Warrior for the truth, Rep.Capuano grilled Treasury SecretaryLew about the GSEs at a hearing today.This was shared with me by a true friend of our cause.
If you scroll down, he said Lew is holding the GSEs hostage, using them as a piggybank, and taxing homeowners to fund general receipts. Lew said that the sweep allowed the govt to reduce the deficit.
Capuano exchange begins at 1:22
Capuano: Since FF went into conservatorship, FF borrowed $187.5bn and have since repaid $225.5bn, a $40bn profit or a 20pc rate of return. Can you tell me what you’ve done with the $40bn that you’ve gotten back beyond what the taxpayers lent?
Lew: It becomes part of government receipts and general funds. As a practical matter, it’s what has helped us to reduce our overall deficit.
Capuano: More receipts is fine, but it’s come into the general fund and we’ve spend it any way we want. That’s not the issue. But that $40bn, that’s only the beginning. What has FF been able to pay down on what they originally borrowed?
Lew: Congressman, I think the idea that they are kind of out of the woods.
Capuano: I didn’t say that. I’m asking you what happened with the money?
Lew: There’s still a federal guarantee behind FF.
Capuano: I understand that, I actually like and appreciate that even though some of my colleagues don’t.
Lew: And the exposure that taxpayers have until there is housing finance reform…
Capuano: Fair enough. What kind of capital reserve have FF been able to build up?
Lew: They have not built up a capital reserve…
Capuano: Because we’re sweeping all the money out and putting it into the General Fund and spending it, am I right?
Lew: Until we move to a system beyond the current one, taxpayers are ultimately responsible and therefore
Capuano: But that’s been the case since the 1930s that the taxpayers have been on the hook and they had a blip and taxpayers stepped in, as we promised we would do for 80 years and now we’ve been paid back. The question I have is, when are we going to stop using this as a piggybank? I know we have to have a debate about reforming FF, but if that’s the case, what’s the Administration’s proposal on how to move forward?
Lew: I think that the important question is how do we move forward on housing finance reform? We have very much wanted to move forward. We think it’s an important priority.
Capuano: Have you submitted a proposal that I haven’t seen?
Lew: Well, we worked closely in the development of proposals, particularly on the Senate side and have been engaged with thinking through with others on how to move forward.
Capuano: But those have not moved forward as we clearly both know.
Lew: I don’t disagree that progress has been slow.
Capuano: If that’s the case, how long are you going to keep Fannie and Freddie hostage? The reason I ask is not about Fannie and Freddie. It’s about homeowners. By holding them hostage, number 1, you’re not allowing FF to capitalize. Number 2, you’re not allowing any funds to be left over for the housing trust fund. Number 3, you’re basically submitting homeowners to an additional tax for the purposes of general revenue which doesn’t sound fair to me. General revenue should be paid by general people.
Lew: I don’t agree with that analysis in terms of the impact on homeowners. I do think that there is a very serious question as long FF are in conservatorship they’re in public exposure.
Capuano: Because you won’t let them out. You won’t let them pay off their debt!
Lew: There is, I think, the need for housing finance reform in order to move beyond.
Capuano: If one of my constituents were to loan me money and not allow me to pay them back, what would you call that?
Time expired. Keep the Faith!
Edit 12:14 am 3/18/15
Josh Rosner at Wharton: Great presentation bY Josh Rosner, I will have more to say on this.