates just above Treasury rates. A default by either would be considered a government default ? a crisis. The result is a potential disaster for taxpayers: It?s a heads-I-win-tails-you-lose proposition. If Fannie and Freddie prosper, benefits go to shareholders; if there?s trouble, government will almost certainly rescue them.

In the short-term, shoring up regulation would be a good start. But realistically, the best answer to ending the threat to taxpayers is complete privatization of these two entities. Both Fannie Mae and Freddie Mac have proven themselves to be far too sophisticated political players to be held in check by regulatory reform for very long. The Savings & Loan crisis of the 1980s was a cautionary tale of politically-deft financial entities skirting regulation, ultimately leading to disaster. While it may help lessen the threat to taxpayers for a limited period, a regulatory fix is not a permanent solution.

A good starting point for full privatization is the plan that was developed by Peter Wallison, Tom Stanton, and Bert Ely for the American Enterprise Institute. Their plan provides a blueprint for the federal government to safely cut ties with Fannie Mae and Freddie Mac ? thereby protecting taxpayers. And their plan outlines how to ensure even lower interest rates, to the benefit of America?s homeowners.

In the 1980s, some of us warned about potential problems with America?s Savings & Loans. Many Members of Congress chose to simply ignore the situation, and hope that problems would never materialize. The history books will record that their lack of leadership in addressing the issue ended up costing Americans hundreds of billions of dollars. It would be tragic to see the same scenario play out all over again. We urge the 109th Congress to act decisively to avert another financial disaster, and we all look forward to working with you in this endeavor.

National Taxpayers Union
John Berthoud, President
Virginia

Kalamazoo County Taxpayers Association
Raymond H. Wilson, Committee Member
Michigan

American Conservative Union
Richard Lessner, Executive Director
Virginia

Kansas Taxpayers Network
Karl Peterjohn, Executive Director
Kansas

Arkansas Taxpayers? Rights Committee
Oscar Stilley, President
Arkansas

Maryland Taxpayers Association, Inc.
Richard Falknor, President
Maryland

Arlington County Taxpayers Association
Timothy M. Wise, President
Virginia

Maryland Tax Education Foundation
Jeff Hooke, Chairman
Maryland

Brown County Taxpayers Association
Richard Parins, President
Wisconsin

National Tax Limitation Committee
Lewis K. Uhler, President
California

Buckeye Institute for Public Policy Solutions
David J. Hansen, President
Ohio

Nebraska Taxpayers for Freedom
Doug Kagan, Chairman
Nebraska

Butte County Citizens for Better Government
Frank Erridge, Secretary
California

New York Tax Reform Organization
Fred Lane, Chairman
New York

Central Solano Citizen/Taxpayer Group
John Takeuchi, Secretary
California

Pennridge Community Taxpayers Association
Jean Bolger, President
Pennsylvania

Citizens for an Alternate Tax System
Tony Ristaino, Director
Maryland

Public Interest Institute
Dr. Don Racheter, President
Iowa

Coalition for Accountable Government
William T. Barton, Chairman
Utah

Redstate.org
Joshua Trevino, President
Virginia

Competitive Enterprise Institute
Fred L. Smith Jr., President
District of Columbia

Republicans United for Tax Relief
James Parmelee, President
Virginia

Consumer Alert
Frances B. Smith, Executive Director
District of Columbia

San Diego Tax Fighters
Richard Rider, Chair
California

Council for Citizens Against Government Waste
Thomas A. Schatz, President
District of Columbia

Taxpayers for Accountable Government
Jim Vogt, President
Virginia

Fairfax County Taxpayers Alliance
Arthur G. Purves, President
Virginia

Taxpayers League of Minnesota
David Strom, President
Minnesota

Family Research Council
Connie Mackey, Vice President
District of Columbia

Taxpayer?s Protection Alliance
Lori Klein, President
Arizona

Family Taxpayers Network
Lidia R. Downs, Deputy Director
Illinois

Tennessee Tax Revolt, Inc.
Rick Durham, President
Tennessee

FreeNYS.org
Mark Bitz, President
New York

Utah Taxpayers Association
Howard Stephenson, President
Utah

Idahoans for Tax Reform
Laird J. Maxwell, Chairman
Idaho

West Virginians Against Government Waste
Henry L. Thaxton, Director
West Virginia

Iowans for Tax Relief
David M. Stanley, Chairman
Iowa