Why Congress Wants To Bail Out Mortgage Giants Fannie Mae and Freddie Mac have powerful allies on Capitol Hill. Barney Frank, the House Financial Services Committee Chairman, discusses Congress' role in bailing out the two mortgage giants.

Why Congress Wants To Bail Out Mortgage Giants

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We're joined by one of the people who is supposed to sort this out. Congressman Barney Frank, a Massachusetts Democrat, is Chair of the House Financial Services Committee. Congressman, welcome. What are you going to do?

Representative BARNEY FRANK (Democrat, Massachusetts): I expect that the House will, this week, take the essence of the proposal that the treasury department which the Federal Reserve participation has made, and ad them to the pending Housing Bill. We have a very important Housing Bill, which will also have the improved regulation of Fannie Mae and Freddie Mac and send it to the Senate. And I think they'll pass it, and send it to the president by the end of the week.

CHADWICK: What about risk to taxpayers here? Isn't that what people are a little bit concerned about? Exposing taxpayers to huge obligations?

Rep. FRANK: The problem is that the markets, I think, have reacted excessively about Fannie Mae and Freddie Mac and the damage to taxpayers, to the economy, would be much greater if we didn't do anything.

CHADWICK: Congressman you said, if I may, you said earlier people are more afraid of this situation than they should be, but the stock market is absolutely rocked by this. People lucky enough to still have any money don't know where to put it. How bad are things, and what are you saying to the American people about how they should look at things?

Rep. FRANK: Look at things in a fundamentalist - look, the market over time is a reasonable measure of value. On any given day, it can be subject to hysteria, and I guess implicit of what you're saying is, all the stock market knows best. No it doesn't always know best. Now what we are saying is the federal government will now say to people, look, don't have these excessive fears about Fannie Mae and Freddie Mac for two reasons.

One, in the short term we will advance money, but we don't think it's really needed, and we are correcting the conditions that led to this problem, and that's very important. In this same bill that we're dealing with, we are going to have the federal housing administration get back to the role that it used to have of being the place where people go for mortgages, under the Bush administration it dwindled. The federal has the administration doesn't give these bogus mortgages. It doesn't give you mortgages without knowing how much money you make. We're also going to be improving the regulation of Fannie Mae and Freddie Mac.

So what we're saying to people is look, things are not as bad as people thought. And the market seems know to be understanding that. We are taking very concrete steps to make it less likely that these kind of crises will reoccur. Because you're not going to see these kind of subprime mortgages infecting the economy.

CHADWICK: We just heard from Gretchen Morgenson from the New York Times. She says much of the blame for the mess here goes to negligent regulators. Wouldn't that include the House Financial Services Committee?

Rep. FRANK: No, I have to say when you come with preconceptions as you appear to do, you don't always get the analysis right. In 1994, Congress passed - the last time the Democrats were in power, the Home Owners' Equity Protection Act. It gave the Federal Reserve the authority to ban many of the mortgages that led to the problems. Unfortunately when the - well the Republicans were resistant to doing some of this, and it was the ideology of the de-regulators that was a problem, but Greenspan has the authority. If Greenspan had done 10 years ago what Bernanke is doing today, he would not have had as much of a problem.

Secondly, with regard to the Financial Services Committee. In April of 2007, several months after I became the chairman, the House passed the bill that just passed the Senate yesterday to increase the regulatory powers over Fannie Mae and Freddie Mac. So we also passed the bill last year to improve the ability of the FHA to offer alternative mortgages. So we have been trying to do this. Now there have been some problems with the Senate. With the general inability of the Senate to act these dad-gum (ph) things, but this has been a problem, as I've said, of the conservative philosophy of never regularly.

CHADWICK: The Chairman of the House Financial Services Committee Congressman Barney Frank of Massachusetts. Congressman, I stand corrected on your committee and thank you.

Rep. FRANK: You're welcome.

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