RENEE MONTAGNE, host:

Congress will ultimately decide what's next for Fannie Mae and Freddie Mac. Senator Christopher Dodd will take a leading role in that debate. The Connecticut Democrat chairs the Senate Banking Committee. When Senator Dodd appeared on this program in July, Treasury Secretary Henry Paulson was asking Congress for authority to take over Fannie and Freddie. At that time, Dodd said he supported contingency plans to prop up the two mortgage giants because they were simply too big to fail, but he was surprised that that authority was actually used and so quickly.

Senator CHRISTOPHER DODD (Democrat, Connecticut; Chairman, Senate Banking Committee): I got a call on Friday afternoon of last week suggesting they were thinking about this, and picked up my Saturday morning paper to discover they had done it. And I gather more people probably at Wall Street were aware of what was happening than those of us who set public policy.

MONTAGNE: Now, you've made a statement that you're somewhat troubled by this plan. What specifically troubles you about it?

Senator DODD: Well, first of all, I want to know the motivations for it. We passed a major landmark piece of housing legislation about a month ago, in which was included newly sought authority by the secretary of the Treasury to possibly take equity positions within Fannie Mae and Freddie Mac, with a quick assurance by the secretary of the Treasury that that authority would never be used, but now getting a far more aggressive action taken by the Treasury. So I clearly have a question. What transpired? The second question I have is what effect does this have on home mortgages, on homeowners? Thirdly, what happens to taxpayers?

MONTAGNE: Do you have a sense, at this point, how much taxpayers could be forced to pay?

Senator DODD: Well, I'll repeat to you what the secretary said. His intention is, of course, that there'll be no exposure for the American taxpayer. But, you know, I was told a month ago that we'd never utilize the authority either. And so at this point I'm going to be a lot more cautious about adopting and supporting a proposal like this until I have some clear ideas on how this is all going to work.

MONTAGNE: Why did you put so much faith in what the treasury secretary had to tell you when there had been warnings about Freddie Mac, Fannie Mae for years?

Senator DODD: Well, I guess I'm part of that old school, Renee. When a secretary stands before a committee - he just didn't say it to me, he said it to the whole country - and I think he said something like I want that gun under my raincoat, I want a real gun, not just a water pistol or something.

MONTAGNE: Yeah. He said a bazooka?

Senator DODD: Now I'm not suggesting that Hank Paulson wasn't telling me the truth and that circumstances may radically have changed, I'd just like to know what's happened, what's caused this, and where are we going with all of this? There have been those for years who just want to get rid of these government-sponsored enterprises. I would just remind people, in your anxiousness to do that don't ever forget how important these institutions have been for the average person in this country getting a 30-year, fixed-rate mortgage. No country in the world provides a 30-year, fixed-rate mortgage. If you get rid of that, you change fundamentally home ownership in this country. I think our economy can be dealt a severe blow.

MONTAGNE: As important as they may be, isn't part of the problem that over the years, members of Congress, yourself included, refused to regulate or restructure these companies in a way that wouldn't have ended up this way?

Senator DODD: No. There was a debate over what to do about it. There were those who candidly wanted to get rid of them, which I've never been a part of. I thought they did play a valuable role. They needed reform. Clearly, we offered alternative ideas which culminated despite seven years of failed efforts to reform them to actually have included that major housing bill we adopted about a month and a half ago.

MONTAGNE: Now Treasury Secretary Paulson has called his plan a timeout to protect the mortgage market while the government decides what to do with these two companies in the long term. What is your view as to what should be done if Freddie and Fannie need to be restructured so they're not this hybrid public-private corporation anymore?

Senator DODD: You know, one, I think clearly you needed to have a better control of them. Clearly, you needed to have a clear identification as to what their portfolios are going to look like. And this may end up working out fine, Renee. I don't want to have this conversation to be one where I'm totally opposed to this. I'm asking kinds of questions that frankly I would have liked to have been able to raise earlier on.

MONTAGNE: Senator, just one last question. In this plan, Fannie and Freddie are barred from doing any lobbying. Isn't part of the problem up to this point the intense lobbying that these two institutions have done in Washington with folks like you?

Senator DODD: It's sort of like that old line in Casablanca when a police officer walks in and he says, you mean there's gambling going on in here? I mean, lobbying in Washington, there's no lack of that, certainly not by Freddie or Fannie or by any institutions, those who are in favor of them, those who are opposed to them. The problem is whether or not you buy all that information, assume it to be absolutely the case or true.

MONTAGNE: OK. So we shouldn't be shocked by the fact that...

Senator DODD: I find it somewhat shocking that people are shocked by it.

MONTAGNE: But still in all, do you think at this moment in time it's a good thing lobbying is being barred by this? I mean, do we know - do you know what you need to know?

Senator DODD: Well, I hope I can find out. I hope I'm not prohibited from asking people within those institutions what their opinions are. I don't think that necessarily counts as lobbying, but some may describe it as such.

MONTAGNE: Senator Christopher Dodd is chairman of the Senate Banking Committee. Thank you very much for joining us.

Senator DODD: Thank you, Renee, very much.

MONTAGNE: And if you have questions about the housing crisis, visit npr.org where you can join a lively discussion of the bailout now under way at our new blog, "Planet Money."

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