US bails out mortgage giants
Updated on 07 September 2008
The US government has seized control of mortgage giants Fannie Mae and Freddie Mac.
President George W Bush said the bail-out was necessary because problems at the lenders, which have $1.6 trillion (£8.9 bn) in debt outstanding, posed "an unacceptable risk to the broader financial system and our economy."
The companies own or guarantee almost half of the country's $12 trillion (£6.8 trillion) mortgage debt and are seen as pivotal to the health of US housing and financial markets.
The government-sponsored companies were put in a conservatorship that allows their stock to keep trading but puts common shareholders last in any claims.
The Federal Housing Finance Agency will manage the companies until they are restored to "safe and solvent" financial health, in an arrangement that drew comparisons to the British Government's temporary nationalisation of Northern Rock.
The US Treasury is also taking an equity stake in the companies, will purchase securities they issue and will extend credit to them - actions that could top $200 billion (£112bn).
The proposals, outlined less than two months before the US presidential election, leave the ultimate fate of Fannie Mae and Freddie Mac in the hands of the next president.
Democratic and Republican White House hopefuls Barack Obama and John McCain both agreed action was needed to ensure the companies did not end up endangering the economy.
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