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

An Open Letter to the 109^th Congress:

We, the undersigned taxpayer, consumer, and policy groups representing hundreds of thousands of Americans, applaud the 109^th 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 109^th 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