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  • Pawlenty Joins the Fight to End Fannie and Freddie

    Two Financial Services Roundtable executives, former Governor Tim Pawlenty (R–MN) and former Navy Secretary John Dalton, have penned an article that highlights the key points in the housing finance reform debate. In particular, the article pointedly calls for an end to the government guarantees of government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, the most important aspect of reform.

    The article also reminds readers that even though taxpayers bailed out the GSEs five years ago, the government has yet to take definitive steps to wind the companies down and protect taxpayers. In fact, taxpayers face even more risk now that the government is explicitly backing the GSEs’ operations. As Pawlenty and Dalton point out:

    [T]oday, many Americans—and perhaps even some members of Congress—would likely be surprised to learn our federal government is effectively responsible for nearly the entire housing finance industry.

    The article also highlights one of the dangers regarding the current reform proposals in Congress. It is critical that any new legislation does not simply recreate the GSEs under a new name, but at least one Senate bill does exactly that.

    The Roundtable piece mentions that Senators Tim Johnson (D–SD) and Mike Crapo (R–ID) are nearing completion on a new Senate bill, but it is far from clear that this bill won’t perpetuate government guarantees in the housing finance market.

    If, for instance, the Crapo–Johnson bill borrows too heavily from the Senate’s other reform bill, sponsored by Senators Bob Corker (R–TN) and Mark Warner (D–VA), then it will not protect taxpayers. In its current form, Corker–Warner would provide taxpayer coverage for 90 percent of the losses for holders of mortgage-backed securities, a number that’s likely to climb during the legislative process.

    Hopefully, Pawlenty’s group will stay on the side of free enterprise and oppose any legislation that includes government guarantees in the housing finance market. The market does not need the GSEs, and taxpayers do not need legislators to simply rename them.

    Posted in Capitol Hill [slideshow_deploy]

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