CEI President Fred Smith Testifies on Fannie Mae, Freddie Mac

CEI President Fred Smith Testifies on Fannie Mae, Freddie Mac

Questions the Need for Federal Subsidization of Housing Capital
June 15, 2000

Washington, DC, June 15, 2000 – In testimony presented today to the House Subcommittee on Capital Markets, CEI President Fred L. Smith, Jr. criticized the lack of market oversight of giants Freddie Mac and Fannie Mae.

“Clearly Fannie Mae and Freddie Mac were created for ‘good’ purposes. Whether the special privileges they’ve been granted, specifically their implicit government ‘insurance’ policy, now acts to distort and destabilize the marketplace is the issue,” testified Mr. Smith. “If these subsidies are warranted, then bring this agency into a normal reporting relationship with the executive branch and normal oversight by Congress.”

Mr. Smith’s testimony also called for complete market regulation of Fannie Mae and Freddie Mac, instead of the current system. “Privatizing the profit side of the ledger, while socializing the loss side is a sure-fire recipe for disaster.  It was exactly that problem that so exacerbated the plight of the S&Ls in the 1980s,” he stated.

According to Mr. Smith, Freddie Mac and Fannie Mae have achieved a stellar reputation through a skillful PR campaign. “Have Freddie and Fannie out lived their usefulness? To even ask that question is considered heresy,” continued Smith. “Indeed, the ads suggest that the secondary markets in mortgages would somehow disappear absent Freddie and Fannie. This is simply not the case.”

“Can one imagine Congress approving a $2 billion plus appropriation bill to benefit the management and shareholders of any other private sector firm?” asked Mr. Smith. “Yet according to the CBO, ‘As a means of funneling federal subsidies to home buyers, therefore, the GSEs are a spongy conduit – soaking up nearly $1 for every $2 delivered.’”

CEI, a non-profit, non-partisan public policy group founded in 1984, is dedicated to the principles of free enterprise and limited government. For more information, please contact Emily McGee, director of media relations, at 202-331-1010, ext. 209.