Bailout Crosses the Line Between Freedom and Socialism Bill forces taxpayers to bailout Fannie Mae & Freddie Mac while allowing them to lobby and donate to politicians
July 26, 2008 - Washington D.C. -
Today, U.S. Senator Jim DeMint (R-South Carolina) voted against the mortgage company bailout after Democrats refused to ban Fannie Mae & Freddie Mac lobbying and political activity. The bill forces a $300 billion taxpayer bailout for lenders like Countrywide Financial that engaged in risky loans. The legislation, nearly 700-pages long, includes billions for questionable local projects, a new tax to fund a housing slush fund, a new fingerprint database of bank and real estate employees, and IRS reporting of everyday credit card transactions. The bill also raises the U.S. debt limit to $10.6 trillion, nearly an $800 billion increase.
“Today, Congress crossed a dangerous line between freedom and socialism,” said Senator DeMint. “For the first time in our nation’s history, the federal government will take ownership of private mortgages and give local and state governments billions to buy and flip homes. We are forcing taxpayers to be liable for the worst and riskiest loans, and allow executives at Fannie Mae and Freddie Mac to privatize their profits, while socializing their losses.”
“This bill won’t solve the housing crisis, but it will mortgage our children and grandchildren’s future as we pile enormous debt on their backs. And now everyone who buys a home will pay more because of the billion dollar mortgage tax in the bill that is being rushed through without debate.”
“Most concerning, we are allowing a serious conflict of interest as Fannie Mae and Freddie Mac can still spend millions to influence lawmakers while they are being propped up by taxpayers. Fannie Mae and Freddie Mac have built the biggest political machine in Washington to protect themselves from reform and oversight, but Democrats are determined to keep the political donations flowing to their campaigns. This is politics at its worst, and sadly the culture of corruption in Washington continues to grow.”
Fannie Mae and Freddie Mac have “spent nearly $200 million on lobbying and campaign contributions.” National Public Radio reports that, “In the first three months of the year alone, Fannie Mae and Freddie Mac spent a combined total of about $3.5 million on lobbying and hired 42 outside firms.” According to the Center for Responsive Politics, Fannie Mae and Freddie Mac have been such prolific donors to political parties, candidates and PACs that they are the #1 and #3 top contributors in the mortgage industry and rank in the Top 100 political donors of all time.
The New York Times wrote: “In Washington, Fannie and Freddie’s sprawling lobbying machine hired family and friends of politicians in their efforts to quickly sideline any regulations that might slow their growth or invite greater oversight of their business practices. Indeed, their rapid expansion was, at least in part, the result of such artful lobbying over the years.”
Senator DeMint supports GSE regulatory reforms and FHA modernization. However, this bill also contains many problematic provisions that could worsen the situation for taxpayers and new homebuyers:
Over $300 Billion Bailout: Creates a new program within FHA would refinance and provide taxpayer-backed insurance for up to $300 billion of mortgages that are currently in default. This bailout would shift the riskiest mortgages in the market, currently held by private companies and private citizens, to American taxpayers. The Wall Street Journal estimated that just one company, Countrywide Financial could, receive a “potential taxpayer bailout of more than $25 billion.”
$4 Billion for Questionable Local Projects: Includes $4 billion in deficit spending for the Community Development Block Grants (CDBG). These CDBG funds would be used to purchase and rehabilitate foreclosed properties, essentially funding government competition against private consumers. Also, recipient governments would not be required to spend the money until 18 months after they receive it, allowing funds to sit on the sidelines for a year and a half, possibly after the housing markets have recovered. CDBG currently has unused funds. As of the end of FY07, over $20 billion in unspent CDBG funds.
New Spending Slush Fund: Creates a permanent Housing Trust Fund, paid for by taxing Fannie Mae and Freddie Mac at least $500 million each year. This tax will be passed on to individual homebuyers. What’s most offensive, for those who seek honest government, is that this new spending will not take place with the oversight usually offered by the congressional budget and appropriations process. Instead, this money will flow through the U.S. Treasury, circumventing federal budget rules.
New Fingerprint Database of Bank Employees, Realtors, and more: Requires anyone involved in originating a mortgage loan, including part-time bank employees and real estate professionals, to submit their fingerprints to the FBI. The Competitive Enterprise Institute recently wrote: “The rationale for this new fingerprint registry is thin. Were a significant number of bad loans made by ex-convicts? And how would the targeting of lower-level employees – rather than executives like Countrywide Financial CEO Angelo Mozilo – stem the creation of problematic mortgages?”
IRS Reporting of Americans’ Electronic Credit Card Transactions: Requires payment companies (credit cards and third party payment systems) to report to the Internal Revenue Service every individual entity (“payee”) they made a payment to and the gross amounts paid to those entities. This is a new burden intended to close the gap between taxes that should be paid and what actually comes to the IRS. These costs are going to be passed on to small businesses and their customers. As FreedomWorks Chairman Dick Armey recently stated: "Privacy groups like the Center for Democracy and Technology and small business organizations like the NFIB sharply criticized this idea when it first appeared earlier this year. What is the federal government's purpose with this kind of detailed data? How will this database be secured, and who will have access?”
