End 2020 On A Good Note With Sound Economic Reforms

The Trump Administration’s first term is ending, but they still can – and should – adopt beneficial economic policy reforms during their remaining days. Congress can also enact several important reforms before their session ends.

As my Heritage Foundation colleagues and I point out in this new Backgrounder, these policy reforms cover energy and environment, financial regulation and housing, food and agriculture, governmental reform, labor and employment, tax and spending, and trade.

One of the most impactful moves the administration can make is to finish cleaning up a mess that it inherited from the combined efforts (or lack thereof) of the Bush-Cheney and Obama-Biden administrations: The government conservatorships of Fannie Mae and Freddie Mac.

During the 2008 financial crisis, near the end of the George W. Bush administration, these two housing finance giants were insolvent. The administration should have shut them down but, instead, placed the companies in government conservatorship.

Even though Congress did not intend for these conservatorships to be permanent, Fannie and Fannie have remained under government control for 12 years. During this time, neither Congress nor the Obama administration made any progress toward shoring up the companies and releasing them back into the private market.

Fannie and Freddie were beneficiaries of intense lobbying efforts, and the political infighting over (among other things) turning the companies’ implicit federal backing into an explicit guarantee for mortgage-backed securities helped sink legislative reforms.

But the Trump administration’s FHFA, under director Mark Calabria, finalized a new capital rule that imposes bank-like capital requirements on Fannie and Freddie when the conservatorships end. The rules ensure that the companies will operate more safely and fairly than in the past. They require more than $280 billion in capital, much higher than the GSEs’ current $35 billion, and they dramatically shrink the special funding advantage that the GESs have (unjustifiably) had for so many years.

The firms obviously can’t comply immediately, and they still have to pay back billions to the Treasury under the agreements that allowed taxpayers to keep them afloat, but that’s all the more reason for the administration to finalize the process. Fortunately, it appears the administration is working toward a resolution. As the Wall Street Journal notes:

Hence, Treasury and FHFA are considering a consent order between the GSEs and FHFA that could end government conservatorship of Fannie and Freddie while binding both the Biden Administration and GSEs. Financial regulators often use such orders to compel reforms at undercapitalized or incompliant banks. Fan and Fred are both.

The administration should finish the order and ensure that Fannie and Freddie pay back the taxpayers over a reasonable number of years. If the companies fail to do so, and fail to meet the new capital requirements, they should be placed into receivership in accordance with current law. Not shutting them down was a major mistake, one that the administration should not compound through inaction.

Given the Obama-Biden administration’s approach to Fannie and Freddie, failure to act now will all but guarantee that the firms remain under government control for another decade, continuing to harm consumers by fueling riskier debt and higher home prices. Finishing the order, on the other hand, would help hardwire the new capital requirements so that, at the very least, it would be difficult for another administration to water them down.

It would be a tragic mistake for the administration to let this opportunity slip.

Outside of housing finance, the administration and Congress should complete several other key reforms before the end of this term. There are many others, but here are just a few important reforms (explained in more detail here) that can be enacted now:

• The EPA Should Finalize Its Science Transparency Rule and Require Underlying Data and Models to Be Made Available to the Public.
• The Environmental Protection Agency (EPA) Should Properly Address the Abuse of Ancillary Benefits.
• The EPA Should Finalize Its Science.
• Transparency Rule and Require Underlying Data and Models to Be Made Available to the Public.
• The Securities and Exchange Commission (SEC) Should Finalize the Proposed Exemptive Order for Certain Activities of Finders.
• The Bureau of Land Management (BLM) Should Conduct Lease Sales on Federal Lands.
• The Department of Homeland Security (DHS)
  DHS
  Should Extend the Date of H-2A Petitions.
• The OMB Should Issue a Regulation Barring Federal Grantees or Their Subsidiaries from Suing the Government Under Title V of the Administrative Procedure Act.
• The U.S. Department of Labor (DOL) Should Finalize Its Rule to Provide Greater Clarity on the Definition of “Independent Contractor” for General Industry.
• Congress should create a safe harbor to allow individuals who perform household work to choose to be treated legally as contractors instead of household employees.
• Congress should pass a Full-Year Appropriations Bill and Avoid Budgetary Gimmicks.
• Congress should ensure lower tariffs by renewing the Generalized System of Preferences (GSP).

The administration and this Congress are coming to an end, but they are not finished yet. There is still time to make key policy improvements, all of which will expand opportunities for all Americans by promoting more economic freedom.