Tuesday, July 15, 2008

Treasury seeking a "backstop" for Fannie and Freddie, not an imminent bailout

CNN Money reports:
Treasury Secretary Henry Paulson was hammered by lawmakers on Tuesday over the Bush administration's plan to prop up mortgage finance giants Fannie Mae and Freddie Mac.

Members of the Senate Banking Committee drilled into Paulson on a day when the shares of Fannie and Freddie were once again pummeled by investors.

Paulson was asked about his request that Congress remove limits on how much money Treasury can lend to the troubled mortgage finance firms — was it just a "blank check" from taxpayers? He also faced questions about a second part of the plan — to allow Treasury to buy equities in the firm — and whether Fannie and Freddie are as safe as the companies, Treasury and regulators now claim.

"I fear we're sitting on a financial powder keg," said Sen. Richard Shelby, R-Ala., the committee's ranking Republican.

Paulson told the committee that the two firms have adequate capital to continue operating. He said that proposals he announced on Sunday — expanding the Treasury credit line for or buying equity in Fannie and Freddie — were "backstops" to assure the markets. ...

The rescue plan won some support, most notably from Sens. Christopher Dodd, D-Conn., and Charles Schumer, D-N.Y. But the amount of opposition and skepticism from other members of the committee, both Democrat and Republican, suggested that hopes voiced by Paulson and Dodd for action on the proposal within the next week may be a long shot.

One Republican, Sen. Jim Bunning, R-Ky, vowed to do everything in his power to defeat the proposal, which Schumer took as a threatened filibuster that could stall the proposal dead in its tracks.
Senator Christopher Dodd shows that he is again "Mr. Bailout".

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