[Congressional Record (Bound Edition), Volume 154 (2008), Part 13]
[House]
[Page 18156]
[From the U.S. Government Publishing Office, www.gpo.gov]




              THE GOVERNMENT BAILS OUT FANNIE AND FREDDIE

  The SPEAKER pro tempore. The Chair recognizes the gentleman from 
Florida (Mr. Stearns) for 5 minutes.
  Mr. STEARNS. Mr. Speaker, it's no secret that our country is facing 
economic uncertainty with a rapidly rising national debt and a 
lingering housing and mortgage crisis. Just weeks ago, our Congress 
orchestrated a sweeping effort to prop up government-sponsored 
enterprises--GSEs Fannie Mae and Freddie Mac--which own or insure half 
of our Nation's mortgages by exposing American taxpayers to vast 
financial risk. Now, just this past weekend, the Treasury has finalized 
a plan to officially bail out Fannie and Freddie, a step I had hoped 
our government would not be forced to take.
  It used to be argued that simply chartering Freddie and Fannie didn't 
mean that the Federal Government was on the hook if these mortgage 
giants collapsed, but now no one can make that case anymore. The recent 
and worrisome events occurring in the United States' housing market 
have revealed that the Federal Government bears significant risk in its 
chartering of Fannie Mae and Freddie Mac. Although these two GSEs are 
supposed to make the American dream come true, the reality is that they 
are contributing relatively little to the overall quality of the U.S. 
housing finance system.
  At the same time, they have created exorbitant risks both for the 
taxpayers and for the entire economic system that cannot be adequately 
addressed by simple regulation alone. Over the years, Fannie and 
Freddie have been allowed to incur $5.2 trillion in debt by borrowing 
$1.5 trillion and by guaranteeing mortgage-backed securities worth 
almost $4 trillion. Unfortunately, since January of this year, Fannie 
and Freddie's stock has also declined by about 90 percent. The collapse 
of these two, their common shares, coupled with the current credit, 
housing and mortgage crisis and illiquidity of our markets, has clearly 
demonstrated that the financial and regulatory structures we have been 
operating have failed us.
  With the hasty passage of the Housing and Economic Recovery Act (H.R. 
3221), which I voted against, Congress granted the Treasury a broad new 
authority to inject capital into the struggling mortgage giants if 
that's needed. To the surprise of few, with a collapse imminent, the 
Treasury decided this past weekend it would transfer the control of 
Fannie and Freddie and place it into conservatorship, which is akin to 
the filing of chapter 11 bankruptcy. The Treasury will now commence 
with buying mortgage-backed securities from banks in the open market at 
the expense of American taxpayers.
  Although this move will probably lower interest rates on home loans 
by, maybe, about 1 percent, the bailout won't stabilize home prices or 
swiftly curb the rate of foreclosures, which are currently at an all-
time high. Thus, the immediate effect of the Treasury bailout of Fannie 
and Freddie will serve to benefit, for the most part, international 
stock exchanges and large central banks in foreign countries. To be 
specific, one of the biggest, immediate beneficiaries of this bailout 
will be the central banks in Asia, such as the People's Bank of China, 
which has billions invested in Fannie Mae and Freddie Mac bonds.
  Four years ago, Federal Reserve Board Chairman Alan Greenspan told 
the Senate Banking Committee: ``The existence or even the perception of 
government backing undermines the effectiveness of market discipline,'' 
and he was right.
  We must find an effective way to free our economy from the grips of 
this avoidable financial instability. In order to do so, Fannie and 
Freddie must be restructured and set on a path towards gradual 
privatization, for placing Fannie and Freddie into conservatorship is 
not a good long-term solution. Privatization is the most viable 
solution to mitigating the enormous risks posed by these out-of-control 
GSEs.
  To be sure we never find ourselves in this situation again, Fannie 
and Freddie must be removed entirely from the government's account, be 
placed in direct competition with other financial institutions and be 
subjected to the effective discipline of the U.S. market. In this way, 
we can stabilize these important mortgage firms, restore confidence to 
investors and shareholders and relieve American taxpayers from the 
burden of another costly bailout.
  Also, I call for an immediate investigation by this body into Freddie 
Mac's unreported financial results of almost $9 billion. Let's ask 
former CEO Franklin Raines to explain these fraudulent audits that were 
presented.
  The American people deserve better than what these GSEs have to 
offer. We cannot allow them to leave us with a legacy of debt to be 
shouldered by hardworking Americans, for as Thomas Jefferson so aptly 
said a long time ago, ``[the] principle of spending money to be paid by 
posterity under the name of funding is but swindling our future on a 
very large scale.''

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