Transcripts

Capitol Hill Comments on the Freddie Mac/Fannie Mae Rescue Plan

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is Darren Gersh in Washington, where the Fannie/Freddie rescue operation was billed almost as an exercise in fear management. House Financial Services Committee Chairman Barney Frank will play a key role in moving the plan through Congress.

REP. BARNEY FRANK (D-MA), FINANCIAL SERVICES COMMITTEE: This is a case where the government is saying to the market, will you please get a grip and look at the reality, and if you do, you won't be in this kind of a panic.

GERSH: A senior Treasury official tells NIGHTLY BUSINESS REPORT investors in Fannie Mae and Freddie Mac bonds should take comfort in the financial backstop the government unveiled over the weekend. The plan would extend through the end of 2009, the Federal Reserve would provide access to funds and also consult on regulatory capital requirements. And, if Congress approves, the Treasury would be authorized to take an equity stake in the companies. Freddie and Fannie would also get an unlimited line of credit to the Treasury. Barney Frank says that makes sense.

FRANK: If you were to say there is going to be a line of credit up to X hundred billion, expecting that maybe none of it, maybe 5 percent of it would be used, the headline would still be that. So, it is perfectly reasonable not to have a number, because the number would just be distorted and isn't necessary.

GERSH: Critics want the Treasury to replace Fannie and Freddie management as a condition of making a big investment. No matter what, senators like Iowa's Charles Grassley are going to be taking a harder look at how these businesses have been run.

SEN. CHARLES GRASSLEY (R-IA), RANKING MEMBER, FINANCE COMMITTEE: When people are going to look at it, why are they in trouble? It seems to me irresponsible, the fabulous salaries these leaders of these two groups have gotten.

GERSH: Concerns about the financial health of Fannie and Freddie are not going away. If they are forced to take similar write-downs as Merrill Lynch (MER) and Citigroup (C) did on their prime mortgage investments, analyst Sean Egan figures Fannie and Freddie may expose taxpayers to enormous risks.

SEAN EGAN, MANAGING DIR., EGAN-JONES RATINGS: You're looking at $500 billion of exposure. What is that, several years of an Iraq War? So it's huge. It's absolutely huge.

GERSH: A senior Treasury official says there are no plans to nationalize Freddie and Fannie. The goal is to get through the current crisis, leaving longer-term reforms for another day. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.