Global shock waves as US mortgages giants bailed out

Jul 16 2008 by Tony McDonough, Liverpool Daily Post

THIS week, the US Federal Reserve agreed to provide emergency funds for Fannie Mae and Freddie Mac, which together hold or back around half of US mortgage debt.

When the troubles of the two companies was revealed at the end of last week, it sent shock waves through stock markets across the world, including London.

In a move designed to calm increasing panic on Wall Street the Fed issued a joint statement in which they pledged to spend billions of dollars of taxpayers’ money to bail out the two American mortgage giants.

The statement said it would offer cheap financing to the companies through its so-called discount window. The two groups together account for more than half of America’s $12,000bn of outstanding mortgages.

Their collapse could have a catastrophic domino effect across the credit market in the US. But how are the effects of the crisis being felt here in the UK?

Paul Williams, head of research at Liverpool stockbrokers Blankstone Sington, warned that there could be a “sizeable” impact on this side of the Atlantic.