“Members Have to Be Watchdogs, Not Lap Dogs,” CCAGW says

(Washington, D.C.) – The Council for Citizens Against Government Waste (CCAGW) today sent an issue brief on Fannie Mae and Freddie Mac to Capitol Hill in anticipation of a hearing on Wednesday, October 6, before the House Financial Services Subcommittee on Capital Markets.  Excerpts from the brief follow:

After Fannie Mae’s top executives, Franklin Raines and Timothy Howard, appear before the subcommittee, members of Congress should respond with more than the usual lip service for government sponsored enterprise (GSE) reform.  The hearing will give the Office of Federal Housing Enterprise Oversight (OFHEO) Director Armando Falcon Jr. an opportunity to expand on his recent findings that Fannie Mae executives created a “culture of mismanagement to represent financials in an inappropriate manner,” on at least one occasion in order to win millions in compensation bonuses.

The hearing should feature tough questions from committee members.  After all, Fannie CEO Raines, in the aftermath of a similar accounting scandal at Freddie Mac in 2003, repeatedly claimed that his company, whose stock also took a hit, was the victim of “collateral damage” and reassured investors and regulators that he and his executives would never engage in the same sort of shady financial activities.  Fannie Mae’s management team certainly has a lot of explaining to do.  Indeed, the company is already the subject of numerous inquiries, including a criminal probe by the Justice Department.

However, Congress itself bears a significant portion of responsibility for permitting both Fannie Mae and Freddie Mac to drift into this financial morass.  With a few notable exceptions, members of Congress have behaved more like lap dogs rather than watchdogs when it came to overseeing the GSEs.

Over the years, as the GSEs have exploded in size and influence, there have been numerous causes for concern and opportunities for Congress to take action to rein them in.  In each instance, Congress bowed to lobbying pressure from Fannie Mae, Freddie Mac and their powerful surrogates and refused to take action. 

The GSEs have operated with impunity for so long that the accounting scandal at Fannie Mae should come as no surprise.  While it may be satisfying and appropriate to rake GSE executives over the coals at yet another hearing, Congress created the GSE business model in the first place, and aided and abetted these corporate giants in their quest for excessive profits at the expense of the nation’s homebuyers and taxpayers.

The warning signs are now flashing red.  Congress’s inaction in the face of sensible calls for reform has gone on for far too long.  Legislators need to take action to finally protect taxpayers.

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