Historic U.S. government takeover of Fannie and Freddie

Treasury Secretary Henry Paulson and James Lockhart, director of the Federal Housing Finance Agency on Sunday unveiled an extraordinary takeover of twin mortgage buyers, Fannie Mae and Freddie Mac, putting the government in charge of the twin mortgage giants and the $5 trillion in home loans they back. The sweeping plan places the two companies into a “conservatorship” to be overseen by the Federal Housing Finance Agency. Under the plan, the FHFA will assume the power of the board, and the two firms’ cheif executives will resign after a transitional period.

Fannie and Freddie, which were created by the U.S. government, have been badly hurt in the last year by the sharp decline in home prices as well as rising mortgage delinquencies and foreclosures.

The move marks Washington’s most dramatic attempt yet to shore up the nation’s housing market, which is suffering from record foreclosures and falling prices. Paulson said that the cost to taxpayers would largely depend on the future financial performance of Fannie and Freddie.

For more than a decade Fannie Mae and Freddie Mac have attracted overseas investors with a simple pitch: the securities they issue are just as good as the United States government’s, and they usually pay better. The trillions in securities issued by Fannie and Freddie and backed by American mortgages were never explicitly guaranteed by the U.S government, but foreign and domestic investors alike have always believed that the guarantee would be backed up if it were tested.

About one-fifth of securities issued by Fannie, Freddie and a handful of much smaller quasi-governmental agencies, some $1.5 trillion worth, were held by foreign investors at the end of March. One out of 10 American mortgages is, in effect, in the hands of institutions and governments outside the United States. Asian institutions and investors hold some $800 billion in securities issued by Fannie and Freddie, the bulk of that in China and Japan. China held $376 billion and Japan $228 billion as of June 2007, the most recent country-specific Treasury figures.

The bulk of investments related to Fannie and Freddie are in the form of mortgage-backed securities, often called agency securities or agency paper. This agency paper is considered of much higher quality than securities backed by sub-prime loans because Fannie and Freddie generally lend to borrowers with good credit histories and require higher down payments.

Myvoiceoflife

Sad Liberty

Eight out of ten Americans think their country is heading in the wrong direction. American house prices are falling faster than during the Depression, petrol is more expensive than in the 1970s, banks are collapsing, the euro is kicking sand in the dollar’s face, credit is scarce, recession and inflation both threaten the economy, and consumer confidence is an oxymoron.

Abroad, America has spent vast amounts of blood and treasure, to little purpose. In Iraq, finding an acceptable exit will look like success; Afghanistan is slipping. America’s claim to be a beacon of freedom in a dark world has been dimmed by Guantánamo, Abu Ghraib and the flouting of the Geneva Conventions amid the panicky “unipolar” posturing in the aftermath of September 11th.

Politicians seeking a scapegoat for America’s self-made problems too often point the finger at the growing power of once-poor countries.

Everybody goes through bad times. Some learn from the problems they have caused themselves, and come back stronger. Some blame others, lash out and damage themselves further. America has had the wisdom to take the first course many times before. Let’s hope it does so again.

Source: extracted from “Unhappy America”, economist.com

Zimbabwe 10 billion Dollars Become One-Dollar

Zimbabwe central bank devalues currency in bid to fight hyper-inflation

500 million-note

 Zimbabwe’s central bank governor Gideon Gonosays is knocking 10 zeros off the country’s hyper-inflated currency to make 10 billion dollars become one dollar. Gono said on Aug. 1, 2008 the bank will issue a 500-dollar bill equivalent to 5 trillion dollars at the current rate. The central bank introduced Z$500 million-note (picture) in May 2008. Just last week Gono introduced a new Z$100 billion-dollar note that is not enough to buy a loaf of bread.

Zimbabwe suffers the highest inflation rate in the world. Computers, electronic calculators and automated teller machines at banks have not been able to handle basic transactions in billions and trillions of dollars.