Fannie the Unreformable

Discussion in 'Economics' started by Tom B, May 12, 2010.

  1. Tom B

    Tom B

    Fannie the Unreformable
    Democrats leave Chris Dodd alone to defend the indefensible.

    'We all should have done a better job." So said Senator Chris Dodd yesterday in discussing Fannie Mae and Freddie Mac, in what ought to go down as the understatement of the young 21st century. Yet such general and less-than-abject remorse wasn't enough for Mr. Dodd and his fellow Democrats to vote to reform the money-losing government-owned companies and clean up the mess they made in the mortgage market.

    As Banking Chairman, Mr. Dodd was declaiming on the Senate floor that the toxic twins absolutely, positively, no doubt about it, need to be reformed—just not yet. He thus opposed Arizona Senator John McCain's amendment to his financial regulatory-reform bill to shrink the mortgage giants, raise their underwriting and capital standards, cap the taxpayer losses (now $145 billion and counting) and eventually shut down the failed enterprises.

    Mr. Dodd countered with a bold plan to authorize Treasury Secretary Timothy Geithner to . . . conduct a study. What has Treasury been doing for the last 17 months? Mr. Geithner is the fellow who lifted the $400 billion bailout limit on Fannie and Freddie last Christmas Eve. Now Mr. Dodd promises that Mr. Geithner will conduct "a tough study." Tough on taxpayers most of all, as Fan and Fred continue to bleed red ink by Treasury design so they can subsidize mortgage borrowers to avoid foreclosure.

    For much of yesterday's debate, Mr. Dodd was visibly angry. Perhaps that is because he was left alone on the floor to defend the most expensive of all federal bailouts. Thanks to his own sweetheart mortgage from Countrywide Financial—a leading Fannie business partner—Mr. Dodd isn't running for re-election. But other Democrats chose to spend yesterday's debate in undisclosed locations. They were no doubt thrilled to enjoy federal witness protection from C-SPAN's cameras as Fan and Fred's longtime opponent, Alabama Senator Richard Shelby, described the various reform efforts they had blocked over the years.

    The end of an excruciating two hours on the floor finally brought a smile to Mr. Dodd's face. The Connecticut Senator closed his remarks by saying, "All time has expired, I believe . . . I hope."

    What taxpayers are hoping for is the expiration of federal charters for these destructive too-big-to-fail institutions. Those hopes were ignored again as the Senate voted down the McCain amendment, 56-43. Only two Democrats, Evan Bayh (Indiana) and Russ Feingold (Wisconsin), voted with every Republican to reform the companies.

    Senators can call their pending bill many things, but as Mr. McCain said yesterday, they should not dare call it reform of the financial system.