Washington
08 September 2008
American and international financial markets are welcoming word that the U.S. government is taking over two troubled institutions that back roughly half the country's home mortgages. VOA's Paula Wolfson reports the Bush administration says it took the action reluctantly to head off a fiscal crisis.
Fannie Mae and Freddie Mac are entities created by Congress to finance and guarantee home loans in the United States. While they are government-licensed, they operate like private companies with shareholders and corporate boards.
The two mortgage giants have been severely weakened by the current turmoil in the U.S. housing market, which has seen a dramatic rise in foreclosures, and falling home values across the country.
Should they fail, the impact on the U.S. and world economy could be severe. And so the government stepped in - bailing them out and taking over their operations.
White House spokeswoman Dana Perino says the Bush administration had no choice. "This is not action that we wanted to take. It is action that we needed to take," she said.
Perino says the White House has been warning for years that Fannie Mae and Freddie Mac were in need of reform. She says the federal takeover could have been prevented if Congress had acted on the administration's request for a strong independent regulator to oversee the mortgage giants. "Remember that we have highlighted the systemic risk posed by posed by Fannie Mae and Freddie Mac because of the very large role they play on housing markets and because of their business practices," she said.
Perino says it will be up to the next U.S. president and Congress to decide the ultimate fate of the two institutions. She says for now, the goal must be to help the housing market, and the economy, recover.
Perino says that President Bush, who does not favor corporate bail-outs as a rule, approved this takeover reluctantly as a last resort.
U.S., Asian and European stock markets soared in response to the takeover. China and Japan, the biggest buyers of Freddie Mac and Fannie Mae debt, praised the move.
But European Central Bank President Jean-Claude Trichet offered a word of caution. He said while the move is welcome, risks remain in the global credit market.