Yesterday four former Fannie Mae and Freddie Mac CEO’s appeared before Congress to testify about what went wrong at these two companies before they were unceremoniously taken over by Uncle Sam. 

At the hearing I asked these former executives some pointed questions about their refusal to listen to concerns about Fannie and Freddie’s very risky lending practices.   And I asked them how they could justify their strident efforts to keep their regulators (HUD and OFHEO) not only at arm’s length, but essentially powerless to enforce the law.

Here are a few relevant excerpts from my questions and comments at the congressional hearings:

Rep. Virginia Foxx: ”How do we test for ethics?  How do we test for a sense of vision? How do we test for people who will look at the full spectrum of issues, not just always looking for the sunny side of the street?

“We need people who will understand how to deal with crisis.  You’re saying it’s unfair to ask you to work in situations of crisis.  What in the world were you getting paid millions of dollars to do? Simply ride the gravy train and always be there when things were good?

“For heaven’s sake, did you not have any sense that anything could ever go wrong under your watch and that you weren’t responsible for that? 

“You have exhibited no sense of accountability for your actions here.  None.  And that is disturbing to me and the American people.”

You’ll recall that Treasury Secretary Paulson helped the feds take over these two massive lenders earlier this year, pledging $100 billion of your tax dollars for each.  Why?  According to testimony given (PDF) at yesterday’s hearing Fannie and Freddie took on more than $4.6 trillion in risky loans.  In total the two are responsible for 34 percent of all subprime loans and 60 percent of Alt-A loans according to this testimony. 

Taking on this kind of risk eventually brought both of the lenders down.  And now every tax-paying American is footing the bill.

Bloomberg News has reported some incredible news.  The headline is “Fed Pledges Top $7.4 Trillion to Ease Frozen Credit”. 

That’s not a typo.  It’s $7.4 trillion in bailout cash, that according to Bloomberg, is $24,000 for every man, woman, and child in the United States.   Put in perspective, the article finds that this is the equivalent of half the value of everything produced in the U.S. last year—half the value of every house built, every car manufactured, every ad placed in the newspaper or served on the Web, every bag of groceries bought, every custom piece of glass cut by the local hardware store: half of everything. 

Your tax dollars at work.  And now we’re hearing about $325 billion in bailouts and loan guarantees for Citibank.

This is one more reason for legislation like that which I introduced last week to cut the $700 bailout in half.  (A bailout plan that I opposed from the start).  But this article also demonstrates the need for Congress to take a serious look at the financial activities of the Treasury Department, the Federal Reserve, and the FDIC.

Bloomberg has the context:

Most of the spending programs are run out of the New York Fed, whose president, Timothy Geithner, is said to be President- elect Barack Obama’s choice to be Treasury Secretary.

The money that’s been pledged is equivalent to $24,000 for every man, woman and child in the country. It’s nine times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office figures. It could pay off more than half the country’s mortgages.

“It’s unprecedented,” said Bob Eisenbeis, chief monetary economist at Vineland, New Jersey-based Cumberland Advisors Inc. and an economist for the Atlanta Fed for 10 years until January. “The backlash has begun already. Congress is taking a lot of hits from their constituents because they got snookered on the TARP big time. There’s a lot of supposedly smart people who look to be totally incompetent and it’s all going to fall on the taxpayer.” 

And the rough breakdown of the $7.4 trillion, according to Bloomberg News:

“Bernanke’s Fed is responsible for $4.4 trillion of pledges, or 60 percent of the total commitment of $7.4 trillion, based on data compiled by Bloomberg concerning U.S. bailout steps started a year ago…

The FDIC, chaired by Sheila Bair, is contributing 20 percent of total rescue commitments. The FDIC’s $1.4 trillion in guarantees will amount to a bank subsidy of as much as $54 billion over three years, or $18 billion a year, because borrowers will pay a lower interest rate than they would on the open market, according to Raghu Sundurum and Viral Acharya of New York University and the London Business School.

Congress and the Treasury have ponied up $892 billion in TARP and other funding, or 12 percent.

The Federal Housing Administration, overseen by Department of Housing and Urban Development Secretary Steven Preston, was given the authority to guarantee $300 billion of mortgages, or about 4 percent of the total commitment, with its Hope for Homeowners program, designed to keep distressed borrowers from foreclosure.

Any way you slice it, this is taxpayer money.  Your money is being used to pick winners and losers and string along entities that made terrible business decisions.  It must stop.

Yesterday I introduced legislation that essentially will cut the $700 billion bailout in half.  This measure (H.J. Res. 101) disapproves of the second half of the bailout funding, which must be requested by the president (whether Bush or Obama). 

If passed, this measure will save taxpayers $350 billion and significantly reduce our future national debt.

Media General reports:

Rep. Virginia Foxx, R-N.C., introduced a bill Wednesday to cut in half the $700 billion Wall Street bailout package.

Under the program, which was designed to shore up the financial system by allowing the government to purchase toxic mortgage-backed securities, the Treasury Department has injected nearly $290 billion into troubled banks.

If Treasury wants to spend more than $350 billion, it must submit another request to Congress. If that happens, it would trigger a vote on the legislation introduced by Foxx, which would deny that request.

I also penned an op-ed for Human Events yesterday, explaining just how this legislation works and why it is necessary:

The whole bailout concept is now completely different than the bailout that was sold to America back in September (a concept I didn’t buy in the first place). After this bailout “bait-and-switch,” why should anyone believe that the next round of $350 billion in taxpayer money is necessary or even that it will be used judiciously?

With this question in mind, I thought it was time to exercise one of the checks and balances in the bailout law. The bailout law gives Congress the power to “disapprove of” the second half of the $700 billion in bailout cash.

Treasury was allowed to use $250 billion in bailout funds upfront and another $100 billion kicked in when the President requested additional funding. Now $350 billion is in the hopper waiting for the next industry or company the government deems “too big to fail.”

Congress can stop the madness. According to the new bailout law, Congress can withhold the next $350 billion of the bailout within 15 days of when the President — whether it’s Bush or Obama — requests the second half of the money.

By now you may know that I voted against the bill presented to the House on Monday.  My no vote on that specific bill came in opposition to the bill’s ill-advised plan, not in opposition to Congress taking decisive action.  In my opinion and the opinion of 227 other House members from both parties from all over the country as well as many other experts who understand economics and our financial system, this was the wrong approach. 
 
The core of the problem is the fact that Democrats in Congress have allowed Fannie Mae and Freddie Mac to run wild and dramatically distort housing prices. Additionally, the Securities and Exchange Commission has also imposed rules on banks that have distorted the pricing of their assets.  There are many ways to solve these problems but the bills that the Senate passed and the House defeated WILL NOT ADDRESS those issues at all. 
 
What these bills do is give Henry Paulson $700 Billion to bail out Wall Street investment firms, with an additional $150 billion in completely unrelated spending, despite what the media tells you. Unfortunately, he and President Bush have handled this situation very badly.  They have refused to consider alternative plans and have presented a one-sided point of view that has stirred up fear and panic.
 
I support an alternative bill, H.R. 7223, that gets to the underlying issues and gets our capital markets moving again.  Congress must take action, but rushing headlong into Paulson’s $700 billion, taxpayer-funded fire sale is the wrong plan.
 
Here are links to a few articles that I think you will find useful. 

Washington Times: Bailout Brakes
Washington Times: Bailout Politics
Foxx seeks ‘superior alternatives’ to bailout plan

Please know that every action I take is focused on abiding by my oath of office to uphold the Constitution and on serving the people of this country by making decisions that are in the best interest of the country now and in the future.