Sunday, Jul 13, 2008
Bail out for Freddie Mac and Fannie Mae
BBC: US announces support for lenders
No details yet as to what the bail out plans are.
Posted by jonb @ 11:47 PM (458 views) Add Comment
6 Comments
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1. drewster said...
Wow that's pretty explosive! There are two separate actions:
1) Congress is to enact legislation allowing the treasury (i.e. the US govt) to lend money to FM. This depends on whether congress approves the legislation; it may decide not to!
2) Independently of Congress, the Fed is now allowing FM to borrow from the Federal Reserve Bank of New York. According to CNN, "The move gives Fannie and Freddie the same access to the funds as commercial banks and Wall Street firms. The agency granted investment banks such access earlier this year in the wake of a similar crisis of confidence."
So action #1 is asking the lawmakers for permission, but action #2 basically bypasses them anyway. That's democracy in action.
2. jonb said...
The article is a lot longer now than when I posted it. Perhaps they were still in the middle of typing it?
3. drewster said...
jonb,
They make changes to the articles as the story unfolds. It's a bit controversial. You can see the old and new versions side-by-side at News Sniffer:
http://www.newssniffer.co.uk/articles/138245/diff/1/2
Interestingly, the bit about Barack Obama not supporting the bail-out has been removed from the article.
4. drewster said...
Nice graphs over at CNN:
5. drewster said...
I'm a bit surprised at all the troubles with Fannie and Freddie. They had fairly tight lending criteria (compared to recent lax standards): borrowers needed a 20% deposit and a squeaky clean credit history. They weren't involved in subprime, in fact the definition of subprime is basically anything that FM wouldn't touch. Default rates on prime mortgages, while rising, are still well below 1% - reading off the graphs above, I'd say no more than 0.6%.
It reminds me of the HBOS rumours back in March which almost led to a run on the bank (refresh your memories here). Back then, HBOS shares plummeted nearly 20% in the space of a few minutes due to unsubstantiated rumours that they were facing a Northern Rock-like crisis. Could the Freddie and Fannie situation be less dire than claimed?
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