Paulson Seeks Tough GSE Debt OK Process

Treasury Secretary Henry Paulson wants his team to develop a debt approval process that would allow his department to stop Fannie Mae and Freddie Mac from financing the growth of their portfolios, according to a Treasury official.The secretary has "instructed us to ensure that the mechanics of our debt approval process are robust enough to give Treasury the practical option of limiting the GSEs' debt issuance in accordance with our statutory authority, should that become necessary," Treasury Under Secretary Randal Quarles told a Reuters panel on government-sponsored enterprise reform on July 19. Mr. Quarles told reporters that the Treasury is still reviewing its approval process for GSE debt issuance and just had its first meeting with Fannie and Freddie executives. "There are a lot of issues that need to be thought through" before there is a "decision as to whether or not this is something we want to do," the Treasury official said. He stressed that Secretary Paulson would prefer a legislative solution to reducing Fannie's and Freddie's giant portfolios. It appears that the new Treasury secretary will wait to see whether Congress can pass a GSE regulatory reform bill before deciding whether he wants to take the next step.