INTERVIEW TRANSCRIPT

C-SPAN’S “NEWSMAKERS”

Guest: Rep. Barney Frank, Chairman, House Financial Services Committee

Reporters: Neil IRWIN, Washington Post, and Dawn Kopecki, Bloomberg News

Moderator: C-SPAN

TAPE DATE: Friday, September 19, 2008

AIR DATE/TIME: LIVE: September 19, 2008 11:30AM ET, SUNDAY, September 21, 2008 at 10 a.m. and 6 p.m. ET

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C-SPAN/NEWSMAKERS

Host: Peter Slen

Guest: Barney Frank, Chairman, House Financial Services Committee

Reporters: Dawn Kopecki, Neil Irwin

PETER SLEN, HOST, C-SPAN “NEWSMAKERS”: Barney Frank is Chairman of the House Financial Services Committee, and he is our guest this week on Newsmakers to talk about the turmoil in the U.S. financial markets.

Neal Irwin of the “Washington Post” and Dawn Kopecki of “Bloomberg News” are here to question him.

Congressman Frank, if we could start getting your initial reaction to what President Bush just said in his news conference about the need for billions of U.S. taxpayer dollars to be put into the financial system.

BARNEY FRANK, CHAIRMAN, HOUSE FINANCIAL SERVICES COMMITTEE: Well, I didn’t hear the news conference. I can tell you what we heard from Secretary of the Treasury Paulson and Federal Judge Henry Bernanke (ph), and it’s an idea which I have been advocating.

But before we get to the idea, we need to understand why we’re in this situation. We had some bad choices to make. The alternative to doing something now, which will put some taxpayers’ dollars at risk, is to allow the economy to continue to deteriorate, which we know will cause such – far more in taxpayer dollars.

The problem is this: For decades now, as the financial community has been innovating and coming up with new ways to make money and finance things, we have had a philosophy prevailing in Washington that says don’t regulate, don’t let the government intervene. The market knows better.

Dick Armey, the former Republican Majority Leader, said, “Markets are smart and government is dumb.”

Alan Greenspan was given the authority to regulate sub prime mortgages and refused to use it because he said the market knows better.

The consequence of this failure to regulate has been a series of bad decisions by the private sector, obviously not all the decisions were bad, but enough bad decisions were made so that enough bad debt has accumulated, and it’s now choking the system. And unfortunately, we have to respond.

Now, we also have to promise ourselves that beginning next year we will adopt rules that will prevent these kind of bad decisions from being made, but in the near term, we have two options: One, do nothing and let this market deteriorate and let jobs be lost and let people not be able to get loans, people not be able to buy cars, people not be able to shop in stores because that’s what happens when credit dies.

Or we can put up some federal money to buy up the paper, and one of the things we will be doing in Congress is trying to respond to the administration proposal, which I welcome. I think it is important, but in ways that will make sure that it is as friendly to the taxpayers and as much in the public interest as is possible in these circumstances.

SLEN: Dawn Kopecki.

DAWN KOPECKI, “BLOOMBERG NEWS”: Hi. Chairman Frank, what did Bernanke (ph) and Paulson tell you about the structure of this and the size? Last night I was hearing reports that the mortgage-backed securities program would be about 800 billion, and the money market fund would be about 400 billion. What were they telling you about the size of it and how it would be structured?

FRANK: Well, I didn’t hear anything that would amount to 1.2 trillion. We didn’t hear – they were in the hundreds of billions. You just gave figures that would add to 1.2 trillion.

FRANK: As to structure, I think that was pretty clear. We’re going to have to essentially go, I think with the Treasury Department because this is an emergency situation. Things have deteriorated much more rapidly than almost anybody had thought, and you just don’t have time to set up a whole new entity.

Now it’s also not necessary. Some people have talked about, well, what about the old resolution trust corporation, but that was an entity that bought real property, and real physical buildings, and you needed sort of a custodian that knows, you need people to watch them, to maintain them, et cetera.

What we’re talking about now is the Treasury Department probably buying up paper, securities, bad debt, and there’s not as much need for a separate entity, and there’s a speed factor.

So I think we are talking about giving explicit statutory authority to the Treasury.

As to the dollars, we’re waiting to see what they think.

NEIL IRWIN, WASHINGTON POST: Mr. Chairman, you – well, the Congress often has a hard time doing anything quickly and let alone something this expensive and this complicated.

Are you really confident this can be done in a week, and what are the potential challenges in doing this?

FRANK: Yes. I’d ask you to go back and read what many of the people in the media wrote about our inability to move quickly when the stimulus came up, and there’s a similar pattern here.

The notion of the need for stimulus, really came out of Speaker Pelosi and the House Democrats, and we got that done very quickly, confounding people’s views.

I am reasonably certain that the House will have passed this by the end of the week. We are going to get the administration’s proposal today. There are already conversations.

Our Committee and Senator Dodd’s Committee, the Committee he chairs, are working closely together.

We have some things we’re going to want to do. We want to make sure that as we buy up mortgage securities, which is essentially what they’re talking about, we do it in a way that will facilitate our ability to diminish foreclosures. This can bring a couple of our debt groups together because it’s been this foreclosure cascade that’s been at the root of this problem, and so this gives us a chance – we will now be the owners. We’ve been getting a lot of jaw boning to the people who hold the mortgages, please make it easier, don’t foreclose, it’s not in the interests of the whole society for there to be these foreclosures.

We will now, to a great extent, own a lot of these properties, along with Fannie Mae and Freddie Mac, which is now under Federal control, a large bank, IndyMac, under the control of the FDIC. I think this will give us the leverage to do some things that substantially diminish foreclosures. We will work to put them in there, but I am pretty confident that we will have a bill through the House by the end of the week, and Senator Reid, Senator McConnell, other members in the Senate, Senator Dodd talked about doing this quickly.

I’m sure we’ll all be done before we adjourn. It may push adjournment back from September 26th into the next week, but I don’t have much doubt that this’ll get done within two weeks or less.

SLEN: Chairman Frank, can you agree with your counterpart in the Senate, Chris Dodd, that the U.S. is, or was, days away from a complete meltdown of the U.S. financial system?

FRANK: I don’t know how many days or how complete, but we were in danger of very serious problems, and people should understand what we’re talking about. We’re not just talking about somebody on Wall Street losing money.

I met on Monday with one of the leading financial people, whose company does a lot of financing of auto loans. He said to me, “We are in danger of not having the money to finance auto loans,” which means they couldn’t sell cars, which means automobile salesmen go out of work which means people can't make cars.

So yes, I agree with Chris Dodd (ph) that we were in danger of there being enormous damage to the financial system. But again, I want to stress it is clear where we – how we got here by a failure to regulate, the financial markets play a very valuable role. Innovation is very important.

What we should have learned from the new deal, we should have learned from back when Theodore Roosevelt and Woodrow Wilson had a response, you can't have a situation which you have massive innovation and you don't have appropriate regulations so that you can get the benefit of it, but you don't have the damage.

Then we just had this philosophy of let the markets do what they want, don't restrict capital, they don't regulate, and we're reaping the fruit to that.

KOPECKI: Chairman Frank, can you talk a little bit about what you are told regarding the markets this week? I understand that there were a lot of money market funds where redemptions were in the 10's of billions of dollars and Wall Street firms were actually running out of cash to make good on those redemptions and were having trouble selling paper to raise the funds.

Can you elaborate a little bit on which you were told about the Wall Street reaction this week?

FRANK: Well, pretty much what you been told. We don't get secret information. It wouldn't be a good idea for individual companies to be discussed. Secretary Paulson (ph) did yesterday tell me he was very troubled.

I spoke with him on Sunday, he and Chairman Bernanke (ph) and then again, yesterday, he made it very clear that he was very troubled by the – look, here's what happened. They had intervened for (INAUDIBLE). They intervened for Fannie Mae and Freddie Mac, but that's a little different situation because it was a federal role then.

And then over the weekend, they helped arrange or encourage Bank of America to buy Lehman Brothers, Merrill Lynch, but with regard to Lehman Brothers, it was interesting. If you go back to the papers on Monday, which seems a very long time ago now, there was a celebration and a lot of self-congratulation in conservative circles.

We finally let the market work. We are not intervening. We'll let the free market have its – have its way. That lasted a day. I'm thinking finally a resolution to declare December 15^th free market day, because that was the only day in which this conservative administration sort of stuck with the free market.

And what happened was the market reacted very badly, so they said, OK, we better get involved and they put $85 billion into AIG and that didn't work. And that's what convinced everybody that there needed to be something more systematic. I will say that I had been feeling that way for some time.

And you know here is the other thing that we have to be clear, we're not talking about no intervention or this kind of intervention. We're already seen this with Bear Stearns and AIG. Under a 1930’s statute, the chairman of the Federal Reserve and his board have the power and have $800 billion of Federal Reserve money that they've made over the years to go and lend anything to anybody on any terms if they think it's economically important.

So the choice is not whether you have this kind of intervention, but whether it's done under rules congress lays out with some mandates to protect the public including some concern about compensation to the beneficiary companies, some concern about minimizing foreclosures or you continue to allow Mr. Bernanke to do this unilaterally.

And I have a lot of respect for him, I admire him, but no one person in a democratic society without any congressional or other intervention should have that power.

IRWIN: You seem to have some reservations about the AIG action. The time release of Chairman Bernanke as you say is kind of remarkable individual power in enacting that. Do you feel that Secretary Paulson (ph) and Chairman Bernanke have too much concentrated power and was the AIG bailout the right move?

FRANK: Well, first of all, yes, they did have too much power and it's not a reflection on them. If people are going to have power, they're about as good a set as you can have.

But it was kind of odd to have this unelected official, the chairman of the Federal Reserve, sort of going around deciding when he would extend the loan and when he wouldn’t with the Secretary of the Treasury cheering him on. I told them that I now thought of them as the loan ranger and his faithful companion Paulson going around and dispensing this money.

It needs to be done with rules. As I said, we think that we can use this leverage now to reduce foreclosures. Well that wasn’t part of their charter. So it is clearly, I think it is necessary to have some interventions, but they should be regulated. AIG had one very particular concern, which I raised with them that Tuesday night when they told us about it.

They both said that they were encouraged, pressured to do this intervention with AIG because so many foreign governments were worried. AIG is an international company. And it works in many other countries. And they told us that foreign finance ministers and the European Central Bank were telling them they had to do this.

My question was, good, then why didn’t they put up some money? Why was it all 85 billion at risk? And we hope that we can recover this. People should not think this is all down the drain. But there is a risk here. I don’t understand why our 85 billion was at risk and not a penny from these other countries that are going to benefit from the AIG intervention, and which don’t put anything into it.

IRWIN: It seems to me that the government has now kind of used the nuclear option to try and deal with the financial crisis that has been out there for 13, 14 months already. Are we running out of arrows in the quiver or does the governments have enough money and enough capacity to continue to deal with any further ripples in this crisis?

FRANK: Well, we have enough money clearly. You know someone said to me well, where are you going to find this money? I said well I was in Congress on September 10th, 2001. And I can tell you that there was no money in the budget for a war on Iraq. So somebody found hundreds and hundreds of billions for the war in Iraq, I think mistakenly because I think we shouldn’t have done that.

We are a very – we are a society with money. We can find the money. The question is will it work? I hope it will. I hope that we will do two things though, again. If all we were doing was this intervention and buying up the bad debts, and not changing the system, then I would be against it.

This has to be part of a commitment that we will intervene to correct the mistakes of the past. But we will also make some rules to prevent these mistakes from happening again. Now that is already begun. Alan Greenspan refused to use the authority Congress gave him in 1994 to prevent unregulated entities, mortgage finance companies, et cetera from making the kind of subprime loans that caused this problem.

Chairman Bernanke to his credit after the Democrats came back into power and worked with him, did use exactly the authority Alan Greenspan refused to use, exactly that legislation that has now promlumigated (ph) rules that will prevent bad subprime loans from being made in the future.

We need to take it a step further and now say to hedge funds and private equity companies and investment banks if there are any left that aren’t owned by banks, you cannot get so highly leveraged that when you stumble you bring other people down with you. You are going to have to have some capital on hand. We are going to limit the amount that you can be leveraged. You are going to have to be careful about what you sell and how you bundle it.

In other words, if you look at the big banks, they have not gotten into trouble. It’s interesting in this kind of the more regulated the institutions were, the better they performed. And in fact, we have used the regulated institutions, Bank of America, JP Morgan Chase, Barclays Bank in England, they have had to be used to buy up the unregulated.

And the AIG situation. AIG was a very prosperous company with insurance factors. And those endurance companies are very highly regulated, in this case with the (INAUDIBLE). They started to use the profits that the regulate insurance companies were generating and were spending money and getting involved in derivatives and highly (INAUDIBLE) activities, that is where the problem came. So what the federal government is now going to do is to take the highly regulated profitable entities and sell them off to pay off the debts incurred by the unregulated.

KOPECKI: Chairman Frank, you have talked about rules, that the Wall Street executives should be held to some sort of rules here. What sort of rules are you going to propose, or do you think will be necessary for the institutions that are able to offload their bad assets, including investments. Do you think that executive salaries should be …

FRANK: Yes.

KOPECKI: Should be cut? How would you structure that?

FRANK: Well, we can’t set all the salaries in America. But here is the problem with salaries. It is not simply the compensation. It is not simply that they are very large. It is that they give a perverse incentive. And this is something that the financial services (INAUDIBLE) England kind of the everybody’s model (ph) the good regulator, their (INAUDIBLE) has said this. Others have said this.

The way the compensation works, if you are the CEO or the company or other top officials, if you make a very risky bet, highly leveraged bet on some obscure security, and it pays off, you get a significant bonus. If it doesn’t pay off, you go home and have a nice dinner. That is the kind of heads I win, tails I break even.

And one of the things I believe we should do is to say, if you want to participate in this, if you want your company to be the beneficiary of us buying up this paper, you have got to accept compensation guidelines that will remove this one-way street and provide an incentive structure that does not need too much risk taking. So that I very much want to see as a part of this.

Now, in the case of Fannie Mae and Freddie Mac by the way, the administration asked us for the standby authority to intervene. We gave it to them. But we in Congress added something they didn’t ask for, and at least some of the administration was opposed to it. We said OK, you can do this. But if you use this authority, you have got to set the compensation for the chief executive. And it was that statutory grant that Congress put in that the Bush administration did not ask for that led to the cancellation of the severance pay for the heads of Fannie Mae and Freddie Mac.

And I think those were decent reasonable people. But there was something unseemly in this situation about the federal government intervention and these severance packages. So yes, that is an example of Congress insisting on some compensation control that worked.

SLEN: This is C-SPAN’s “Newsmakers” program. Barney Frank is our guest. He is Chairman of the House Financial Services Committee. Neil Irwin with the “Washington Post”, Dawn Kopecki, “Bloomberg” news here to question him.

Congressman Frank, do you agree with John McCain and “USA Today” that the fundamentals of the economy are sound?

FRANK: I don’t know what they mean by the fundamentals. Six percent unemployment – well, if you mean is America you know about to become a third world economy, no. But I think there is something fundamentally wrong with our financial regulatory system. And in fact, we are not talking – and by the way, that is what this Bush Administration concluded, that you couldn’t fix this by this or that intervention. But you needed a systemic intervention to buy things up in the financial area.

So I would have to say no. The financial system, which is one of the fundamentals is clearly unsound. The system by which we compensate people who work through other people (INAUDIBLE) that is unsound. We have a situation now where the average worker’s income, real income adjusted for inflation has been dropping.

And that is at a time, by the way when the Federal Reserve will tell you that productivity has increased. So workers are being more productive, but having less real income. And that was in the most recent Federal Reserve analysis of the economy.

So no. The fundamental principle of workers participating in the profit in the country that they helped contribute, that is not working. So those are a couple of fundamentals that I don’t think are very sound, and I think we need to change.

IRWIN: (INAUDIBLE). Chairman thank you. You are a supporter of maintaining Fannie Mae and Freddie Mac’s public mission for many years. Do you have any regrets? Do you think that that may have exposed the taxpayer and the country to more risks than was necessary?

FRANK: No. Because people misunderstood. I believe that it was important that they had the public (INAUDIBLE) and that regulation was appropriate. There was this myth somewhere that the Democrats interfered with regulation. Here are the indisputable facts.

The Republicans controlled Congress from 1995 through 2006. Not one thing was done during that period to increase the regulatory control over Fannie Mae and Freddie Mac. In 2005 Mike Oxley of Sarbanes-Oxley, a man who has shown the willingness to be tough on the private sector, led a fight to increase the regulation. I supported him. He was the chairman, I was the head of the minority.

He has since told the “Financial Times” that he got what he called the one finger salute from the Bush Administration when he tried to do it in a reasonable way. So he had to give up.

The Democrats took power in January of 2007. I became chairman of the Financial Services Committee. By April of 2007 that committee had passed a bill that tightened the regulation and gave the administration everything it wanted. It then took another year and a couple of months for the Senate to catch up because part of (INAUDIBLE) structure, (INAUDIBLE) the way the Senate works. But even with that, the score is 12 years of Republican’s zero improvement in the regulatory structure of Fannie Mae and Freddie Mac, 19 months of the Democrats, everything that was needed.

There was an organization called FM Watch that was critical of Fannie Mae and Freddie Mac that said you got to improve the regulation, et cetera. After the bill passed under the Democrats, they dissolved because they said we had accomplished the whole agenda. Now it is true that unlike the conservatives, I wanted them around to do some stuff for low income housing and middle income housing.

So yes, I was for a vigorous role for Fannie Mae and Freddie Mac. But within the context of better regulation. And as I said, as soon as the Democrats came to power we adopted the kind of regulation that we were after. Now I will throw in one other thing. In 2008 in January, I urged Secretary Paulson, and I did this with the approval and support of Speaker Pelosi to take the reform bill that we had passed in 2007 and make it part of the stimulus package. And I think he was personally sympathetic, but said he couldn’t get it through the administration.

KOPECKI: Chairman Frank, on Fannie and Freddie, it seems by what the treasury is proposing, like right now without congressional authority, they can use Fannie and Freddie to buy the subprime assets, the real low-quality assets. And then treasury has authority to buy as much MBS (ph)in Fannie and Freddie as needed to help the economy, keep the companies solvent. What are Fannie and Freddie’s role as described to you by Chairman Bernanke and Mr. Paulson? What did they tell you, how do they plan to use Fannie and Freddie in this context?

FRANK: Well we didn’t get into all that detail in a one hour and fifteen-minute meeting with 15 members of Congress. It was basically on the conceptual position. But the committee that I chair will be having hearings on two successive days next week.

On Wednesday, myself and my Republican counterparts and Paul (INAUDIBLE) and (INAUDIBLE) the leading (INAUDIBLE) chairs have decided to have a hearing in which we will ask Paulson and Bernanke to explain what they plan to do in the big thing.

The next day, we had a hearing already scheduled with Fannie Mae and Freddie Mac. And I can’t tell you exactly how it is going to work. I can say I agree with your concept. There needs to be an integration here. And we need to not simply use this as a way to unclog the system so the credit markets can start functioning again and create jobs and provide the economic (INAUDIBLE) that we need to function.

But we also want to do it in a way that will reduce mortgage foreclosures. So one of the things that we are now working is how to make sure that we get a maximum coordination between the federal government, which now runs Fannie Mae and Freddie Mac, and the federal government piece of this. And that is high on our agenda to make that work together.

IRWIN: Several times today you have mentioned the role of regulation, or the lack of regulation in this financial crisis. I realize it is hard to discuss the fire code when you are in the middle of a fire and trying to put it out. But what are your biggest priorities, and most urgent priorities in terms of changing the financial (INAUDIBLE)?

FRANK: Well as I have mentioned, the biggest single one, we passed the bill in the House to do it after the Republicans refused to do this. And then Chairman Bernanke did it in 2008, and that is to put rules that stop irresponsible subprime mortgages from being made.

Again, on behalf of regulation, if only banks and credit unions and thrifts, the regulated entities had originated mortgages we wouldn’t have a crisis. We have it because there were unregulated entities doing it. And the chairman of the Federal Reserve has agreed with us and has already promulgated rules – again that Greenspan refused to do and could have done, that will stop the subprime mortgage crisis from occurring.

Beyond that, we want to say that somebody, and probably the Federal Reserve, but we have to look at this. And this is something where I think there is now a consensus, has to say to the investment banks, we are going to look at what you do. We are going to limit the amount of leverage you can put forward. We are going to make you have some capital on hand.

The theory used to be, well we can regulate banks because they get the deposit insurance, and they can go to the Federal Reserve for help. But investment banks are truly private, we won’t regulate them. Well we now see that investment banks have used that freedom so to entangle themselves that they threaten the whole system. And so we can’t allow that simply to go on unregulated. So it is to – the goal is to put some constraints on risk taking. I think that is the best way to put it.

And in the era in which people lend money and then sell the right to get repaid rather than collect the repayments, securitization, it turns out there are not constraints on risk. In plain language, too many people lending money to other people who can’t pay them back, and then multiplying the right to do that in ways that cause serious problems.

So that is – that is the major piece of this. It is to give the Federal Reserve probably that power. And by the way, when I became the chairman, or when I was about to be chairman of this committee in 2006 after the election, what I was most hearing from conservatives, even frankly from people in the Bush Administration was, you have got to deregulate more. We are driving people away.

Some of those who are now talking about that now agree that we need to have more regulation. Chairman Bernanke at the recent speech at Jackson Hole Wyoming came out to exactly what I am talking about. Secretary Paulson has talked about that. We need to put some constraints on risk taking by the unregulated entities, the hedge funds, private equity, and the investment banks.

KOPECKI: Chairman Frank. Two questions quick. Do you think Gramm, Leach, Bliley that allowed banks, insurers, and brokerage forms to commingle was a mistake? And what do you think about Chairman Cox’s (ph)short selling rules?

FRANK: First, I voted against Gramm, Leach, Bliley. But it is not, I don’t think what it did was wrong. But it didn’t do enough. We removed some of the restrictions that I think had already been eroded frankly be reality. But we should have put some new rules in. So I voted against Gramm, Leach, Bliley. That of course is Phil Gramm who has been John McCain’s chief economic advisor through his career.

And I think we should have put more regulations in there. On the short sale, I think the short sale came up a little short. We should be tougher on that. I think he should have gone all the way to say you simply engage in short selling until you fully own the piece. I do think that short selling – irresponsible short selling, naked short selling, that that has eroded further this to (Inaudible).

And again, this is the philosophical view that says don’t regulate. So they took all the wraps off short selling, they allowed unrestricted short selling, even if people didn’t own what they were short selling. And I think that has contributed to the destabilization.

SLEN: Barney Frank is Chairman of the House Financial Services Committee. He has been our guest on “Newsmakers”. Thank you Chairman.

FRANK: Thank you.

SLEN: Dawn Kopecki, Neil Irwin, Barney Frank, one of the first things he said was, Monday was a long time ago. How fast is this moving?

IRWIN: Astonishingly fast. So I think the same is true for those of us who have been writing about it. We can barely get our heads around one of these interventions, or one of these actions before another massive and unthinkable thing has happened. It is an astonishing week. And I – said earlier the government has taken the nuclear option here, and now we are going to see whether that works.

KOPECKI: Yes. I mean I think that investors started losing confidence as they started seeing numbers coming out from Wall Street with the AIG bail out and the Lehman bankruptcy.

They started getting concerned about their money market funds because those are not federally insured. The Federal Deposit Insurance Corporation was going out saying put your money into FDIC insured banks but money markets are not and what you saw were billion – tens of billions of dollars of people pulling it out of JP Morgan, Morgan Stanley, Merrill Lynch and what it left – it left those companies you know in a scramble for cash, to come up with extra funds to cover those redemptions.

And they had problems getting the cash. They had problems selling paper to raise money for the cash. And you really saw an actual liquidity crisis unprecedented on Wall Street that I believe has precipitated this.

SLEN: Chairman Frank talked about a couple hearings that his committee is holding next week. What's going to come out of those?

KOPECKI: I believe that the regulators will face a lot of tough questions as to what they knew, when they knew it, why they didn’t act sooner. Fannie Mae and Freddie Mac, analysts for years have you know laughed at their risk based capital rules, have laughed at the fact that they could use assets and count them as regulatory capital that weren't actual money.

Their regulator knew this and didn’t do anything. I think they're going to face a lot of tough questions about that, as well as, the wholesale you know reconstruction of financial regulations as we know it.

IRWIN: It will be an interesting week. The challenge is that we're still in the middle of this crisis. Congress next week will still, as we heard, be trying to figure out the details of this program to buy up these mortgage backed securities.

At the same time they'll be having hearings with Chairman Bernanke with Secretary Paulson and others trying to assess what all this means and where things go from here. It will be another hectic week next week and who knows how it will shake out.

SLEN: When do you foresee legislation actually being enacted?

IRWIN: There was a – everybody was singing Kumbaya last night. All of the Congressional leaders, including some who are fairly conservative and have been very skeptical of government interventions, were seeing positive things about a kind of, Idea of bi-partisan, cooperation on that.

It hasn't – it's not that that hasn't happened as Chairman Frank mentioned with the stimulus package back in February. Also with – when Secretary Paulson asked for authority to put the government money into Fannie Mae and Freddie Mac in July Congressmen very quickly and very bi-partisanly – in a very bi-partisan way will see whether the same is true this week.

KOPECKI: The key to passing legislation quickly in Washington is to keep members panicked and keep them kind of ignorant. If they can get this through without a lot of details leaking, without the press being able to pick it apart by you know early next week I think it has a chance of passing very quickly.

At the same time it's Congress and they're not known for their efficiency. We've seen you know times like this where everybody has been on board and at the last minute one little detail, one single senator has held up major reforms. That could also happen.

IRWIN: And the risk here – think about what happens if something goes wrong in Congress and this thing doesn’t pass, the market is up something like 700 points in the last 24 hours it's a very risky situation if Congress is unable to move on this at this point.

Now that the expectation of some kind of action is built into the financial markets.

SLEN: So you would expect if nothing happens legislatively for the market to tank?

IRWIN: I'm reluctant to predict what financial markets will do especially in t his environment but it's a very significant risk.

KOPECKI: In the past with the Fannie and Freddie legislation what happened was Washington did something, there was a quick rally, and then as analysts read the fine details and realized that it was just a bunch of smoke and mirrors everything tanked.

There – the spreads which is the cost of their debt came in so it lowered their debt cost initially but then the reason why Paulson did what he did a week and a half ago was because their debt spreads were as high as they were before the announcement.

In fact it made things worse in the markets. So there is the possibility that even if they do something and they do something quickly once Wall Street – once you know Chinese officials read the fine details they might realize that it's actually smoke and mirrors.

If they don’t have a real solution that actually gets assets off the balance sheet there is the risk in speaking to analysts that it could have a – it could backfire on global proportions.

UNIDENTIFIED PARTICIPANT: Dawn Kopecki, Bloomberg News, Neil Irwin, Washington Post, thank you for participating in “Newsmakers.”

END