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Bernanke tells Congress that Fannie and Freddie in 'no danger of failing'
Published on Thursday, Jul 17, 2008
Associated Press
WASHINGTON: Federal Reserve Chairman Ben Bernanke told Congress Wednesday that mortgage giants Fannie Mae and Freddie Mac are in ''no danger of failing.''
The Fed chief made his remarks to the House Financial Services Committee, his second day on Capitol Hill where he briefed lawmakers on the problems plaguing the economy.
The Fed and the Treasury Department on Sunday came to the rescue of Fannie Mae and Freddie Mac, offering to throw them a financial lifeline.
The two companies hold or guarantee more than $5 trillion in mortgages — almost half of the nation's total— and are major sources of financing for the mortgage market. The Bush administration is asking Congress to temporarily increase lines of credit to Fannie and Freddie and to let the government buy their stock. The Fed has offered to let the companies draw emergency loans.
The pledges of aid have raised concerns on Capitol Hill and elsewhere about the government's role in intervening to ease such financial troubles and the risk posed to taxpayers.
The two mortgage giants are ''adequately capitalized,'' Bernanke said. However, ''weakness of market confidence is having an effect'' on the companies, making it difficult for them to raise capital.
Bernanke said the ''best solution'' is to keep Fannie and Freddie ''in their current form'' as opposed to having the government take them over.
Caught between risky cross currents of plodding growth and rising inflation, Fed policymakers are facing ''significant challenges'' as they try to find a way to right the economy, Bernanke told lawmakers.
The Fed can't afford to lower rates again to shore things up because it will aggravate inflation. On the other hand, boosting rates to fend off higher prices would deal a setback to the fragile economy and the already crippled housing market.
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