Market Watch Sunday July 13: In a dramatic statement released Sunday, the White House and Federal Reserve moved to give the mortgage giants the capital they need to survive the depression in the housing market and turmoil in financial markets that had left them dangling over a cliff.
Of most immediate importance, the Fed's board of governors voted to open up its emergency discount window to Fannie and Freddie. In addition, Treasury Secretary Henry Paulson announced that he will seek Congressional authorization to by stock in the two companies and increase the government's credit line.
"This evening, after working with the companies, the Federal Reserve, and other regulators, Treasury Secretary Paulson outlined a plan that we believe will help add stability during this period. President (George W.) Bush directed Secretary Paulson to immediately work with Congress to act on this plan," she added.
"It is crucial that Congress quickly works to enact this legislation as a complete package along with the strong oversight reform legislation recently passed in the Senate," Perino added in her statement. Troubled mortgage giant Freddie Mac is aiming to sell off three billion dollars in securities on Monday following last week's meltdown, in a potentially decisive move to heal shattered investor confidence. The two government-chartered, shareholder-owned giants underpin some five trillion dollars in home loans, and the meltdown in their shares last week raised fears of a government bailout, or a possible worsening of the credit crunch.July 14 (Bloomberg) -- The dollar rose for the first time in four days against the euro after U.S. Treasury Secretary Henry Paulson asked Congress for the authority to buy shares of Freddie Mac and Fannie Mae . The currency also climbed against the yen after the Federal Reserve said it will offer direct loans to the two largest U.S. mortgage finance companies, easing concerns that confidence in housing and financial markets will worsen.
Comments: Should I gloat, nah that would be in poor taste. Surely I cannot be the only one in the world to see Fannie & Freddie were bankrupt before. (For those interested pls read posting "Unconvincing Selling In The US" posted Friday 11 July and "Fannie & Freddie Sat On A Wall" posted on May 8 this year. Technically speaking, Paulson is asking for permission to use American's public money to bail out Fannie & Freddie - they have to bail them no doubt about that. All things being equal, the bailout would be another solid whack to pummel further the demise of USD. However, Fannie & Freddie seems to be the biggest "obstacle" that the market had been waiting for Treasury/Fed to do something about it. Now that they have finally, sentiment on USD and hence equity prices would swing to the positive side of things. Not all clear yet but I see some light.
photos: Catherine Hung Yan