[Congressional Record Volume 161, Number 184 (Thursday, December 17, 2015)]
[Senate]
[Pages S8760-S8761]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
FANNIE MAE AND FREDDIE MAC
Mr. CORKER. Mr. President, as we continue consideration of the
omnibus, I rise today to applaud the inclusion of language I coauthored
with Senator Mark Warner that will ensure that the fate of mortgage
giants Fannie Mae and Freddie Mac--entities Congress created--will be
determined by Congress, and this language makes crystal clear that this
body does not support efforts to return to the failed model of private
gains and public losses.
As we wrap up our legislative business of 2015, I am also here to
remind my colleagues that there is much work to be done in the new year
to finally address the last unfinished business of the 2008 financial
crisis. Prior to the crisis, mortgage giants Fannie Mae and Freddie Mac
were publicly traded. They benefited from an implicit government
guarantee, which meant any upside went to the company. But as we saw at
the height of the financial crisis, the downside of that structure fell
on the taxpayers and it fell hard.
In September of 2008, because of this flawed model, losses mounted at
Fannie and Freddie, causing taxpayers to write a $188 billion bailout
check to keep them afloat. These entities remain in government
conservatorship today, backed by the taxpayers and owned by the U.S.
Treasury Department.
A 2014 Federal Housing Finance Agency stress test projected that the
GSEs could require a $190 billion taxpayer bailout to keep them afloat
during a future crisis--something none of us wants to see happen.
Because housing finance reform remained the last unaddressed piece of
the financial crisis left, in 2013 Senator Mark Warner and I developed
legislation that attempted to address the flaws in our housing finance
system and protect the taxpayers. This bill has been called the
blueprint for how our Nation's housing finance system should look in
the future.
After working with a group of bipartisan Members and then-Chairman
Tim Johnson and Ranking Member Mike Crapo, a reform bill passed the
Senate Banking Committee in May of 2014 by a vote of 13 to 9. This bill
would protect taxpayers from future economic downturns by replacing
Fannie and Freddie with a privately capitalized system. Unfortunately,
it did not come to the Senate floor, but that does not change the fact
that there continues to be broad, bipartisan, bicameral support to
reform these entities.
That broad support at the committee level and throughout Congress
came despite pushback from a number of large, self-interested Wall
Street hedge funds. Let me explain. As a result of the 2008 bailout,
Treasury purchased senior preferred stock in Fannie and Freddie and was
given sole discretion to sell or otherwise dispose of those shares.
Seeing an opportunity to make huge profits at the expense of taxpayers,
a number of big Wall Street hedge funds and other entities rushed in
when Fannie and Freddie crashed. They bought shares for pennies on the
dollar after the government had taken them into conservatorship and
knowing full well the government would have the authority to make
decisions relative to their future.
Now the hedge funds appear to be spending big money and going to
extreme lengths to stop housing finance reform in order to reap huge
financial returns. As they know how to do so well, these wealthy hedge
funds made a highly speculative bet that Congress would fail to do its
job, structural reform efforts would fail, and Fannie and Freddie would
be recapitalized and released out of conservatorship. Under that bet,
the taxpayers lose while some of the wealthiest hedge fund managers get
even wealthier. That is why the Wall Street hedge funds want to stop
efforts to protect taxpayers in the hope that Fannie and Freddie could
be recapitalized and released from conservatorship.
Let me be clear. Under that scenario--recapitalizing and releasing
Fannie and Freddie in their current form--we would fall back to a
system of private gains and public losses, lining the pockets of
multimillionaires while leaving taxpayers on the hook for future
bailouts. Looking at what is at stake, one can see why these hedge
funds are so engaged in stepping on the taxpayers and preventing reform
from occurring.
Using a self-analysis from one prominent hedge fund under a recap-
and-release scenario, this fund--with an estimated current holding of
$366 million--has a potential net profit of $8.1 billion and a total
sale of $8.4 billion. To give another example using those same
projections, another prominent hedge fund with an estimated current
holding of $501 million has a potential net profit of $2.3 billion or a
sale of over $2.8 billion.
These hedge funds, and several others, would benefit greatly from a
recap-and-release scenario, which is why they are so adamantly opposed
to housing finance reform that would put taxpayers' interests above
their own. Surely, we will not conflate the clear interests of the
hedge fund managers, which are billions of dollars in profits, with the
critical need to protect taxpayers from a future bailout by enacting
sound housing policy in our country. Returning to the failed model of
private gains and public losses would leave taxpayers on the hook for
the GSE's $5 trillion in outstanding liabilities. That is why I believe
we must act.
Inclusion of the jump-start provision in this bill is a good first
step. This legislation would prohibit the sale of Treasury-owned senior
preferred shares in Fannie Mae and Freddie Mac without congressional
approval and ensure Congress, and not self-interested hedge funds, has
the final say on how our housing finance system should look in the
future.
While I believe that recap-and-release is totally inappropriate, I do
understand that the hedge funds still have claims to deal with in
court, and this legislation does not prejudice those claims.
I believe the blueprint Senator Warner and I laid out in 2013 is a
good
[[Page S8761]]
starting point and one that will protect taxpayers, but this
legislation in the omnibus bill is silent on the future system. It
simply says Congress should have the final say in what happens to these
entities--again, entities that Congress created in the first place.
With passage of this provision--in the face of extremely intense
opposition--we are telling taxpayers we are putting to bed the idea
that returning to the status quo is an option. We will not return to a
system where big Fannie and big Freddie control the lion's share of our
housing system and taxpayers are exposed for future bailouts, but there
is more work to be done.
The question I have is this: Moving forward, who are we going to
fight for? Are we going to abdicate our responsibility and shy away due
to efforts by large Wall Street hedge funds wanting to get wealthier
off of taxpayers by placing taxpayers at greater risk or are we going
to fight for the people whom we represent?
As all of us who served in this body during the financial crisis know
well, the American people do not want to write another bailout check.
Without housing finance reform, that is an all-too-real possibility.
To my colleagues, trust me. I know a number of you have felt pressure
from large Wall Street hedge funds and the interest groups they
support, but I also know there is not one of you who truly wants to put
private investors' interest ahead of the people we represent.
In the new year, it is time for Congress to finally do its job. By
finally addressing the last major piece of unfinished business from the
financial crisis, we can once and for all end this failed model.
Fortunately, a lot of the heavy lifting has already taken place.
As we look forward to 2016, protecting taxpayers by reforming our
Nation's housing finance system should be near the top of the to-do
list. This legislation takes us a step in the right direction toward
that effort by saying the fate of mortgage giants Fannie Mae and
Freddie Mac will be determined by Congress.
I remain committed to doing everything I can to make sure we do not
return to the same failed model that put taxpayers on the hook for
billions of dollars, and instead we can create a dynamic housing
finance system that works for Americans rather than against them.
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