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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 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.