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 yearlong 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,” he 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.”
Trying to stem eroding investor confidence in the two firms, the Treasury Department and the Fed on Sunday offered to throw them a financial lifeline if they needed it to stay afloat. The two companies hold or guarantee more than $5 trillion in mortgages 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. Those 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 Fannie and Freddie troubles came on the heels of the failure of IndyMac Bank, which was taken over last Friday by the Federal Deposit Insurance Corporation.
Earlier this year, a run on investment bank Bear Stearns pushed the company to the edge of bankruptcy and into a takeover by JPMorgan Chase, backed financially by the Fed.
Seeking to strike a note of confidence, Bernanke said Fannie and Freddie are “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.
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