Rescue for Fannie, Freddie may cost trillion, senator says

By Michael McKee and Bryan Keogh
Bloomberg News Service
Wednesday, July 23, 2008

http://www.bloomberg.com/apps/news?pid=20601087&sid=aJ_PxvWbq4z0&refer=home

A government rescue of Fannie Mae and Freddie Mac would require taxpayers to pay "way" more than the $25 billion estimated by the Congressional Budget Office, potentially as much as $1 trillion, U.S. Sen. Jim Bunning said.

Treasury Secretary Henry Paulson "hasn't told us the truth about this bill," Bunning, a Republican from Kentucky, said in an interview with Bloomberg Television today. "Why would you put in a backstop of unlimited amounts of money if you weren't going to need it?"

Paulson on July 13 asked Congress for authority to increase credit lines to Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac, to buy shares in the firms, and to give the Federal Reserve a "consultative role" in overseeing their capital requirements. The proposals are meant to restore confidence in the government-sponsored enterprises, which own or guarantee almost half of the $12 trillion of U.S. home loans outstanding.

The House of Representatives is set to vote today on the rescue plan for Fannie Mae and Freddie Mac as part of broader legislation aimed at alleviating the worst housing slump since the Great Depression. Bunning called the plan "horrendous."

"What is good about this bill is the fact that maybe it shores up Fannie and Freddie for a temporary basis," Bunning said. "What it does not do is change the model of Fannie and Freddie. It does not give the regulators the power to make the changes needed in Freddie and Fannie to make them viable entities for the future. That is why I object."

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