One sign that the White House financial reform is less potent than its advertising claims is that it doesn't even attempt to reform the two companies at the heart of the housing mania and panic, Fannie Mae and Freddie Mac. So we're glad to see that yesterday GOP Senators John McCain, Richard Shelby and Judd Gregg introduced a Fan and Fred reform amendment that will let Democrats show if they're serious about reducing reckless lending and taxpayer risk.
From the 2008 meltdown through 2020, the toxic twins will cost taxpayers close to $380 billion, according to the Congressional Budget Office's cautious estimate…. Moreover, these taxpayer losses understate the financial destruction wrought by Fan and Fred. By concealing how much they were gambling on risky subprime and Alt-A mortgages, the companies sent bogus signals on the size of these markets and distorted decision-making throughout the system.
In short, the McCain amendment precisely targets the problems that caused the mortgage crisis: If the housing giants are no longer subsidized, they will become small enough to fail. That means they will stop lending money to people who cannot afford to pay them back, and in turn they will stop endangering taxpayers.
This is a genuine anti-bailout vote, and you would think Democrats would be more than happy to go along given their claims that they want to stop bailouts. Yet Republicans aren't even sure that Majority Leader Harry Reid will allow a vote on the McCain measure lest Democrats get pressure from the White House to oppose it. They would then reveal that their reform is less about reducing risk than about giving the political class more control over the financial status quo.