(Senate - December 17, 2015)

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[Congressional Record Volume 161, Number 184 (Thursday, December 17, 2015)]
[Pages S8760-S8761]
From the Congressional Record Online through the Government Publishing Office []

                       FANNIE MAE AND FREDDIE MAC

  Mr. CORKER. Mr. President, as we continue consideration of the 
omnibus, I rise today to applaud the inclusion of language I coauthored 
with Senator Mark Warner that will ensure that the fate of mortgage 
giants Fannie Mae and Freddie Mac--entities Congress created--will be 
determined by Congress, and this language makes crystal clear that this 
body does not support efforts to return to the failed model of private 
gains and public losses.
  As we wrap up our legislative business of 2015, I am also here to 
remind my colleagues that there is much work to be done in the new year 
to finally address the last unfinished business of the 2008 financial 
crisis. Prior to the crisis, mortgage giants Fannie Mae and Freddie Mac 
were publicly traded. They benefited from an implicit government 
guarantee, which meant any upside went to the company. But as we saw at 
the height of the financial crisis, the downside of that structure fell 
on the taxpayers and it fell hard.
  In September of 2008, because of this flawed model, losses mounted at 
Fannie and Freddie, causing taxpayers to write a $188 billion bailout 
check to keep them afloat. These entities remain in government 
conservatorship today, backed by the taxpayers and owned by the U.S. 
Treasury Department.
  A 2014 Federal Housing Finance Agency stress test projected that the 
GSEs could require a $190 billion taxpayer bailout to keep them afloat 
during a future crisis--something none of us wants to see happen.
  Because housing finance reform remained the last unaddressed piece of 
the financial crisis left, in 2013 Senator Mark Warner and I developed 
legislation that attempted to address the flaws in our housing finance 
system and protect the taxpayers. This bill has been called the 
blueprint for how our Nation's housing finance system should look in 
the future.
  After working with a group of bipartisan Members and then-Chairman 
Tim Johnson and Ranking Member Mike Crapo, a reform bill passed the 
Senate Banking Committee in May of 2014 by a vote of 13 to 9. This bill 
would protect taxpayers from future economic downturns by replacing 
Fannie and Freddie with a privately capitalized system. Unfortunately, 
it did not come to the Senate floor, but that does not change the fact 
that there continues to be broad, bipartisan, bicameral support to 
reform these entities.
  That broad support at the committee level and throughout Congress 
came despite pushback from a number of large, self-interested Wall 
Street hedge funds. Let me explain. As a result of the 2008 bailout, 
Treasury purchased senior preferred stock in Fannie and Freddie and was 
given sole discretion to sell or otherwise dispose of those shares. 
Seeing an opportunity to make huge profits at the expense of taxpayers, 
a number of big Wall Street hedge funds and other entities rushed in 
when Fannie and Freddie crashed. They bought shares for pennies on the 
dollar after the government had taken them into conservatorship and 
knowing full well the government would have the authority to make 
decisions relative to their future.

  Now the hedge funds appear to be spending big money and going to 
extreme lengths to stop housing finance reform in order to reap huge 
financial returns. As they know how to do so well, these wealthy hedge 
funds made a highly speculative bet that Congress would fail to do its 
job, structural reform efforts would fail, and Fannie and Freddie would 
be recapitalized and released out of conservatorship. Under that bet, 
the taxpayers lose while some of the wealthiest hedge fund managers get 
even wealthier. That is why the Wall Street hedge funds want to stop 
efforts to protect taxpayers in the hope that Fannie and Freddie could 
be recapitalized and released from conservatorship.
  Let me be clear. Under that scenario--recapitalizing and releasing 
Fannie and Freddie in their current form--we would fall back to a 
system of private gains and public losses, lining the pockets of 
multimillionaires while leaving taxpayers on the hook for future 
bailouts. Looking at what is at stake, one can see why these hedge 
funds are so engaged in stepping on the taxpayers and preventing reform 
from occurring.
  Using a self-analysis from one prominent hedge fund under a recap-
and-release scenario, this fund--with an estimated current holding of 
$366 million--has a potential net profit of $8.1 billion and a total 
sale of $8.4 billion. To give another example using those same 
projections, another prominent hedge fund with an estimated current 
holding of $501 million has a potential net profit of $2.3 billion or a 
sale of over $2.8 billion.
  These hedge funds, and several others, would benefit greatly from a 
recap-and-release scenario, which is why they are so adamantly opposed 
to housing finance reform that would put taxpayers' interests above 
their own. Surely, we will not conflate the clear interests of the 
hedge fund managers, which are billions of dollars in profits, with the 
critical need to protect taxpayers from a future bailout by enacting 
sound housing policy in our country. Returning to the failed model of 
private gains and public losses would leave taxpayers on the hook for 
the GSE's $5 trillion in outstanding liabilities. That is why I believe 
we must act.
  Inclusion of the jump-start provision in this bill is a good first 
step. This legislation would prohibit the sale of Treasury-owned senior 
preferred shares in Fannie Mae and Freddie Mac without congressional 
approval and ensure Congress, and not self-interested hedge funds, has 
the final say on how our housing finance system should look in the 
  While I believe that recap-and-release is totally inappropriate, I do 
understand that the hedge funds still have claims to deal with in 
court, and this legislation does not prejudice those claims.
  I believe the blueprint Senator Warner and I laid out in 2013 is a 

[[Page S8761]]

starting point and one that will protect taxpayers, but this 
legislation in the omnibus bill is silent on the future system. It 
simply says Congress should have the final say in what happens to these 
entities--again, entities that Congress created in the first place.
  With passage of this provision--in the face of extremely intense 
opposition--we are telling taxpayers we are putting to bed the idea 
that returning to the status quo is an option. We will not return to a 
system where big Fannie and big Freddie control the lion's share of our 
housing system and taxpayers are exposed for future bailouts, but there 
is more work to be done.
  The question I have is this: Moving forward, who are we going to 
fight for? Are we going to abdicate our responsibility and shy away due 
to efforts by large Wall Street hedge funds wanting to get wealthier 
off of taxpayers by placing taxpayers at greater risk or are we going 
to fight for the people whom we represent?
  As all of us who served in this body during the financial crisis know 
well, the American people do not want to write another bailout check. 
Without housing finance reform, that is an all-too-real possibility.
  To my colleagues, trust me. I know a number of you have felt pressure 
from large Wall Street hedge funds and the interest groups they 
support, but I also know there is not one of you who truly wants to put 
private investors' interest ahead of the people we represent.
  In the new year, it is time for Congress to finally do its job. By 
finally addressing the last major piece of unfinished business from the 
financial crisis, we can once and for all end this failed model. 
Fortunately, a lot of the heavy lifting has already taken place.
  As we look forward to 2016, protecting taxpayers by reforming our 
Nation's housing finance system should be near the top of the to-do 
list. This legislation takes us a step in the right direction toward 
that effort by saying the fate of mortgage giants Fannie Mae and 
Freddie Mac will be determined by Congress.
  I remain committed to doing everything I can to make sure we do not 
return to the same failed model that put taxpayers on the hook for 
billions of dollars, and instead we can create a dynamic housing 
finance system that works for Americans rather than against them.