Blame game on Fannie and Freddie

The White House on Monday blamed Congress for the Bush administration’s bailout of mortgage giants Fannie Mae and Freddie Mac — a charge the Senate Banking Committee chairman called “laughable” while accusing the Bush administration of deception.

Administration officials said Sunday’s takeover could have been avoided if Congress had acted years ago, when President Bush expressed concern about the way the two companies were set up.

{mosads}Sen. Chris Dodd (D-Conn.), chairman of the Banking panel, said he was first alerted to the need for the bailout on Friday. In a conference call with reporters, Dodd lashed out at Treasury Secretary Henry Paulson — with whom he was meeting later Monday — noting that Paulson had given repeated assurances earlier this summer that a government takeover wouldn’t be necessary.

Dodd said he would be summoning Paulson before his committee within days and that he was unconvinced by — but not opposed to — the plan.

“Many of us are wondering if they’re right this time around, since they were wrong a month ago,” Dodd said. “I’m not opposed to this, necessarily, but want to know more. And we will be more cautious this time around, in many respects.”

The federal government seized control of the two companies over the weekend as a stopgap measure that could cost taxpayers as much as $200 billion. The move was aimed at stabilizing the two mortgage giants and is expected to trigger lower mortgage rates. It already brought a stock rally on Wall Street early Monday.

White House press secretary Dana Perino said Bush has long warned Congress about the failure to act on the lending giants.

The takeover was necessary “to prevent further deterioration from affecting the broader economy, especially the availability of credit for home mortgages, consumer credit and business lending.”

“This is not a step that the administration was anxious to take,” Perino said. “And in fact, it is exactly the kind of event we’ve warned about and tried to prevent over the years. Remember that we have highlighted the systemic risk posed by Fannie Mae and Freddie Mac because of the very large role they play in housing markets and because of their business practices.”

{mospagebreak}Dodd was incredulous at Perino’s statement, noting that Bush had repeatedly rejected legislative efforts to aid the two companies.

“He’s the captain of the ship for the last eight years,” Dodd said. “This is hardly falling on Democrats.

It’s incredible to make that statement … The idea that somehow this was the fault of Democrats, that’s laughable.”

{mosads}Dodd said Paulson had asked for authority to offer lines of credit and stated that stronger steps weren’t needed when he testified before the committee. Dodd said Paulson wanted “a bazooka, not a squirt gun” when describing the authority Paulson requested, but added that Paulson said he didn’t intend to use it.

“We accepted him at his word that that would be all that’s necessary,” Dodd said. “Now he’s used that authority very aggressively. … So if there’s an edge to my voice about this, it’s because I thought we had dealt with this a month ago.”

Dodd said he suspected that the administration had long planned the takeover of the two companies, and only notified him when it was in its last stages. He also said if the administration intends the action to be “an ideological thrust” to render the companies unable to help the mortgage market, then the country’s economic woes are likely to worsen.

But Perino said that as early as 2002, Bush had proposed legislation that would have put in place a stronger regulator to ensure sound business practices at Fannie Mae and Freddie Mac.

“Congress has been reluctant to move forward on those for many years, and in fact, didn’t even take it real seriously until this crisis emerged — and we finally got some of that legislation I think in early August or late July,” Perino said.

“We tried to move forward. I mean, there’s lots of different ways, but there’s only so much in our system that an executive branch can do when these are congressionally chartered agencies. You have to have congressional buy-in, you have congressional action.”

Perino stressed that “the goal is to prevent additional risk to the taxpayers,” adding that Paulson’s plan ensures that taxpayers would be the first repaid once the mortgage giants are back on sure footing.

“If you’re a shareholder or you’re top management of these companies today, it’s not a very bright day for you,” Perino said.

Perino said that the administration’s actions will allow plenty of time for Congress and the next administration to decide how to move forward after this stopgap measure.

“Remember, these are congressionally chartered companies, and it’s appropriate that Congress have a role in saying how they’re going to move forward in the future,” she said. “And that’s why Congress will have a chance, when they get back over this next period and also into the next administration, to decide how to move forward with them.”