(CNSNews.com) – Democratic and Republican lawmakers alike are blasting the Treasury Department’s Christmas Eve announcement that it will send unlimited tax money to failed mortgage giants Fannie Mae and Freddie Mac, thereby eliminating the current $400 billion cap on emergency aid that Treasury can give without having to come back to Congress for authorization.
This means Treasury can continue to manage the companies, which were seized last year, as arms of the government until the end of President Obama’s current term.
On Dec. 29, Rep. Dennis Kucinich (D-Ohio), chairman of the domestic policy subcommittee of the House Oversight and Government Reform Committee, said his committee will investigate Treasury’s decision to slash the cap on funding.
The committee will especially examine compensation and bonuses paid to Fannie Mae chief executive Michael J. Williams and Freddie Mac chief executive Charles E. Haldeman – and whether either played roles in the decision. The committee will also make certain that additional money goes to “homeowners and not Wall Street,” Kucinich pledged.
“This relationship between Treasury and Fannie and Freddie bears inspection, particularly in the wake of reports that the mortgage giants’ chief executives will now receive $900,000 each in the annual compensation, bonuses of up to $6 million each, and an additional $42 million in special compensation will be spread among a dozen other executives,” Kucinich stated.
Questioning whether lifting the cap on assistance amounts to a “back-door TARP” – referring to the government’s Troubled Asset Relief Program bank bailout -- Kucinich called Treasury’s Dec. 24 announcement “curiously timed.”
“Many questions remain unanswered regarding this move by the Treasury,” the liberal Democrat from Ohio said. “Why suddenly remove the cap?”
Kucinich said indications are that Freddie and Fannie, “even as millions of Americans lose their homes,” have used only $111 billion of the $400 billion previously available to them for mortgages.
Two Republicans, Reps. Scott Garrett (R-N.J.) and Spencer Bachus (R-Ala.), are also publicly protesting the administration’s move to give the government unlimited authority to inject tax money into Fannie and Freddie.
“The Obama administration’s decision to write a blank check with taxpayer dollars for the continued bailout of Fannie Mae and Freddie Mac is appalling,” Garrett said in a statement. “Not only is this a continued bailout of failed entities that need to be privatized to protect the taxpayer, the timing of the announcement is clearly designed to try and sneak the bailout by taxpayers."
Like Democrat Kucinich, the New Jersey Republican finds the timing of the Treasury announcement suspect.
“While many Americans are focused on spending time with their families for the holidays, the government has not only passed a massive health-care takeover bill through the Senate, the administration has opened the wallets of the American people for the unlimited taking,” Garrett said.
Garrett chided Obama’s repeated promises of ‘transparency” saying that the administration’s intent with its timing was clear: “This administration has previously made claims of valuing transparency, yet they are trying to hide this decision from the American people.”
On Dec. 24, Bachus, the top Republican on the Financial Services Committee, released his own statement condemning what he called "bad policy."
“Obviously the administration knows that this is bad policy as evidenced by the fact that they made this announcement on Christmas Eve to prevent the general public from taking note,” Bachus said.
The Alabama Republican congressman also noted the fact that the CEOs of Fannie Mae and Freddie Mac, whose salaries are now paid by tax dollars, were not placed under the same bonus restrictions that private company CEOs are under.
“It is also disappointing that at a time when taxpayers are being forced to provide unlimited support to Fannie and Freddie, their publicly subsidized executives are not being held to the same compensation limits that private financial firms receiving taxpayer assistance must accept,” the congressman added.
Treasury spokeswoman Meg Reilly told CNSNews.com via e-mail that the Christmas Eve announcement continued the administration’s “broad policies” on housing market stability.
Reilly pointed out that neither lending corporation is close to the $200 billion cap per institution. Through the third quarter, Freddie Mac’s total taxpayer funding was $51 billion and Fannie Mae logged $60 billion.
“The changes just announced are designed to provide assurance to market participants as the Government Sponsored Enterprises (GSEs), operating in conservatorship, continue to play a vital role in supporting the housing market during this current crisis,” Reilly said. “These commitments are another indication that the Treasury stands firmly behind their ability to provide that support.”
Reilly said Treasury had consulted with the Federal Housing Finance Agency, which she said had suggested in a “range of forward-looking scenarios” that the current limit “will be more than sufficient,” she explained.
Reilly also defended the administration decision as to lawfulness.
“Congress gave Treasury the authority to act specifically with respect to the GSEs in order to provide stability to financial markets and prevent disruptions in mortgage finance,” Reilly said.
The Treasury Department, however, did not respond to additional inquiries about the high compensations and bonuses going to the mortgage giants’ executives and why Treasury thought it necessary to knock the cap when the government-chartered companies were not near the funding limit.
But Garrett’s press secretary Erica Elliott speculated about the real reason for the action and the timing.
“Treasury had open-ended authority granted from Housing and Economic Recovery Act (HERA) that was set to expire at the end of 2009 – which partially explains the timing of their actions,” she said, adding that it was her understanding that Treasury officials had been debating for some time whether they would “extend” and “expand” the bailout.
“They were afraid that if they didn’t extend their authority by the end of the year (when they would lose it) and the housing market worsened, they would have to come back to a bail-out fatigued Congress,” she explained.
On Dec. 30, Garrett and Bachus sent a letter to Rep. Barney Frank (D-Mass.), chairman of the Financial Services Committee, demanding that he investigate the Dec. 24, 2009 bailout of Fannie Mae and Freddie. When asked if Frank had agreed to a hearing, Elliott told CNSNews.com, “We have yet to get a response from Chairman Frank’s office.”
CNSNews.com inquiries to the House Financial Services Committee were not answered by press time.
The text of Reps. Garrett's and Bachus’ letter to Chairman Frank is included below:
December 30, 2009
The Honorable Barney Frank
Committee on Financial Services
2129 Rayburn House Office Building
Washington, D.C. 20515
Dear Chairman Frank:
We are writing to respectfully request that you convene a Financial Services Committee hearing to examine the recent actions by President Obama and the Department of the Treasury to expand and enlarge the bailout of the failed Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, and approve taxpayer funded, multi-million dollar compensation packages for their executives. Because of the importance of this topic, we ask that this hearing be a full committee hearing and the first hearing the Committee holds in the Second Session of the 111th Congress.
On December 24th, Christmas Eve, in a transparent attempt to hide the news from the American people, the Obama Administration announced the approval of numerous multi-million dollar taxpayer funded bonuses to executives of Fannie Mae and Freddie Mac. Additionally, the Administration announced, without Congressional input, that it would lift the current $400 billion cap on the GSEs’ bailout and provide unlimited taxpayer funds to both firms for the next three years.
Since the Department of Treasury first exercised its authority under the Housing and Economic Recovery Act (HERA) to bail out Fannie and Freddie some 16 months ago, the Financial Services Committee has held only one full committee hearing and one subcommittee hearing on the matter. With hundreds of billions of taxpayer dollars committed to these two organizations and trillions of dollars in total taxpayer exposure, this level of oversight is plainly insufficient.
We understand this topic causes discomfort to some Members of Congress, considering the role they played in shielding the GSEs from meaningful regulatory scrutiny in the period leading up to their collapse. Nonetheless, we should not let mistakes of the past prevent us from carrying out our oversight responsibilities going forward.
Also, given your support for past government efforts to limit compensation levels at firms that have received taxpayer bailouts, we are puzzled that you have not joined us in publicly condemning the Obama Administration’s multi-million dollar Christmas Eve raid on the treasury to reward executives at Fannie Mae and Freddie Mac .
As you know, we have consistently argued that reforming the GSEs should be a central component of any financial regulatory reform legislation because of the leading role that Fannie Mae and Freddie Mac played in the collapse of our housing economy. Unfortunately, because of the lack of support on your side of the aisle for real reform of Fannie Mae and Freddie Mac, the future of these institutions was left completely unaddressed in the bill that passed the House earlier this month. We respectfully request that reform of these two institutions and reduction of taxpayer exposure to their liabilities must be a top priority of the Financial Services Committee during the Second Session of the 111th Congress.
Thank you for your consideration of this request.