WASHINGTON — Some lawmakers expressed doubts Tuesday about the wisdom of the federal government’s plan to prop up mortgage-finance giants Fannie Mae and Freddie Mac, with one Republican senator complaining it was tantamount to writing a “blank check” to save the troubled companies.
Treasury Secretary Henry Paulson is seeking permission from Congress to temporarily increase the amount the companies can borrow from the Treasury and enable the government to invest directly in the firms if conditions worsen. In addition, the Federal Reserve has said it would allow Fannie Mae and Freddie Mac to borrow from its so-called discount window on an emergency basis, at least until the Treasury plan is enacted. So far, no such borrowing has occurred.
The often-outspoken Sen. Jim Bunning, R-Ky., railed against the plan during a hearing before the Senate Banking Committee.
“When I picked up my newspaper yesterday, I thought I woke up in France. But, no, it turned out it was socialism here in the United States and very — going well,” he said, raising his voice. “The Treasury secretary is now asking for a blank check to buy as much Fannie and Freddie debt, or equity, as he wants.”
Bunning said he would do “everything I can to stop it.”
Many in the Senate expect lawmakers to move on the legislation soon.
But the banking panel’s ranking Republican, Richard Shelby of Alabama, expressed reservations and is said to be contemplating changes. House Majority Leader Steny Hoyer, D-Md., raised the prospect of holding hearings first before taking up the measure next week.
Paulson defended the plan as a “bazooka” that federal officials could hold in reserve but would probably not have to use because it was so potentially potent. Its mere existence, he testified, should give confidence to the financial markets that the government was standing behind the firms.
“Let me stress that there are no immediate plans to access either the proposed liquidity or the proposed capital backstop,” Paulson told the committee. “If either authority is used, it would be done so only at Treasury’s discretion, under terms and conditions that protect the U.S. taxpayer and are agreed to by both Treasury” and the mortgage-finance companies.
