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Enzi balks at bailout

September 8, 2008

Washington, D.C. - Following the U.S. Treasury’s announcement to place Freddie Mac and Fannie Mae under government control through the Federal Housing Finance Agency, U.S. Senator Mike Enzi, R-Wyo., made the following comments.
 
“The taxpayers of this country deserve better than a billion dollar bailout at their expense,” said Enzi, who voted against the first bailout bill eight times before it passed the Senate in July.   “I have been pushing for improved oversight of Fannie and Freddie for more than five years.  If Congress had taken action and implemented GSE reform several years back, we would not be caught in this precarious position now.

“Throwing money at the problem doesn’t solve anything, it actually punishes taxpayers who did nothing wrong.  Americans will be paying for this for years to come. This is not the legacy or precedent I want to leave my grandchildren. Congress can and should do better. By approving a new and stronger regulator of Fannie and Freddie years ago this could have been avoided.  It is upsetting that a government takeover of these massive entities is our only remaining alternative.”

Below is Enzi’s full statement on the Treasury takeover of Fannie and Freddie as prepared for delivery on the Senate floor.

Statement of Senator Michael B. Enzi
September 8, 2008

Every time this Congress or a federal agency has devised a strategy to save America’s housing market, the plan has been more costly, more risky, and less aligned with the principles of a free market economy than the last plan.  Each time, I have voiced my strong opposition to a bail out of big banks and investors with taxpayer money.  I helped lead the charge to stop the last $300 billion housing bill, voting against it eight times before it passed the Senate.   Unfortunately, most members of Congress would rather throw money at the housing problem than enact meaningful, long-term reform.

This Sunday, the United States Treasury took another unprecedented step away from the sound economic principles of our market economy and has recommended that Freddie Mac and Fannie Mae be placed into the conservatorship of their regulator, the Federal Housing Finance Agency (FHFA).  The Treasury has also established a new discount credit line with the government-sponsored enterprises, and will begin to purchase Freddie Mac and Fannie Mae stock with taxpayer dollars.  Now Freddie and Fannie, both publicly-traded companies, will be under the direct control of the federal government. 

It is difficult to overestimate the magnitude of this proposal.  Freddie Mac and Fannie Mae have an outstanding debt of $5 trillion and their stocks are held in the portfolios of thousands of pension funds, IRAs, and foreign central banks.  Past attempts by Congress to micromanage the housing market has only led to more market volatility and stock sell-offs.  The continued operation of these government-sponsored enterprises is crucial to our economy, so allowing the Treasury to take over these mortgage giants is an enormous undertaking and liability.  As a taxpayer, this plan will be funded with your hard-earned money. 

In July, I voted against the legislation authorizing the Treasury to purchase stock in both Freddie Mac and Fannie Mae.  I opposed this plan primarily because no one knew how much it would cost.  Even today, no one has a clue how much this plan will cost American taxpayers.  Shockingly, both the House and Senate voted overwhelmingly to authorize this blank check to the Treasury, written against the taxpayers’ account.

Congress had the opportunity to avoid this big government takeover by passing sensible reforms for the government-sponsored enterprises years ago.  By delaying enactment of the a new, stronger regulator for Freddie Mac and Fannie Mae, some members of Congress have cost Americans billions of dollars in bank bailouts and potentially billions more by assuming the debt of Fannie Mae and Freddie Mac.   It is a sad fact that conservatorship may be the best alternative to a complete shutdown of our mortgage market. 

It is unclear whether some of my colleagues in Washington will ever understand the big picture.  Taxing companies into insolvency and tossing billions of taxpayer dollars out of an airplane will not get America out of the housing crisis.  Doing so has only further weakened out economic standing in the world.  Now the federal government wants to take on more private risk, bailing out shareholders with taxpayer money.  It is likely Americans will be paying for this new strategy for years to come, and the implications will be much larger than we can even imagine now.