Gloomy Testimony From Treasury, Fed Chiefs

Treasury Secretary Henry Paulson did his best to defend the department's rescue plan for Fannie Mae and Freddie Mac on Tuesday on Capitol Hill, while Federal Reserve Chairman Ben Bernanke delivered a downbeat summary of the problems facing the U.S. economy.

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STEVE INSKEEP, host:

Investors may still be considering an unpleasant comment - actually, several of them - made by the Federal Reserve Chairman Ben Bernanke. Bernanke was on Capitol Hill yesterday delivering a bleak economic forecast. And we have more this morning from NPR's Wendy Kaufman.

WENDY KAUFMAN: Bernanke cited what he called numerous difficulties facing the U.S. economy: continued weakness in housing markets, high energy prices, and tight credit conditions. His remarks before the Senate Banking Committee came just two days after the government announced a rescue plan and a financial lifeline to mortgage giants Fannie Mae and Freddie Mac. Both companies have seen their stock fall precipitously in recent days. Each fell more than 25 percent yesterday.

The rescue plan proposed by the government would extend an emergency line of credit to both firms or allow the government to buy an equity stake in them. But the plan raises questions about what the government's role should be and what financial burdens could be placed on taxpayers.

At least some members of Congress weren't happy at the prospect of a bailout. Republican Senator Jim Bunning suggested the plan looked like something dreamed up by French socialists.

Senator JIM BUNNING (Republican, Kentucky): The Treasury Secretary is now asking for a blank check to buy as much Fannie and Freddie debt, or equity, as he wants.

KAUFMAN: The Treasury Secretary Henry Paulson tried to calm those fears.

(Soundbite of audio)

Secretary HENRY PAULSON (Treasury): There is no proposal today to inject federal funds in these companies at this time.

KAUFMAN: Paulson and Bernanke expressed the view that calming wobbly financial markets remains a top priority. Fed Chief Bernanke is back on Capitol Hill today.

Wendy Kaufman, NPR News.

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