Panel To Hear Testimony On Fannie-Freddie Plan Two proponents of the plan to prop up Fannie Mae and Freddie Mac — Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson — testify before Congress on Tuesday to compel Congress to take action. Meantime, despite government assurances, stocks are plunging in the finance sector.
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Panel To Hear Testimony On Fannie-Freddie Plan

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Panel To Hear Testimony On Fannie-Freddie Plan

Panel To Hear Testimony On Fannie-Freddie Plan

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DEBORAH AMOS, Host:

It's MORNING EDITION from NPR News. Renee Montagne is away. I'm Deborah Amos.

STEVE INSKEEP, Host:

We begin this morning with a look at the effort to prop them up. NPR's Adam Davidson is following the story. Adam, good morning.

ADAM DAVIDSON: Good morning, Steve.

INSKEEP: I suppose if we look at the schedules of the Treasury secretary and the head of the Federal Reserve, you get a sense that maybe this assistance for Fannie Mae and Freddie Mac is not a done deal.

DAVIDSON: We've never had to know the answer to that question. That word implied has never been as studied as it is today. You know, it's sort of for geeks who care a lot about fiscal policy and this sort of thing. This is a big, big, big, big day. It also should be a big day for the rest of the company - country.

INSKEEP: Okay. So...

DAVIDSON: Go ahead.

INSKEEP: Now, that leads to another question, Adam, which I suppose might be on lawmakers' minds over the coming days and seems to be on the minds of some economists. Is anybody asking whether the government automatically should take on so much liability at this moment?

DAVIDSON: There's no question, if they do nothing, if they just do what they've done so far and don't actually change the laws, we will face a severe, severe housing slowdown, far worse than what we've seen now, most likely, and that will definitely ripple out around the world, dramatically slowing the overall economy.

INSKEEP: Severe slowdown because these two companies are so central to the mortgage markets?

DAVIDSON: It'll cause tremendous ripples. I mean, bank failures, real panic in places and an overall just sluggishness. This is a big deal, but if they act too much, as some people think they are, it also causes tremendous problems. There's no easy solution here. Either plan you do is going to cause real problems.

INSKEEP: Well, now, wait a minute. If we're looking a severe economic problem, why not act? What would be the argument for not acting to help these companies?

DAVIDSON: Just that attitude - called moral hazard - that could cause huge problems in the future. In fact, the problem we're in right now, some people think, is caused by over-generosity on the part of the government a few years back.

INSKEEP: Okay. Thanks very much. That's NPR's Adam Davidson.

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