Wednesday, December 1, 2010

U.S. Senator Johnny Isakson (R-GA)
Floor Statement on Jobs, the Economy and Housing
Remarks as Delivered on the Senate Floor

Mr. President, I rise for just a few minutes to talk about three issues--jobs, the economy, and housing--that I think all of us around the country will recognize are the three biggest problems thwarting our recovery. There are some realistic solutions that are out there that I think we could all come together on if we would just take the time to realize that working on disagreement rather than finding agreement is not serving the Senate very well right now.

One of the reasons we have had a slow job recovery is because of the uncertainty American businesses and American wage earners have in what their tax rates are going to be.

I ran a company. It started out as a small company, and it became a pretty good-sized company. This was the time of year--every December--when we had our managers' retreat, and we would plan what we would do the next year. We would do our budget, we would talk about new hires, new departments, and new ideas.

Right now, corporations and small businesses in this country that are sitting around their planning retreats and talking about next year do not know what their tax rates are going to be, they do not know what their regulatory environment is going to be. So they are doing what every business does: They are making conservative decisions. They are not risking capital. They are going to wait until their future tax lives and regulatory lives have some degree of certainty.

So one way to bring back jobs to America and bring them back quicker than anything else would be for this Senate and the House to come together and extend the existing tax rates for a predictable, foreseeable period of time so businesses know what the playing field is going to look like. The absence of certainty between now and the end of the year means that no one will make a decision to hire anybody until we first make a decision on what their taxes are going to be. If we decide they are going to go up, if we capitulate and let the current sunset take place, then American businesses, at a time of high unemployment and low productivity in terms of business activity, will see an increase in their tax rate and we will see a decrease in employment next year in the United States. I hope that doesn't happen. I hope we will find common ground and find a way to extend the existing tax rates.

Secondly, I wish to talk about housing for a second because it is an important part of jobs. I know there have been two speeches on the floor this week talking about some stimulus to bring the housing market back. One stimulus that will bring it back is to make taxes certain because if taxes become certain, people know what the taxes will cost them and they make important big-purchase decisions. When they have uncertainty in what their income or their net is going to be, they do not make big-ticket purchases, whether it is an automobile or a house.

But there are other problems in housing as well. We need to fundamentally return to a marketplace that has some degree of liquidity in it for acquisition and purchases. Right now, except for the FHA and an occasional lender in terms of a jumbo lender to a big-ticket client, there is basically no mortgage money in the United States for an American home buyer. Because of mark to market being applied by the FDIC and the other cease-and-desist orders the banking institution and lenders are under, nobody is extending credit.

In my State of Georgia--in Atlanta, GA--in 2006 there were 63,000 housing permits. That was 2006, 4 years ago. This year, there were 5,300. That is a 90-percent reduction in new construction. Granted, we were in a hypereconomy in 2006 and, granted, overbuilding probably contributed to the decline of the economy later on, but a 90-percent reduction is unhealthy. If we continue to sustain that reduction, we will continue to sustain what is a difficult economic period now.

We need to be looking to the future. So my recommendations are, first, give us a platform of predictability by extending existing tax rates and not raising them in a rescession. That is No. 1. Secondly, recognize there is no liquidity in mortgage money in the United States.

The longer we wait to address the question of what happens after Freddie and after Fannie, the longer the housing market will suffer. So I propose a solution for that problem in terms of housing finance. I don't think there is any question that Freddie and Fannie have to be wound down. They are in a conservatorship now. They have already cost us billions of dollars, and they will cost us billions more, which is why I worked hard to get them under the financial reregulation bill so we could peel back the layers of the onion and figure out what went wrong, but this body decided not to do that.

But whatever happens, we have to create a new entity, and whatever happens, it will have to look, in some ways, like Freddie and Fannie but in other ways remarkably different. But there has to be a solution. The long-term solution can't be a government-sponsored entity or an implied government guarantee. That is what imploded in terms of Freddie and Fannie. And the taxpayers of America don't want you or me pledging their future full faith and credit behind a mortgage entity just to provide mortgage money. By the same token, they want us to be leaders, to find a way to get from where we are now, with no liquidity, to where we need to be, and that is with good liquidity.

Here is my suggestion: we create a new entity to replace Freddie and Fannie--an entity that ends up having a government-implied sponsorship or guarantee, but over a 10-year period of time, it declines 10 percent a year to zero. During that same 10-year period of time, on every mortgage loan made in the United States, a fee will be attached to it at closing--maybe it is 50 basis points or half a percent, whatever it might be--that goes into a sinking fund. That sinking fund is walled off, and it grows over 10 years. As it grows, the government guarantee declines--for example, a-100 percent guarantee in the first year of the fund, 90 percent in the second year, 80 in the third, going down to zero in 10 years. As that fund guarantee goes down, the fund builds up, so it becomes the backstop for another failure that may or may not happen in the future but one for which we have to plan.

This is not a new idea. There are not a lot of new ideas. In Great Britain, they have had Pool Re for years. That is the sinking fund they set up to handle catastrophic losses in terms of insurance. It has built up to be able to withstand the largest of catastrophic calls and has made their insurance system work very well.

We need to establish a way for the government to sponsor an entity that gets out of the guaranteeing business but gets into the building of liquidity business and becomes an entity that can supply mortgages in the United States because there is not one now and there will not be one in the future until we create an entity that gives a foundation for liquidity to come back to the housing market. So here we are, 30 days from the end of the year. We don't know what our taxes are going to be next year, and if we wanted to go buy a house, we wouldn't know where we would find the mortgage money.

This Senate can act and act quickly to make changes that see to it that jobs come back, and that is by extending the existing tax rates.

When we come back together next year, I look forward to working with my colleagues on the other side and my colleagues in the Senate to create a mortgage-sponsored entity that will work and begin to bring liquidity back to the housing market so that construction returns, jobs come back, and America recovers.