Treasury Secretary Henry Paulson today said Congress needs to quickly approve a support package for Fannie Mae and Freddie Mac to make sure the two mortgage giants maintain their critically important role in housing finance. Paulson said that Fannie and Freddie have issued $5 trillion in debt and mortgage backed securities. Of that amount more than $3 trillion is held by U.S. financial institutions and over $1.5 trillion is held by foreign institutions, making the stabilization of the two companies essential to the global economy. “Because of their size and scope, Fannie and Freddie's stability is critical to financial market stability,” Paulson told an audience at the New York Public Library. “Investors in our nation and around the world need to know that we understand how important these institutions are to our capital markets broadly and to the U.S. economy.” The effort to provide support to the two mortgage giants follows the government's involvement in dealing with the near-collapse of Bear Stearns in March when the Federal Reserve provided a $30 billion loan to facilitate the sale of Bear Stearns to JPMorgan. Financial markets calmed down after the Bear Stearns episode in March only to become more turbulent in recent weeks as worries increased about mounting losses at financial institutions due to bad mortgage loans. Paulson cautioned that the country should expect “additional bumps in the road. We have been experiencing more bumps recently and until the housing market stabilizes further we should expect some continued stresses in our financial markets.” In an effort to reassure Americans about the safety of their bank deposits, Paulson said that even with the failure earlier this month of savings and loan IndyMac Bank, no money was lost on deposits insured by the Federal Deposit Insurance Corp., which insures accounts up to $100,000. “No one has or will lose a penny of insured deposits,” Paulson said. “The American people have every reason to remain confident that the U.S. banking system is sound.”
