The Bush administration outlines a plan to bolster Fannie Mae and Freddie Mac.

A summary of what's in the major U.S. newspapers.
July 14 2008 7:00 AM

To the Rescue

The New York Times, Washington Post, and Los Angeles Times lead with the federal government announcing a proposal—which each of the papers describes as "sweeping"—to bolster the troubled mortgage giants Fannie Mae and Freddie Mac. Bush administration officials said they would ask Congress to increase temporarily the amount of money the Treasury Department can lend the institutions and allow the government to invest directly in either company "if needed." Although the Treasury didn't specify the size of its package, the NYT gets word that lawmakers will be asked to consider increasing the line of credit to the institutions (currently set at $2.25 billion each) to $300 billion total. In addition, the Federal Reserve announced that it would allow Freddie and Fannie to borrow directly from the central bank for the first time. The move would effectively give the mortgage giants access to the Fed's discount window, a privilege that was extended to Wall Street's biggest investment banks earlier this year. The NYT hears that the Fed's decision is temporary and would "probably" only last until Congress passes the Treasury proposal.

The Wall Street Journal leads its world-wide newsbox with the nine American soldiers who were killed in northeastern Afghanistan yesterday, when insurgents launched a bold assault against a remote base near the Pakistani border. It was the deadliest attack against U.S. forces in Afghanistan since June 2005, when a helicopter was shot down, and the latest example of how insurgents have been regaining strength in the country. USA Today leads with a poll showing that a majority of Americans across racial lines think race relations in the country will improve  if Sen. Barack Obama becomes president. Black Americans are most optimistic, as 65 percent think Obama's election would improve race relations, a feeling that is shared by 54 percent of whites. On the other hand, about one-third of both blacks and whites said race relations would get worse if Obama loses.

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The announcements by the Federal Reserve and the Treasury Department capped a weekend filled with frantic phone calls between high-level officials in Washington and Wall Street, and the Bush administration rushed to announce the plans before the opening of Asian markets. In addition, officials wanted to make clear that the government stands behind the two mortgage giants the day before Freddie Mac is scheduled to sell $3 billion in securities. The LAT notes that although Freddie's debt sale was once seen as "routine," it hast now turned into "a litmus test of the two companies' ability to raise cash for routine operations." The Post says the plan announced yesterday is "the most extensive government intervention into the financial world" since March, when the Fed rescued Bear Stearns—a maneuver that was also announced on a Sunday.

The WSJ analyzes the moves and says that they "constitute an attempt by the federal government to ease the potential crisis at Fannie and Freddie without intervening directly." By making it clear that the government is ready to take action if things get worse, "officials are hoping they can instill sufficient confidence in the two companies that such intervention ultimately will prove unnecessary," says the WSJ. Regardless of their intentions, the NYT highlights that the package "would bring the Treasury closer than ever to exposing taxpayers to potentially huge new liabilities."

"It is very dramatic and historic," one expert tells the LAT. "The government must have felt it had no choice."

Treasury officials said they kept close contact with lawmakers throughout the weekend and are confident that Congress will approve the plan quickly by folding it into a broad housing bill currently under consideration. Key members of Congress are, for the most part, supportive of the government proposals and vowed to work quickly to get them approved. House Financial Services committee Chairman Barney Frank of Massachusetts told the WP and WSJ that the bill could be ready for the president next week. But, interestingly enough, he appears to have been a bit more optimistic when he talked to the NYT, which cites Frank as saying that it could all be done by the end of this week.

In an analysis piece, the NYT notes that all the concern surrounding Freddie and Fannie highlight how the government has taken on an increasingly important role in allowing Americans to borrow money for a home or to go to college. As private money began to dry up, Fannie and Freddie stepped in and bought "more than two-thirds" of new residential mortgages in the first three months of the year. Also, the Bush administration promised in May to buy federally guaranteed student loans in order to free up money so banks could continue lending. "In a nation that holds itself up as a citadel of free enterprise," writes the NYT, "the government has transformed from a reliable guarantor into effectively the only lender for millions of Americans engaged in the largest transactions of their lives."

The NYT's Paul Krugman writes that while the worries over Fannie and Freddie "are overblown," it should come as no surprise that taxpayers could end up having to come to the rescue. "We're going through a major financial crisis—and such crises almost always end with some kind of taxpayer bailout for the banking system." In the WP, Sebastian Mallaby argues that at this point, nationalizing the mortgage giants would really be the best choice. At the moment, the taxpayers carry the risk "with little to no compensatory upside." Once the financial markets stabilize, the government can then worry about reducing the size of the institutions, "creating maximum space in the mortgage market for smaller private players."

In other news, the NYT fronts a look at how the Taliban have taken over a lucrative marble quarryin a corner of Pakistan's troubled tribal areas. For four years, no one was able to get any marble from the quarry because of long-standing feuds and the government's inability to bring order. Then the Taliban arrived and got things moving. Of course, they also demanded payment and now collect a tax on every truck. The quarry is an illustration of how the Taliban "have made Pakistan's tribal areas far more than a base for training camps or a launching pad for sending fighters into Afghanistan," says the NYT. Now that the Pakistani military has largely pulled back from the area, the Taliban is, quite simply, taking over and instituting its own parallel government that even has separate courts and prisons. The Taliban authority is so strong that lawmakers from the area can't even travel to their constituencies.

The WP fronts the second part in its series about the murder of Chandra Levy, which focuses on her secret relationship with Rep. Gary Condit. TP can't help but think that dividing the story up into 12 parts is a bit excessive, but the first two stories have been riveting, and it seems as if it's only a matter of time before Hollywood swoops in to buy the rights.

Obama writes an op-ed piece for the NYT where he says that the recent call by the Iraqi government for a withdrawal timetable "presents an enormous opportunity." Although the troops who were part of the "surge" have successfully reduced violence in Iraq, "the same factors that led me to oppose the surge still hold true." Even as Obama recognizes that "we would inevitably need to make tactical adjustments" to his withdrawal plan as the situation develops, he also insists he's against keeping a long-term presence in Iraq that would resemble the current situation in South Korea. "For far too long, those responsible for the greatest strategic blunder in the recent history of American foreign policy have ignored useful debate in favor of making false charges about flip-flops and surrender."

The editors of the IvyGate blog write an op-ed piece in the LATand ask: "Would you still vote for someone after viewing a photograph of him passed out in his own vomit?" The question doesn't seem far-fetched, considering that it's unlikely any member in the next generation of political leaders will be able to "escape digital documentation of their college-era foibles." The writers are optimistic that these types of photographs, even if they provide good gossip, won't matter that much in the future, as members of "Generation Facebook" are already showing an inclination toward forgiveness. "After all, the incriminating photo, the offensive blog post, that drunken 3 a.m. e-mail—it could have been any of us."

Daniel Politi has been contributing to Slate since 2004 and wrote the "Today's Papers" column from 2006 to 2009. You can follow him on Twitter @dpoliti.