So much for merely making reassuring noises, as the Wall Street Journal reported an hour or so ago.
Unless the authorities can call in favors and get a strong show of buyer interest at the Fannie sale of $3 billion sale of short-term debt tomorrow, it’s hard to imagine the markets will take well to Fannie and Freddie’s fate not being resolved.
Note also that contrary to earlier denials, Reuters reports that Bernanke did tell Fannie it could access the discount window (hat tip reader Dwight).
Treasury Secretary Henry Paulson sought blanket authority from Congress to buy equity stakes in and lend to Fannie Mae and Freddie Mac, aiming to stem the collapse of confidence in the largest sources of U.S. mortgage financing.
Paulson will propose to Congress a “temporary” increase of the companies’ lines of credit with the Treasury from the current $2.25 billion each, and the right to buy equity “if needed,” according to a statement released by the department in Washington.
Freddie Mac is scheduled to sell $3 billion in short-term notes tomorrow, and Paulson’s comments indicate a growing concern that a crisis of confidence may take hold if demand for the debt is weak. The plan, which requires congressional approval, would give Paulson power to buy an unspecified amount of stock in Fannie Mae and Freddie Mac, a Treasury official told reporters.
A third element of the proposal would give the Federal Reserve a “consultative role” overseeing the companies’ capital requirements. The Fed separately announced it will let the companies borrow directly from the Fed at the same discount rate as commercial banks.
Debt sold by Fannie Mae and Freddie Mac “is held by financial institutions around the world,” Paulson said in the statement. “Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets.”…
“Use of either the line of credit or the equity investment would carry terms and conditions necessary to protect the taxpayer,” Paulson said. “I look forward to working closely with congressional leaders to enact this legislation as soon as possible, as one complete package.”