(Washington, D.C.) - Citizens Against Government Waste (CAGW) today applauded the Bush Administration for acknowledging that the liabilities held by Government Sponsored Enterprises (GSEs), such as Fannie Mae and Freddie Mac, pose a "potential problem" to taxpayers.

"President Bush is correct to call attention to Fannie and Freddie's rapidly expanding liabilities," CAGW Vice President Leslie K. Paige said.  "Fannie and Freddie alone have combined debt worth $1.26 trillion, up from $518 billion in 1997, which makes for an annualized growth rate of nearly 25 percent.  Fannie's balance sheet is bigger than the Federal Reserve, and the two combined outborrowed the U.S. Treasury by $1.1 trillion in 2001.  All together, according to the Office of Management and Budget, the GSEs' outstanding obligations total $3.1 trillion."  In 2001, the OMB also released an update on it’s 1997 report on the GSEs' subsidies.  According to that report, the GSEs enjoy a $10 billion financial windfall each year as a result of their tax breaks, SEC exemptions, and the implied backing of the taxpayer in case of failure. 

"The great concern is that taxpayers will be left standing with some or all of these debts when the music stops," Paige added.  "This is particularly worrying as Fannie and Freddie have sharply increased their use of derivatives – complex financial instruments based on the mathematics of uncertainty – to hedge risk.  Such fancy financial footwork, which no less an authority than the Wall Street Journal describes as 'hard to decipher,' should worry working Americans.  The GSEs' accounting practices, particularly their hedging activities, lack transparency.  The GSEs are not accountable to the SEC, and their HUD regulatory overseer is inadequately funded and not fully independent.  The recent collapse of Enron should prompt an immediate reevaluation of the dangers posed by government-sponsored enterprises like Fannie Mae and Freddie Mac.  They have clearly become 'too big to fail' and would certainly petition taxpayers for a bailout if their fortunes turned sour."

"In the meantime, Fannie and Freddie are failing to stick to their original mission," Paige also said.  "While they are gung-ho about appeasing their investors on Wall Street with outsized profits and are jumping into all sorts of new businesses, they have failed to lead the market in helping provide affordable housing to low and middle income people." 

"Because of the new concerns over liabilities and excessive financial complexity, CAGW cheers the administration's recommendation to provide greater resources and independence to the Office of Federal Housing Enterprise Oversight (OFHEO), which regulates Fannie and Freddie," Paige added.  "The president deserves taxpayers' appreciation for pursuing this issue and trying to prevent expensive future bailouts."

Citizens Against Government Waste is the nation's largest nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.