CCAGW Applauds Treasury and HUD for Standing Firm on GSE Reform Proposal | Council For Citizens Against Government Waste

CCAGW Applauds Treasury and HUD for Standing Firm on GSE Reform Proposal

Press Release

For Immediate ReleaseContact:  Leslie Paige
October 16, 2003(202) 467-5300

 

(Washington, D.C.) The Council for Citizens Against Government Waste (CCAGW) issued the following statement by Director of Special Projects Leslie Paige in response to today’s testimony before the Senate Banking, Housing and Urban Affairs Committee on various legislative proposals for regulatory reform of the nation’s government-sponsored enterprises (GSEs), Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System.

            “CCAGW applauds both Treasury Secretary John Snow and Housing and Urban Development (HUD) Secretary Mel Martinez for standing firm on the Bush administration’s proposals to relocate the GSEs’ safety and soundness regulator to the Department of the Treasury.  In particular, CCAGW agrees with Secretary Snow’s comments that the ultimate aim of any legislation must not simply be a change of scenery for a weak regulator.  The final package must grant the new regulator enhanced powers to oversee business activities of the GSEs and the flexibility to adjust both the GSEs’ minimum and risk-based capital requirements in the face of potential changes in the GSEs’ risk profiles. 

            “The U.S. Senate has weighed in with substantive, bipartisan legislation to improve oversight of the GSEs.  Senators John Sununu (R-N.H.), Chuck Hagel (R-Neb.), and Elizabeth Dole (R-N.C.) have co-sponsored a bill which would relocate and toughen the regulator and Sen. Jon Corzine (D-N.J.) recently introduced a reform bill which also includes new disclosure requirements for the GSEs.  Several senators noted that today’s hearing is the first of several and that they intend to fully explore the potential impact of a strengthening the GSEs’ regulator.

            “In addition, Sec. Snow noted that a reform bill must not signal an enlargement of the implied taxpayer guarantee for the GSEs.  On the contrary, reform should create significant distance between the GSEs’ activities, and the taxpayers’ pocketbooks.  The capital markets persistently interpret the special relationship between the GSEs and the federal government as an indication that taxpayers would be forced to bail the out the GSEs if necessary.  That concept is not theoretical or academic.  Fannie Mae experienced financial troubles in the 1990’s and was granted certain exemptions to rectify its financial problems, while Freddie Mac is currently grappling with a serious accounting scandal.

            “The GSEs are creatures of Congress, and thus Congress is currently the only entity that has the power to rein them in.  If Congress is unwilling to address the structural weaknesses in the GSEs’ charters, then representatives and senators must at least establish protections for taxpayers by clarifying exactly the limits of the GSEs’ activities, demanding that they comply with the nation’s disclosure laws, and establishing a strong, adequately funded oversight body.  While more reform is necessary, CCAGW urges Congress to immediately pass legislation that includes an enhanced, independent regulator located at Treasury with the authority to oversee new activities and the flexibility to alter the capital standards if necessary.”

The Council for Citizens Against Government Waste is the lobbying arm of Citizens Against Government Waste, the nation's largest nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.

 

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