Garrett's Big Break

As those that follow the news know by now, Representative Scott Garrett has been named the Ranking Member (aka Vice Chairman) on the sub-committee that oversees the credit markets, as well as Fannie Mae and Freddie Mac. The official title of the Committee is the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.

It seems that the political capital he got during the first bailout bill, and continued to build with the subsequent hand outs has paid off for him. It should be interesting to watch what Garrett does with this opportunity.

Garrett's made no secret of the fact he'd like to see the GSE's broken up, and more deregulation in the insurance and credit market sectors of our economy. Regardless of whether he can get any traction on these beliefs, being the Ranking Member will let him speak longer at hearings and likely get more invitations to speak with the press.

If nothing else, that will give me more source material.

Garrett Statement on Bailout

This is Representative Scott Garrett's statement on the bailout of Fannie Mae and Freddie Mac:

"While hindsight is 20/20, as we make plans to move forward, it's important to recognize the system under which these GSEs failed. The Congress has long provided ambiguous and conflicting direction to the GSEs and the investing public. On one hand, the GSEs were expected to support affordable home ownership for low-to-moderate-income Americans. On the other hand, it was their fiduciary duty to maximize shareholder return. Without a doubt, these conflicting obligations helped to createthe mess taxpayers are currently facing.

"Since my election to Congress, I have consistently fought to reduce theexposure to GSE failure and believe we must take aggressive steps to prevent additional government bailouts in the future. Going forward, we must implement major changes to limit the size and scope of the GSEs and ensure that free markets are given the opportunity to work on behalf of all Americans.

"In addition, Congress must provide leadership in this time of economic crisis. Several of my colleagues and I called for hearings on the Bear Stearns bailout in March. These hearings did not take place until July of this year. As the Fannie and Freddie bailout proceeds, vigorous oversight is needed so that American taxpayers understand how their government is spending their tax dollars."

Garrett was Right; The Bailout's On

Update: It's official, we're on the hook for "tens of billions"

As I've mentioned before, as well as Herb Jackson, Representative Scott Garrett has been one of the most consistent critics of the government's backing of Fannie Mae and Freddie Mac. With the news that the government is planning on taking over the GSEs tomorrow, confirmed by Representative Barney Frank, it looks like Garrett will get to say the "I told you so" I'm sure he never wanted to say.

On the other hand, Frank has the problem of having to deal with the fact he stood on the House floor and said the legislation they passed back in July, making this bailout almost inevitable, probably wouldn't cost taxpayers a dime. Now it seems we'll be on the hook for at least $25 billion.

What I find most troubling is this decision is not based on all those reports telling us the companies had plenty of cash, but instead seems to be on all those hedgefund managers who would have lost millions if they couldn't short sell the stocks. Now we've got ourselves the largest bailout in American history.

And the greed goes on...

Garrett: Bring the Pain

In a good interview with Representative Scott Garrett on Fox Business this afternoon he was once again discussing the likely bailout of Fannie Mae and Freddie Mac.

As you may remember, about a month ago Garrett was rewarded for his consistent call to reign in the GSEs by becoming a media darling and extreme dark horse in the Republican Veepstakes (I had to).

So, it makes sense that Garrett was back talking about the companies' latest woes. While the host kept arguing that failure by Fannie and Freddie would cause a lot of pain, Garrett clearly articulated the fact that with an issue like this there is going to be pain and that it's part of the process. I think it's fair to say Garrett would rather have a shock to the system as opposed to a prolonged Chinese water torture.

What I really would have liked to have heard them talk about is short selling and how it's turning the collapse of Fannie and Freddie into a self-fulfilling taxpayer soaking prophesy.

If we take Fannie for example, which is faring better of the two, they have lost nearly 45% of their value since the order against short selling expired seven days ago. Granted, it's not all that great, but the company had dropped 41% over the 16 days the ban was in place.

We heard all of Congress, the President, and every talking head say that Fannie and Freddie are too big to fail. They go down, it wrecks the economy. We bail them out, we're potentially on the hook for trillions of dollars, and it wrecks the economy.

Forcing them to fail, however, is not exactly what people had in mind when talking of the consequences or having Congress put taxpayers on the hook. However, that seems to be exactly what's going on.

Hedge-fund manager Doug Kass, who has placed big bets that Fannie Mae shares will fall, said on Wednesday that the depressed stock of the two companies will drop to zero, dismissing Mudd's comments about its capital adequacy.

Yeah, and he probably will make a killing on this road to national ruin.

These are the guys that are speeding up the decline of Fannie and Freddie in order to make a quick buck before the bailout hits the fan. They don't care how many people they're screwing over in the process, as long as they get theirs. These are also the guys the Republicans, including Garrett, decided to protect against paying their fair share in taxes so we could start to get rid of the AMT.

If we've learned one thing over the last few years, in addition to the fact that nations like our friends in Russia own a lot of our debt, there is no economic patriotism anymore.

And the greed goes on...

Garrett on the Housing Fight

In this week's Garrett Gazette, Representative Scott Garrett talks about the fight over the Housing Bill. Since I was pretty harsh earlier, I figure in the interest of fairness I'd post his thoughts on the matter:

The Housing Bill passed by the House and the Senate last week exposes the American taxpayer to a huge amount of financial risk. While I am a strong advocate of GSE reform for Fannie and Freddie, this bill as written could add 5 trillion dollars to the national debt in the blink of an eye, by using the taxpayer dollars to underwrite the debts of Fannie Mae and Freddie Mac. Ever since I came to Congress in 2003, I have been a vocal critic of the implied backing that the federal government grants Fannie Mae and Freddie Mac. I introduced my own GSE reform bill as an alternative to this Housing bill that contains extraneous components that are simply a misuse of taxpayer
dollars.

Maybe you happened to read some of the articles that talked about the fight my colleagues and I waged against this egregious Housing bill. I’ve included a few media clips below for you to review. I will continue to speak out against legislation that jeopardizes the family budget. Please be assured that I will persist in my advocacy against wasteful spending.

Speaking out and getting results are two different things, but that's what I talked about earlier.

If you are interested in seeing the clips, you can click over to his website for the links.

The Garrett that Cried Debt

In his column on Sunday, Herb Jackson made an interesting point about Representative Scott Garrett:

IF A HOUSING BILL to prop up mortgage giants Fannie Mae and Freddie Mac ends up being a massive drain on the public treasury, then Rep. Scott Garrett has every right to say, "I told you so."

Garrett's concern that the bail out bill could put taxpayers on the hook is well founded. Some will point to the fact the CBO said we have a better than 50% chance of not owing anything. The companies even have said they don't need the money. But Garrett is still on to something.

The problem is the GSEs are publicly traded and have shareholders. If taking advantage of the taxpayers increases the value of those shares, the GSEs are obligated to take advantage of us. The prospect of owing more money when the Administration has already had to revise the projected deficit next year to an eye popping $482 billion is nothing to be taken lightly.

The problem is, "I told you so" won't help the situation. What we needed was a Representative whose opinion carried enough weight for people to think about this stuff objectively. Unfortunately for us as a District, and potentially America as a whole, we don't have that type of Representative.

There's a pretty good track record of how this happened. Garrett's misleading and patently false assertions on issues like SCHIP and PEPFAR; Garrett's rigid partisanship; as well as ostracizing moderate Republicans on Capitol Hill seems to be coming back to haunt him.

Garrett hasn't released much in the way of misleading information since his new press secretary took over, and I see that as a very good thing (the energy thing is a carry over). Now we have to hope Garrett will realize the cost of what he had been doing.

When we needed him to deliver most, he was at his least effective.

Garrett Chatting GSEs on PBS

Representative Scott Garrett was on The NewsHour tonight with Representative Barney Frank talking about the Fannie Mae and Freddie Mac issue. You can read the transcript here or download the MP3 podcast here.

As I mentioned he'd be likely and able to do, Garrett established his long opposition to the GSEs:

Well, times certainly have changed, but the systemic problem with Fannie Mae and Freddie Mac have not changed.

And that's why, ever since I came to Congress five years ago, I said we have created an institution here that basically has no limits, but has the implicit guarantee of the federal government.

And now we see it has come to pass that it has grown beyond any one's imagination when it was first created and has grown without any regulatory oversight and placed enough, sufficient enough to get the job done.

This may be the first time since I've been following Garrett that you've openly seen him call for more government regulation of anything.

In a statement released by Garrett's office, there's a certain jarring juxtaposition of this reality:

Excessive government intervention helped create the problems we now face with GSEs, we need to try something different. We need to immediately pass strong GSE reform legislation and create a world-class regulator that can restore confidence in the financial markets and has the capability to ensure that the American taxpayers are not left paying the check for Fannie and Freddie.

It lets you know how serious the problem is when Garrett, as one of the most anti-regulation members of Congress, is calling for regulation. However, as Rep. Frank points out, Garrett will probably vote against the bill again due to the inclusion of the Affordable Housing Trust fund.

Garrett vs. the GSEs

By now, everybody has heard about the problems with Fannie Mae and Freddie Mac (GSEs). Probably most have just heard about the outright failure of IndyMac. We're really in it now.

Here's how the typical story reports the problem with the GSEs (from Fortune):

They own or guarantee $5 trillion worth of mortgages­ - nearly half of all the country's outstanding home loan debt-and they're crashing. Big time.

Fannie Mae and Freddie Mac are struggling with an investor loss of confidence so great that, while they're unlikely to go under, they could conceivably see their ability to function impaired. That would wreak yet more havoc on an already wrecked housing market- making loans tougher to come by and possibly pushing hundreds of billions of dollars in cost onto U.S. taxpayers.

This whole situation is going to be a major campaign issue. Our Representative Scott Garrett is going to be able to claim he knew it was coming and fought to fix it, which he did. At the same time, Garrett is likely to get hammered for voting against reforming the GSEs twice, which he did.

Back in 2005, the Federal Housing Finance Reform Act was passed by the House. Garrett took to the floor a few times, but two are of note. Here's a soundbite from his floor debate speech:

Mr. Chairman, if there was ever a need of entities that need additional regulation, it is Fannie Mae and Freddie Mac. If there are ever two entities that need to be limited in their size, it is these two entities. If there were every two entities that need not grow, it is these two entities. I applaud the chairmen for their work to regulate them.

Despite his vocal support during floor debate, in an after hours speech laying out the nightmare scenario we're facing today, Garrett announced he would not support the reform bill:

I believe that stronger language is definitely necessary. I worry that a new regulator, without specific congressional direction to reduce the size of portfolios of the GSEs, will face constant political pressures from the GSEs, thus putting the possible problems that result on the backs of American taxpayers.

[snip]

So in conclusion, Mr. Speaker, legislation that is coming before the House next week dealing with GSE, Fannie and Freddie reform is a good first step, but is not in the current format something that we should support.

True to his word, Garrett was one of only 90 to vote against the bill, which later died in the Republican controlled Senate.

Garrett's never lost the desire to limit the size of the GSE's portfolios. Most recently, Garrett was one of 104 to vote against first time home buyers in our District being able to get conforming loans through the GSEs as part of another GSE reform bill. This would have expanded the portfolio.

I was critical of his vote then, in terms of the benefits it could bring to our District, but the man's been consistent. He won't vote for reforms if they don't go as far as he thinks they should. Granted, as Dave Matthews sings, to change the world you start with one step.

It should be interesting to see how this plays out with the campaign. A lot is going to depend on how the situation is resolved outside of politics in the real world. Either way, Garrett will rightly be able to champion his reform stance, and Dennis Shulman will rightly be able to attack his votes against reform.

Ain't politics great...