Full statement from Hank Paulson here. Press release from the Fed here. The Wall Street Journal has the most detailed account. In short, the GSEs will get access to the discount window, and the Treasury will seek Congressional approval to (1) further extend the Treasury line of credit to the GSEs, and (2) buy an unspecified amount of equity in the GSEs "if needed," and (3) give the Fed a "consultative role" in setting capital requirements and other unspecified "prudential standards" for the GSEs. This seems to be a 2-prong plan. First, the GSEs get access to the discount window, and the Fed strong-arms investment banks into participating in Freddie Mac's $3 billion debt auction tomorrow. Second, the Treasury gets Congress to amend the housing bill to include provisions allowing the Treasury to extend their line of credit to the GSEs and to buy equity in the GSEs if necessary. The first prong, they hope, will buy them enough time to complete the second prong. I'm not wild about this plan at all. Seeking Congressional approval for any sort of time-sensitive rescue is a mistake. Worse, the way they're seeking Congressional approval is potentially suicidal. They want Congress to include the provisions in the housing bill, which has not only been quite controversial, and which the Senate has already passed. They would probably have to open the bill back up, which, as the WSJ story recognizes, would probably necessitate further debate. I'm not too confident that Congress can or will get this done quickly. I remember the Mexican peso crisis and the fight over the Mexico bailout all too well, and it's possible that a similar fight could break out in Congress over the GSE bailout plan. The Treasury eeked out a win in the 1994 Mexico bailout, and if Congress resists the GSE bailout plan, the Treasury might not win this time around. And that would have severe consequences in the financial markets.



Here comes another bailout.