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It's MORNING EDITION from NPR News. I'm Deborah Amos.

STEVE INSKEEP, host:

And I'm Steve Inskeep. Good morning.

The government is trying again to restore confidence in Fannie Mae and Freddie Mac, the two giant mortgage companies. The Bush administration says it's going to ask Congress to allow the government to extend more credits to those finance firms, which do trillions of dollars in mortgage business. The government may also buy stock in the two companies, if necessary.

The idea is to shore up the finances of the companies and keep money flowing to the mortgage market. We're going to call David Wessel to find out more. He's economics editor of the Wall Street Journal and a regular guest on this program. David, good morning.

Mr. DAVID WESSEL (Wall Street Journal): Good morning.

INSKEEP: What made it necessary to step in again over the weekend? Because it sounded like this was fixed some time last week.

Mr. WESSEL: Well, what happened is that Fannie Mae and Freddie Mac need to be able to borrow money almost every week in order to keep buying mortgages or guarantying mortgages. And there was so much concern that when Monday morning arrived, that they might not be able to borrow, that the government felt it had to do something in order to shore up confidence in them and let people keep buying.

INSKEEP: Well, now, is this really just about confidence or is there a fundamental problem with these companies that would take lots and lots of money to fix?

Mr. WESSEL: There is a fundamental problem with these companies. These companies hold about $5 trillion worth of mortgages. That's about half of all the mortgages that exist. And today they are actually making or guarantying - making indirectly or guarantying about 70 percent of all the mortgages being made. But if you're in the business of making mortgages now, you have a problem. The houses on which the mortgages rest are not worth what they were. So some critics say that if you actually did an honest accounting, Fannie Mae and Freddie Mac don't have - are insolvent.

So the fundamental problem is that they have these big losses and people don't know exactly how big they are but there's a concern that they are so big that with any honest accounting they would wipe out their capital.

INSKEEP: Five trillion dollars? Could we have something that if it's as bad as some people fear, even the federal government would have trouble coming up with the money to fix it?

Mr. WESSEL: No. It's not - they're not - the only issue here is the amount of money they lose on those mortgages.

INSKEEP: Okay.

Mr. WESSEL: That wouldn't be the whole $5 trillion. But look, basically it's big, and what the government's trying to say here is if they need a little more cushion, the government will step in and give them that cushion and they'll do it in two forms. The Treasury and the Federal Reserve will lend them money short term if they have problems in the short term; and in an extraordinary move, the Bush administration has gone to Congress and said we want the right to buy stock in these companies, to take taxpayer money and buy a piece of these companies to shore up their capital cushion just in case.

INSKEEP: We're talking with David Wessel of the Wall Street Journal about proposals to shore up Fannie Mae and Freddie Mac, the two big mortgage companies. And David, I want to ask, these are companies that were sponsored by the government but were at least theoretically independent. Is the taxpayer taking on a lot more risk by making these commitments you just described if in fact they happen; if they're approved by Congress?

Mr. WESSEL: Yes, although a lot of people would say that it was always clear that in a pinch the government would have to step in on the taxpayers' behalf to save these companies. They have never been fully independent. They're this strange hybrid: they're owned by shareholders but they borrow money, and the people who lend them the money, including the Chinese government for one, always have assumed that if they got into trouble the taxpayers would stand behind that credit.

INSKEEP: Well, now that it appears that taxpayers are stepping forward or being asked to step forward and stand behind that credit even more, is it possible that the government won't have to pay anything, that people will feel confident and things will return to normal?

Mr. WESSEL: Yes, it's possible. I think it's unlikely that there will be no exposure, but it's possible. And I'm sure that at the Treasury this morning they're looking at the Asian markets and seeing that this has been fairly well received and hoping that that's the case.

INSKEEP: How much of the financial system is being propped up, if that's the right term, by the Federal Reserve at this point, David?

Mr. WESSEL: Well, that's kind of a hard question to answer. What the Federal Reserve has basically come forward to say in an extraordinary degree is that they stand ready to lend money. They've always been ready to lend money to banks, the banks that you and I put money in and have checking accounts. Now in March they've extended that to investment banks like Merrill Lynch, when they took - involved in Bear Stearns, and now they're going a step further and saying they're willing to lend money to Fannie and Freddie.

That's a pretty big chunk of the financial system. There's not much less.

INSKEEP: Well, does this end up affecting the average person one way or the other?

Mr. WESSEL: Well, yeah. I mean, if this works the average person will find it easier to get a mortgage this week than he or she did at the end of the last week, and that's really the ultimate game of the government here; it's to make sure that the mortgage market doesn't freeze up. The economy is a little bit fragile now, to say the least, and if Fannie and Freddie, which are indirectly making 70 percent of all the mortgages in the country aren't able to make them, that would be a huge event.

So the most important effect this has on people is that, and the second effect it has, eventually, if the government does lose some money here, it's going to come out of your pocket and mine.

INSKEEP: Okay. The news is that the federal government is offering more measures to restore confidence in two giant mortgage companies. Our guide through that news is David Wessel of the Wall Street Journal. David, thanks.

Mr. WESSEL: You're welcome.

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