Rep. Royce Questions Treasury Secretary Mnuchin on U.S.-China Trade Relations, GSE Reform
WASHINGTON, D.C. — Today, Representative Ed Royce (R-CA) questioned U.S. Treasury Secretary Steven Mnuchin on the state of the international financial system and the progress of Government Sponsored Enterprise (GSE) reforms during a House Financial Services Committee Hearing.
“I would like to thank you for your commitment to leveling the trade and regulatory playing field for U.S. job creators. On this front, I was pleased to see the U.S.-E.U. covered agreement on insurance and reinsurance move across the finish line. This will mean billions of dollars in savings for U.S. firms which can be reinvested in our economy and passed on to consumers. I also appreciate your commitment to raising the equity caps for U.S. financial services in China. I was hoping you could update us on your most recent conversations and how the Chinese side reacts when we push them on the caps. Do you think we could get a win on this front?” said Rep. Royce.
“I’m going to withhold how they react, but what I will say is that this is a yes, no answer. We expect them to be increased. We've told them to do that. I don’t care how they react, what I care about is when they tell us there is no cap. So I am not interested in them going from 49 to 52 percent, I want no cap,” replied Secretary Mnuchin.
“On to the topic of housing finance reform, you have made it clear that ‘perpetual conservatorship’ is unsustainable and that you would prefer we deal with Fannie and Freddie through legislation. As we work towards reform in this Committee and in the Senate, we cannot lose sight of the benefits afforded to the GSEs by previous Congresses. These are benefits no other company has. They are benefits that helped created the duopoly and a broken system of private gains and public loses. Among them: tax exempt status from state and local jurisdictions; the ability to issue special SEC exempted ‘To Be Announced’ (or TBA) securities; the ability for the Fed to purchase GSE securities through their monetary policy operations; a perpetual line of credit directly to Treasury, beyond the 2008 bailout authority; and above all else, the implicit government guarantee that comes with the charter, which gave them the ability to borrow at below market rates and ignited the duopoly….Secretary Mnuchin, as you understand it, can you eliminate any of these benefits without legislation? Would you agree that reconstituting Fannie and Freddie as private companies with these Congressionally-mandated benefits should be avoided at all costs?” asked Rep. Royce.
“I do, and let me first say that I look forward to working with you on this. Like I’ve said, we need a solution that creates liquidity for the housing market and doesn’t put taxpayers at risk. If there are any guarantees from the government going forward, it should be explicit and paid for and done so in a way that doesn’t put taxpayers at risk. We are determined to find a solution because this is a huge part of the economy and leaving them in conservatorship for the next four years makes no sense,” answered Secretary Mnuchin.
Rep. Royce went on to press Secretary Mnuchin asking, “Do you agree or not that Fannie Mae and Freddie Mac should not, under any circumstances, be re-privatized as privately owned, implicitly government backed institutions?”
Secretary Mnuchin responded saying, “I agree that there shouldn’t be implicit. If there is something it should be explicit and paid for. Otherwise, it should be very clear: there is no implicit government backing.”
Watch Rep. Royce’s full line of questioning HERE.