Subcommittees Hear From Experts on Harmful Consequences of QE and the GSEs

“We talked about cash on balance sheets not deployed…People just sitting on cash because interest rates are too low and returns are too low now, but they think that they will go up in the future. So, everyone just sits until the Fed takes action. Rather than trying to read the market, they are trying to read what the Fed is going to do - which is very distorting in my view.”

"Fannie Mae and Freddie Mac are the essence of crony capitalism, and if we recreate them in some form or fashion, as so many in the industry and across the aisle are recommending, we are doomed to repeat the same terrible outcomes that our nation has experienced over the last four years.”

On Tuesday, the Monetary Policy and Trade Subcommittee heard testimony from a panel of four leading economists on the short-term and long-term impacts of the Federal Reserve’s unconventional monetary policy. Members of the Subcommittee asked for an objective analysis of the Fed’s monetary stimulus efforts and the results, which – judging by the state of our slow, weak recovery – are meager at best. There was a strong consensus that America would be better served by a Federal Reserve that utilizes a rules-based policy rather than an improvisational approach.

The Capital Markets and Government Sponsored Enterprises Subcommittee on Wednesday focused on the role Fannie Mae and Freddie Mac played in the housing bubble and financial crisis. The Subcommittee’s hearing showed that both Fannie and Freddie were instrumental in the creation of the subprime and Alt-A mortgage market. While the Dodd-Frank Act addressed many of the symptoms of the financial crisis, it failed to address the central cause of the crisis. The taxpayer bailout of Fannie Mae and Freddie Mac is the biggest bailout in history.