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Lifeline to Fannie Mae and Freddie Mac
The US Government has bailed out their country’s two mortgage lenders Fannie Mae and Freddie Mac to stop them from going under. The lenders were said by finance experts to be only two weeks away from total collapse having suffered problems through the credit crunch. The two lenders are said to control around £3trillion of home loans in the US and a collapse would have been catastrophic. The Government has pledged to hand over up to £110 billion of tax payers’ money, said to be one of many measures the Government plans to take in order to shore up the finances of a country in the grip of a housing market downturn that triggered the problems with lending money across the globe.
Henry Paulson, the US Treasury Secretary, said that the two lenders were so large and so interwoven in their financial system that “a failure of either of them would cause great turmoil in our financial markets here at home and around the globe”.
The actions of the US Government have been seen as a good move as far as British financial institutions are concerned as British banks have invested billions of dollars in bonds insured by the two stricken lenders. If either Fannie Mae or Freddie Mac had gone down it would have caused even further problems with lending money across the world. With George Bush pointing out that “allowing the companies to fail or further deteriorate would damage our home mortgage market and could weaken other credit markets that are unrelated directly to housing”.
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