WASHINGTON, Jul 11, 2008 (BUSINESS WIRE) —-Amid calls by some Wall Street investment bankers for a bailout of the GSEs Fannie Mae and Freddie Mac, FreedomWorks urges lawmakers to clearly reject a taxpayer bailout and to remind investors that there is no government guarantee for the securities of these publicly traded corporations.
FreedomWorks President Matt Kibbe commented, “The moral hazard created by the Federal Reserve’s disastrous decision to bailout Bear Stearns is already coming home to roost.
“There is no government guarantee for GSE bonds or GSE shareholders, and there should not be. There are about $5 trillion in outstanding GSE liabilities. As noted in the Wall Street Journal today, creating a retroactive government guarantee for Fannie Mae and Freddie Mac would immediately double the size of the publicly held national debt.
“Investors holding agency paper already receive a significant risk premium over Treasuries. The prospectus for every GSE bond clearly states that it is not backed by the government. Taxpayers should not and will not bail out Freddie Mac and Fannie Mae from their poor lending decisions, lack of adequate reserves, and past accounting corruption.
“Instead, Congress should act now to eliminate the GSE charter and send a clear reminder to the market that taxpayers will not be liable for GSE debt. The alternative could be a trillion dollar hit for taxpayers, according to an analysis by Standard & Poor’s. Congress, in its failure to act in the past on GSE reform, helped create the current conditions at Fannie Mae and Freddie Mac, and now Congress must stop the rising risk to taxpayers and let these private companies to sink or swim in the market.”