Amnesia? We Remember the Lack of a Cushion

As longtime critics of Fannie Mae and Freddie Mac who warned early on that they could destabilize the financial system, we were shocked by Douglas Holtz-Eakin’s assertion that requiring these government-sponsored enterprises (GSEs) to hold capital somehow translates into preserving the status quo (“Fannie, Freddie and an Outbreak of Amnesia,” op-ed, May 25). He criticizes our respective organizations for supporting legislation from Rep. Mick Mulvaney that mandates capital buffers for the GSEs, implying that any effort strengthening the GSEs’ balance sheets somehow clashes with the broader goal of phasing them out.

Mr. Holtz-Eakin accuses us of having a “dangerous amnesia,” but what we remember clearly is our long advocacy that the GSEs retain enough capital to avoid a bailout that would cost taxpayers dearly. In 2000 we both testified before Congress in favor of a similar capital-preservation measure in legislation from then-Rep. Richard Baker. Then as now, we believed that forcing higher capital requirements would reduce Fannie and Freddie’s growth while making it more difficult for them to cry “Help!” It is a necessary step to curb their expansion before phasing them out.

Pete Sepp


National Taxpayers Union

Fred L. Smith Jr.


Competitive Enterprise Institute


Originally posted at The Wall Street Journal.