Sen. Chris Dodd Talks About Bank Troubles

July 14, 2008— -- The following is a transcript of ABC News Business Correspondent Betsy Stark's interview today with U.S. Senate Banking Committee Chairman Chris Dodd, D-Conn., on the government's action to prevent mortgage giants Fannie Mae and Freddie Mac from collapsing.

STARK: What can you tell us about the way this plan came together. Was there broad consensus on the need to take emergency action over the weekend?

DODD: I think there was a consensus that fear was really producing results that didn't reflect reality. That the Fannie and Freddie situation is actually a lot better than certainly the fear would have indicated. They're highly capitalized, more than the federal laws require. Access the markets, capital markets have been very good. But fear was taking over. And so, I think the action by the Treasury with support of the Fed and the SEC today indicates, uh, their confidence in this, and they're willing to stand behind that confidence. And that has the desired effect of calming things down, which is what we really needed. You had today -- Fannie and Freddie, I think, had dead issuances that raised some $3 billion; there was a tremendous amount of investor interest, in that uh, auction, and so, they did very, very well at a time when you might have thought the opposite would be the case.

STARK: Yeah, well, there definitely was a burst of optimism at the start of stock trading. But that seemed to fade, and I mean [the Dow closed down 45 points], are you still saying that's a good day, given, all things considered?

DODD: Well, all things considered, and we're going to give the Fed the authority they need this week for the additional powers they're taking, as well as the equity interest and lines of credit, which requires some statutory authority. Tomorrow morning, I'll have the chairman of the Federal Reserve, the secretary of the Treasury and the head of the Securities Exchange Commission before my banking committee, so we can probe these ideas a little more thoughtfully and get an indication of what else may be needed done. Barney Frank, the congressman who chairs the financial subcommittee, and I plan on having that complete housing bill and it's new authority adopted, hopefully, by the end of this week or the first part of next week.

STARK: But, if at the end of the day, you've got shares of Fannie and Freddie down again, is this plan a success?

DODD: But it will be. Again, you know, remember that Fannie and Freddie never were bottom feeders in the residential mortgage markets. There were some alt-A and some subprime mortgages there, but the bulk of the overwhelming majority with 30-year, fixed rate, very solid well-rated mortgages, these institutions are in good shape. Again, fear has been taking over here. Because of what happened with IndyMac and some of the other investment banks, there's been that notion of fear out there. But Fannie and Freddie are very, very liquid; they're in good shape, in my view. And, of course, the indication of that dead issuance today further confirms that. So, these moves by the Fed are important, I think, to shore up and give people that needed confidence. But the institutions are sound and in good shape.