Salar posted on August 19, 2008 18:53
Shares in US mortgage finance giants Freddie Mac and Fannie Mae have plunged Further this week on fears that the government will be forced to bail out the pair.
This further slide reignited concerns about the health of the financial sector and sent the US stock market sharply lower. This is not what the market wants to see right now.
A report by US financial weekly Barron's suggested that the chances of a government rescue were increasing. However, the US Treasury said that it had no plans bail out the two firms, which underpin the US mortgage market.
The Treasury gained the authority to bail out the Freddie Mac and Fannie Mae, including buying shares in the two companies if needed, in a rescue plan approved at the end of July. The extent of what's happening in the US financial industry is beyond anything that has been seen this decade. The fall outs is being felt through out the world due to tight connectivity between various financial instititutions around the world.
Citing an unidentified source, Barron's said US officials anticipated that the two firms would not be able to raise the money they needed to improve their financial footing. The paper said a government bail-out would likely wipe out existing holders of the firms' shares. Both firms were trading near 18-year lows.
Just to note what has been happening to these two organizations. Shares in Freddie and Fannie fell sharply during July 08 on fears that they would run out of money to fund their business, forcing the US government to take radical steps to ease the panic. The two firms are the backbone of the US mortgage market as almost all US lenders rely on them to buy their mortgages in order to access the funds to lend to consumers. As mortgage guarantors, they must pay out when homeowners default on their loans. With the housing market across the US crumbling, their finances have come under severe pressure.