Barr clarifies position on Fannie & Freddie

The following is a media release from the Bob Barr presidential campaign:

Press Release:
Bob Barr Says Privatize Fannie Mae and Freddie Mac, End Government Subsidies

July 15, 2008 3:35 pm EST

Oklahoma City, OK —The latest financial crisis involving Fannie Mae and Freddie Mac, which guarantee home mortgages, demonstrates yet again how government intervention in private markets almost always comes to grief. Both Fannie Mae and Freddie Mac are nominally private, but were created by Congress and enjoy significant advantages over truly private companies, including cheaper borrowing, lower capital requirements, and an implicit federal guarantee.

As a result, the two organizations behaved irresponsibly, confident that they were “too big to fail.” They own $5.1 trillion in mortgage debt, almost half of the nation’s total. With the sub-prime lending crisis in full swing, their losses are up, their capital is down, and their ability to borrow is falling. Immediate privatization is difficult because the markets doubt the organizations can survive without government support. Insolvency and a forced asset sale would roil both the housing and financial markets.

These problems are almost entirely the fault of the federal government. Congress created programs to artificially inflate the housing market, established Fannie Mae and Freddie Mac to be exempt from normal scrutiny, oversight, and competition, and expanded their activities in response to the sub-prime lending meltdown. Government must get out of the mortgage business, but must do so in a way that least harms taxpayers and the economy.

In the short-term, government has little choice but to provide an explicit but limited loan guarantee, thereby capping the public’s liability, now widely assumed to be without limit. At the same time, Congress must restrict the number and size of loans by Fannie Mae and Freddie Mac and set more substantial capital requirements, while authorizing greater Federal Reserve oversight of their operations. The organizations must begin downsizing their portfolios, reducing their risks, and reestablishing their financial credibility.

However, the ultimate objective must be full privatization—with both organizations turned into private companies, responsible for their loan portfolios, and without access to government guarantees or other forms of support. Government should not be in the business of creating multi-billion dollar enterprises to manipulate markets for the benefit of one group or another—in this case, in order to shave the interest rates for selected home buyers by a quarter or half percent.

Finally, we must learn the lesson that government subsidy programs almost always end up running out of control, causing financial disaster for taxpayers. A Fannie Mae/Freddie Mac collapse could cost most than $1 trillion. The U.S. already has a $14 trillion national debt. Far worse, the unfunded liabilities of Social Security and Medicare top $100 trillion. American taxpayers cannot afford additional special interest subsidies and bail-outs.

Moreover, the entire economy suffers from the sort of market manipulation practiced by Fannie Mae and Freddie Mac, as well as the multitude of direct housing subsidy programs. Indeed, the impact of the sub-prime lending crisis has gone far beyond the housing market. The largely unaccountable Federal Reserve has made many of these problems worse, by extending further bail-outs and creating additional taxpayer liabilities. Congress must limit the Fed’s activities as well, and force it to act with greater transparency and oversight.

Barr represented the 7th District of Georgia in the U. S. House of Representatives from 1995 to 2003, where he served as a senior member of the Judiciary Committee, as Vice-Chairman of the Government Reform Committee, and as a member of the Committee on Financial Services. Prior to his congressional career, Barr was appointed by President Reagan to serve as the United States Attorney for the Northern District of Georgia, and also served as an official with the CIA.

Since leaving Congress, Barr has been practicing law and has teamed up with groups ranging from the American Civil Liberties Union to the American Conservative Union to actively advocate every American citizens’ right to privacy and other civil liberties guaranteed in the Bill of Rights. Along with this, Bob is committed to helping elect leaders who will strive for smaller government, lower taxes and abundant individual freedom.

6 Responses to “Barr clarifies position on Fannie & Freddie”

  1. G.E. Says:

    This press release is so bogus.

    Fannie and Freddie were “privatized” by Nixon (undoubtedly one of Barr’s idols, like Reagan). They trade on the New York Stock Exchange.

    The two criteria that make them “quasi” private instead of fully private are (1) the IMPLIED (but not official) backing of their debt by the U.S. Treasury, and (2) the increased regulation they submit themselves to as GSEs.

    So Barr says he wants to “privatize” companies that have already been privatized by (1) making the IMPLIED backing of their debt official, and (2) increasing the regulation they’re subjected to by giving more power to the Federal Reserve.

    In other words, Barr wants to make the companies LESS private while calling it a “privatization” and his supporters are so ignorant they’re falling for it.

  2. Zak Carter Says:

    I’m no expert on Fannie Mae and Freddie Mac - but if they are already private, how is it that congess can set limits on their CEO’s pay as I just read this morning? Seems to me the government is a little more involved with them than you imply.

  3. Bryan Says:

    Fannie Mae is the “Federal National Mortgage Association” and Freddie Mac is the “Federal Home Loan Mortgage Corporation”. Both of them are Government sponsored enterprises (or GSE’s). They are privately owned, but publicly chartered. While they recieve no DIRECT federal gov’t aid, they do recieve many benefits, including looser restrictions, exemptions from state and local taxes, and not having to file with the SEC. This benefits are estimated to be worth $6.5 billion for Fannie Mae alone. Also, while there is no DIRECT aid from the feds, there has always been an IMPLIED aid which, as noted by both Alan Greenspan and Vernon Smith (Nobel Laureate in Economics), has led to poor investments and mortgages by brokers who believed that the gov’t would never let Freddie or Fannie fall….or in other words, to the situtation we are currently in.

  4. G.E. Says:

    Zak - Did you read what I wrote?

    (2) the increased regulation they submit themselves to as GSEs.

    How does what you’re saying not fall under the heading of “increased regulation”?

    It does.

    Read.

  5. karl Says:

    Any thoughts as to why Mary Ruwart is posting a position on this subject on her “presidential web site? www.votemary2008.com. (click on “home.”) Maybe she’s hoping for write in votes or looking too far ahead. She should instead be concentrating on getting her personal life in order instead of trying to still sound like a presidential candidate.
    (2nd try at this post—-the first one disappeared into thin air—-maybe TPW actually likes Mary now?—-not a good idea…)

  6. David Tomlin Says:

    The press release is dated July 15.

    Shouldn’t the headline be ‘Barr clarified his position on Fannie & Freddie a week ago’?

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