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Tuesday 2nd August 2011 - 12:54 pm

Bush presses plan to bolster US mortgage giants

by Alan Thornhill

At the specific request of President George W Bush, US authorities have stepped in with a two-year $US300 billion plan to bolster public confidence in two oddly named mortgage giants, Fannie Mae and Freddie Mac.

This followed crisis last week, when the price of shares in the two institutions, which back almost half of all American mortgages, plummeted, in the wake of the US credit crunch.

Analysts feared that the entire global financial system could be damaged, if either or both of these institutions were allowed to fail.

The chairman and chief executive of Fannie Mae, Daniel H Mudd, insists, though, that his institution is sound.

“We continue to hold more than adequate capital reserves and maintain access to liquidity from the capital markets,” Mudd said.

However he said, too, that Fannie Mae “appreciates today’s announcements and expressions of support.”

The three point plan, announced by US Treasury Secretary Henry M Paulson, has broad political support, from both Republicans and Democrats.

Both Presidential candidates, Barack Obama and John McCain, have signalled that they will back it.

Paulson said the plan would:-

  1. provide a temporary increase in the line of credit that the two institutions have with the US Treasury
  2. give the US Treasury power to buy shares in them if necessary and
  3. strengthen US regulatory reform legislation by giving the Federal Reserve a consultative role in setting the appropriate capital and prudential standards.

US legislators said this would be done by attaching the necessary changes to a housing bill now before the US Congress.

This could be completed and sent to the White House for approval as early as this week, they added.

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Alan Thornhill

Alan Thornhill is a parliamentary press gallery journalist.
Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.

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