Most U.S. stocks rose following the federal government takeover of mortgage giants Fannie Mae and Freddie Mac, but questions lingered over the impact on the housing market and the credit crisis. Business reporters and analysts mull the implications of the deal.
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And, for that, I'm joined by a reporter and a financial columnist covering this story. Charles Duhigg is with The New York Times. And Steven Pearlstein is a columnist with The Washington Post.
Welcome to you both.
Charles, beginning with you, you did a lot of reporting on everything that went on leading up to this. How and why did it come to a head this weekend?
CHARLES DUHIGG, The New York Times:
It came to a head this weekend basically because this was the time that Treasury decided it needed to come to a head.
A few weeks ago, Richard Syron, who runs — is the CEO and chairman of Freddie Mac, made a last-ditch attempt to try and raise money from private equity groups. And he was turned down by everyone. He reported this to Mr. Paulson, the treasury secretary. And within Treasury, based on our reporting, a consensus emerged that it was time to act.
Obviously, it was a politically delicate time. Both conventions were going on. We heard that there was some discussion of trying to do this in a way that it wouldn't conflict with the conventions, but, at the same time, would happen as quickly as possible, both to bring stability to the marketplace, and also because the election is now two months away, and they wanted to have something happen not at the same time — too close to the election.
Steven Pearlstein, do you agree the situation had gotten desperate, and why did the implicit backing that Paulson had given in July not do the trick?
STEVEN PEARLSTEIN, The Washington Post:
Well, let's start with the second.
It turns out that that implicit backing had a perverse effect, because what — when — when Mr. Syron went up to Wall Street and said, "Would you like to invest some — some more capital here?" people said, "Well, we might be actually interested in it, except we don't really know the form and the timing of when the government might come in. They might come in and wipe us out. So, until we know what the structure of the government involvement might be and unless you can provide us some assurances of that, we won't put any money in."
So, it had this perverse effect, which I think was unintended.