“[S]ticking Main Street Americans with Wall Street’s bill is a shame on Washington. If elected, I’ll continue my crusade for the right reform of [Fannie Mae and Freddie Mac]: making them go away. I will get real regulation that limits their ability to borrow, shrinks their size until they are no longer a threat to our economy, and privatizes and eliminates their links to the government.”—Senator John McCain (R-AZ), “Take taxpayers off hook for rot at Fannie, Freddie”, St. Petersburg Times, July 23rd, 2008.
For his many flaws as a candidate—and John McCain has many—there is one issue he has recently nailed on the head: Because of Big Government cronyism and mismanagement, two Government Sponsored Enterprises (GSE’s), Fannie Mae and Freddie Mac, America’s entire financial system, and even the global economy, are in jeopardy.
So bad is the current state of these “companies”—and so large their weight in paper—that Big Government is set to infuse emergency funds to prevent a general collapse of the financial system, proving once again that Big Government is “too big to succeed.”
Mr. McCain correctly notes that the current proposed bailout of the GSE’s is a temporary measure that must be followed up with measures that “privatizes and eliminates their links to the government.”
This is the right prescription, because the current mess demonstrates one of the major the follies of central planning: if Big Government is the only game in town, when it fails it takes everyone and everything else with it.
Government, when it creates too much debt—the bank bailout bill will raise America’s debt limit to over $10 trillion—it poses a societal risk to the entire nation. Because, the laws of gravity apply to government: when it becomes too top-heavy, society’s very foundation can be uprooted.
And that is what Fannie Mae and Freddie Mac—government-created entities—stand a chance of doing according to most experts when asked what would happen if they were to go under. It would an economic catastrophe the world over.
How did this happen? How could companies that posed such a catastrophic danger to the economy—they oversee about half of all U.S. mortgages—ever be allowed to be mismanaged? Mr. McCain starts in the right place: “It’s a tribute to what these two institutions… have bought with more than $170-million worth of lobbyists in the past decade.”
In short, the GSE’s, run by Washington insiders, are in the words of Mr. McCain, “the poster children for a lack of transparency and accountability.” He continues:
“Fannie Mae employees deliberately manipulated financial reports to trigger bonuses for senior executives. Freddie Mac manipulated its earnings by $5-billion. They’ve misled us about their accounting, and now they are endangering financial markets. More than two years ago, I said: ‘If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose.’ Fannie and Freddie’s lobbyists succeeded; Congress failed to act. They’ve stayed in business, grown, and profited mightily by showering money on lobbyists and favors on the Washington establishment. Now the bill has come due.”
Here at ALG News we are loathe to admit it, but Mr. McCain told us so. He can go further: the GSE’s debacle proves once again that government is not the solution, it is the problem. It is too big to succeed.
ALG Perspective: John McCain may be a very flawed candidate: He supports cap-and-trade, he’s voted against much-needed tax relief for Americans in 2001 and 2003, his record on the First Amendment is abysmal, etc. But on this issue, the Senator is right.
