Treasury To Save Mortgage Giants
Fanny Mae and Freddie Mac are to be saved from almost certain collapse by the American taxpayer. In an announcement by the US Treasury secretary, Henry Poulson today said that action was needed and Federal Housing Finance Agency (FHFA) Director James Lockhart added
“Our economy and our markets will not recover until the bulk of this housing correction is behind us. Fannie Mae and Freddie Mac are critical to turning the corner on housing.”
The FHFA will purchase up to $100 billion of senior-preferred stock in each company as needed to maintain a positive net worth. They will take over from the executives in each and will get rid of their dividends.
Fannie Mae and Freddie Mac act as guarantors for 50% of the US mortgage market some $5 trillion. If the companies were to collapse it would send shockwaves through the market place. The financial markets reaction to this news “will be difficult to tell” said Kim Ghattas, BBC Washington correspondent said today.
Is this a sign that the troubled US markets are not past the worst? Will will be the knock-on effects as the US cuts spending in order to counter-balance this enormous injection of funds (said to be the biggest since the Great Depression) in the bedrock of the US home-loans market?
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Dear Henry Poulson,
I have an idea to stablize the stock market. Since much of the problem is people selling out in a panic to save a little of their retirement. Why don’t you give cash incentives to people who will not sell out for a specific time period? There are many of us who stuck it out the last time the market fell and this time, I am 65 now, it is very hard to not panic with the rest of them and sell out. A large cash incentive to stay in would help. Also for us smart investors, we would more than likely then put the cash back into the market by buying some of those great deals that are on fabulous sales right now! That seems a better way to stabalize the market than giving it to the CEO’s. Who knows what they will do with it. Why not give it to the people who actually lost the money not the CE”O’s.