WSJ’s Must-Read on Fannie, Freddie reform 

Nothing so damns the Obama-Dodd financial reform bill as the sham that it is than the absence of a provision to reform - or, better yet, abolish - Fannie Mae and Freddie Mac, the two government-sanctioned entities at the heart of the Great Recession.

Nothing so damns the Obama-Dodd financial reform bill as the sham that it is than the absence of a provision to reform – or, better yet, abolish – Fannie Mae and Freddie Mac, the two government-sanctioned entities at the heart of the Great Recession.

Either because Fannie and Freddie have long been incredibly lucrative sources of campaign cash and career protection for Democratic politicians – see, for example,  Jim Johnson, Franklin Raines, and Barack Obama – or because they fear the political consequences of a full public airing of their culpability in protecting these two black holes for tax dollars, congressional Democrats refused to include any such reforms.

“We’ll deal with that separately, some other time, like maybe next century,” is an apt summary of the Democrats’ attitude toward reforming Fannie and Freddie.

And, yes,  for the record, while it’s true that more than a few congressional Republicans were quite willing for years to participate in the campaign-cash hog wallow on Capitol Hill, the only concrete recent efforts to reform Fannie and Freddie came when President Bush was in the White House and a GOP majority controlled Congress.

There are divergent opinions about whether those efforts failed because of Democratic opposition or because the GOP’s congressional leadership wasn’t really all that interested in the issue. I tend to the latter but recognize the essential truth captured in the former.

In any case, the day of reckoning cannot be stalled forever, and senators John McCain, R-AZ, Richard Shelby, R-AL, and Judd Gregg, R-NH, have introduced an amendment in the Senate to the Obama-Dodd bill now being debate that would begin the process of reforming Fannie and Freddie.

Today’s edition of The Wall Street Journal lays out the critical importance of reforming Fannie and Freddie in the starkest possible terms:

“Unreformed, they are sure to kill taxpayers again. Only yesterday, Freddie said it lost $8 billion in the first quarter, requested another $10.6 billion from Uncle Sam, and warned that it would need more in the future.

“This comes on top of the $126.9 billion that Fan and Fred had already lost through the end of 2009. The duo are by far the biggest losers of the entire financial panic—bigger than AIG, Citigroup and the rest.

“From the 2008 meltdown through 2020, the toxic twins will cost taxpayers close to $380 billion, according to the Congressional Budget Office’s cautious estimate.

“The Obama Administration won’t even put the companies on budget for fear of the deficit impact, but it realizes the problem because last Christmas Eve it raised the $400 billion cap on their potential taxpayer losses to . . . infinity.”

That only begins to describe the magnitude of the Fannie and Freddie problem. Go here for the rest of this essential reading.

And for additional analysis on the issue, check out Rep. Jeb Hensarling’s comments first published here in The Washington Examiner last week. And for a more complete explanation of why I referred above to Obama-Dodd as a sham, go here.

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Mark Tapscott

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