Secretary of the Treasury Henry Paulson announces that the US Treasury Department and Federal Reserve will lend money and buy stocks if necessary to aid embattled mortgage lenders Fannie Mae and Freddie Mac during a statement to the media at the Treasury Building in Washington, DC July 13, 2008.
The US federal government unveiled a program Sunday evening to bolster troubled mortgage giants Fannie Mae and Freddie Mac, media reported. Treasury Secretary Henry Paulson asked Congress for authority to buy unlimited stakes in and lend to the companies. “The president has asked me to work with Congress to act on this plan immediately,” Paulson said Sunday evening on the steps of the Treasury building facing White House.
The Federal Reserve separately authorized the firms to borrow directly from the central bank. The Fed said that it had made its decision “to promote the availability of home mortgage credit during a period of stress in financial markets.”
The decision followed talks between the firms, government officials, lawmakers and regulators after Fannie Mae and Freddie Mac, which dominate the market for US mortgages, lost about half their value last week as investors show concerns that the companies might not have enough capital to handle their losses due to the rising number of bad home loans. US mortgage firm Freddie Mac headquarters is pictured in McLean, Virginia July 13, 2008. US Treasury Department officials are trying to make sure that Freddie Mac will be able sell $3 billion in securities this week at a previously scheduled sale, the Washington Post reported on Sunday.
The collapse could cripple the US housing market, dealing a staggering blow to the wider economy and might rattle global financial markets because their shares and debt are widely held by pension funds, mutual funds and foreign governments. “Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies,” Paulson said in a statement he read before television cameras on Sunday night.
The strength of their debt “is important to maintaining confidence and stability in our financial system and our financial markets,” Paulson said. The new measures would give Paulson the authority to provide federal money to the firms. “This is a very sweeping proposal,” said Bert Ely, a banking expert and longtime critic of Fannie Mae and Freddie Mae. “This plan goes further than I thought they would go and suggests a deeper level of concern about the companies.” Currently, both companies can each borrow $2.25 billion from the government. Both said they are grateful for government’s confidence-building efforts. (Xinhua)