Panel Backs Bush on GSE Portfolio Limits

The Shadow Financial Regulatory Committee, a policy advisory panel sponsored by the American Enterprise Institute, has endorsed the Bush administration's proposal for limiting the portfolios of Fannie Mae and Freddie Mac.The committee noted that the proposal would direct a new regulator of the government-sponsored enterprises to reduce their portfolios to "the level necessary to support their securitization activities. This would be a much lower level than the portfolios' current size, yet would enable the companies to continue the functions for which Congress chartered them." The panel said legislation under consideration by Congress "does not go far enough to limit the risks that Fannie and Freddie create through their accumulation of large portfolios" because it would vest the responsibility for reducing GSE portfolios solely in the new regulator without any direction from Congress. The AEI panel also called for repealing the GSEs' exemption from state and local taxes and their "line of credit" at the Treasury, banning political contributions by the GSEs, and limiting their lobbying activities. The committee can be found online at http://www.aei.org/research/shadow.