Portugal e a crise

Índice Caranguejo. Por Luís Aguiar-Conraria.

Ron Paul em 2003, House Financial Services Committe

Fannie Mae and Freddie Mac Subsidies Distort the Housing Market

House Financial Services Committee

Congressional Record—U.S. House of Representatives

September 10, 2003

Mr. Chairman, thank you for holding this hearing on the Treasury

Department’s views regarding Government Sponsored

Enterprises (GSEs). I would also like to thank Secretaries Snow

and Martinez for taking time out of their busy schedules to appear

before the committee.

I hope this committee spends some time examining the special

privileges provided to GSEs by the federal government. According

to the Congressional Budget Office, the housing-related GSEs

received $13.6 billion worth of indirect federal subsidies in fiscal

year 2000 alone. Today, I will introduce the Free Housing Market

Enhancement Act, which removes government subsidies from the

Federal National Mortgage Association (Fannie Mae), the Federal

Home Loan Mortgage Corporation (Freddie Mac), and the

National Home Loan Bank Board.

One of the major government privileges granted to GSEs is a

line of credit with the United States Treasury. According to some

estimates, the line of credit may be worth over $2 billion. This

explicit promise by the Treasury to bail out GSEs in times of economic

difficulty helps the GSEs attract investors who are willing

to settle for lower yields than they would demand in the absence

of the subsidy. Thus, the line of credit distorts the allocation of

capital. More importantly, the line of credit is a promise on behalf

of the government to engage in a huge unconstitutional and

immoral income transfer from working Americans to holders of

GSE debt.

The Free Housing Market Enhancement Act also repeals the

explicit grant of legal authority given to the Federal Reserve to

purchase GSE debt. GSEs are the only institutions besides the

United States Treasury granted explicit statutory authority to

monetize their debt through the Federal Reserve. This provision

gives the GSEs a source of liquidity unavailable to their competitors.

The connection between the GSEs and the government helps

isolate the GSE management from market discipline. This isolation

from market discipline is the root cause of the recent reports

of mismanagement occurring at Fannie and Freddie. After all, if

Fannie and Freddie were not underwritten by the federal government,

investors would demand Fannie and Freddie provide

assurance that they follow accepted management and accounting

practices.

Ironically, by transferring the risk of a widespread mortgage

default, the government increases the likelihood of a painful crash

in the housing market. This is because the special privileges

granted to Fannie and Freddie have distorted the housing market

by allowing them to attract capital they could not attract under

pure market conditions. As a result, capital is diverted from its

most productive use into housing. This reduces the efficacy of the

entire market and thus reduces the standard of living of all Americans.

Despite the long-term damage to the economy inflicted by the

government’s interference in the housing market, the government’s

policy of diverting capital to other uses creates a short-term

boom in housing. Like all artificially-created bubbles, the boom in

housing prices cannot last forever. When housing prices fall,

homeowners will experience difficulty as their equity is wiped out.

Furthermore, the holders of the mortgage debt will also have a

loss. These losses will be greater than they would have otherwise

been had government policy not actively encouraged overinvestment

in housing.

Perhaps the Federal Reserve can stave off the day of reckoning

by purchasing GSE debt and pumping liquidity into the housing

market, but this cannot hold off the inevitable drop in the housing

market forever. In fact, postponing the necessary but painful market

corrections will only deepen the inevitable fall. The more people

invested in the market, the greater the effects across the economy

when the bubble bursts.

No less an authority than Federal Reserve Chairman Alan

Greenspan has expressed concern that government subsidies provided

to GSEs make investors underestimate the risk of investing

in Fannie Mae and Freddie Mac.

Mr. Chairman, I would like to once again thank the Financial

Services Committee for holding this hearing. I would also like to

thank Secretaries Snow and Martinez for their presence here

today. I hope today’s hearing sheds light on how special privileges

granted to GSEs distort the housing market and endanger American

taxpayers. Congress should act to remove taxpayer support

from the housing GSEs before the bubble bursts and taxpayers are

once again forced to bail out investors who were misled by foolish

government interference in the market. I therefore hope this committee

will soon stand up for American taxpayers and investors by

acting on my Free Housing Market Enhancement Act. 􀂄