[Congressional Record (Bound Edition), Volume 155 (2009), Part 15]
[Senate]
[Page 21004]
[From the U.S. Government Publishing Office, www.gpo.gov]




                       FANNIE MAE AND FREDDIE MAC

  Mr. KYL. Mr. President, there were two items that came to my 
attention that I wished to briefly comment on that are related. The 
first has to do with the Fannie Mae and Freddie Mac continuing saga of 
costing the American taxpayers a ton of money. We all know that despite 
warnings, particularly from Republicans, they needed oversight, that 
they were accumulating far too much bad debt and taking on all these 
so-called toxic assets--mortgages that, frankly, weren't going to be 
paid back; that they were exposing the American taxpayer to liability 
because of the implicit guarantee that lay behind the Federal charter 
for Fannie Mae and Freddie Mac. Others said: Don't worry, keep going 
with this; it is a wonderful program. Finally, the bottom fell out. 
Fannie and Freddie were deeply in debt and the American taxpayers came 
to their rescue.
  The idea was then to restructure these two entities so that never 
again could this happen. We did that. The problem was that, because 
Fannie and Freddie were government-chartered entities, it didn't take 
long for them to squeeze out most of the private players in the 
mortgage market. Today, I think they hold something like 75 percent of 
these particular mortgages.
  Well, of course, the day of reckoning has come again. They have now 
run up more debt--a huge amount of debt--and they are not going to be 
able to pay it. A story in yesterday--I will get the source later--
reported that the government has since pledged, after their original 
reorganization, more than $1.5 trillion, including $85 billion in 
direct aid, in order to keep the mortgage market working through 
Freddie Mac and Fannie Mae. The White House is now considering a new 
plan that apparently is coming out of the Office of the Secretary of 
Treasury and the National Economic Council Director that would somehow 
reform Fannie and Freddie yet again.
  The Treasury Secretary said:

       The only question that remains is what form and what 
     structure they ultimately will take.

  The article points out that the most likely structure is a good bank/
bad bank structure, in which they will basically be relieved of all 
their obligations, which will all be put in a new ``bad bank,'' which 
is a pile of debt that the American taxpayers will eat, and then the 
``good bank'' is the entity that is supposed to continue on.
  The question is: Why would we want these quasi-government entities to 
continue to compete with the private market, continue to create bad 
debt that taxpayers have to eat every now and then, and after we slough 
off the bad debt to the American taxpayers, they continue to do 
business as if they had gone through bankruptcy and don't have any more 
debts but they still have the implicit guarantee of the American 
taxpayers.
  It is time to end that. We have a vibrant mortgage market now. There 
is an expectation that within the next several months housing will come 
back. It already is in certain areas. Interest rates are low, and it is 
possible to write mortgages now. We have learned the lesson that we are 
not going to write mortgages that cannot be repaid. It is not good for 
the financial institutions or for the people who take out the mortgages 
if they cannot repay them, and it is not good for taxpayers who have to 
end up eating the bad debt that is created.
  I wished to close by referring to the penultimate paragraph from this 
newspaper, which says that the bad bank would be for Fannie Mae's and 
Freddie Mac's toxic assets. Then the government could create new 
companies to attract private investment for mortgage finance, starting 
the process over again.
  Why should the government create new companies? The private market 
has an adequate way to deal with this; it is called the private sector, 
private companies. They are highly regulated. The proposal from the 
administration is to impose additional regulations, but why do we need 
a new government company? We have government insurance companies, 
government car companies, and the administration proposal on health 
care is to create a new government health insurance company. We have 
banks taken over by the government.
  Now we are going to fail to learn the lesson with Fannie Mae and 
Freddie Mac and create new government-backed companies, such as Fannie 
and Freddie--maybe they have the same name, who knows--in the mortgage 
business. When are we going to get out of the business of having the 
government create new companies? That is socialism, that is not 
American. That is not our free enterprise system. When things go wrong, 
we adjust and we make new regulations to correct the problems that were 
created; we learn the lessons of why government created the issue in 
the first place.
  We don't need to continue to have the government create new companies 
that cost the taxpayers money and get us deeper into the notion that 
the government can compete with the private sector. That, then, leads 
inevitably to the government takeover because the government is never a 
good competitor when it is also the regulator. That is a fear a lot of 
people have with health care.

                          ____________________