(Washington, D.C.) The Council for Citizens Against Government Waste (CCAGW) reacted with cautious optimism to yesterday’s testimony of Treasury Secretary John Snow and Housing and Urban Development Secretary Mel Martinez before the House Financial Services Committee.  The two cabinet secretaries weighed in on various proposals to reform the current regulatory structure supervising the financial activities of the nation’s housing government-sponsored enterprises (GSEs), Fannie Mae, Freddie Mac and the Federal Home Loan Bank System.  The administration also proffered an additional reform, eliminating the tradition of having the president appoint members to the boards of Fannie Mae and Freddie Mac.  Unfortunately, Sec. Snow expressed little enthusiasm for another key element of GSE reform, the repeal of their exemption from the nation’s securities disclosure laws.

“The Bush Administration deserves credit for stepping up to the plate and endorsing some very sound GSE reform proposals emanating from Congress and for promulgating a few of its own.  Secretary Snow clearly understands that the GSEs need a stronger, savvier regulator.  It is gratifying to see that he is calling for a ‘value-added’ regulatory body, not simply a shifting of agencies from one department to another,” CCAGW Director of Special Projects Leslie K. Paige said.

“Sec. Snow’s call for an end to having presidentially-appointed board members for Fannie Mae and Freddie Mac is a promising idea.  The abolition of this practice signals that the administration is putting some distance between the federal government and the GSEs and also prevents the boards of Fannie Mae and Freddie Mac from being used as a dumping ground for political cronies,” Paige continued.  “Freddie Mac’s recently-revealed accounting scandal is a wake up call.  The financial activities of both of these companies and the risk their activities pose to taxpayers are much too important to have seats on their boards used to reward political friends.”

“It is also encouraging that Secretary Snow dismissed the idea of imposing an arbitrary moratorium of any length on making changes to the capital requirements for the two enterprises.  Fannie Mae and Freddie Mac are highly leveraged and are among the largest traders of derivatives in the world.  It would be fiscally irresponsible for the administration to foreclose any of its options to require the GSEs to hold more cash in case of emergencies.  The GSEs should be legally required to hold capital much the same way banks do. 

“However, taxpayers and investors also deserve full transparency and accountability.  Any reform bill enacted by Congress must include the Shays-Markey provision repealing the GSEs’ exemptions from the nation’s disclosure laws, including the 1933 Securities Act.  Secretary Snow stated yesterday that he did not support repeal of those exemptions.  CCAGW urges the Bush administration to reconsider that position,” Paige concluded.  “All in all, Secretary Snow’s testimony represented a significant step toward greater accountability at Fannie Mae and Freddie Mac.”

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.