Two Senate Republicans say they want the Treasury Department to explain why it gave a "blank check" to Fannie Mae and Freddie Mac by removing the $400 billion cap on how much money it would give the mortgage giants to keep them from failing.
In a letter to Treasury Secretary Timothy Geithner, Sen. Bob Corker, R-Tenn., said he's "concerned about the lack of understanding and transparency" surrounding Treasury's Christmas Eve decision.
Sen. David Vitter, R-La., joined the call for transparency, saying through a spokesman, "Given the size of the check Secretary Geithner just wrote to these two failed companies, he has a lot of explaining to do to Congress and the American people."
Treasury announced Dec. 24 that it would begin using a "flexible formula" to determine how many billions in government credit should go to the two companies. Already, taxpayers have shelled out $111 billion, and that figure is expected to rise. By acting before year's end, Treasury sidestepped the need to seek approval from a bailout-weary Congress.
Vitter called Treasury's move a "Christmas Eve taxpayer massacre" and said it affirms that taxpayers are on the hook for the mortgage companies' future losses, which could reach hundreds of billions of dollars.
The calls follow a week in which Geithner faced fresh questions about the bailout of fallen insurance conglomerate American International Group Inc. Newly released e-mails showed that under Geithner's leadership, the Federal Reserve Bank of New York suppressed details about bailout deals that funneled billions of dollars to other Wall Street banks.
The e-mails showed New York Fed lawyers asking AIG to withhold details about payments to banks, including Goldman Sachs Group Inc., to cancel financial deals. An earlier watchdog report criticized the deals' secrecy and said Geithner could have saved billions of taxpayer dollars by driving a harder bargain.
The e-mails sparked calls for investigations. The House Oversight and Government Reform Committee said it would hold hearings on the matter later this month.
Another key committee also is considering holding hearings into the bailout's transparency. An aide for the Senate Finance Committee who spoke on condition of anonymity said Chairman Max Baucus, D-Mont., was "reviewing the details" of the AIG revelations. The aide, who requested anonymity because he wasn't authorized to discuss the matter, said Baucus' support for the $700 billion financial bailout was conditioned on "a fully transparent process."
The committee's top Republican, Sen. Charles Grassley, R-Iowa, called for hearings last week.
Corker said in an interview that he had initially sought an explanation for the decision on Fannie Mae and Freddie Mac from Geithner. He said Geithner told him the move was necessary to preserve market confidence in Fannie and Freddie.
"The reason that continually is given on every point by the administration is ... we want to keep the markets steady," Corker said. "We're becoming numb to huge steps that government continues to take in a direction away from free-market capitalism."
Corker said that losses on Fannie and Freddie should be recognized on the federal balance sheet. That would make an already record-high deficit look even larger.
In the letter, Corker asks Geithner to explain Treasury's oversight of the agencies, provide more information on the performance of their loans and detail how the taxpayers investment is protected.
Treasury spokesman Andrew Williams declined to comment on Corker's letter or the conversation Corker described.
Vitter and Corker both sit on the Senate Banking Committee, which is struggling to compromise on a proposed overhaul of the nation's financial rules. Corker is working with Sen. Mark Warner, D-Va., on a compromise related to system-wide risk and new rules for unwinding large, failing firms.
Fannie Mae and Freddie Mac provide liquidity to the mortgage industry by buying home loans from lenders and selling them to investors. Together, they own or guarantee nearly 31 million home loans worth about $5.5 trillion, or about half of all mortgages. Without government aid, the firms would have gone broke, leaving millions of people unable to get a mortgage.
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