F&F Rescue Needed for Global Stability
As we predicted, key developments took place over the weekend that helped to raise stocks and investor confidence in Fannie Mae and Freddie Mac, at least for now.
Treasury Secretary Henry Paulson proposed a rescue-plan on Sunday that could intertwine itself into a bill Congress plans to pass later this week. Paulson’s solutions would place the government and US tax payers as the pillars of financial support. The two biggest factors under Paulson’s plan include the Fed and US Treasury increasing Fannie and Freddie’s line of credit, and to temporarily purchase equity from the Government-Sponsored Enterprises.
The success or failure of the two mortgage buyers holds global significance. Foreign central banks hold billions of dollars in bonds and mortgage-backed securities from Fannie and Freddie, who own or guarantee half of the US’s $12 trillion worth of mortgages.
