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September 8, 2008

Fannie and Freddie rescue a relief for UK banks

by Gill Montia

Story link: Fannie and Freddie rescue a relief for UK banks

The US Treasury has taken control of Freddie Mac and Fannie Mae, the US mortgage entities that buy-up mortgages from banks and other lenders and sell them on to investors.

The combined companies own or guarantee $5,500 billion worth of residential mortgages, or just less than half the $12,000 billion worth of outstanding home loans in the US.

The bail out involves an injection of up to £110 billion of taxpayers’ cash and chief executives, Daniel Mudd of Fannie Mae and Richard Syron of Freddie Mac, are departing.

US Treasury Secretary, Henry Paulson, stated that while Freddie and Fannie are publicly traded companies, government intervention is justified because of the impact of the housing market correction on the US economy and markets.

UK banks will be relieved at the news because they hold bonds insured by Fannie and Freddie.

If the companies had failed this could have inflicted losses of billions of dollars on British banks.

Stock markets have responded positively to the news with markets rising worldwide.

 

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