Everyone in Washington favors "reform." Unfortunately, the term can be highly deceptive. Such is the case of the Housing Finance Reform and Taxpayer Protection Act of 2014 (S.1217), a bill that would abolish troubled mortgage giants Fannie Mae and Freddie Mac in favor of a federally-backed private insurance system. Last Thursday, the Senate Banking Committee approved the measure by a 13-9 vote. Yet the bill, sponsored by Sens. Tim Johnson, D-S.D., and Mike Crapo, R-Idaho (in photos), may never reach the Senate floor - and not undeservedly. For the real problem with Fannie Mae and Freddie Mac, which now are profitable and have more than repaid their federal bailout debt, is not their existence; it is their subjection to tight federal control.
The mortgage foreclosure crisis in this country may have been superseded by events in Japan, Libya and elsewhere for now, but in its own way it's taking a heavy toll. And it's likely to get worse, given the context of evidence that an Obama-initiated homeowner subsidy program to stem the tide isn't working and of a new federal agency poised to extract $20 billion from lenders on behalf of heavily delinquent borrowers.
Supporters call it "financial services reform." Yet one has to wonder what the Restoring American Financial Stability Act of 2010 is reforming or stabilizing. The House on Wednesday by a 237-192 margin passed the 2,300-plus-page conference bill designed to protect American households from predatory practices by banks, subprime lenders, brokerage houses and other intermediaries. But evidence suggests that if it becomes law, the bill instead will lay the groundwork for another major federal bailout. During House-Senate conference sessions, affirmative action zealots inserted a host of mandates to promote credit allocation by race.
The word "reform" in the age of Obama has taken on a clear meaning: aggressive expansion of government control over economic decision-making by businesses and consumers. The recently-passed health care bill, rammed through Congress via highly unorthodox parliamentary procedures, is evidence enough of that. Yet even supporters of new financial services reform legislation now before the full Senate may be hard-pressed to explain how the mammoth 1,336-page measure is supposed to improve efficiency and integrity in credit markets.