Republicans Push Back As Paulson Urges Aid For Mortgage Giants
Thursday, July 17, 2008
Treasury Secretary Henry M. Paulson Jr. returned to Capitol Hill yesterday to quell a potential rebellion among House Republicans worried that the Bush administration's plan to prop up mortgage finance giants Fannie Mae and Freddie Mac could lead to a taxpayer bailout.
Paulson spent nearly an hour in the late afternoon trying to reassure the lawmakers. According to participants in the closed-door meeting, he was peppered with sometimes hostile questions but steadfastly asserted that taxpayers would be protected and that the government's offer of assistance would be temporary and carefully prescribed.
"This is something I want to see done quickly," Paulson told reporters afterward, standing side-by-side with House Minority Leader John A. Boehner (R-Ohio). "And I am optimistic this is going to be done quickly."
Boehner, who had earlier urged delaying consideration of the proposal until lawmakers could hold hearings, yesterday backed away from that demand, saying Republicans would be satisfied with "conversations" to help them understand the plan. "There's no effort to stop it or block it," he said. "A lot of members understand the seriousness of the situation and the need to act."
Still, many Republicans in the House and Senate remained skeptical of the proposal to authorize the Treasury to use public dollars to lend the companies money or buy their stock if their financial situation deteriorates dramatically. These objections are pitting the president against conservative members of his own party, leaving Bush heavily dependent on Democrats to push the plan through Congress.
Despite the tension on Capitol Hill, the companies had a banner day on Wall Street, as their stocks soared after days of steep declines. Shares of Fannie Mae jumped $2.18 a share, or 31 percent, to close at $9.25, while shares of Freddie Mac rose $1.57, or 30 percent, to close at $6.83.
Analysts said the companies benefited from a surprisingly strong showing by the entire financial sector and from public statements by Federal Reserve Chairman Ben S. Bernanke in support of the firms. Testifying before the House Financial Services Committee, Bernanke issued some of his most explicit assurances to date that the Fed would stand behind the companies.
The market's confidence will be tested again today when Freddie Mac plans to raise $4 billion by issuing bonds to fund mortgage investments. Freddie Mac spokesman Michael Cosgrove said the action, similar to the routine offering the company made Monday, represents "business as usual."
Alarmed by the companies' plummeting stock prices, Democratic leaders had initially hoped to push the administration's rescue plan through Congress this week as part of a broader package of housing legislation. But as Republicans and many Democrats raised questions about the proposal, House leaders said they would push a vote to next Wednesday at the earliest. The package would then have to pass the Senate before moving on for Bush's signature.
In the meantime, Paulson has been meeting and talking with key lawmakers to hammer out the terms under which federal support could be extended to Fannie Mae and Freddie Mac -- conditions that lawmakers say are needed to protect taxpayers from losses and to build support for the legislation.
Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, declined to say what taxpayer protections he was seeking. But Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said in an interview that he would want the companies to defer dividend payments to shareholders while any debts to the government were outstanding, more government control over executive compensation in those circumstances and assurances that any debt owed the government would be repaid first.
Although some have called for aid to Fannie and Freddie to be exempted from statutory limits on the national debt, Frank said that step was unnecessary.