Crapo: Fannie Mae, Freddie Mac Reform Missing
Tells Treasury Secretary largest problem & cost ignored in reg reform bill
Washington, D.C. - American taxpayers could be on the hook for nearly $400 billion if Congress and the Administration don't change course and begin to address the problems behind one of the largest financial bailouts ever-for housing giants Fannie Mae and Freddie Mac. During a hearing of the Senate Finance Committee today, Idaho Senator Mike Crapo questioned Treasury Secretary Timothy Geithner as to why financial reform legislation on the Senate floor fails to address the "elephants in the room"-the nation's largest housing lenders and why the Administration is failing to act to reform Fannie and Freddie.
Crapo asked Geithner to explain how the problems of the housing and credit crisis were addressed in legislation that ignored reform to the two institutions that played a key role in the 2008 credit crisis. Recently, in a Senate Budget Committee markup of the FY2011 Budget, Senator Crapo offered an amendment that, if adopted, would provide a true picture of our national debt and its increase/decrease. The amendment would include the debt obligations of Fannie Mae and Freddie Mac in the debt calculations of the budget resolution; it failed on a party-line vote.
"The bank tax you're proposing does not apply to Fannie and Freddie; neither does the bill on the floor of the Senate," Crapo told Geithner during the hearing. "The public really has focused on taxpayer bailouts of banks, automakers and insurance companies. Nowhere has the support been higher than for Fannie and Freddie and estimates are that they will cost the taxpayers some $381 billion.
"Yet it is not included in the legislation on the floor of the Senate. Can you tell me why?"
"Senator, you're exactly right," Geithner responded. "We made a choice given the complexity of the reforms ahead that we would not move immediately to propose broad reforms over housing finances, including the future of Fannie and Freddie." The Treasury Secretary said changes for those lenders may be considered later, once the Administration is "further ahead" in the process of overall financial reform. The Senate will debate amendments to S. 3217, the Restoring America's Financial Stability Act, this week.
Crapo noted the scale of the rescue required in September 2008 when Fannie and Freddie were forced into conservatorship-their version of bankruptcy-was staggering. To date, the federal government has been forced to pump $126 billion into Fannie and Freddie. That's far more than AIG, which absorbed $70 billion of government largess, and General Motors and Chrysler, which shared $77 billion. Banks received $205 billion, of which $136 billion has been repaid. The Congressional Budget Office has estimated that, in the wake of the housing bubble and the unprecedented deflation in housing values that resulted, the government's cost to bail out Fannie Mae and Freddie Mac will eventually reach $381 billion. Crapo said that estimate may be too optimistic. Last Christmas Eve, the Treasury Department announced that it was lifting the $400 billion loss cap on the two companies, creating a potentially unlimited liability, and effectively providing the full faith and credit of the government in support of their debt.
Crapo repeated his question: How can we say that we are addressing the problems of the housing and credit crisis if we ignore reforming two institutions that played a key role in the 2008 credit crisis-Fannie Mae and Freddie Mac? He added that he will push for reforms for Fannie and Freddie in the financial bill now before the Senate; changes he said are needed to protect taxpayers.
Crapo and Secretary Geithner's remarks are posted on the Multimedia section of Crapo's website and on Crapo's You Tube page at http://www.youtube.com/watch?v=pc7lwR04DHg&feature=youtube_gdata