Fannie & Freddie Bailout Is Unprecedented

Lest you think it’s “business as usual” with the governments upcoming bailout of Freddie Mac & Fannie Mae home loan GSEs, read this excerpt from MSNBC.

The [bailout] would represent a major escalation of the government’s role in private lending. The government would be assuming vast obligations it has historically disavowed, potentially using taxpayer money to make up for private business decisions gone wrong.

In an effort to contain the most profound financial crisis in generations, Treasury Secretary Henry M. Paulson Jr., leaders of the Federal Reserve and other government officials have in recent months upended decades of precedent. A bailout of the two mortgage finance titans would follow a Fed rescue of investment bank Bear Stearns in March and earlier steps to provide implicit government backing to Fannie Mae and Freddie Mac.

Fannie Mae and Freddie Mac have backed 70 percent of new mortgages in recent months, but both have incurred vast losses on their loan portfolios as the housing market has tanked. Paulson, the architect of the plan, and other government leaders view the mortgage firms as vital to preventing an even broader financial crisis and economic downturn.

Investor uncertainty over the long-term fate of the companies has left a pall over credit markets.

◊◊◊◊ Now: Gold @ $804.10, Silver @ $12.27, USDX @ 78.89 ◊◊◊◊
◊◊◊◊ Now: DJIA 11,220.96

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One Response

  1. It will be interesting to see how the markets react, this is some huge news that will take a while to get digested!

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