Paulson Outlines GSE Initiatives

donsutherland1 · 07-15-08, 11:44 AM

In his testimony before the Senate Banking, Housing, and Urban Affairs Committee, U.S. Treasury Secretary Henry Paulson outlined the Treasury's initiative for addressing the challenges facing Fannie Mae and Freddie Mac.

In his testimony, Secretary Paulson called the GSEs "central to the availability of housing finance." He added, "Continued confidence in the GSEs is important to maintaining financial system and market stability." Reflecting the uncertainty associated with the risks facing both GSEs, he declined to ask for a specific credit line explaining, "Given the difficulty in determining the appropriate size of the credit line we are not proposing a particular dollar amount."

The Treasury initiative consists of three components:

1. An 18-month temporary increase in the Treasury's existing authority to make credit available to Fannie Mae and/or Freddie Mac.

2. An 18-month temporary authority under which the Treasury could purchase equity stakes in Fannie Mae and/or Freddie Mac.

3. Enhanced regulation under which the Federal Reserve would gain access to information from the two GSEs and play a consultative role in setting capital requirements for Fannie Mae and Freddie Mac. The Federal Reserve would not become the GSEs' primary regulator.

Finally, Secretary Paulson told the Senate Banking Committee that the "there are no immediate plans" by the GSEs "to access either the proposed liquidity or the proposed capital backstop."

In the wake of Fed Chairman Bernanke's testimony and coinciding with the start of Secretary Paulson's remarks, the Dow Jones Industrials turned higher. At 12:44 pm EDT, the Dow was up just over 15 points.

AndrewC · 07-16-08, 08:16 AM

.: United States Senator Jim Bunning, Kentucky :: News Center :.

Quote:

As Prepared For Delivery:

Thank you, Mr. Chairman. I know we have a lot of ground to cover today, but I want to say a few things on the topic of this hearing and of the next.

First, on monetary policy, I am deeply concerned about what the Fed has done in the last year and in the last decade. Chairman Greenspan’s easy money the late nineties and then following the tech bust inflated the housing bubble and created the mess we are in today. Chairman Bernanke’s easy money in the last year has undermined the dollar and sent oil to new record highs every few days, and almost doubling since the rate cuts started. Inflation is here and it is hurting average Americans.

Second, the Fed is asking for more power. But the Fed has proven they can not be trusted with the power they have. They get it wrong, do not use it, or stretch it further than it was ever supposed to go. As I said a moment ago, their monetary policy is a leading cause of the mess we are in. As regulators, it took them until yesterday to use power we gave them in 1994 to regulate all mortgage lenders. And they stretched their authority to buy 29 billion dollars of Bear Stearns assets so J.P. Morgan could buy Bear at a steep discount.

Now the Fed wants to be the systemic risk regulator. But the Fed is the systemic risk. Giving the Fed more power is like giving the neighborhood kid who broke your window playing baseball in the street a bigger bat and thinking that will fix the problem. I am not going to go along with that and will use all my powers as a Senator to stop any new powers going to the Fed. Instead, we should give them less to do so they can do it right, either by taking away their monetary policy responsibility or by requiring them to focus only on inflation.

Third and finally, since I expect we will try to get right to questions in the next hearing, let me say a few words about the G.S.E. bailout plan. When I picked up my newspaper yesterday, I thought I woke up in France. But no, it turns out socialism is alive and well in America. The Treasury Secretary is asking for a blank check to buy as much Fannie and Freddie debt or equity as he wants. The Fed’s purchase of Bear Stearns’ assets was amateur socialism compared to this.

And for this unprecedented intervention in the markets what assurances do we get that it will not happen again? None. We are in the process of passing a stronger regulator for the G.S.E.s, and that is important, but it allows them to continue in the current form. If they really do fail, should we let them go back to what they were doing before?

I will close with this question Mr. Chairman. Given what the Fed and Treasury did with Bear Stearns, and given what we are talking about here today, I have to wonder what the next government intervention in private enterprise will be. More importantly, where does it stop?

Bravo! I sent this gentleman a thank you note. I'm sure he won't read it, but it WAS the least I could do. I'll have to do some research to see if this has been his long standing position or a new one. Either way it is nice to see members taking notice of the real issues.

Onion Eater · 07-17-08, 07:48 PM

Fascism or socialism? Socialism or fascism? Hmmm.... It's just so hard to decide! I seem to recall something about the Germans being presented with this same choice in the 1920's - perhaps we should look into how things turned out for them.

I just started a new link titled "Fascism: Socialism with Shareholders," but I thought I'd weigh in here with a bravo for Sen. Bunning.