DEBORAH AMOS, host:

That's the view from the Hill. To see what Wall Street thinks of the government's latest housing market rescue plan, we turn again to David Wessel. He's economics editor of the Wall Street Journal. Good morning, David.

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

AMOS: We've already heard the news, the initial reactions from the market, and it's not very good news. So does that mean this plan is working eventually?

Mr. WESSEL: Well, there was some good news. Freddie Mac, one of the two mortgage giants, managed to sell $3 billion worth of debt yesterday at a reasonably good price. So that suggests that the people who lend money to Fannie Mae and Freddie Mac are now newly confident that they'll get that money back.

As you point out, Fannie and Freddie's stock went up, and then it went back down. So the risk there is that people are afraid that somehow at the end of this process, the government will end up owning these institutions, effectively, and the shareholders will get wiped out.

I think this is a little bit like fighting a forest fire. The fires spread some to some other parts of the forest yesterday, and the firefighters are still working to control it. But to mix the metaphors a little bit, mortgages were still being made yesterday, and that's really the important thing to the economy.

AMOS: And so the idea that the stock market is bouncing around, that is just initial reactions. That's still more of the forest fire.

Mr. WESSEL: Yes. And I think it's a sign that the fire isn't out. The government may decide here in the end that the people who have owned the stock of Fannie Mae and Freddie Mac are the people who are going to have to take the blow.

The government, as you know, took over this big bank, IndyMac, and in that case, they just wiped out the shareholders altogether. At Bear Stearns, the shareholders got some money, but a lot less than they had thought that the company was worth. And that's what happens when companies get into trouble in this country.

What makes Fannie and Freddie so unusual is the government is, so far, afraid to take that final step, and of course, they're so big and so vital to the economy.

AMOS: Let's talk a minute, the larger issue of rescue plans. You just mentioned the Bear Stearns salvage. Then the government threw a financial lifeline to another investment bank, and now it's helping Fannie and Freddie.

So when does the government sort of hold the line and say all right, we're not going to do these kinds of bailouts?

Mr. WESSEL: Well, that's a great question, and I think there are a lot of people inside the government and outside who, every time one of these things happens, say okay, that's it. We won't have to do any more. And then this crisis has been so unusually prolonged that there's another one.

I think they will have to keep doing this until eventually house prices stop falling or people can see a bottom. What is driving most of this stuff is falling house prices, and the securities link to them are threatening to pull down the entire financial system.

This week, it seems to be the smaller, regional banks, and the government knows that the U.S. economy cannot withstand that. They're trying to prevent this from spilling over into some very, very deep recession. And as you point out, the taxpayers are being asked to take a lot of risk here, but it's for the good of the economy.

AMOS: But are there any long-term downsides to the plan?

Mr. WESSEL: Oh, yeah. Absolutely. I mean, of course, at some point, if there are big losses, the taxpayers may have to pay them, as they did in the savings and loan crisis. But also, people worry that if we have a system where, when you make a lot of money in the good times, you get big salaries and your shareholders get dividends, as the people did at Freddie Mac and Fannie Mae. And then in the bad times, the taxpayers get the losses.

Well, we'll just set up a system where people are constantly encouraged to take excessive risks, and the system will get more volatile and we'll have more crises in the future. And there are people who are worried that every step of the way here, we are creating more of that problem.

AMOS: But at the end of the day, David, are we going to see many more questions about the way that Fannie and Freddie and operate, this kind of odd system where they're sort of private, sort of public?

Mr. WESSEL: Yes. There have been questions about Fannie Mae and Freddie Mac's structure and management for years. Bear Stearns was a surprise. Fannie Mae and Freddie Mac were not a surprise. And I think this points up sort of the uncomfortable contradiction. Are these wards of the state, in which the government runs them, oversees them and guarantees their debt? Or are these private shareholder companies that will take risks and which will maybe decide they don't want to make so many mortgages?

The government won't let them stop making mortgages, particularly at a time like this, and so the contradiction between these two things is becoming painfully apparent.

Unfortunately, in our system - or maybe fortunately - we rarely go to extremes. So I doubt they will be fully nationalized, and I doubt they will be fully privatized. But what we're going to see now is a continuing work to try and allow them to be shareholder owned, but to have them more tightly regulated so they don't endanger the taxpayers so much in the future.

AMOS: Thank you very much. David Wessel is economics editor of the Wall Street Journal.

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