Republican Socialism

Human Events | Brian Darling | July 21, 2008

Sen. Jim Bunning (R-Ky.) has pledged to block a Bush administration proposal being steamrolled through Congress to grant the Treasury Department and the Federal Reserve sweeping new powers. Slowing things down would allow Congress to debate the issue fully before approving measures that could put taxpayers on the hook for billions in debt incurred by Fannie Mae and Freddie Mac, the government-backed home-mortgage giants.

Fannie and Freddie are government-sponsored enterprises, or GSEs. They are stockholder-owned corporations that were chartered by the federal government to buy and package home loans and make loan guarantees. Fannie Mae was founded in 1938 as part of President Franklin Roosevelt’s New Deal and has since been converted into a private corporation.

Treasury Secretary Henry Paulson last week testified before Congress and requested swift legislative action to expand the Treasury’s ability to lend to these two troubled GSEs and to allow the department to buy stocks in them if necessary. Bunning was stunned: “When I picked up my newspaper yesterday,” he said at a Senate hearing, “I thought I woke up in France. But no, it turns out socialism is alive and well in America. The Treasury Secretary is asking for a blank check to buy as much Fannie and Freddie debt or equity as he wants.”

Politicians sometimes try to solve problems by providing no-cost guarantees, but the S & L debacle showed that this type of government intervention actually subsidizes excessive risk and leads to taxpayer bailouts. Without true reform of the GSEs, the Bush administration’s plan to expand a risky form of government intervention by putting taxpayers at risk for future bailouts of investment banks would be unwise. A Fannie and Freddie bailout might be worthwhile if that was the price we paid to privatize these reprehensible examples of crony capitalism. But if this proposal merely keeps Fannie and Freddie unreformed, the taxpayers will lose in every possible way.

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