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America's greatest economic liability is also the greatest political liability for the Democratic congressional leadership. Fannie Mae and Freddie Mac have exposed taxpayers to $5.4 trillion in risk from loan guarantees, with taxpayers already having covered $126 billion in losses. So far, Democrats have been reluctant to include tough reforms on the profligate government-sponsored enterprises in the financial regulation package currently making its way through the legislative process.

A group of Republican senators led by John McCain, Arizona Republican, last week proposed to give the housing market giants five years either to become self-sufficient or to go out of business. They would also reduce the total amount of losses that taxpayers would cover to $400 billion. Rather than...