Independent UK: US Treasury close to deal to prop up mortgage giants Fannie and Freddie

[marmar]

US Treasury close to deal to prop up mortgage giants Fannie and Freddie

By Stephen Foleyin New York
Saturday, 6 September 2008



The US Treasury is close to a deal to prop up the mortgage finance giants Fannie Mae and Freddie Mac, whose crumbling finances have put the US housing market in jeopardy and threatened to turn an economic slowdown into a deep recession.

A string of meetings yesterday between Treasury Secretary Hank Paulson, Federal Reserve chairman Ben Bernanke and the chief executives of the two companies were aimed at hammering out a deal that could be announced as soon as this weekend.

The intensive efforts to reach an agreement came as a poisonous cocktail of fear, financial distress and weakening economic news sent global stock markets skidding lower. The FTSE 100, the UK's premier stock market index, closed out its worst week in more than six years, while the US government admitted that unemployment had surged above 6 per cent in the world's largest economy, taking it back to levels seen in the last recession at the start of the decade.

Meanwhile, rumours of distress among hedge fund investors returned to haunt the markets on both sides of the Atlantic. Funds have been racing to reshuffle portfolios, dropping bets on the euro and the pound and on commodities such as oil, in favour of safer investments such as government bonds.

Last night, the FTSE 100 stood at 5,240.7, down 121.4 and back in "bear territory", down more than 20 per cent from its October peak. There were similar falls across Europe, and the US market initially extended Thursday's big sell-off during the morning hours, before bouncing to end modestly higher. The future of Fannie Mae and Freddie Mac have weighed heavily on markets since the credit crisis began, and particularly since they began posting multi-billion losses this year. The two own or guarantee almost half of all mortgage debt in the US, and their failure would send mortgage rates soaring, prompting another leg down for the US housing market. Foreign governments have also bought close to $1 trillion of Fannie and Freddie's own debt. .......(more)

The complete piece is at: http://www.independent.co.uk/news/business/news/us-treasury-close-to-deal-to-prop-up-mortgage-giants-fannie-and-freddie-920969.html