Fannie and Freddie lose another $19bn

banknotes.pngSenator Dirksen’s great one-liner in the US Senate, “A $bn here, a $bn there, and pretty soon you’re talking real money” is beginning to seem sadly out of date, as the costs of the financial crisis escalate.

Today saw the Eurozone announce a €750bn ($936bn) bail-out fund, including €250bn from the IMF, to support its weaker members. This does finally provide the leadership that has been sadly lacking till now. But the news caused interest rates to rise in the zone’s stronger economies, as investors worried about the costs of the move.

Against this background, another $19bn for the two US mortgage giants, Fannie Mae and Freddie Mac, seems hardly worth recording. Even the total $145bn spent so far on their ‘rescue’ seems chicken-feed. But, of course, it isn’t. It is also real money that taxpayers will have to fund – either via increased taxes, or reduced public services.

Fannie and Freddie own or guarantee $5.5trn of mortgages, around half of the US total. They went bankrupt back in September 2008, but were nationalised, and are now the only major lenders left in the housing market. Politicans therefore daren’t close them down but equally, as the blog noted in February, have no idea how to cap their losses.

Fannie and Freddie’s continuing need for further bailouts is a reminder that the housing sector, so critical for chemical demand, is still a long way from full recovery.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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