U.S. Rep. Ron Paul | GSE |
GSE
ECONOMIC PROBLEMS AHEAD
November 13, 2000 2000 Ron Paul 93:8
* Even in the midst of our great imaginary budgetary surpluses, there has been no effort to cut. Once the economy tends to slow and more problems are apparent, expenditures are going to soar not only because of future problems but because of the new programs recently initiated. A huge financial bubble has been created by the GSEs, such as Fannie Mae and Freddie Mac. The $33 billion of shareholder equities in these two organizations has been leveraged into $1.07 trillion worth of assets- a bubble waiting to be pricked. The Congress has reacted to all these events irresponsibly by increasing spending, increasing tax revenues, doing nothing to reduce regulations, and being totally apathetic toward the dollar and monetary policy. We in the Congress have a moral and constitutional obligation to protect the value of the dollar and to understand why it is so important to the economy that a central bank not be given the unbelievable power of inflating a currency at will and pretending that it knows how to find tune an economy through this counterfeit system of money.
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CHALLENGE TO AMERICA: A CURRENT ASSESSMENT OF OUR REPUBLIC —
February 07, 2001 2001 Ron Paul 7:69
The extra credit in the 1990s has found its way especially into the housing market like never before. GSEs, in particular Freddie Mac and Fannie Mae, have gobbled up huge sums to finance a booming housing market. GSE securities enjoy implicit government guarantees, which have allowed for a generous discount on most housing loans. They have also been the vehicles used by consumers to refinance and borrow against their home equity to use these funds for other purposes, such as investing in the stock market. This has further undermined savings by using the equity that builds with price inflation that homeowners enjoy when money is debased. In addition, the Federal Reserve now buys and holds GSE securities as collateral in their monetary operations. These securities are then literally used as collateral for printing Federal Reserve notes; this is a dangerous precedent.
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The US Dollar and the World Economy
September 6, 2001 2001 Ron Paul 75:26
The Federal Reserve credit created during the last eight months has not stimulated economic growth in technology or the industrial sector, but a lot of it ended up in the expanding real-estate bubble, churned by the $3.2 trillion of debt maintained by the GSEs.
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The US Dollar and the World Economy
September 6, 2001 2001 Ron Paul 75:27
The GSEs, made up of Fannie Mae, Freddie Mac, and the Federal Home Loan Bank, have managed to keep the housing market afloat, in contrast to the more logical slowdown in hotel and office construction. This spending through the GSEs has also served as a vehicle for consumption spending. This should be no surprise, considering the special status that GSEs enjoy, since their implied line of credit to the US Treasury keeps interest rates artificially low. The Clinton administration encouraged growth in housing loans that were financed through this system.
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The US Dollar and the World Economy
September 6, 2001 2001 Ron Paul 75:28
In addition, the Federal Reserve treats GSE securities with special consideration. Ever since the fall of 1999, the Fed has monetized GSE securities, just as if they were US Treasury bills. This message has not been lost by foreign central banks, which took their cue from the Fed and now hold more than $130 billion of United States GSE securities. The Fed holds only $20 billion worth, but the implication is clear. Not only will the Treasury loan to the GSEs if necessary, since the line of credit is already in place, but, if necessary, Congress will surely accommodate with appropriations as well, just as it did during the Savings and Loan crisis. But the Fed has indicated to the world that the GSEs are equivalent to US Treasury bills, and foreign central banks have enthusiastically accommodated, sometimes by purchasing more than $10 billion of these securities in one week alone. They are merely recycling the dollars we so generously print and spend overseas.
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The US Dollar and the World Economy
September 6, 2001 2001 Ron Paul 75:29
After the NASDAQ collapsed last year, the flow of funds into real estate accelerated. The GSEs accommodated by borrowing without restraint to subsidize new mortgages, record sales and refinancing. It’s no wonder the price of houses are rising to record levels.
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The US Dollar and the World Economy
September 6, 2001 2001 Ron Paul 75:32
A major problem still remains. Ultimately the market determines all value including all currencies. With the current direction of the dollar certainly downward, the day of reckoning is fast approaching. A weak dollar will prompt dumping of GSE securities before treasuries, despite the Treasury’s and the Fed’s attempt to equate them with government securities. This will threaten the whole GSE system of finance, because the challenge to the dollar and the GSEs will hit just when the housing market turns down and defaults rise. Also a major accident can occur in the derivatives markets where Fannie Mae and Freddie Mac are deeply involved in hedging their interest-rate bets. Rising interest rates that are inherent with a weak currency will worsen the crisis.
GSE
Free Housing Market Enhancement Act
July 16, 2002 2002 Ron Paul 70:1
Mr. Speaker, I rise to introduce the Free Housing Market Enhancement Act. This legislation restores a free market in housing by repealing special privileges for housing-related government sponsored enterprises (GSEs). These entities are the Federal National Mortgage Association (Fannie), the Federal Home Loan Mortgage Corporation (Freddie), and the National Home Loan Bank Board (HLBB). According to the Congressional Budget Office, the housing-related GSEs received $13.6 billion worth of indirect federal subsidies in fiscal year 2000 alone.
GSE
Free Housing Market Enhancement Act
July 16, 2002 2002 Ron Paul 70:2
One of the major government privileges granted these GSEs is a line of credit to 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 these GSEs in times of economic difficulty helps them 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 massive unconstitutional and immoral income transfer from working Americans to holders of GSE debt.
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Free Housing Market Enhancement Act
July 16, 2002 2002 Ron Paul 70:3
The Free Housing Market Enhancement Act also repeals the explicit grant of legal authority given to the Federal Reserve to purchase the debt of housing-related GSEs. 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.
GSE
Free Housing Market Enhancement Act
July 16, 2002 2002 Ron Paul 70:6
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.
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Free Housing Market Enhancement Act
July 16, 2002 2002 Ron Paul 70:7
No less an authority than Federal Reserve Chairman Alan Greenspan has expressed concern that government subsidies provided to the GSEs make investors underestimate the risk of investing in Fannie Mae and Freddie Mac.
GSE
Free Housing Market Enhancement Act
July 16, 2002 2002 Ron Paul 70:8
Mr. Speaker, it is time for Congress to act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors misled by foolish government interference in the market. I therefore hope my colleagues will stand up for American taxpayers and investors by cosponsoring the Free Housing Market Enhancement Act.
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Paper Money and Tyranny
September 5, 2003 2003 Ron Paul 93:52
We own the printing press and create as many dollars as we please. These dollars are used to buy federal debt. This allows our debt to be monetized and the spendthrift Congress, of course, finds this a delightful convenience and never complains. As the dollars circulate through our fractional reserve banking system, they expand many times over. With our excess dollars at home, our trading partners are only too happy to accept these dollars in order to sell us their products. Because our dollar is relatively strong compared to other currencies, we can buy foreign products at a discounted price. In other words, we get to create the world’s reserve currency at no cost, spend it overseas, and receive manufactured goods in return. Our excess dollars go abroad and other countries-especially Japan and China- are only too happy to loan them right back to us by buying our government and GSE debt. Up until now both sides have been happy with this arrangement.
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Fannie Mae and Freddie Mac Subsidies Distort the Housing Market
September 10, 2003 2003 Ron Paul 95:1
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.
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Fannie Mae and Freddie Mac Subsidies Distort the Housing Market
September 10, 2003 2003 Ron Paul 95:2
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.
GSE
Fannie Mae and Freddie Mac Subsidies Distort the Housing Market
September 10, 2003 2003 Ron Paul 95:3
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 dollars. 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.
GSE
Fannie Mae and Freddie Mac Subsidies Distort the Housing Market
September 10, 2003 2003 Ron Paul 95:4
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.
GSE
Fannie Mae and Freddie Mac Subsidies Distort the Housing Market
September 10, 2003 2003 Ron Paul 95:5
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.
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Fannie Mae and Freddie Mac Subsidies Distort the Housing Market
September 10, 2003 2003 Ron Paul 95:8
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.
GSE
Fannie Mae and Freddie Mac Subsidies Distort the Housing Market
September 10, 2003 2003 Ron Paul 95:9
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.
GSE
Fannie Mae and Freddie Mac Subsidies Distort the Housing Market
September 10, 2003 2003 Ron Paul 95:10
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.
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Introducing Free Housing Market Enhancement Act
10 September 2003 2003 Ron Paul 96:1
Mr. PAUL. Mr. Speaker, I rise to introduce the Free Housing Market Enhancement Act. This legislation restores a free market in housing by repealing special privileges for the housing-related government sponsored enterprises (GSE). These entities are the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the National Home Loan Bank Board. According to the Congressional Budget Office, the housing-related GSEs received 13.6 billion worth of indirect Federal subsidies in Fiscal Year 2000 alone.
GSE
Introducing Free Housing Market Enhancement Act
10 September 2003 2003 Ron Paul 96:2
One of the major government privileges granted the GSE is a line of credit to the United States Treasury. According to some estimates, the line of credit may be worth over $2 billion dollars. This explicit promise by the Treasury to bail out the 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 massive unconstitutional and immoral income transfer from working Americans to holders of GSE debt.
GSE
Introducing Free Housing Market Enhancement Act
10 September 2003 2003 Ron Paul 96:3
The Free Housing Market Enhancement Act also repeals the explicit grant of legal authority given to the Federal Reserve to purchase the debt of GSE. GSEs are the only institutions besides the United States Treasury granted explicit statutory authority to monetarize their debt through the Federal Reserve. This provision gives the GSEs a source of liquidity unavailable to their competitors.
GSE
Introducing Free Housing Market Enhancement Act
10 September 2003 2003 Ron Paul 96:4
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 investors did not have reason to believe that Fannie and Freddie were underwritten by the Federal government then investors would demand Fannie and Freddie provided assurance they were following accepted management and accounting practices before investing in Fannie and Freddie.
GSE
Introducing Free Housing Market Enhancement Act
10 September 2003 2003 Ron Paul 96:7
Perhaps the Federal Reserve can stave off the day of reckoning by purchasing the GSE’s 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.
GSE
Introducing Free Housing Market Enhancement Act
10 September 2003 2003 Ron Paul 96:8
No less an authority than Federal Reserve Chairman Alan Greenspan has expressed concern that the government subsidies provided to the GSEs make investors underestimate the risk of investing in Fannie Mac and Freddie Mac.
GSE
Introducing Free Housing Market Enhancement Act
10 September 2003 2003 Ron Paul 96:9
Mr. Speaker, it is time for Congress to 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 my colleagues will stand up for American taxpayers and investors by cosponsoring the Free Housing Market Enhancement Act.
GSE
The Financial Services Committees “Views and Estimates for 2005”
February 26, 2004 2004 Ron Paul 7:6
While the committee’s “Views and Estimates” devote considerable space to discussing Government Sponsored Enterprises (GSEs), it makes no mention of the billions of dollars in subsidies Congress has given to GSEs. These subsidies distort the market, create a short-term boom in housing, and endanger the economy by allowing GSEs to attract capital they could not attract under pure market conditions.
GSE
The Financial Services Committees “Views and Estimates for 2005”
February 26, 2004 2004 Ron Paul 7:8
Government subsidies helped Fannie and Freddie triple their debt to more than $2.2 trillion from 1995 to 2002. Fannie and Freddie’s combined debt soon could surpass the privately held debt of the entire federal government. A taxpayer bailout of the GSEs would dwarf the savings-and-loan bailout of the early nineties and could run up the national debt to unmanageable levels.
GSE
The Financial Services Committees “Views and Estimates for 2005”
February 26, 2004 2004 Ron Paul 7:9
However, according to the Committee on Financial Services, the problem with GSEs is not taxpayer subsidizes but a lack of proper regulation! Therefore, the only GSE reform recommended by this document is to create a new regulator to oversee GSEs. In fact, new regulators, or new regulations, will not do anything to correct the market distortions caused by government support of GSEs.
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The Financial Services Committees “Views and Estimates for 2005”
February 26, 2004 2004 Ron Paul 7:10
Instead of reorganizing the deck chairs of the GSEs’ looming fiscal Titanic, the Committee should pass HR 3071, the Free Housing Market Enhancement Act. This act repeals government subsidies for the housing-related GSEs — Fannie Mae, Freddie Mac, and the National Home Loan Bank Board.
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Government Sponsored Enterprises
26 October 2005 2005 Ron Paul 108:1
Mr. PAUL. Mr. Chairman, H.R. 1461 fails to address the core problems with the Government Sponsored Enterprises, GSEs. Furthermore, since this legislation creates new government programs that will further artificially increase the demand for housing, H.R. 1461 increases the economic damage that will occur when the housing bubble bursts. The main problem with the GSEs is the special privileges the Federal Government gives the GSEs. According to the Congressional Budget Office, the housing-related GSEs received almost 20 billion dollars worth of indirect federal subsidies in fiscal year 2004 alone.
GSE
Government Sponsored Enterprises
26 October 2005 2005 Ron Paul 108:2
One of the major privileges the Federal Government grants to the GSEs is a line of credit from the United States Treasury. According to some estimates, the line of credit may be worth over two billion dollars. GSEs also benefit from an explicit grant of legal authority given to the Federal Reserve to purchase the debt of the GSEs. 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.
GSE
Government Sponsored Enterprises
26 October 2005 2005 Ron Paul 108:3
This implicit promise by the government to bail out the 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 massive unconstitutional and immoral income transfer from working Americans to holders of GSE debt. This is why I am offering an amendment to cut off this line of credit. I hope my colleagues join me in protecting taxpayers from having to bail out Fannie Mae and Freddie Mac when the housing bubble bursts.
GSE
Government Sponsored Enterprises
26 October 2005 2005 Ron Paul 108:4
The connection between the GSEs and the government helps isolate the GSEs’ managements from market discipline. This isolation from market discipline is the root cause of the mismanagement occurring at Fannie and Freddie. After all, if investors did not believe that the Federal Government would bail out Fannie and Freddie if the GSEs faced financial crises, then investors would have forced the GSEs to provide assurances that the GSEs are following accepted management and accounting practices before investors would consider Fannie and Freddie to be good investments.
GSE
Government Sponsored Enterprises
26 October 2005 2005 Ron Paul 108:5
Federal Reserve Chairman Alan Greenspan has expressed concern that the government subsidies provided to the GSEs makes investors underestimate the risk of investing in Fannie Mae and Freddie Mac. Although he has endorsed many of the regulatory “solutions” being considered here today, Chairman Greenspan has implicitly admitted the subsidies are the true source of the problems with Fannie and Freddie.
GSE
Government Sponsored Enterprises
26 October 2005 2005 Ron Paul 108:6
Mr. Chairman, H.R. 1461 compounds these problems by further insulating the GSEs from market discipline. By creating a “world-class” regulator, Congress would send a signal to investors that investors need not concern themselves with investigating the financial health and stability of Fannie and Freddie since a “world-class” regulator is performing that function.
GSE
Government Sponsored Enterprises
26 October 2005 2005 Ron Paul 108:12
Ironically, by transferring the risk of widespread mortgage defaults to the taxpayers through government subsidies and convincing investors that all is well because a “world- class” regulator is ensuring the GSEs’ soundness, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges of Fannie and Freddie have distorted the housing market by allowing Fannie and Freddie to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive uses into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.
GSE
Government Sponsored Enterprises
26 October 2005 2005 Ron Paul 108:15
Perhaps the Federal Reserve can stave off the day of reckoning by purchasing the GSEs’ 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 and painful market corrections will only deepen the inevitable fall. The more people are invested in the market, the greater the effects across the economy when the bubble bursts.
GSE
Government Sponsored Enterprises
26 October 2005 2005 Ron Paul 108:16
Instead of addressing government polices encouraging the misallocation of resources to the housing market, H.R. 1461 further introduces distortion into the housing market by expanding the authority of Federal regulators to approve the introduction of new products by the GSEs. Such regulation inevitability delays the introduction of new innovations to the market, or even prevents some potentially valuable products from making it to the market. Of course, these new regulations are justified in part by the GSEs’ government subsidies. We once again see how one bad intervention in the market (the GSEs’ government subsidies) leads to another (the new regulations).
GSE
Government Sponsored Enterprises
26 October 2005 2005 Ron Paul 108:17
In conclusion, H.R. 1461 compounds the problems with the GSEs and may increases the damage that will be inflicted by a bursting of the housing bubble. This is because this bill creates a new unaccountable regulator and introduces further distortions into the housing market via increased regulatory power. H.R. 1461 also violates the Constitution by creating yet another unaccountable regulator with quasi-executive, judicial, and legislative powers. Instead of expanding unconstitutional and market distorting government bureaucracies, Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bailout investors who were misled by foolish government interference in the market.
GSE
Amendment No. 6 Offered By Mr. Paul — Part 1
26 October 2005 2005 Ron Paul 109:3
Mr. PAUL. Mr. Chairman, my amendment is straightforward. It cuts off a line of credit to the Treasury. The GSEs have a line of credit of $2 billion. It is said that it is not important because they never use it. The answer really to that is if they never use it, why leave it on the books. But we do know they indirectly use it. It has been described as a subsidy, because the GSEs can go into the market and get a discount on their loan costs; therefore, they can out-compete the private sector. My amendment merely eliminates that line of credit, puts a greater burden on the marketplace to regulate the GSEs rather than depending on regulation.
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Amendment No. 6 Offered By Mr. Paul — Part 1
26 October 2005 2005 Ron Paul 109:4
I think Members can see there is a problem with our GSEs. The debt is horrendous. Today, the administration sent a letter around and said that the debt of the GSEs totals $2.5 trillion, and they also guarantee in addition $2.4 trillion. That adds up to more money than the Federal Government has borrowed. So it is a tremendous amount of money and credit that is in the system; and people have become frightened about this, including chairman of the Federal Reserve Board, Alan Greenspan.
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Amendment No. 6 Offered By Mr. Paul — Part 1
26 October 2005 2005 Ron Paul 109:7
Of course, there are other things that contribute to the housing bubble, something that we cannot deal with today, but the fact that there is easy credit and low interest rates, interest rates below the market level, that is then directed into the housing market. This also contributes to the size and the scope of the borrowing capacity of the GSEs.
GSE
Amendment No. 6 Offered By Mr. Paul — Part 1
26 October 2005 2005 Ron Paul 109:9
This housing bubble, a housing program that we are starting up, how do we finance it? Well, we tax the GSEs. Instead of arguing the case for the marketplace and letting people earn money legitimately without subsidies, what we do, we keep allowing the system to continue. They do make profits, and then we tax them. We are talking about an additional tax, and this might very well be the reason the administration has come out against this bill, because of this new tax.
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Amendment No. 6 Offered By Mr. Paul — Part 2
26 October 2005 2005 Ron Paul 110:2
If we had a bill that was a little cleaner, we probably would be dealing with the problems we face with the GSEs and we would be dealing with a housing program, a new housing program, probably with a different bill.
GSE
Federal Housing Finance Reform Act Of 2007
17 May 2007 2007 Ron Paul 52:1
Mr. PAUL. Mr. Chairman, H.R. 1427 fails to address the core problems with the Government Sponsored Enterprises, GSEs. Furthermore, since this legislation creates new government programs that will further artificially increase the demand for housing, H.R. 1427 increases the economic damage that will occur from the bursting of the housing bubble. The main problem with the GSEs is the special privileges the Federal Government gives the GSEs. According to the Congressional Budget Office, the housing-related GSEs received almost 20 billion dollars worth of indirect Federal subsidies in fiscal year 2004 alone, while Wayne Passmore of the Federal Reserve estimates the value of the GSE’s Federal subsides to be between $122 and $182 billion dollars.
GSE
Federal Housing Finance Reform Act Of 2007
17 May 2007 2007 Ron Paul 52:2
One of the major privileges the Federal Government grants to the GSEs is a line of credit from the United States Treasury. According to some estimates, the line of credit may be worth over 2 billion dollars. GSEs also benefit from an explicit grant of legal authority given to the Federal Reserve to purchase the debt of the GSEs. 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.
GSE
Federal Housing Finance Reform Act Of 2007
17 May 2007 2007 Ron Paul 52:3
This implicit promise by the Government to bail out the 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 massive unconstitutional and immoral income transfer from working Americans to holders of GSE debt.
GSE
Federal Housing Finance Reform Act Of 2007
17 May 2007 2007 Ron Paul 52:4
The connection between the GSEs and the Government helps isolate the GSEs’ managements from market discipline. This isolation from market discipline is the root cause of the mismanagement occurring at Fannie and Freddie. After all, if investors did not believe that the Federal Government would bail out Fannie and Freddie if the GSEs faced financial crises, then investors would have forced the GSEs to provide assurances that the GSEs are following accepted management and accounting practices before investors would consider Fannie and Freddie to be good investments.
GSE
Federal Housing Finance Reform Act Of 2007
17 May 2007 2007 Ron Paul 52:5
Federal Reserve Chairman Alan Greenspan has expressed concern that the government subsidies provided to the GSEs makes investors underestimate the risk of investing in Fannie Mae and Freddie Mac. Although he has endorsed many of the regulatory “solutions” being considered here today, Chairman Greenspan has implicitly admitted the subsidies are the true source of the problems with Fannie and Freddie.
GSE
Federal Housing Finance Reform Act Of 2007
17 May 2007 2007 Ron Paul 52:6
Mr. Chairman, H.R. 1427 compounds these problems by further insulating the GSEs from market discipline. By creating a “world-class” regulator, Congress would send a signal to investors that investors need not concern themselves with investigating the financial health and stability of Fannie and Freddie since a “world-class” regulator is performing that function.
GSE
Federal Housing Finance Reform Act Of 2007
17 May 2007 2007 Ron Paul 52:12
Ironically, by transferring the risk of widespread mortgage defaults to the taxpayers through Government subsidies and convincing investors that all is well because a “world- class” regulator is ensuring the GSEs’ soundness, the Government increases the likelihood of a painful crash in the housing market. This is because the special privileges of Fannie and Freddie have distorted the housing market by allowing Fannie and Freddie to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive uses into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.
GSE
Federal Housing Finance Reform Act Of 2007
17 May 2007 2007 Ron Paul 52:15
Perhaps the Federal Reserve can stave off the day of reckoning by purchasing the GSEs’ 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 and painful market corrections will only deepen the inevitable fall. The more people are invested in the market, the greater the effects across the economy when the bubble bursts.
GSE
Federal Housing Finance Reform Act Of 2007
17 May 2007 2007 Ron Paul 52:16
Instead of addressing Government polices encouraging the misallocation of resources to the housing market, H.R. 1427 further introduces distortion into the housing market by expanding the authority of Federal regulators to approve the introduction of new products by the GSEs. Such regulation inevitability delays the introduction of new innovations to the market, or even prevents some potentially valuable products from making it to the market. Of course, these new regulations are justified in part by the GSEs’ government subsidies. We once again see how one bad intervention in the market (the GSEs’ government subsides) leads to another (the new regulations).
GSE
Federal Housing Finance Reform Act Of 2007
17 May 2007 2007 Ron Paul 52:17
In conclusion, H.R. 1427 compounds the problems with the GSEs and may increase the damage that will be inflicted by a bursting of the housing bubble. This is because this bill creates a new unaccountable regulator and introduces further distortions into the housing market via increased regulatory power. H.R. 1427 also violates the Constitution by creating yet another unaccountable regulator with quasi-executive, judicial, and legislative powers. Instead of expanding unconstitutional and market distorting government bureaucracies, Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bailout investors who were misled by foolish Government interference in the market.
GSE
Statement of Ron Paul on H.R. 5140
29 January 2008 2008 Ron Paul 2:2
Ironically, many of the same members who insisted that upper income taxpayers be denied the tax rebates are enthusiastic champions of the provisions in HR 5140 increasing the FHA loan limit to $633,500 and the GSE loan limit to $729,750. This increase in the loan limits represents a generous taxpayer subsidy to high-income homeowners.
GSE
Humphrey Hawkins Hearing on Monetary Policy
July 16, 2008 2008 Ron Paul 46:2
The two GSE’s have been disasters waiting to happen, as I and many others have warned over the years. It was bad enough that Fannie and Freddie were able to operate with significant advantages, such as lower borrowing costs and designation of their debt as government debt. Now, the implicit government backstop has turned out to be an explicit backstop, just as we feared. The Greenspan reflation of the economy after the dot-com bust pumped additional liquidity into an already-skewed housing market, leading to an unsustainable boom that from many accounts has only begun to unravel. With a current federal funds rate of two percent, and inflation at over four percent, the Fed is currently sowing the seeds for another economic bubble.
Texas Straight Talk from 20 December 1996 to 23 June 2008 (573 editions) are included in this Concordance. Texas Straight Talk after 23 June 2008 is in blog form on Rep. Paul’s Congressional website and is not included in this Concordance.
Remember, not everything in the concordance is Ron Paul’s words. Some things he quoted, and he added some newspaper and magazine articles to the Congressional Record. Check the original speech to see.