Bush bails out US mortgage giants
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Monday, September 08, 2008
The Bush administration ripped up years of laissez-faire economic policies and launched a government takeover of two of the most powerful mortgage companies.
The move is designed to forestall a collapse in house prices that could plunge America into a new Great Depression and trigger chaos on the world's financial markets.
The seizure of the two lenders, Fannie Mae and Freddie Mac, puts a federal guarantee behind an extraordinary $5trn of outstanding mortgage debt, and writes a blank cheque from the US taxpayer that could ultimately run into tens of billions of dollars of support for the country's ailing housing market.
The US Treasury Secretary, Henry Paulson, said that by bringing the companies under government control, the government could ensure they continued to do their vital work providing financing to the mortgage market. Without them, few Americans would be able to find loans to buy homes, consumer confidence could collapse and the already fragile global economy would contract dramatically.