Ménage à trois? In bed with Fannie and Freddie

May 10, 2010 05:53


Why ‘financial reform’ doesn’t touch the troubled lenders. Congressional Democrats should drop their resistance to reform proposals and make a break from their sordid history with these toxic firms.

By THE WASHINGTON TIMES

America’s greatest economic liability is also the greatest political liability for the Democratic congressional leadership. Fannie Mae and Freddie Mac have exposed taxpayers to $5.4 trillion in risk from loan guarantees, with taxpayers already having covered $126 billion in losses. So far, Democrats have been reluctant to include tough reforms on the profligate government-sponsored enterprises in the financial regulation package currently making its way through the legislative process.

A group of Republican senators led by John McCain, Arizona Republican, last week proposed to give the housing market giants five years either to become self-sufficient or to go out of business. They would also reduce the total amount of losses that taxpayers would cover to $400 billion. Rather than debate the particulars of this idea, Democratic leaders appear more interested in burying any and all such changes.

And no wonder. Renewed scrutiny of the two institutions would remind the public that senior Democrats were in bed, sometimes literally, with Fannie and Freddie. House Financial Services Chairman Barney Frank of Massachusetts spent a number of years blocking various attempts to regulate government-sponsored enterprises, famously saying that that he did not see any “safety and soundness” problems worthy of note. There was good reason for Mr. Frank to look the other way, given his history of close association with Herb Moses, Fannie’s assistant director for product initiatives from 1991 to 1998.

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