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U.S bails out mortgages lenders with 12 trillion at stake

Tue, Jul 15 2008, 06:25 GMT
by Benny Menashe

Finotec Group Inc.

Treasury Secretary Henry Paulson put the weight of the federal government behind Fannie Mae and Freddie Mac, the beleaguered companies that buy or finance almost half of the $12 trillion of U.S. mortgages. Paulson, speaking on the steps of the Treasury facing the White House, asked Congress for authority to buy unlimited stakes in and lend to the companies, aiming to stem a collapse in confidence. The Federal Reserve separately authorized the firms to borrow directly from the central bank. Fannie and Freddie shares gained in Frankfurt trading. The steps would bring the U.S. closer to giving an explicit guarantee for the debt sold by the shareholder-owned, federally chartered companies. That reflects a need for the government to bail out an economy that's been rocked by the worst housing recession in 25 years, the credit crisis, and soaring energy costs.

U.S. stock-index futures rose after Treasury Secretary Henry Paulson said he would seek approval from Congress to shore up Fannie Mae and Freddie Mac and investors speculated takeovers will increase. Lehman Brothers Holdings Inc., once the biggest U.S. underwriter of mortgage bonds, gained 62 cents to $15.05. Lehman on July 11 fell the most since Bear Stearns Cos. collapsed in March on speculation Freddie Mac and Fannie Mae might fail.

The Australian dollar rose on speculation the economy will withstand widening losses among U.S. financial institutions. The New Zealand dollar was little changed as retail sales dropped by the most in four years. Australia's currency approached a 25-year high as concerns that the U.S. subprime-mortgage crisis may deepen prompted investors to seek higher-yielding assets in the South Pacific nation. New Zealand's currency snapped a three-day advance on prospects its economy may have entered a recession, backing the case for the central bank to lower interest rates. ``We actually think the Australian dollar could achieve parity within two to three weeks if the markets start to cave in on the U.S. dollar due to renewed financial markets turmoil,'' said Clifford Bennett, chief economist at Sonray Capital Markets Ltd. in Sydney, in a research note today.

Today's Economic Events

Published on  Tue, Jul 15 2008, 06:28 GMT