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

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

Kalamazoo County Taxpayers Association
Raymond H. Wilson, Committee Member

American Conservative Union
Richard Lessner, Executive Director

Kansas Taxpayers Network
Karl Peterjohn, Executive Director

Arkansas Taxpayers? Rights Committee
Oscar Stilley, President

Maryland Taxpayers Association, Inc.
Richard Falknor, President

Arlington County Taxpayers Association
Timothy M. Wise, President

Maryland Tax Education Foundation
Jeff Hooke, Chairman

Brown County Taxpayers Association
Richard Parins, President

National Tax Limitation Committee
Lewis K. Uhler, President

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

Nebraska Taxpayers for Freedom
Doug Kagan, Chairman

Butte County Citizens for Better Government
Frank Erridge, Secretary

New York Tax Reform Organization
Fred Lane, Chairman
New York

Central Solano Citizen/Taxpayer Group
John Takeuchi, Secretary

Pennridge Community Taxpayers Association
Jean Bolger, President

Citizens for an Alternate Tax System
Tony Ristaino, Director

Public Interest Institute
Dr. Don Racheter, President

Coalition for Accountable Government
William T. Barton, Chairman
Joshua Trevino, President

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

Republicans United for Tax Relief
James Parmelee, President

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

San Diego Tax Fighters
Richard Rider, Chair

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

Taxpayers for Accountable Government
Jim Vogt, President

Fairfax County Taxpayers Alliance
Arthur G. Purves, President

Taxpayers League of Minnesota
David Strom, President

Family Research Council
Connie Mackey, Vice President
District of Columbia

Taxpayer?s Protection Alliance
Lori Klein, President

Family Taxpayers Network
Lidia R. Downs, Deputy Director

Tennessee Tax Revolt, Inc.
Rick Durham, President
Mark Bitz, President
New York

Utah Taxpayers Association
Howard Stephenson, President

Idahoans for Tax Reform
Laird J. Maxwell, Chairman

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

Iowans for Tax Relief
David M. Stanley, Chairman