During a House Financial Services Committee hearing this week on the Financial Stability Oversight Council, Royce, in an exchange with Treasury Secretary Jack Lew, continued his anti-shareholder bias and also demonstrated his lack of understanding of basic math.
A video of the exchange, posted by Rep. Royce’s office, can be found here, and we’ve pulled some of the notable excerpts below:
“One of my colleagues asked if the GSEs have repaid the money that they have borrowed from the American taxpayer. The simple answer that my colleague tried to illicit, I think, is that the payments they have made to the government now exceed the rescued funds that they received. But, Mr. Secretary, I think you agree here, this is not the real answer nor the real question. The real question is have they repaid their debt to the American taxpayer, and for that answer I think we can go to the Federal Reserve Bank of New York… The New York Fed said thattaxpayers are entitled to substantial risk premium…The false narrative that is perpetuated is that the taxpayers have been repaid, it’s time to end conservatorship, and return the GSEs to the control of shareholders. From your comment earlier, I assume you disagree with this narrative…”
Yes, taxpayers are entitled to significant compensation for the risk borne in the $187 billion bailout of Fannie and Freddie, just as they are entitled to recompense for the $426 billion dollars in bailouts of the big banks and auto industry authorized under the TARP program. What Rep. Royce fails to mention, however, is that the GSE’s are already far and away America’s most profitable bailout, having returned over $40 billion to date in profit on top of what the Treasury invested. The “real question” here, for which we have yet to receive a “real answer,” is, “Why does the government continue to let taxpayers bear all of risk at the point of first-loss under the guise of repayment?” Secretary Lew kind of acknowledges this in his response:
“I totally agree… the risk is being borne by taxpayers on an ongoing basis and the conservatorship is not over….So I think that the right thing is to do GSE reform and get on to a new restructured system, but it is not the right time to be talking about ending the conservatorship and paying dividends.”
