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MR. BROKAW: Let me also say I know you're a sports fan of a certain age. Remember the old Joe Louis line about one of his opponents, "He can run, but he can't hide"? You can come all the way to Beijing, but you can't escape what's going on at home. So I'm going to share with you and with our viewers some of the more tough news that we've heard this week. Freddie Mac lost $821 million in the last quarter, and then Fannie Mae reported a loss of $2.3 billion. These are the government-sponsored mortgage agencies. On July 20th of this year, you told my friend Bob Schieffer on "Face the Nation," "Well, I think it's going to be months that we're working our way through this period. Clearly, months. But remember, the long-term fundamentals are very solid." After what we heard from Freddie Mac and Fannie Mae this week, have you changed your mind about how long it's going to take to get out of this?
SEC'Y PAULSON: No, I think what, what I said to Bob Schieffer is, is, is consistent what I, what I believe today. I, I believe that we, we have got some serious issues we're dealing with in our economy, and, as I said to him, I believe that it's going to take us well beyond the end of the year to work through the housing--all of the housing problems. But I think the key question is when will the largest part of this housing correction be behind us? Because until the biggest part of the housing correction is behind us, we're going to continue to have turmoil in our capital markets. And I think the housing correction is really at the heart of our economic problems as a, as a nation right now. So, again, I think given that Fannie Mae and Freddie Mac are solely involved in housing--that's their sole business--and given the magnitude of the housing correction we've had, it, it, it's not a surprise to me to, to see those, those losses.
MR. BROKAW: You have the ability now to insert money into Freddie Mac and Fannie Mae. Do you think that that's going to become necessary, given the size of these losses?
SEC'Y PAULSON: Well, we have no plans to insert money in, in, in, in either of those institutions. I, I think it was very important that we get these temporary backup facilities because Fannie and Freddie are very important to our capital markets broadly. There's $5 trillion of securities that they have outstanding--$3 1/2 trillion in the U.S., a trillion and a half outside of the U.S.--and they're responsible for funding about 70 percent of the mortgages in the United States today. And so a key to our getting through this, this housing situation, this housing correction and getting some stability is that we continue to have mortgage financing available.
MR. BROKAW: Those two agencies were not well known to most taxpayers in this country...
SEC'Y PAULSON: Yeah, yeah.
MR. BROKAW: ...until the housing crisis hit.
SEC'Y PAULSON: Right.
MR. BROKAW: But we also know that they were caught in some significant accounting irregularities. They changed the management at the top; now they're both hemorrhaging money. You do have the authority to bail them out if it becomes necessary. But a lot of taxpayers are saying, "Why should I have to foot the bill for this?" I mean, there are wealthy investors who bought these bonds knowing that the government would not back them. Now, suddenly, they've got a fail-safe arrangement with the Treasury secretary.
SEC'Y PAULSON: Well, I've heard a lot of those same comments, and what I say to all those who make the comments to me is I say to them, you know, this was not a pleasant task for me to go to the Congress and ask for these backup facilities. Matter of fact, it was a very unpleasant task. But it was an easy one because it was better than the alternative. These institutions are right now critical to the stability of our capital markets, and they're critical to us getting through this, this housing situation.
And I would like to point something else out. In addition to these backup powers we have, these backup authorities, what we have now is a legislation calling for a strong new regulator with real powers to deal with, with capital adequacy, to deal with systemic risk. And the issue we've had, Tom, is, for some time, people in Washington have looked at these government-sponsored entities and on one side people have said they are really significant risks. Others said there weren't significant risks, and for, for, for many, many years nothing was done. And we now have a new regulator with very strong powers. The Fed is going to have a seat at the table. And so, in addition to working through this period of turmoil, we're in a position where the country will now be able to focus looking ahead at the systemic risk, and I, I think it's going to be very difficult for someone to argue there isn't systemic risk.
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