Today, in a surprise move, the Senate Banking Committee postponed the vote it had been set to mark up for Johnson-Crapo. Reports vary as to whether this bill is “dead on arrival” or coming up soon with amendments (mostly to bring around liberal Democrats).
One thing is clear, though. The bill is losing momentum, and the proverbial Congressional clock is ticking.
Today’s delay is great news for ordinary American taxpayers and shareholders who would have been ripped off by Johnson-Crapo and its creation of the Federal Mortgage Insurance Corportation, or Feddie Mic. The Competitive Enterprise Institute (CEI) has for decades warned about the risk to taxpayers and the economy posed by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. In 2000, CEI founder and then-president (now chairman) Fred Smith warned in Congressional testimony that if anything went wrong, Fannie and Freddie could put taxpayers on the hook for $200 billion. Many thought he was exaggerating then, but he turned out to have underestimated it.
Needless to say, we would support any true reform of the GSEs that reduces the government’s role in the housing market. Unfortunately, after examining the Johnson-Crapo legislation, we have concluded it would actually make the situation worse. It replaces Fannie and Freddie with an even bigger government backstop in the form of the Feddie Mic, which could hold the bag for as much as 90 percent of losses from mortgage-backed securities.
And while we don’t think GSE shareholders should be guaranteed a return on their investment, we are alarmed that Johnson-Crapo’s codfication of 2012 Obama administration policy in which the government confiscates Fannie and Freddie profits even after taxpayers have been paid back. Property rights expert and defender Richard Epstein describes here the alarming precedent set by that policy, known as the “Third Amendment.”
The Competitive Enterprise Institute coordinated efforts with 25 other conservative and free-market groups and leaders in a letter last week urging Senate Banking Committee members to reject Johnson-Crapo in favor of reform that truly “restores the private housing market.”
Signatories on the letter include leaders from: Competitive Enterprise Institute, Freedom Action, Americans for Tax Reform, FreedomWorks, Council for Citizens Against Government Waste, National Taxpayers Union, Club for Growth, 60 Plus Association, Capital Research Center, National Center for Public Policy Research, Campaign for Liberty, Institute for Liberty, Human Events, Less Government, Small Business and Entrepreneurship Council, American Family Association, Tradition, Family, Property, Inc., American Civil Rights Union, Tea Party Nation, National Tax Limitation Committee, Tea Party WDC, Blue Ridge Forum, Association of Mature American Citizens, Protect America Today, and Citizen Outreach.
Politico, the Financial Times, TheStreet.com, American Banker, CNBC and Housing Wire all cited the letter as a partial cause of Johnson-Crapo’s troubles. More on the flaws of Johnson-Crapo from my article yesterday at National Review.
Now, it’s time to begin a new long-term offensive on true reform of Fannie and Freddie that phases them out, repeals overregulation from Dodd-Frank that is crippling much of the private housing market, and permanently reduces the government’s role.