Restoring American Finacial Stability Act of 2010
Floor Speech
BREAK IN TRANSCRIPT
Mr. CRAPO. Thank you very much, Mr. President.
This amendment includes Fannie Mae and Freddie Mac as part of the Federal budget as long as either of these two institutions is under conservatorship or receivership. I wish to thank Senators Gregg, Shelby, McCain, and Vitter, Hutchison, and Corker for cosponsoring this amendment.
As I believe my colleagues will recall, several days ago we voted on a broader amendment which would actually have provided some significant coverage of Fannie Mae and Freddie Mac in this so-called financial regulatory reform legislation we are addressing on the floor of the Senate today.
That legislation would have provided a pathway for us to literally stop the bailouts of Fannie and Freddie and move us toward a path of resolving the continued taxpayer exposure to the excesses of Fannie Mae and Freddie Mac. But that amendment was defeated on the floor of the Senate--although I supported that amendment because now, since the amendment has been defeated, there is literally no piece of this legislation before us that addresses the core problem that started the entire collapse in our economy; namely, the securitization of the mortgage industry and the actions of Fannie Mae and Freddie Mac, which ran up so many of these toxic assets and helped to spread them throughout the globe.
As we debated then, the taxpayer is already on the hook for about $130 billion-plus for the problems Fannie and Freddie caused. Experts tell us, as we move forward, that liability to the taxpayer is likely to reach $380 billion to $400 billion. I personally think those are conservative estimates. When we get the full picture, I think the taxpayers will have been put on the hook for way more than that.
This amendment simply says: Let's tell the American public what's happening. Since we lost the fight last week to try to have the bill cover Fannie Mae and Freddie Mac and provide an exit strategy for the taxpayers to continue to bail them out, let's at least be open and clear about what we are doing with regard to Fannie and Freddie.
The purpose of this amendment is to show the American people the true picture of how much our national debt has increased as a result of the bailout of these two institutions--the bailout which I, again, point out is ongoing, uninterrupted in any way by this legislation.
According to the CBO Director Douglas Elmendorf:
After the U.S. Government assumed control in 2008 of Fannie Mae and Freddie Mac--two federally chartered institutions that provide credit guarantees for almost half of the outstanding residential mortgages in the U.S.--
This is his quote now, and because of what happened in the economy, Fannie and Freddie, together with the FHA, account for 96.5 percent of all of the residential mortgages in the U.S. Continuing with the quote:
the Congressional Budget Office concluded that the institutions had effectively become government entities whose operations should be included in the Federal budget.
What is the Director saying? He is saying that since the U.S. Government has now taken over control and management of Fannie Mae and Freddie Mac, and the taxpayer is on the hook for all of their debts and excesses, we ought to put it on budget and show the American people what is happening to our debt as a result of it, instead of using the creative accounting that we see here in Washington all the time, where we mount up spending and debt and figure out ways to keep it from showing up in the national debt or in the calculations of our spending.
At the end of 2009, per the financial statements, those figures that we are talking about, how much debt is not being reflected in our national debt because we don't choose to count it? Those figures are $774 billion for Fannie Mae and $781 billion for Freddie Mac, for a total of $1.555 trillion, which is out there for which the taxpayer is on the hook, and we have to figure out a way to pay it back. We as a Congress will not tell the American people that in the calculations of our national debt.
To put into perspective how large these entities are, their combined total books of business are nearly $5.5 trillion. As I indicated, they are currently run and operated by the U.S. Government.
Again, the amendment last week would have put us on a pathway to solve this and take the government out of the business, which should be a private sector business of mortgages. But at least this amendment would put us on record as telling the American people what exposure we are putting them to by not taking those actions.
By the way, the Congressional Budget Office has estimated that, in the wake of the housing bubble and the unprecedented deflation in housing values that resulted, the government's cost to bail out Fannie Mae and Freddie Mac will eventually reach, as indicated before, about $381 billion. I think that is too conservative.
On May 5, Freddie Mac reported losing another $8 billion in the first quarter and requested $10.6 billion from taxpayers, saying in the same breath they are going to need more in the future.
On May 10, Fannie Mae reported losing $11.5 billion, its 11th consecutive quarterly loss, and itself asked for another $8.4 billion more from the taxpayers. That is in addition to the $126.9 billion Fannie Mae and Freddie Mac already cost the taxpayers. Get this--there used to be some limits on this--$400 billion or $200 billion for each institution.
Last Christmas--literally on Christmas Eve--the Treasury announced that it was going to lift that $400 billion loss cap on these two companies, creating a potentially unlimited liability, and effectively providing the full faith and credit of the U.S. Government, the American taxpayers, for their unlimited debt. Now the limit, instead of $400 billion, which itself is unacceptable, is infinity. We will not even record it for the American people to see.
According to a January 2010 CBO background paper titled ``CBO's Budgetary Treatment of Fannie Mae and Freddie Mac,'' the Congressional Budget Office ``believes that the Federal Government's current financial and operational relationship with Fannie Mae and Freddie Mac warrants their inclusion in the budget.''
This isn't just my complaint. The CBO itself has said that now that the status is that the U.S. Government has taken control of the financing of and assumed the debt of the obligations and actions of Fannie Mae and Freddie Mac, we ought to recognize they are government entities, and we ought to include them in our budget. That is what we are seeking in this amendment.
By contrast, the current administration has taken a different approach by continuing to treat Fannie Mae and Freddie Mac as outside the Federal budget, recording and projecting outlays equal to the amounts of any cash infusions made by Treasury into the entities. They are creating the appearance that there is no debt here, no impact on our budget. That is the kind of nontransparency this amendment is aimed at stopping. We are seeking to create some kind of transparency that will at least allow Congress and the public to understand the finances we are now being engaged in and asking the American taxpayers to back.
The Office of Management and Budget, in contrast to the CBO, has said in their Budget of the U.S. Government for Fiscal Year 2011:
Under the approach in the budget, all of the GSEs' transactions with the public are non-budgetary because the GSEs are not considered to be government agencies.
We have the President and the OMB at the White House saying that we don't need to count this in the budget because they are not government agencies. The CBO, however, is saying: Wait a minute, we own them, we run them, we are backing all of their debt, and essentially they are government entities. We can engage in debates about whether Fannie Mae and Freddie Mac are Government entities, but the bottom line question is: Who is responsible for their debt? Who is paying for their debt?
Nobody denies the answer to that question. It is the U.S. taxpayer. If the U.S. taxpayer is on the hook for their debt--and after what I call the ``Christmas Eve massacre'' of last Christmas--and there is no limit to the amount of that liability, we at least ought to put it on record.
CBO has included the GSEs in its budget baseline but does not include their debt in the computations of debt because CBO took a narrow view of the Federal debt. But as CBO's report says:
CBO's treatment of the entities' debt does not constitute a statement about whether or not that debt should be considered Federal debt.
Figure that out. CBO is saying: We are not going to include this in the debt, even though we think they are government entities and we ought to put them on budget. Their words were ``CBO's treatment of the entities' debt''--meaning not counting it--``does not constitute a statement about whether or not that debt should be considered Federal debt.''
Maybe CBO is saying Congress needs to give us some direction. Whether that is what they are saying, Congress does need to give some direction here, and that is the purpose of the amendment.
In light of Treasury's Christmas Eve ``taxpayer massacre'' and the government's decision to back all losses of Fannie Mae and Freddie Mac, we should include Fannie Mae and Freddie Mac as part of the Federal budget--at least as long as they are in receivership or conservatorship and run and backed up by the American taxpayer.
The amendment would also do a few other things. It would reestablish the $200 billion cap per entity and accelerate the 10-percent reductions of the mortgage portfolios, effectively requiring the companies to shrink those portfolios by holding a combined $100 billion from their current levels.
This will also limit the losses that taxpayers will face as a result of the blank check given by the administration last December 24.
The amendment will also require the Secretary of the Treasury and the Director of the Federal Housing Financing Agency to testify before the Banking Committee each time an additional $10 billion or more in taxpayer funds is provided to Fannie Mae and Freddie Mac combined. In other words, the next time, under this amendment, we have a May like this May, where Fannie and Freddie have asked for more than $10 billion of additional taxpayer bailout, we at least ought to have the Secretary of the Treasury and the Director of the Federal Housing Finance Agency, who manage this, come before the Banking Committee and testify as to what is happening, why, and where we are headed.
This will provide at least an opportunity for congressional oversight, which is currently totally lacking in the process. All that happens now is that they issue a press release saying we need another $10 billion and they get it--no limits, no caps, no accountability, no counting of the debt, and no explanation to Congress. It seems to me a little transparency and honesty with the American people about what our finances are doing here is appropriate.
The amendment is also going to require the Secretary of the Treasury to post on the Treasury Web site, 1, the aggregate portfolio holdings of each enterprise and, 2, a weekly summary of taxpayer funds provided for and at risk for each enterprise.
Again, all we are asking is to have the kind of transparency that will allow the American people to understand what the Federal Government is up to with their money. It will also help explain why some of us don't believe the rhetoric about the bill before us today. There is a lot of talk about ending bailouts. There is a lot of talk about ``too big to fail'' is never going to be allowed again in America. There are some provisions in the bill that end some of the bailouts and that go quite a bit of the way down the road toward making it clear that a company cannot get too big to fail, and that we will try to move them into a resolution process if they do fail.
It is not ironclad, however, and there is still the possibility that we will see bailouts in the future--something in other amendments we have tried to tighten.
But let's not mistake the fact that the biggest bailouts of all are not even addressed in this legislation and are allowed to not only continue unabated but to continue without even telling the American public what the facts are. When I say the biggest bailouts of all, the last numbers I saw, if you take
the auto bailout and the financial bailouts everybody heard about, and total them all up, they won't even equal the amount of money being used to bail out Fannie Mae and Freddie Mac. Yet, Fannie and Freddie continue--because the government now owns them--to be untouched by this legislation.
It is time for true transparency as we debate these issues of bailouts and too big to fail. It is time for us to address the very core of the problem that caused so much of the economic disruption we are now dealing with--the financial mortgage industry and the securitization of those toxic mortgages.
Yet, again, what happens? We are simply asked, as American taxpayers, to pony up with a check for $10 billion here and $8 billion there, and we will continue to grow, unrestricted, uncontrolled, unnoticed, and unidentified, because we won't even put it on record and count it in our own budgeting.
It is time for us to include the obligations and the management of Fannie Mae and Freddie Mac in our Federal budget. I encourage all of my colleagues to support this amendment when we get an opportunity to vote on it.
Mr. President, I yield the floor. I suggest the absence of a quorum.
BREAK IN TRANSCRIPT
Mr. CRAPO. Mr. President, as the Senator from Connecticut indicated--and I appreciate his kind remarks--we have had several votes on the GSE issue. Remarkably, this Senate continues to refuse to deal with Fannie and Freddie, the core issue of the problem on the bill we are debating. Fannie and Freddie are nowhere to be seen in the legislation. Recognizing that the Senate has refused in its votes to allow us to try to focus on Fannie and Freddie, which are the biggest bailouts of all--in fact, the bailouts of Fannie and Freddie are more in volume and cost to the taxpayers than all other bailouts combined--this amendment simply says: Let's be honest with the American taxpayer and at least put the debt that Fannie and Freddie are now becoming responsible for on our calculations of the national debt.
CBO Director Douglas Elmendorf said:
After the U.S. government assumed control in 2008 of Fannie Mae and Freddie Mac--two federally chartered institutions that provide credit guarantees for almost half of the outstanding residential mortgages in the U.S.--the Congressional Budget Office concluded that the institutions had effectively become government entities whose operations should be included in the federal budget.
This amendment simply says: Let's put the calculations of debt for which taxpayers are now on the hook, which now totals over $130 billion, which we are told is going to rise to $381 billion, and the debt, which is over $1.5 trillion, of these two institutions that is now on their books, let's put it in our calculation of the national debt.
We are not asking to solve the problem in the bill with this amendment. We fought that last week. This simply says let's put it on the national debt.
I urge colleagues to support the amendment.
BREAK IN TRANSCRIPT
Source