Washington is again riding to the rescue of Wall Street, with mortgage lenders Fannie Mae and Freddie Mac being bailed out to the tune of 140 billion euros, and effectively nationalised. The pair are responsible for 40 percent of home loans in America. The Treasury is determined to stop them dragging the whole economy down.
“We examined all the options available and determined that this comprehensive and complimentary set of actions best meets our three objectives of market stability, mortgage availability, and taxpayer protection,” said Treasury Secretary Henry Paulson.
America’s subprime loans crisis stemmed from profits-chasing banks making ill-considered loans, whereas Freddie Mac and Fannie Mae have traditionally been far more prudent lenders. But such is the extent of the credit crunch now that they too have been sucked in, and with rising unemployment the situation can only get worse.