Fed Opened To Fannie Mae and Freddie Mac

by Peter G. Miller
July 14th, 2008

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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