CBO Confirms That Mandatory SEC Disclosure Will Do No Harm

(Washington, D.C.) – The Council for Citizens Against Government Waste (CCAGW) today endorsed a financial reform bill introduced by Reps. Chris Shays (R-Conn.) and Ed Markey (D-Mass.).  The bill would require the nation’s two largest secondary mortgage market players, Fannie Mae and Freddie Mac, to disclose information to the Securities and Exchange Commission (SEC).  “The Leave No Securities Behind Act” caps the amount of fees that the two government-sponsored enterprises (GSEs) can pay to the SEC at no more than 5 percent of the SEC’s annual registration fee revenue, and gives the SEC flexibility so its rules do not hinder the GSEs’ ability to issue debt.

“CCAGW is delighted that Reps. Chris Shays and Ed Markey have introduced this very sensible bill.  Taxpayers and investors need transparency and accountability and this bill will provide both with regard to the GSEs,” said CCAGW Special Projects Director Leslie K. Paige.  “The GSEs mortgage-backed securities (MBS) portfolio has increased 437 percent, from $171 billion in 1990 to $918 billion in MBS in 2001.  If Fannie Mae or Freddie Mac experiences an unforeseen financial shock, there is every indication that the taxpayers would be called upon to bail them out.  It would be unconscionable for Congress to allow their transactions to fly beneath the radar of the SEC or any other oversight agency until some crisis occurs.”

Fannie Mae and Freddie Mac, under pressure from lawmakers and regulators last year, agreed to increased disclosure for the common stock but not their MBS portfolio.  The GSEs claimed that mandatory SEC registration and disclosure would negatively impact consumers, obstruct the GSEs’ ability to issue debt quickly, and disrupt capital markets.  However, those arguments have now been rejected by several official sources.  A joint report in January, 2003 by the Treasury Department, the Office of Federal Housing Enterprise Oversight and the SEC found that enhanced disclosure in the MBS market would be feasible and justifiable, as well as improve market stability, safety and soundness.  In March, Federal Reserve Chairman Alan Greenspan told Congress that changes in the GSEs’ oversight procedures would do them no harm.  Yesterday, a new Congressional Budget Office study confirmed that mandatory SEC registration and disclosure would yield more valuable information to investors than the current voluntary agreement.

“These studies demonstrate that it is essential that Fannie Mae and Freddie Mac be subject to mandatory disclosure” concluded Paige.  “That’s why the Shays-Markey bill should be enacted as soon as possible.”

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.