AEI's Wallison stands against government guarantees for securitization
Peter Wallison of the American Enterprise Institute argued on Capitol Hill Tuesday that any type of government guarantee for mortgage securitizations will wipe out housing innovation, leaving taxpayers on the hook for billions of dollars. Testifying before the Senate Banking Committee, Wallison, who has been an outspoken critic of the government's role in housing, said a plan outlined by policymakers to only guarantee mortgage backed securities as opposed to issuers would fail to protect taxpayers. Under this construct, the taxpayers only pick up the bill after an issuer's funds are exhausted, Wallison said. Still, he argues, taxpayers are already left holding the bag for Fannie Mae and Freddie Mac, and it will only get worse if government guarantees remain. "Without any change in policies and without any further increase in the GSEs' debt, the national debt will reach $30 trillion in 10 years," he said. "With this background, it is hard to believe that there is actually a viable campaign to have the government support the housing market once again." Wallison went on to criticize the notion housing-related firms deserve more government support than other aspects of the American economy. "Among the purposes of past government support for the housing market was to assure a steady flow of funds for housing. There is no particular reason why housing — as opposed to any other area of the economy — might require a steady flow of funds," he said. "Automobiles, food and other retailing, mining, high tech and corporate finance generally do not require steady flows of funds and have survived and prospered quite well." Wallison said this devotion to housing created the bubble by allowing homebuilders to expand faster with government funds flowing into the system. "This, in turn, encourages speculation and increases the likelihood that housing bubbles will develop," Wallison said. "When these bubbles eventually deflate, the losses they create represent a misallocation of capital that could have been used more efficiently elsewhere. Occasionally, as in 2008, the losses that occur as a result of a bubble's collapse can cause a financial crisis." Write to: Kerri Panchuk.