State takeover of Freddie Mac/Fannie Mae
Posted by: Joshuah in Economics, tags: Fannie Mae, Freddie MacSource: BBC NEWS
US mortgage giants Freddie Mac and Fannie Mae are set to be put under government control in an attempt to rescue the firms, media reports say.
Treasury Secretary Henry Paulson will outline government plans at a news conference at 1100 (1600 BST).
The move to shore up the shareholder-owned firms, which hold or guarantee half the US mortgage debt, would be the US’s largest ever financial bail-out.
In July, Congress approved a plan aimed at offering them more liquidity.
This followed huge losses by the two firms as result of a big increase in defaults and repossessions in the US housing market.
‘Management told’
On Saturday, a senior politician, Barney Frank, chairman of the House Financial Services Committee, said US Treasury Secretary Henry Paulson had told him the government would use its powers to ensure the continued and stable functioning of the companies.
The Washington Post, quoting senior administration sources, said the firms would be put under a legal status known as “conservatorship” which would greatly reduce the value of the two companies’ common stock.
BBC Business Editor Robert Peston
This is an event of profound significance for the global economyRead Robert Peston’s thoughts
Other securities - including company debt and preferred shares - would be guaranteed by the government, the paper added.
The New York Times reported that senior executives at Freddie Mac and Fannie Mae were informed about the plan on Friday.
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