April 8th, 2010, Fairfax, VA—Americans for Limited Government President Bill Wilson today urged Representative Scott Garrett (NJ-CD5) to demand the House majority convene hearings to investigate contradictory “guarantees” made by the federal government after Fannie Mae and Freddie Mac were nationalized in 2008.
According to Wilson’s letter, “Somebody has lied, and he must be held accountable for misleading the American people.”
The letter also urged Garrett to recommend that Barack Obama appoint a special prosecutor to investigate the matter.
In a letter to Garrett, Secretary Timothy Geithner wrote that the “corporate debt of the GSEs is not the same as U.S. Treasuries, nor should it be considered sovereign debt.” The letter continued, “By statute, all obligations and securities issued by the GSEs must include a statement that makes clear that such obligations and securities are not guaranteed by the United States and do not constitute a debt or obligation of the United States.”
But, wrote Wilson, “Unfortunately, Secretary Geithner’s letter directly contradicts then-Federal Housing Finance Agency director James Lockhart’s 2008 Congressional testimony.”
Lockhart had testified that “the conservatorship and the access to credit from the U.S. Treasury provide an explicit guarantee to existing and future debt holders of Fannie Mae and Freddie Mac,” as reported by Bloomberg News.
At the time, the agency distinguished between “an explicit guarantee” and the “full faith and credit of the United States”, and Lockhart clarified that he meant “an effective guarantee because there's $100 billion backing their equity provided by the U.S. Treasury…That does give them effectively a guarantee of the U.S. government.”
Wilson’s letter continued, “Adding complexity to this issue, according to the New York Federal Reserve’s website, the Federal Reserve is not guaranteeing the securities nor Fannie Mae and Freddie Mac by extension either with its purchase of $1.25 trillion of mortgage-backed securities from investors.”
According to the website: “Assets purchased under this program are fully guaranteed as to principal and interest by Fannie Mae, Freddie Mac, and Ginnie Mae, so the Federal Reserve's exposure to the credit risk of the underlying mortgages is minimal.”
In the letter, Wilson wrote, “either then-Director Lockhart was misleading Congress in 2008, Secretary Geithner is misleading Congress today, or the Federal Reserve really is guaranteeing the GSEs’ debts and obligations.”
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