US Govt takes control of mortgage giants
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Under federal control: Freddie Mac (Reuters)
The US Government has launched a massive takeover of the nation's two biggest mortgage companies to try to contain the damage from the devastating housing slump.
The historic intervention has targeted mortgage giants Fannie Mae and Freddie Mac, which have a hand in half of all mortgages in the United States.
The US Treasury is estimating that the cost of the bailout could be well over $US100 billion, and could amount to the largest financial bailout in US history.
Fannie Mae and Freddie Mac own or guarantee half of America's $US12 trillion ($14.5 trillion) in mortgage debt.
US Treasury Secretary Henry Paulson says they will be put in what is called a Government "conservatorship" and has bluntly spelled out what is at stake if they were to fail.
"Our economy and our markets will not recover until the bulk of this housing correction is behind us," US Treasury Secretary Henry Paulson said at a news conference.
"Fannie Mae and Freddie Mac are critical to turning the corner on housing."
President George W. Bush says the takeover is needed because the two firms pose an unacceptable risk to the economy and cannot operate safely and soundly.
In a statement, he said putting Fannie Mae and Freddie Mac on a sound footing is critical to the health of the US financial system.
But he also said the move was only temporary.
The decision to mount the intervention was timed to take effect before the stockmarkets in Asia open.
The US Treasury will initially buy $US1 billion in shares in each of the firms, but will have the authority to boost that total to $US100 billion each.
Economic analyst Frederick Cannon says the bailout makes financial sense.
"You have to feel good about what it means for the economy, in the short term this is probably necessary, it's certainly not a long term solution," he said.
Mr Paulson is also making it clear that the housing correction poses the biggest risk to an American economy teetering on the brink of recession.
"our economy and our markets will not recover until the bulk of this housing correction is behind us."
The US Treasury Secretary describes the takeover as a "time out".
He has also announced that the current CEOs of both Fannie Mae and Freddie Mac are being removed.
Government control will remain in place until December next year, meaning that the crisis surrounding Fannie Mae and Freddie Mac will be a challenge for the next President.
Mr Paulson also discussed the rescue plan with both Democratic nominee Barack Obama and Republican hopeful John McCain.
