(Washington, D.C.) –Citizens Against Government Waste (CAGW) today expressed concern over actions taken over the weekend to begin the takeover of the nation’s two struggling housing government-sponsored enterprises (GSE), Fannie Mae and Freddie Mac.  Though the newly-minted legal authority to initiate a conservatorship process has only just begun, taxpayers must be protected now and going forward.  Reform or repeal of the companies’ congressional charters, which are the root of the structural weaknesses that led to their collapse, is critically important.    

Over the weekend, U.S. Treasury Secretary Henry Paulson, Jr. removed the chief executives of both companies and put the two mortgage giants into a form of Chapter 11 bankruptcy.  GSE operations will now be conducted under the regulatory supervision of the newly-established regulator, the Federal Housing Finance Administration, headed by James Lockhart.  All reports indicate that the U.S. Treasury will be infusing both companies with taxpayer dollars to shore up their bottom lines and preserve their viability.  After the passage of the housing bailout bill in July, which had enacted a new regulatory entity for the GSEs, Secretary Paulson had retained the services of the Wall Street firm Morgan Stanley to dig deeper into the GSEs’ books and discovered that unusual and alarming accounting methods were being used to mask serious deficiencies in their capital reserves.     

“The reports of alleged irregularities in the way the GSEs’ reported their cash reserves evokes the specter of the 2003 accounting scandals that rocked both Fannie Mae and Freddie Mac,” said CAGW President Tom Schatz.  “Despite claims by executives in both companies that they had put their accounting houses in order, the culture of manipulation and obstructionist behavior appears to have persisted.  Ultimately, though, this collapse must be laid at the feet of policymakers and legislators in Washington, D.C., particularly members of the Senate Banking Committee and the House Financial Services Committee.”

“Despite years of warnings about the systemic risk that these giants’ activities posed to our entire economy, members of Congress thought that whistling past the fiscal graveyard constituted a rational policy with regard to the shadowy operations at Fannie Mae and Freddie Mac.  It is an outrage.  Heads have rolled in the halls of Fannie Mae and Freddie Mac, but they should also be rolling in the halls of Congress.  Even now, some members of Congress are dismissing out of hand appropriate calls to action by Secretary Paulson and others for the structural reform of these entities.  The result is that taxpayers are now being taken to the cleaners.  It is long past time to repeal the GSEs’ congressionally-conferred special benefits and privatize them both,” concluded Schatz.      

Citizens Against Government Waste is a nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.