ALG Blames Government for Sovereign Debt Crisis, Urges Senate GOP to Amend Financial Takeover Bill

"The result of the government policies was to create a tremendous economic bubble that, when it popped, and the trillions of dollars of bailouts began, now threatens the entire world with a sovereign debt crisis." —Bill Wilson, President of ALG.

April 29^th, 2010, Fairfax, VA—Americans for Limited Government (ALG) President Bill Wilson today urged Senate Republicans to "take the opportunity to amend the Dodd financial takeover bill to directly address the root, government causes of the financial crisis once and for all."

"At the end of the day, the American people know that government caused this crisis by deliberately weakening credit standards, pumping easy money into the system, and advancing home 'ownership' as a social policy.  It's their fault.   Government did this to the American people, and if the Senate legislation fails to address these root causes, it must be rejected," Wilson said.

"The result of the government policies was to create a tremendous economic bubble that, when it popped, and the trillions of dollars of bailouts began, now threatens the entire world with a sovereign debt crisis," Wilson explained, noting that excessive deficit-spending by European nations like Greece and Portugal has resulted in their credit ratings being downgraded, and interest rates rising on their government borrowing costs.

"Greece and Portugal are a coming attraction of what's in store for the U.S. should Congress fail to remove the unlimited, implicit backing of taxpayers to Wall Street," Wilson added.  "The implied backing of taxpayers created the crisis with Fannie Mae and Freddie Mac, who sold the mortgage-backed securities all over the world on the basis that they were as good as U.S. treasuries.  This was the genesis of the 'too big to fail' system of bailouts and takeovers."

Yesterday, Wilson blasted provisions that he said would protect firms with assets greater than $50 billion, saying, "This bill would create about sixty new Fannie Mae's all with the implied backing of taxpayers.  Taxpayers cannot even afford to back Fannie and Freddie, and Senate Democrats want to multiply that by a factor of thirty.  This is madness."

According to the Congressional Budget Office, there are about 60 bank holding and insurance companies with $50 billion or more in assets that would contribute to an unlimited fund with the power to bail out those firms.  The legislation would also allow the FDIC put into receivership companies whether they are financial or not.

Wilson said the bailouts were the direct cause of the sovereign debt crisis spreading throughout the world.  "This government-created crisis is now engulfing Europe, a direct result of losses associated with the government-financed housing, securities, and derivatives bubbles all popping at once, and the added weight of deficit-spending brought on by the bailouts."

"The bailouts and government takeovers are unaffordable to taxpayers, are misallocating resources from productive sectors of the economy, and as a result are bankrupting the nations that participated in them.  Now, Senate Democrats want to institutionalize and codify that system," Wilson said.

Wilson yesterday noted that the nation's largest financial institutions want a permanent bailout fund for themselves.  "The facts are clear. The head of Goldman Sachs has said he embraces the legislation and that the biggest beneficiary of the bill is Wall Street.  This is evidence that the Dodd-Goldman bill continues the system of 'too big to fail,' and does not reject it," Wilson said.

Senate Republicans yesterday reportedly won concessions for the bailout fund to be removed, but Wilson said that would "not be enough to win the support of the American people if 'too big to fail' stays in there by perpetuating the current bailouts of Fannie, Freddie, and the entire mortgage market."

Wilson concluded, "Senate Republicans must not support a bill that fails to rein in Fannie, Freddie, the FHA, the Federal Reserve, and HUD that caused the crisis by weakening credit and inflating the housing bubble to begin with.  The American people are counting on them, and they must not let their constituents down, who want an end to the bailouts, an end to 'too big to fail' and an end to the centralization of credit and finance in government that is bankrupting this nation."

Attachments:

Letter to the U.S. Senate, ALG President Bill Wilson, April 26^th, 2010.

"'Down a Rabbit Hole:' The Threat Posed by the Dodd Bill to the Private Sector," April 22^nd, 2010, Americans for Limited Government.

AFP - Gandhi Was Right?

Dear Friend,

This morning I write to you from Sacramento, CA where last night hundreds of fired-up grassroots activists attened the Americans for Prosperity Foundation's Defending the American Dream Summit®.  CLICK here for pictures.

Today, hundreds of thousands of Americans will stand up for freedom by participating in hundreds of tea parties across our great nation.  Hopefully, you're heading out to an event near you!

I'll be at Diablo Stadium in Tempe, Arizona for the big tea party there.  If you're there, make sure you come up and say hello.

This Tax Day, we face big challenges.  

* The new Obama/Pelosi/Reid health care takeover includes almost $564 billion in new taxes on American families and businesses.

* If the Bush tax cuts are allowed to expire on December 31 of this year (and President Obama and Speaker Pelosi say that is their intention), then we will see an almost $1-trillion tax increase. 

* The Death Tax will come roaring back. The best news about today's tax day is that for the first time in 94 years, death is not a taxable event in America.  Unfortunately, Democrats want to bring back the death tax at an outrageous 55% rate!

* The top personal income tax rate will go back up to 39.6%.  Taxes will skyrocket on capital gains. 

* 47% of Americans no longer pay personal income taxes due to policies coming out of Washington, D.C., and it's not surprising that the burden on the remaining most productive Americans keeps going up.  

* You would think all this taxing means a balanced budget.  Of course, you would be wrong.  The federal budget deficit this year is expected to end up over $1.5 trillion. 

Not surprisingly, all this taxing and spending is killing prosperity for Americans. In fact, personal income is down 3.2% since President Obama took office when you exclude government handouts.  It's the same old story.  As government advances, opportunity and economic prosperity for Americans recedes.

Thankfully, a majority of our fellow Americans are joining with us to turn things around.  Here in California, the energy is electric.  Tonight I talked to grassroots activists and tea party leaders who are spearheading the drive for freedom in our biggest state, and they are on a roll.  Trust me when I say this: liberal icon Senator Barbara Boxer is in trouble.  After 28 years of radical left-wing votes, and after demonstrating her arrogance (remember when she scolded an American Army General telling him to call her "Senator" when he dared to call her "Ma'am"), I believe it's clear the people have had enough of her. 

We're starting to win and the Left knows it.  I do not often quote the late Indian leader Mahatma Gandhi, but speaking of his own country's fight from freedom from Great Britain he said the following: "First they ignore you, then they ridicule you, then they fight you, then you win."  

Gandhi may have been speaking decades ago, but he summed up where we stand pretty darned well.

So this Tax Day, be of good cheer.  Keep up the fight.  Endure assaults from the Left with the knowledge that the Left's slurs and attacks only show their weakness and desperation. 

Our ideas matter.  And, the dedicated work of grassroots leaders like you matters.

Tim

PS: Please send along your pictures and thoughts on today's tea parties across the nation.  Send them to me here at this address or post them on our Facebook Fan Page here.

Thanks for all you're doing.  Much lies ahead.

Like what Americans for Prosperity is doing? Invest in our work by clicking here. We're supported by our more than one million citizen-activists nationwide. Your contribution in any amount will go a long way in promoting free-market policies at all levels of government - local, state and federal. Thanks!

I.O.U.S.A Solutions CNN Sat 4/10 1-3PM Sun 4/11 3-5PM

Our country is facing rapidly growing deficits and debt. How can we change our course...and what happens if we don't?

You may have heard about the award-winning documentary I.O.U.S.A. — it opened America's eyes to the consequences of our nation's debt and the need for our government to show more fiscal responsibility. That's why I thought you and your readers might be interested to know that the world premiere of I.O.U.S.A. Solutions, a follow-up special by the producers of I.O.U.S.A. premiering on CNN this weekend.

This special will focus on solutions to the fiscal crisis and it will feature new footage from the producers of I.O.U.S.A. and a panel discussion with experts from a variety of viewpoints, spanning across generations.

Watch the World Premiere of I.O.U.S.A.: Solutions on CNN
Saturday, April 10, 1:00-3:00 p.m. EST or Sunday, April 11, 3:00-5:00 p.m. EST

Featured Panelists Include:
• Peter G. Peterson, Founder and Chairman, Peter G. Peterson Foundation
• David Walker, President & CEO, Peter G. Peterson Foundation
• Sen. Bill Bradley
• Maya MacGuineas, President of the Committee for a Responsible Federal Budget
• Amy Holmes, political contributor for CNN
• Joe Johns, CNN Congressional Correspondent
• Diane Lim Rodgers, Chief Economist, Concord Coalition
• Jeanne Sahadi, senior writer and columnist for CNNMoney.com

To catch up Click on IOUSA

ALG Blasts Geithner and Lockhart for Giving Contradictory Testimony on Government Guarantees of Fannie, Freddie

"Geithner's and Lockhart's statements to Congress are in direct conflict with each other.  One of them has lied to Congress.  It is vital that the American people find out which one."—ALG President Bill Wilson.

April 7^th, 2010, Fairfax, VA—Americans for Limited Government President Bill Wilson today condemned Treasury Secretary Timothy Geithner for excluding Fannie Mae and Freddie Mac's $6.3 trillion balance sheet, including $1.6 trillion in debt, from the current $12.6 trillion national debt despite 2008 testimony from a federal agency that the government was providing "an explicit guarantee" to the mortgage giants.

"Somebody has lied," Wilson said, adding that "they must be held accountable for misleading the American people."

In a letter to Congressman Scott Garrett, 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."

In the same letter, Geithner wrote, the "Treasury is committed to supporting the GSEs while in conservatorship and to ensuring that the GSEs have sufficient capital to meet their debt obligations and honor their guarantees."

Fannie Mae and Freddie Mac were placed under conservatorship by Congress in 2008 under the administration of the newly-created Federal Housing Finance Agency (FHFA).  According to the agency's website, "As of June 2008, the combined debt and obligations of these GSEs totaled $6.6 trillion."

But that was not added to the national debt, despite the FHFA director James Lockhart's Congressional testimony 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." 

"Geithner's and Lockhart's statements to Congress are in direct conflict with each other.  One of them has lied to Congress.  It is vital that the American people find out which one," Wilson delared.

Wilson said the Treasury "is trying to have it both ways; they want to tell markets that they are guaranteeing Fannie and Freddie and tell taxpayers that they are not."

Wilson also blasted what he termed "financial system takeover" legislation for not addressing the problems surrounding the GSE's.  "Fannie and Freddie underwrote almost every new mortgage in the country and sold their worthless securities all over the world, but neither Chris Dodd's legislation in the Senate nor Barney Frank's companion House legislation would do a thing about it," Wilson said.

Wilson said "The Obama Administration wants to assume the power of controlling the mortgage market without assuming the risk of putting the $6.3 trillion mortgage giants on-budget."

"The Treasury cannot have it both ways, and it only has two options at this stage: either the underlying assets of Fannie and Freddie are sold to privately-held institutions, or they are in effect guaranteed by taxpayers, as Lockhart stated," Wilson added.

Those assets included, according to Bloomberg News, $4.7 trillion in mortgage-backed securities (MBS).  Of that, $1.5 trillion had been sold to foreign investors, as reported by the New York Times. 

Since that time, the Federal Reserve has purchased $1.25 trillion of the MBS, although they have not disclosed which securities it has purchased.  According to the Federal Reserve, the securities are purchased at "Current face value of the securities, which is the remaining principal balance of the underlying mortgages."

Wilson wants to know if foreign nations got bailed out, saying the exclusivity of the program was "cause for concern."  According to the NY Fed, "Initially, the investment managers will trade only with primary dealers who are eligible to transact directly with the Federal Reserve Bank of New York. Primary dealers are encouraged to submit offers for themselves and for their customers."

Wilson noted that several of the primary dealers are foreign institutions.  The so-called Troubled Asset Relief Program explicitly prohibited that foreign central banks or institutions owned by foreign governments from participating in the Treasury-administered program to purchase MBS, but Wilson said there was no such restriction on the Fed-administered MBS purchase program.

"It's a legitimate question: Did the Fed buy back the mortgage-backed securities from the foreign investors, including China, Japan, and other sovereign entities?" Wilson asked.

According to the NY Fed's website, the Federal Reserve is not guaranteeing the securities nor Fannie Mae and Freddie Mac by extension either: "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."

Wilson said since Fannie and Freddie depends on the Treasury to keep up with its obligations, and the Federal Reserve will not guarantee it, "that can only mean taxpayers are the guarantors of Fannie Mae and Freddie Mac."

"Essentially, the Federal Reserve printed $1.25 trillion to buy back the mortgage-backed securities from investors.  So, if the Federal Reserve is not backing up Fannie and Freddie's worthless securities, then it bought those securities back with the implicit if not the explicit backing of U.S. taxpayers, just as they were sold," Wilson concluded.

Mercatus Center - Foreign Ownership of U.S. Debt Continues to Grow

Using data from the Department of Treasury’s Financial Statement of the United States, Veronique de Rugy's latest chart shows that foreign debt holdings have grown to be greater than domestic debt holdings.

If you think your readers would be interested in this information, and the implications it has for foreign governments' bargaining power, please feel free to publish it on your blog. The PDF and data compilation are available at our website. You can view it here:

http://mercatus.org/publication/foreign-ownership-us-debt-continues-grow

The author of this chart, Veronique de Rugy, is a senior research fellow at The Mercatus Center at George Mason University. If you’d like to speak to Veronique or get further information from her, please feel free to contact me.

Thank you,

Diana Hewitt
dhewitt@chims.net
Mercatus Center at George Mason University