Government will lend to Fannie, Freddie

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House Minority Leader John Boehner, Ohio Republican, and Minority Whip Roy Blunt, Missouri Republican, said they “stand ready to work with Secretary Paulson and congressional Democrats to take appropriate steps to ensure the soundness of our mortgage markets.”

The Securities and Exchange Commission contributed to the emergency plan earlier Sunday by issuing an unusual warning saying that it will take action against stock traders who float false rumors that appear aimed at driving down a company’s stock - a problem that analysts say may have added to Fannie’s and Freddie’s woes and is endangering the solvency of some Wall Street titans like Lehman Brothers.

The Federal Deposit Insurance Corp. issued a statement reassuring people who have deposited money in IndyMac bank, which federal liquidators took over on Friday.

Joshua Rosner, managing director at Graham Fisher who has talked with Treasury officials but is not advising them, said the attempt to limit the government’s liability will not work, because markets will interpret the rescue plan as a blanket guarantee on all the companies’ debts.

He said the government should have made clear it is guaranteeing only about $3.5 trillion of agency obligations that directly support the housing market.

“The government proposal fuels risk-taking,” he said. “Every time the government allows investors to believe they will bail out the senior debt holders, it becomes harder for them to do otherwise.”

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