Relief as US bails out mortgage giants
- 00:01:26
- ITN
Relief as US bails out mortgage giants
Economists are hoping the US government's decision to take over two huge mortgage firms will help bring an end to the credit crunch. Far East money markets are already surging after the rescue of Fannie Mae and Freddie Mac and the same story is expected when the London Stock Exchange opens. Fannie Mae and Freddie Mac hold around half of all the outstanding home loans in the US and Treasury Secretary Henry Paulson said taking control of the companies was the safest thing to do and their bankruptcy could have triggered a global economic collapse. British mortgage specialists said the move would inject some confidence into the falling UK housing market. The companies' bonds are held by banks and other institutions around the world, so the bail-out will have an international knock-on effect. There are hopes it could mean a boost in confidence for UK lenders, leading to the greater availability of mortgages. Ray Boulger of mortgage broker John Charcol said: "I'm not suggesting we are going to see an immediate improvement in the UK housing market. But there's no question it is a positive move. "The UK market is so intertwined with the US, it will also help the UK." He said it was "effectively a bit like the US doing a Northern Rock". The companies combined own or guarantee about five trillion dollars in home loans, about half the nation's total. But they have lost $14 billion (£8bn) in the last year and are likely to pile up billions more in losses until the housing market begins to recover. US president George Bush said: "Allowing the companies to fail or further deteriorate would damage our home mortgage market, and could weaken other credit markets that are unrelated directly to housing. "Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth." The executives and board of directors of both companies will be replaced. Treasury secretary Henry Paulson said the actions were being taken because the failure of either of the mortgage companies "would cause great turmoil in our financial markets here at home and around the globe". The huge potential liabilities facing each company could cost US taxpayers tens of billions of dollars. But Mr Paulson stressed that the financial impact if the two companies had been allowed to fail would be far more serious.
ITN | September 8, 2008
