Contrary to what the Obama administration would have you believe, the biggest recipients of taxpayer funds during the financial crisis have not been Wall Street banks — but the toxic twins, mortgage behemoths Fannie Mae and Freddie Mac.
And the House and Senate are now finalizing legislation to reform the financial sector — yet the bill will leave the biggest bailout recipients untouched. In fact, Fannie and Freddie are guaranteed to continue siphoning money from American taxpayers.
That’s right: The Democratic majority in Congress has made no attempt to reform these two entities, which have already cost us $145 billion. Moreover, Congress and the administration have been hiding the true cost of Fannie Mae and Freddie Mac from the American public — while also using these off-the-books institutions to funnel money into special loan-modification programs that are also unaccounted for in the federal budget.
In 2008, during the height of the financial crisis, the government took ownership of Fannie Mae and Freddie Mac, injecting cash to keep them afloat. Since the federal government now owns, manages and supplies the capital for Fannie Mae and Freddie Mac, the nonpartisan Congressional Budget Office concluded last year that their cost to the American people should be accounted for in the federal budget. Unfortunately, President Obama’s Office of Management and Budget ruled differently, preferring not to account for the risk these entities pose.
Yet that risk is huge. The federal government’s explicit commitment to Fannie and Freddie now surpasses $2 trillion. On top of that are $8.1 trillion in Fannie and Freddie securities now outstanding — obligations that both Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner have stated their unwavering commitment to meeting, should Fannie and Freddie need assistance.
Foreign banks and governments hold some $1.3 trillion of those securities, so US taxpayers are on the hook for bailing out foreign governments should Fannie and Freddie default. We may end up sending China alone a check for $454 billion.
With the taxpayers as the $10 trillion backstop for these government-controlled misfits, there should be a significant drive in Congress to reform them and reduce the risk to the public. Yet the Democratic leaders in both the House and Senate have blocked every such effort — even the most basic attempts at reform, such as legislation I offered to provide for an accurate accounting of Fannie and Freddie.
Why have my Democratic colleagues squelched even the most common-sense attempts at transparency? I can only conclude that they feel that they have something to hide — that they fear that the American people, on discovering the true cost of Fannie and Freddie, will be alarmed; that, when the public sees the risks these entities pose, it will demand reform. And, perhaps, that when the taxpayers discover the Democrats’ repeated attempts to stymie reform, they will be furious.
These may be genuine, if partisan, concerns the Democrats must face, but not one is a legitimate reason to stall reform of Fannie and Freddie. Every day we wait, the risk to the public and our economy grows. Taxpayers are continually losing money on these failed enterprises; at some point, we must say enough is enough. Scott Garrett (R-NJ) is a member of the House Committee on Financial Services and of the Republican Policy Committee.