WASHINGTON — When Missouri Democrat Emanuel Cleaver asked Federal Reserve Chairman Ben Bernanke on Wednesday when the nation’s financial woes would end, he was expressing the yearning of many on Main Street and Wall Street that the year-long pain would soon be over.
“Is there a bottom? And, if so, how long before we hear a splash?” Cleaver asked during Bernanke’s testimony before the House Financial Services Committee on the problems plaguing the economy.
In back-to-back appearances before Congress, Bernanke sought to soothe nerves frazzled by rising prices for food and oil, slumping home values and faltering banks.
“We will work our way through these financial storms,” Bernanke said.
Bernanke focused on one of those maelstroms Wednesday, when he said troubled mortgage giants Fannie Mae and Freddie Mac are in “no danger of failing.”
Seeking to strike a note of confidence, Bernanke said Fannie and Freddie are “adequately capitalized. They are in no danger of failing.”
However, “the weakness in market confidence is having real effects as their stock prices fall, and it’s difficult for them to raise capital. If their debt spreads widen, it’ll increase the borrowing costs,” he said.
The companies’ shares have plunged as losses from their mortgage holdings threatened their financial survival. They clawed back some ground Wednesday, however, when Wall Street got a lift from a dip in oil prices. Fannie shares gained 30.8 percent to close at $9.25. Freddie shares rose 29.9 percent to $6.83.
Bernanke said the “best solution” is to keep Fannie and Freddie “in their current form” as opposed to having the government take them over. It is also vital for Congress to boost regulatory oversight on the two companies. Such powers are contained in a sweeping housing-rescue package.
