Turmoil On Wall Street Over Housing Rescue Plan The Federal Reserve and Treasury Department took unprecedented steps over the weekend to boost confidence in mortgage giants Fannie Mae and Freddie Mac. Among other things, they increased a government line of credit available to either company. How are the markets reacting?
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Turmoil On Wall Street Over Housing Rescue Plan

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Turmoil On Wall Street Over Housing Rescue Plan

Turmoil On Wall Street Over Housing Rescue Plan

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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.

AMOS: 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?

AMOS: 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.

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

AMOS: 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?

AMOS: 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?

AMOS: 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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