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STEVE INSKEEP, host:

It's MORNING EDITION from NPR News. Good morning. I'm Steve Inskeep.

DEBORAH AMOS, host:

And I'm Deborah Amos in for Renee Montagne.

Congress is reconciling itself to risking billions of dollars in taxpayer money. A group of lawmakers worried about the deficit is the latest to approve a rescue plan for the two giant mortgage companies. The plan promises credit and possible stock purchases to support Fannie Mae and Freddie Mac. It might cost the U.S. nothing or it might cost $25 billion.

In a moment we'll report on new regulations for the companies.

INSKEEP: First we're going to talk about that rescue package with the senator who's at the center of the debate. Chris Dodd of Connecticut chairs the Senate Banking Committee, and the bill has to pass through his committee. Senator, welcome to the program.

Senator CHRISTOPHER DODD (Democrat, Connecticut): Thank you. Good to be with you.

INSKEEP: I want to grant the basics here, Senator. Obviously these are huge companies. They underwrite millions of mortgages, they're very important. But why support them and their stockholders in exactly this way?

Sen. DODD: Well, because there's a great risk that the people who are holding the debt are going to dump it. And it isn't just debt being held in this country; it's being held globally. Just to give you one idea: Russia, $100 billion of Fannie and Freddie debt is being held, and if they decided to dump that debt tomorrow, you could have a collapse globally.

And this idea of going from an implicit guarantee to more of an explicit one was the determination by the Treasury this was essential if we're going to stabilize these markets and restore confidence in them. This isn't a great solution. In addition to trying to restore some confidence, obviously, what we're trying to make sure we're going to do here in this process is to make sure that taxpayers are not going to be suffering from an overexposure if in fact the authority that would be granted under this legislation were to be exercised.

INSKEEP: When you say going from an implicit to an explicit guarantee, I suppose we should re-explain this. These are two companies created by the government; in theory and in fact in law they are independent right now. You favor underwriting them with additional loans.

Also, though, as part of this you want to prop up the stock price; say that the federal government will buy shares if necessary to hold up the stock price. Why deal with the stock price as well as these companies' credit?

Sen. DODD: Well, first of all, this isn't my idea, quickly (unintelligible) this is one the Treasury's come up with.

INSKEEP: The Bush administration.

Sen. DODD: Yeah. And so the question is whether or not having done this now, if we were to defeat it, move away from it, would we be in fact sending a worse message than the one that was implied by trying to move from implicit to explicit?

INSKEEP: Oh, you mean because they've already said to the markets we're going to try to do this? Do you feel obligated to do it?

Sen. DODD: Well, it has in effect. There's no question about it. That's been out in the public domain since Sunday evening a week ago when this announcement was first made. Now, having said that, opening the lines of credit makes some sense. Also, authorizing them to purchase stock is also designed to offer some assurance that we're behind this; the federal government will take a position if we have to stabilize this.

We're not going to allow this fail. At this point that expression, too big to fail, probably applies. And I don't think it applied to Bear Stearns; it applies here.

INSKEEP: Let me ask, though, if you think in the long term there is a downside to taking a big institution like this and declaring that it's too big to fail and if the government will step in.

Sen. DODD: Well, I think there's a good case as well, and we're going to have to look at restructuring, in my view, the entire architecture of the financial services sector, and that needs to be done. We're talking here about authority that would last for 18 months. This isn't in perpetuity.

The secretary of the Treasury, Hank Paulson, has said over and over again he has no intention of exercising this authority. Their idea here is to provide confidence, critical confidence at this juncture. And I believe that's what his intentions are.

INSKEEP: Are you concerned, though, that you're going to end up permanently guaranteeing the stock prices of these companies as well as perhaps other financial institutions as they get in trouble?

Sen. DODD: No, I would hope not. But this problem is not going to be solved by the federal government. The problem is going to be solved by the private marketplace. What we need to do is play a supportive role here. And again, I have my questions about this. We raised a lot of them in the hearing last week.

I'm worried about the dual role - investor confidence and taxpayer exposure. Walking that thin line is not an easy path, but not doing anything, or doing nothing, is not an option at this juncture. We have to shore up that confidence.

INSKEEP: Should we assume that - granting that you're saying this is temporary, you hope it's temporary - should we go forward assuming that the next time some huge, important financial institution gets in trouble that the government actually would let it fail?

Sen. DODD: No, we shouldn't. And candidly, this is not to be the end of this debate and discussion. We're going to need to go beyond this and take a look at these institutions, how they're structured, how they're set up for the kind of potential exposure.

INSKEEP: Senator Chris Dodd, chairman of the Senate Banking Committee, thanks for the time.

Sen. DODD: Thank you, Steve.

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