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More socialism to come:

Dodd Says the Fed Has Authority to Set Up Debt Fund (Update1)

By Viola Gienger

Sept. 17 (Bloomberg) -- Senate Banking Committee Chairman Christopher Dodd said the Federal Reserve has the authority to act as an ``effective Resolution Trust Fund'' to buy up and dispose of bad debt stemming from the subprime mortgage crisis.

``The Fed has the authority to move in this area,'' Dodd told reporters in Washington today.

Creating a separate agency to take on bad debt, akin to the Resolution Trust Corp. set up in 1989 to absorb losses from savings and loan associations, would take about a year, he said. Instead, the Fed should use its own authority to act.

``Debating whether or not you're going to set up some new agency or bureaucracy in government is a nice point but I don't think we have the luxury of waiting another year,'' Dodd said.

Establishing a new government bureaucracy might distract officials from addressing housing as the underlying cause of the financial crisis, Dodd said. Congress in July enacted legislation creating a Federal Housing Administration program to insure as much as $300 billion in refinanced mortgages for 400,000 borrowers at risk of losing their homes.

Implementing regulations based on that legislation will help, as will lower mortgage rates and the government's takeover of Fannie Mae and Freddie Mac earlier this month, Dodd said.

``But candidly, I want to do a lot more than 400,000 units,'' he said. ``And we have the opportunity to do more than that.''

Dodd met yesterday with Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson and said Bernanke agreed that the subprime mortgage collapse remains the core of the broader crisis.

For the longer term, Dodd said he's ``willing to entertain'' the idea of a separate agency.

To contact the reporter on this story: Viola Gienger in Washington at vgienger@bloomberg.net.

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