US authorities move to rescue Freddie and Fannie
Support from US Treasury comes minutes before far east markets open for trading
US Treasury Secretary Hank Paulson moved to calm nerves about stricken American lenders Fannie Mae and Freddie Mac last night, saying the government would be willing to take an equity stake in the two banks.
His eagerly awaited statement came just minutes before the opening of the Asian markets and provided the clearest picture yet of how a government bail-out of the two mortgage giants would work.
Between them, the two firms, own or guarantee an estimated $5trn of mortgages, nearly half of all outstanding American home loans. The Treasury, the Federal Reserve and other regulators were in constant talks over the weekend.
In the first of three proposals, which have yet to be approved by Congress, Paulson said the government would beef p its credit line to the two companies, should they need to tap it. Paulson said that the banks should have “access to sufficient capital to continue to serve their mission’” and that the plan also included ‘“temporary authority for the Treasury to purchase equity’” in the lenders.
Of most immediate importance, the Federal Reserve’s board of governors voted to open up its emergency discount window to Fannie and Freddie but in return the Fed would get a consultative role in monitoring the capital position of the two companies.
Fannie Mae rushed out a statement last night, defending its financial position, as did Freddie Mac. “We continue to hold more than adequate capital reserves and maintain access to liquidity from the capital markets. Given the market turmoil, having options to access provisional sources of liquidity if needed will help to strengthen overall confidence in the market,” the mortgage group said.
Freddie Mac chairman and chief executive Richard Syron implored congress to act quickly to get the proposals voted through. He said the bank continued to support America’s home-buyers and renters.
Not everyone was happy about the rescue proposals, though. Within minutes of the details being announced, the CBS Marketwatch web-site was deluged with messages from disgruntled bloggers, angry that the government was coming to the aid of what they considered to be two badly managed institutions.
“Yikes. Nothing like going from the most “capitalist” nation in the world to one of true socialism. And nothing like propping the house of cards up on plastic straw stilts,” said one.