Ralph & George & Fannie & Freddie

Posted: Mar 13, 2001 12:00 AM
Have pigs grown wings? Is it snowing in Hades? Ralph Nader actually said nice things about President Bush this week. The devil's tail must be blue with frostbite. In an opinion piece Nader co-authored for The Wall Street Journal on Wednesday, the standard-bearer of the Green Party gave "two cheers" to Bush for his efforts to curb corporate welfare. "If it took Richard Nixon to go to China, could George W. Bush be the president who ends corporate welfare as we know it?" Nader asks. "That doesn't seem likely. But in a budget outline that offers little reason to smile to those concerned about the concentration of corporate power, the Bush administration has offered a glimmer of hope on the corporate-welfare front." Among the Bush administration's targets are the Overseas Private Investment Corp., the Export-Import Bank and the Advanced Technology Program -- three "corporate-welfare poster children" that receive millions of dollars in taxpayer-funded loans, loans guarantees, budget support and research subsidies. These spending cuts are welcome news not only for anti-corporate leftists like Nader, but also for fiscal conservatives who oppose government meddling with the free market. There is, as Nader notes, still "much, much more to do to rein in corporate welfare." Nader lists several federally funded programs that "hurt the environment," but he forgot to mention two of the fattest corporate-welfare targets on the block: Fannie Mae and Freddie Mac. Known as "government-sponsored enterprises," Congress chartered Fannie Mae and Freddie Mac to boost home ownership. Private competition is hard to come by, since the two institutions benefit from a wealth of unfair advantages. These invincible financial giants -- both private companies and members of the Fortune 500 -- receive an estimated total of at least $6.5 billion a year in hidden taxpayer subsidies. A new congressional report, due later this spring, is expected to show that federal support for the two quasi-public lending corporations has risen to $10 billion annually. Republican Sen. Phil Gramm of Texas and GOP Rep. Richard Baker of Louisiana have led previous efforts to reform Fannie and Freddie and move toward privatization, but it looks like those efforts will go where they've gone under past administrations: nowhere. Sounding positively Clintonesque, Bush Treasury Secretary Paul O'Neill won't even acknowledge that Fannie and Freddie receive government subsidies. "The market might give them a preferential rate because of the prospect of government support, but they don't really receive a subsidy," O'Neill said in a recent interview with Bloomberg Television. Uh-huh. Guess it depends on what the meaning of "really" is. Fannie Mae and Freddie Mac are exempt from normal securities regulations, as well as from state and local income taxes. They are subject to lower capital requirements than other financial institutions in the private sector, and each receive $2.25 billion lines of credit with the U.S. Treasury -- which means lower borrowing rates. These special pipelines give the institutions an implied federal guarantee available to no other private-sector competitor in the mortgage market. This is a textbook case of government aid to dependent corporations that couldn't do business without their taxpayer fix. It's also a classic example of bipartisan back-scratching. Political appointees to the companies' boards pocket millions in stock options to keep the pork flowing on Capitol Hill. Clinton-appointed board members at Fannie Mae include Marc Rich lawyer Jack Quinn and Janet Reno's lieutenant at the Justice Department, Jamie Gorelick. At the helm of Fannie Mae is Franklin Raines, who served as director of the Office of Management and Budget under former President Clinton. Raines just happens to be a buddy of Bush Treasury Secretary O'Neill. "I consider Frank Raines to be a close personal friend of mine," O'Neill said glowingly in the Bloomberg interview. So much for changing the culture in Washington. For Fannie Mae and Freddie Mac, it's taxpayer-supported business as usual.