The Federal Reserve issued the statement below on Sunday
night at 6 PM — this is at the opening of Australian stock
trading and thus timed to reduce turmoil in securities
markets worldwide.
For years Fannie Mae and Freddie Mac have each had the
ability to withdraw $2.5 billion directly from the U.S.
Treasury. The new measure does not mention any particular
number, but presumably it is in addition to the $5 billion
that the two companies can already borrow from Uncle Sam —
if needed.
But is federal money needed? Between them, Fannie Mae and
Freddie Mac have $95 billion in hand
according to Office of Federal
Housing Enterprise Oversight.
Based on what we currently know about Fannie Mae and
Freddie Mac there is nothing factual to justify a further
extension of federal credit. In other words, the Fed
action is just a hand-holding gesture.
The Fed
statement states that:
“The Board of Governors of the Federal Reserve System
announced Sunday that it has granted the Federal Reserve
Bank of New York the authority to lend to Fannie Mae and
Freddie Mac should such lending prove necessary. Any
lending would be at the primary credit rate and
collateralized by U.S. government and federal agency
securities. This authorization is intended to supplement
the Treasury’s existing lending authority and to help
ensure the ability of Fannie Mae and Freddie Mac to
promote the availability of home mortgage credit during a
period of stress in financial markets.”
Secretary of the Treasury Henry Paulson
said on Friday:
“Today our primary focus is supporting Fannie Mae and
Freddie Mac in their current form as they carry out their
important mission.
“We appreciate Congress’ important efforts to complete
legislation that will help promote confidence in these
companies. We are maintaining a dialogue with regulators
and with the companies. OFHEO will continue to work with
the companies as they take the steps necessary to allow
them to continue to perform their important public
mission.”
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