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Famous Last Words

Thanks to the Tax Foundation for linking to a C-SPAN video of a September 10, 2003 hearing of the U.S. House of Representatives' Committee on Financial Services “on an administration proposal to alter the regulation of (government-sponsored enterprises) like Fannie Mae and Freddie Mac.” In view of the current financial crisis, which may involve as much as a $700 billion bailout by American taxpayers, it’s especially interesting to listen to the opening remarks at the hearing of Rep. Barney Frank (D-Massachusetts). Below are the first three paragraphs from Rep. Frank’s remarks (emphases added):

“I want to begin by saying that I am glad to consider the legislation, but I do not think we are facing any kind of a crisis. That is, in my view, the two government sponsored enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis. We have recently had an accounting problem with Freddie Mac that has led to people being dismissed, as appears to be appropriate. I do not think at this point there is a problem with a threat to the Treasury.

“I must say we have an interesting example of self-fulfilling prophecy. Some of the critics of Fannie Mae and Freddie Mac say that the problem is that the Federal Government is obligated to bail out people who might lose money in connection with them. I do not believe that we have any such obligation. And as I said, it is a self-fulfilling prophecy by some people.

“So let me make it clear, I am a strong supporter of the role that Fannie Mae and Freddie Mac play in housing, but nobody who invests in them should come looking to me for a nickel--nor anybody else in the Federal Government. And if investors take some comfort and want to lend them a little money and less interest rates, because they like this set of affiliations, good, because housing will benefit. But there is no guarantee, there is no explicit guarantee, there is no implicit guarantee, there is no wink-and-nod guarantee. Invest, and you are on your own.”

Famous last words. indeed! The cost of those words? Perhaps as much as $1 trillion.

Note: here is the link to the transcript of the hearing before the House of Representatives’ committee on financial services.

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