Fannie Mae and Freddie Mac Rescue
13th July 2008
The stock and mortgage bond markets were in turmoil last week as rumors circulated that Fannie Mae and Freddie Mac 
were on the edge of insolvency. Not just the mortgage market but our entire economy are dependent on the health of these organizations. It’s always been assumed that the government would do whatever was necessary to keep them afloat. The question was more a matter of what they would do to support them, whether the stock would remain solvent and who would foot the cost.
Tonight the Fed stepped in and announced a deal had been put together, just before the Asian markets opened. This was the same way they put together the Bear Stearns buy out in March, and like then it was designed to calm the markets and avoid a sell off that could have gotten out of control. This deal will increase the Treasury credit line for Fannie and Freddie, and gives the Treasury the authority to buy the companies stocks.
By promising bold action the Fed and the Treasury hope to re-instill confidence, in the hopes that they won’t have to do a full scale bail out down the road. Here’s a Wall Street Journal Article which gives the specifics.
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July 19th, 2008 at 11:43 am
[…] week down to $128 per barrel, the dollar strengthened, the Government announced a plan (sort of) to maintain Fannie Mae and Freddie Mac and insure that they stay solvent. These were all factors that in normal times would have propped […]