
“On Christmas Eve, when most Americans’ minds were on other things, the Treasury Department announced that it was removing the $400 billion cap from what the administration believes will be necessary to keep Fannie Mae and Freddie Mac solvent… Fannie and Freddie’s congressional sponsors–some of whom are now leading the administration’s effort to “reform” the financial system–have a lot to answer for.” (Peter J. Wallison)
Sneaky, sneaky. For once, I have to agree with a statement made by a writer from the American Enterprise Institute (AEI), a conservative think tank many of whose scholars were responsible for Bush-era policies. The bill referred to here (H.R.4173 – Wall Street Reform and Consumer Protection Act of 2009) actually does more than remove the $400 billion cap for the next three years—it sets a new limit at $4 trillion, promises bonuses of $6 million to company execs, and prohibits any congressional debate on the matter from exceeding 10 hrs. Ouch.
As the thinker behind the bill, Barney Frank (D- Massachusetts) is drawing a lot of flak—Rep. Dennis Kucinich (D-Ohio) said Wednesday that his subcommittee of the Oversight and Government Reform Committee will launch a probe. Separately, Reps. Scott Garrett (R-New Jersey) and Spencer Bachus (R-Alabama) requested that the Financial Services Committee hold a hearing. So far, this is the response opponents are getting from those behind the bill:
1. H.R.4173 establishes a number of new regulatory agencies, including the Consumer Protection Financial Agency (CFPA), the Financial Stability Council (FSC), and the Federal Insurance Office, to moniter all areas of the industry.
2. Its specified aid is characterized by a necessary “flexibility” that ensures Fannie and Freddie can stand behind the billions of dollars in mortgage-backed securities they sell to investors (they both provide vital liquidity to the mortgage industry by purchasing home loans from lenders and selling them to investors—without the promise of more government aid, the firms could still go broke, leaving millions of people unable to get a mortgage).
3. Federal aid will only be granted if the likelihhood of reimbursal is 99%.
4. In reference to the pay increase—it would be impossible to keep any good talent at that level with that much responsibility without that much of an increase. Currently, the amount is still significantly less than what had been earned by their predecessors (prior to their ousting, Fannie CEO Daniel Mudd received $10.2 million in 2008, and Freddie CEO Richard Syron secured $13.1 million). In addition, the pay increases are contingent upon the goals each recipient is able to achieve.
5. The lifeline will quite effectively “tether” the two agencies to the government, allowing for more stringent regulation of its function and responsibilities.
Unfortunately, this isn’t enough justification for most:
1. This will only further inflame those who balk at increased government bureaucracy.
2. We’ve heard it before.
3. How exactly does one accurately assess 99% likelihood of reimbursal?
4. Fine, but it chafes when coming from an administration who recently declared the equally culpable banking CEO’s greedy “fat-cats”.
5. Inevitably, the “tether” will also mean the two agencies become vehicles by which the government will carry out its mortgage modification programs. I can already hear bloggers across the nation decrying the “nationalization” of the American economy.
All issues that will hopefully be addressed in the coming weeks and months— the Obama administration has said it will announce its plans for Fannie and Freddie in February.
To read more about the bill, visit OpenCongress.org here—the page includes summaries, a list of who voted and which side they chose, and recent blog posts and news articles posted on the matter. Noteworthy articles can be found at the Associated Press, the New York Times, and the Chicago Tribune. The original AEI article can be found here, and is reprinted in the Wall Street Journal.