On the recordMay 10, 2010
As the debate over Wall Street enters a pivotal stage, we should ask ourselves, what is financial regulatory reform about? We all agree that one of the main objectives of the legislation is to ensure taxpayers will no longer be forced to bail out or subsidize financial institutions that engage in risky behavior. That means ending so-called too big to fail. Unfortunately, the legislation we are now considering does not mention the two institutions that have come to epitomize too big to fail. I am referring to the two government-sponsored enterprises, the so-called GSEs, Fannie Mae and Freddie Mac, which are currently in Federal conservatorship. The egregious behavior of these two institutions has rippled throughout the entire commercial banking sector and our economy as a whole. Let's recall how central the two GSEs were to the housing bubble. Fannie and Freddie represent the dangers of what former American Enterprise Institute president Chris DeMuth has described as 'fusion enterprise,' or the 'intermingling of politics and power with finance and commerce.' This is a perverse business model that allows companies to reap enormous private profits while enjoying either implicit or explicit public backing. It is the model that enabled Fannie and Freddie to inflate the subprime mortgage bubble. For years some of my colleagues and I have urged this Chamber to impose stronger regulations on Fannie and Freddie.
