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Despite Lifelines, Concerns Linger on Mortgage Giants
Fannie Mae chief executive Daniel H. Mudd said he hopes the federal government's plan will break "the back of a lot of market fears."
(By Manuel Balce Ceneta -- Associated Press)
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Frequent conference calls went on among Paulson, Bernanke, Cox, New York Fed President Timothy F. Geithner and top company officials. The leaders agreed they needed to assuage fears in the marketplace while not forcing the companies to take government money.
Paulson and Geithner called Wall Street executives to assess investor sentiment. Some in the markets expected everything to be fine, others predicted deepening problems and a few predicted a burgeoning crisis in the week ahead. That uncertainty led them to conclude that they needed to act. They faced a tricky balance. Do too much, and they could unnecessarily expose the government to financial risks and make markets even more fearful. Do too little, and they could find themselves without the tools to prevent a crisis.
The balance they struck: They decided to ask Congress for a wide new authority for the Treasury secretary to negotiate new government lending or even for the government to buy stock in the companies -- but to use that authority only if conditions worsen. Paulson would have the flexibility to negotiate favorable terms for taxpayers, should that situation arise.
Paulson worked Capitol Hill, speaking to 15 congressional leaders over the weekend. On Saturday evening at about 8 p.m., with Paulson at his Cathedral Heights home in Northwest Washington, staff talked him through the details of the proposals on a conference call, and he decided to move forward.
He called the chief executives of Fannie Mae and Freddie Mac, described the proposals to them and asked them to take the ideas to their boards of directors. He did not want authority for the government to invest in the companies if the firms would not be open to such a transaction.
Late Sunday morning, the chief executives called back to say they were on board. Early that afternoon, Paulson called Bush to get his blessing. At 3 p.m., Paulson, Bernanke, Cox and Geithner held a conference call and agreed to proceed.
At 6:10 p.m., Paulson walked down the steps in front of the Treasury building at 1500 Pennsylvania Ave. NW, stood behind a lectern and read a statement to assembled TV cameras. He took no questions.
Staff writers David S. Hilzenrath, Lori Montgomery, Christopher Twarowski and Jordan Weissmann contributed to this report.
