Economy & Budget

Financing Fannie and Freddie's failures

The Romney-Gingrich political grudge match over Freddie Mac presents an opportunity to ask a basic question: Why are Fannie Mae and Freddie Mac still operating? Michael Williams’ recent resignation as CEO of Fannie Mae has set up a struggle over the direction of the two mortgage behemoths. It comes just a few months after Freddie Mac’s chief executive Ed Haldeman announced his departure. Will the two mortgage giants continue to muddle along in conservatorship as they have since September 2008, or will these resignations act as a catalyst to put them in receivership and wind down their operations? The latter scenario would enable taxpayers to put the fiscal disaster of these two government-sponsored enterprises behind them.
Back in August 2008 then-Treasury Secretary Paulson pulled a team together to work on resolving the deeply insolvent Fannie and Freddie. As recounted in the Andrew Ross Sorkin book, "Too Big to Fail", Robert Scully of Morgan Stanley laid out a blunt question: “Do you want to kick the can down the road?” Secretary Paulson was emphatic:  “No. I want to address the issue. I don’t want to leave the problem unsolved.” Although it took guts for Paulson in combination with the Federal Housing Finance Agency to take control of Fannie and Freddie and place them in conservatorship, the problem of the two mortgage behemoths is by no means ‘solved.’ In taking control, Paulson highlighted the “flawed business model” underlying the pair.


Small business polls reject anti-regulation rhetoric

With Congress back in session, the Senate will have several bills to consider that seek to make it nearly impossible for federal agencies to implement regulations. The REINS Act, the Regulatory Flexibility Improvements Act and the Regulatory Accountability Act have already passed in the House.

Advocates for these radical measures claim they are primarily needed because regulations are the top reason for small businesses not hiring. But a new nationwide poll of small business owners released today adds to numerous other surveys that refute this position.
The poll conducted by Lake Research for three national business organizations – American Sustainable Business Alliance, Main Street Alliance and Small Business Majority – found that the top problem for small business was weak customer demand, not regulations. In fact, reducing regulations came in fifth when small business owners were asked what needed to be done to create jobs. Eliminating incentives for employers to move jobs overseas came in first.


Putting jobs in the driver's seat

Transportation is essential to our nation’s competitiveness and economy. In the coming weeks, Congress has the opportunity to put job creation and economic development in the fast lane with the American Energy and Infrastructure Jobs Act.
Speaker John Boehner (R-Ohio), Transportation Committee Chairman John Mica (R-FL), and House Republicans have initiated a jobs proposal, the American Energy and Infrastructure Jobs Act, that will build our nation’s infrastructure, reform transportation programs, unlock American energy resources, reduce our dependence on foreign oil, strengthen our economy, and create American jobs.


A safer and stronger Wall Street is already here

In the State of the Union, the president continued to harangue the financial services industry as if nothing had changed over the last four years, saying “It’s time to apply the same rules from top to bottom: no bailouts, no handouts, and no copouts.” 

But the reality is a lot has changed.

The system is safer and stronger than ever.  And the startling truth is that many of these changes have been the result of industry initiative, since 70% of the Dodd-Frank Act has not been implemented yet.

Consider the following:


Tactical desire supplants strategic good in payroll tax cut debate

Prior to the December 1941 attack on Pearl Harbor, Japanese Admiral Yamamoto – the architect of the assault on Pearl – held serious reservations about his ability to continue pressure against the United States, even if Japan scored an early tactical victory. In fact, Yamamoto expressed his anxiety by declaring, “I can run wild for six months ... after that, I have no expectation of success.”  The rest, of course, is history.   

Critical to remember though, is the real lesson of Yamamoto’s prophetic stance: There is always danger in valuing short-term tactical victories over long-term strategic imperatives. Unfortunately, this warning recently went unheeded in Washington DC, whereupon Congress and the administration agreed to extend the Social Security payroll tax cut for two months. Despite the ways in which the tax cut threatens Social Security and despite larger concerns about fiscal responsibility, elected officials passed the extension anyway, basically allowing a short-term gain to overrule the long-term good.  

While many argue that extending the Social Security payroll tax cut is essential to promoting economic vigor, doing so is not without significant cost. In fact, for the first time ever in the history of Social Security, roughly $110 billion from the U.S. Treasury will be transferred to the Social Security trust fund to finance the first payroll tax cut from 2011. An additional $19 billion is now required to cover the two-month extension just passed. What is more, 20 members of a bipartisan conference committee have been chosen to determine how to pay for a potential year-long extension in February when the current two-month vehicle expires.


We've heard this song before

After President Clinton took a drubbing from voters in the 1994 Congressional election, he realized his policies weren't working. He promptly declared, "The era of big government is over," and he then went about making good on that declaration:

      -He reduced spending by a miraculous 3 1/2 percent of GDP.
      -He attacked entitlement spending and abolished the ballooning open-ended welfare system.
      -He signed what amounted to the biggest capital gains tax cut in American history.
      -He delivered the only four budget surpluses in four decades.
      -And he produced a period of prolonged economic expansion.
President Obama faced a similar cross-road as he delivered his fourth State of the Union Address to Congress. If he had followed the example of his successful Democratic predecessor, he could have redeemed his presidency, revived the economy and rallied the country.


CFPB lacks constitutional checks and balances

The Department of Justice’s Office of Legal Counsel opined recently that since most of the Senators weren’t around during their pro forma sessions, the Senate wasn’t really in a position to advise and consent regarding the President’s nominees. But OLC’s opinion never actually concluded that the specific recess appointment of Richard Cordray to be Director of the Consumer Financial Protection Bureau was constitutionally valid. This raises serious issues for anyone concerned about excessive concentration of government power. 

The reason the OLC opinion doesn’t address whether the Senate was available to consider Mr. Cordray’s nomination is obvious. The Senate did in fact consider Mr. Cordray’s nomination. On December 8, 2011, the Senate provided President Obama with all the advice he needed and rejected cloture on Cordray’s nomination by a 53-45 vote.


Americans deserve better answers

Yesterday, President Obama delivered his State of the Union address to the joint session of Congress and to the nation. Three years and three trillion-dollar deficits later, it is clear that hardworking Tennessee taxpayers deserve better answers, better solutions and a better result.

To date, the president’s record tells its own story. In his first speech to a joint session of Congress in 2009, President Obama promised to “cut the deficit in half” by the end of his first term. However, the reality is that under President Obama’s watch, the government has accumulated the three largest annual budget deficits in our nation’s history. Over $4.6 trillion has been added to the national debt since Obama took office, which is the most rapid increase of any president. Additionally, there was a 25 percent increase in non-discretionary spending by the president when Democrats controlled both the House and Senate. We must get serious about enacting spending cuts that put us on a sustainable fiscal path.


In 2012, real solutions needed to combat the national debt

Last year, we saw political partisanship and gridlock paralyze our nation’s capital. As President Obama prepares to deliver his annual address to Congress, how much time will be spent discussing real solutions to the country’s financial woes?

Federal debt just topped an astounding $15 trillion, which means it amounts to more than 62 percent of the American economy. Erskine Bowles, Chairman of National Commission on Fiscal Responsibility and Reform, once said, “This debt is like a cancer. It is truly going to destroy the country from within.” And to be sure, the conversation about our national debt is as much about future generations as it is about the present. Life in America as we know it is in jeopardy.


Restoring balance in the regulatory process

One year after President Obama’s signing of Executive Order (EO)13563 – Improving Regulation and Regulatory Review, a directive that promised to help balance the rulemaking process and curb the increase in onerous federal regulations, a look back suggests we’ve seen little change. In the last year the administration has continued rolling out costly new rules and mandates for small businesses on par with the last five years, which have seen a 60 percent increase in proposed major regulations.
EO 13563 required policymakers to review regulations on the books to ensure that they were still relevant (an obligation already required by law); minimize costs of new regulation; pursue only rules whose benefits outweigh their costs; and identify alternative options whenever possible for future regulations. Those requirements hinted at a much needed break for small businesses. Unfortunately, as we saw over the course of the year, the guidance was largely ignored or inconsistently applied. The administration proposed regulations that would cost $231.4 billion and create 133 million hours of paperwork, according to the American Action Forum. The Environmental Protection Agency proposed one rule on industrial furnace emissions that if approved would cost about $10 billion up front, and as much as $3 billion annually.