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Monday, September 08, 2008

Freddie and Fannie Balied Out

President Bush bailed out Freddie Mac and Fannie May yesterday, as he announced that the two mortgage lenders would be taken over by the US government.

Seemingly they were weeks away from collapse.

President George Bush is quoted in The Times as saying that the failure of Freddie or Fannie would have been "unacceptable".

"Allowing the companies to fail or further deteriorate would damage our home mortgage market, and could weaken other credit markets that are unrelated directly to housing.

Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth
."

Henry Paulson, the US Treasury Secretary, said:

"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit.

Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe
."

This robust and decisive action contrasts with the dithering of the British government last year, when faced with the Northern Rock fiasco.

British banks have invested billions into bonds insured by Freddie and Fannie, had they collapsed the banks would have made significant losses.

We can breath a short sigh of relief, and be thankful that the US government did not shy away from a tough decision or dither over it.

Gordon Brown take note!

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