<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Wonder how the BEST paid ministers would have handled it -if they could instead of peeing in their pants and resort to blaming to the people?
Sep 10, 2008
NEWS ANALYSIS
</TR><!-- headline one : start --><TR>Fannie-Freddie rescue not a cure-all for credit crisis
</TR><!-- headline one : end --><TR>A recession in the US and beyond is as likely as ever, warn experts </TR><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Grace Ng
</TD></TR><!-- show image if available --><TR vAlign=bottom><TD width=330>
</TD><TD width=10>
</TD><TD vAlign=bottom>
Washington's unusually interventionist stance has only highlighted more starkly how fragile the US financial system is. -- PHOTO: AGENCE FRANCE-PRESSE
</TD></TR></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->THE bailout of Fannie Mae and Freddie Mac may have thrown a government- backed lifeline to the mortgage titans, but it is hardly the panacea for the global credit crunch.
By nationalising Fannie and Freddie, the US hoped to restore stability to the battered housing market, put the economy on a sounder footing and calm market jitters that the firms would collapse.
<TABLE width=200 align=left valign="top"><TBODY><TR><TD class=padr8><!-- Vodcast --><!-- Background Story --><STYLE type=text/css> #related .quote {background-color:#E7F7FF; padding:8px;margin:0px 0px 5px 0px;} #related .quote .headline {font-family: Verdana, Arial, Helvetica, sans-serif; font-size:10px;font-weight:bold; border-bottom:3px double #007BFF; color:#036; text-transform:uppercase; padding-bottom:5px;} #related .quote .text {font-size:11px;color:#036;padding:5px 0px;} </STYLE>Who wins and who loses
LIKELY WINNERS
Major banks will benefit from more stable credit markets. In the longer term, banks with large mortgage businesses, such as Bank of America, may have the chance to take over some of Fannie Mae's and Freddie Mac's businesses.
</TD></TR></TBODY></TABLE>Fannie and Freddie together control half of the US$12 trillion (S$17 trillion) US housing market. They are 'so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe', said US Treasury Secretary Henry Paulson.
Indeed, the rescue plan is widely lauded for helping to forestall a death spiral in the housing markets. Markets worldwide rallied on Monday after the news.
The move 'has restored some sanity to the markets which have been living under uncertainty', acknowledged Citigroup's Singapore research head Chua Hak Bin.
'Things would have turned even uglier if the US government had not acted. But the question is: Is this sufficient to completely turn around the housing market and...solve the fundamental problems in the financial sector? I'm not convinced.'
Mr Chua is among a growing chorus of experts warning that while the immediate danger of a housing market meltdown in the US has been averted, a recession there and beyond is as likely as ever.
'This euphoria might fade, because Fannie and Freddie are not the problem,' Mr Christopher Low, chief economist at FTN Financial in the US, told Reuters.
'Their woes are a symptom of a worldwide contraction in credit that may not be cured by the decision.'
But for now, the plan appears to be achieving some of its short-term aims.
The US government has committed up to US$200 billion to boost the much- needed capital Fannie and Freddie failed to get from private investors, wary of the firms branded a 'house of cards' by US Senator Richard Shelby.
The government has also offered to buy back mortgage-backed securities and to provide Fannie and Freddie with a liquidity support facility of unlimited size. This helped to lower mortgage rates, with 30-year rates falling half a percentage point to 6 per cent on Monday.
This fall in housing costs will hopefully ease the decline in home prices, which have already plummeted over 18 per cent from their peak two years ago. But with a huge over-supply of homes, the bailout is unlikely to cause the market to bottom out, say analysts.
Neither is it likely to provide a turning point in the crisis. Mr Paulson's gamble is that the plan will create a liquid market for mortgage securities to induce lower rates and convince banks to lend more and perk up consumer spending.
Contrast this with the bleak picture painted by data released on Monday: US consumer borrowing increased only about half as much as forecast in July.
Banks restricted lending even to well-heeled customers, and Americans shied away from spending even as higher oil and food prices ate into their salaries.
Meanwhile, national economic activity has been dragged down as builders grind to a halt, while the unemployment rate skyrocketed to a five-year high last month. Another half a million jobs may go by early next year, some economists predict.
And Asian markets faltered yesterday as the realisation sank in that Monday's rally was overdone, given the outlook for retarded global growth. After all, the takeover of Fannie and Freddie is merely a stop-gap measure to keep them going into next year, leaving the next president to find a permanent solution for them and the entire distressed financial sector.
So it would take much more than just potentially the costliest bailout in US history to convince nervous foreign governments, among the largest buyers of Fannie and Freddie debt and US treasuries, that it is still safe to keep their money in the general US system.
For onlookers in Singapore and across the region, the US government's unusually interventionist stance has served only to highlight more starkly how fragile and broken the US financial system is.
The credit crisis has worsened as the vicious circle - financial sector weakness dragging down economic growth, which in turn exacerbates financial sector woes further - gathers momentum.
Besides the US, Britain, the Eurozone and Japan are facing the spectre of negative growth. As for Asia, which counts the US and European Union as key export markets, analysts say a slowdown seems inevitable - the question is how much and how long.
It does not help that the US Federal Reserve appears to be running out of tools to combat the convergence of broader economic pressures. 'The effort to contain the financial crisis seems to be failing,' argued economist Paul Krugman in a New York Times commentary. Despite the Fed's aggressive cuts in interest rates and pushing funds into the private sector, credit has become tighter, not easier. Mr Krugman also criticised the fiscal stimulus as 'too small and poorly targeted'.
'The Fannie-Freddie rescue was a good thing. But it takes place in the context of a broader economic struggle - a struggle we seem to be losing.'
Now that Mr Paulson has used his infamous 'bazooka' - his new authority to seize Fannie and Freddie - to blast a way out of the financial sector morass, will this herald even more government intervention? With Wall Street's writedowns linked to the credit crunch expected to zoom up to US$2 trillion by next year, it may take a drastic move like socialising a larger share of these losses to thoroughly purge the system of toxic loans.
But which sovereign wealth fund or private equity fund is willing to step in to recapitalise even larger parts of the crippled financial sector? None came to the rescue of Fannie and Freddie.
The lone white knight left standing amid the chaos in the land of free enterprise appears to be the US government. And as Merrill Lynch economist David Rosenberg pointed out: 'No banking sector crisis ever ended without massive doses of government intervention.' [email protected]
Sep 10, 2008
NEWS ANALYSIS
</TR><!-- headline one : start --><TR>Fannie-Freddie rescue not a cure-all for credit crisis
</TR><!-- headline one : end --><TR>A recession in the US and beyond is as likely as ever, warn experts </TR><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Grace Ng
</TD></TR><!-- show image if available --><TR vAlign=bottom><TD width=330>
</TD><TD width=10>
Washington's unusually interventionist stance has only highlighted more starkly how fragile the US financial system is. -- PHOTO: AGENCE FRANCE-PRESSE
</TD></TR></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->THE bailout of Fannie Mae and Freddie Mac may have thrown a government- backed lifeline to the mortgage titans, but it is hardly the panacea for the global credit crunch.
By nationalising Fannie and Freddie, the US hoped to restore stability to the battered housing market, put the economy on a sounder footing and calm market jitters that the firms would collapse.
<TABLE width=200 align=left valign="top"><TBODY><TR><TD class=padr8><!-- Vodcast --><!-- Background Story --><STYLE type=text/css> #related .quote {background-color:#E7F7FF; padding:8px;margin:0px 0px 5px 0px;} #related .quote .headline {font-family: Verdana, Arial, Helvetica, sans-serif; font-size:10px;font-weight:bold; border-bottom:3px double #007BFF; color:#036; text-transform:uppercase; padding-bottom:5px;} #related .quote .text {font-size:11px;color:#036;padding:5px 0px;} </STYLE>Who wins and who loses
LIKELY WINNERS
Major banks will benefit from more stable credit markets. In the longer term, banks with large mortgage businesses, such as Bank of America, may have the chance to take over some of Fannie Mae's and Freddie Mac's businesses.
</TD></TR></TBODY></TABLE>Fannie and Freddie together control half of the US$12 trillion (S$17 trillion) US housing market. They are 'so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe', said US Treasury Secretary Henry Paulson.
Indeed, the rescue plan is widely lauded for helping to forestall a death spiral in the housing markets. Markets worldwide rallied on Monday after the news.
The move 'has restored some sanity to the markets which have been living under uncertainty', acknowledged Citigroup's Singapore research head Chua Hak Bin.
'Things would have turned even uglier if the US government had not acted. But the question is: Is this sufficient to completely turn around the housing market and...solve the fundamental problems in the financial sector? I'm not convinced.'
Mr Chua is among a growing chorus of experts warning that while the immediate danger of a housing market meltdown in the US has been averted, a recession there and beyond is as likely as ever.
'This euphoria might fade, because Fannie and Freddie are not the problem,' Mr Christopher Low, chief economist at FTN Financial in the US, told Reuters.
'Their woes are a symptom of a worldwide contraction in credit that may not be cured by the decision.'
But for now, the plan appears to be achieving some of its short-term aims.
The US government has committed up to US$200 billion to boost the much- needed capital Fannie and Freddie failed to get from private investors, wary of the firms branded a 'house of cards' by US Senator Richard Shelby.
The government has also offered to buy back mortgage-backed securities and to provide Fannie and Freddie with a liquidity support facility of unlimited size. This helped to lower mortgage rates, with 30-year rates falling half a percentage point to 6 per cent on Monday.
This fall in housing costs will hopefully ease the decline in home prices, which have already plummeted over 18 per cent from their peak two years ago. But with a huge over-supply of homes, the bailout is unlikely to cause the market to bottom out, say analysts.
Neither is it likely to provide a turning point in the crisis. Mr Paulson's gamble is that the plan will create a liquid market for mortgage securities to induce lower rates and convince banks to lend more and perk up consumer spending.
Contrast this with the bleak picture painted by data released on Monday: US consumer borrowing increased only about half as much as forecast in July.
Banks restricted lending even to well-heeled customers, and Americans shied away from spending even as higher oil and food prices ate into their salaries.
Meanwhile, national economic activity has been dragged down as builders grind to a halt, while the unemployment rate skyrocketed to a five-year high last month. Another half a million jobs may go by early next year, some economists predict.
And Asian markets faltered yesterday as the realisation sank in that Monday's rally was overdone, given the outlook for retarded global growth. After all, the takeover of Fannie and Freddie is merely a stop-gap measure to keep them going into next year, leaving the next president to find a permanent solution for them and the entire distressed financial sector.
So it would take much more than just potentially the costliest bailout in US history to convince nervous foreign governments, among the largest buyers of Fannie and Freddie debt and US treasuries, that it is still safe to keep their money in the general US system.
For onlookers in Singapore and across the region, the US government's unusually interventionist stance has served only to highlight more starkly how fragile and broken the US financial system is.
The credit crisis has worsened as the vicious circle - financial sector weakness dragging down economic growth, which in turn exacerbates financial sector woes further - gathers momentum.
Besides the US, Britain, the Eurozone and Japan are facing the spectre of negative growth. As for Asia, which counts the US and European Union as key export markets, analysts say a slowdown seems inevitable - the question is how much and how long.
It does not help that the US Federal Reserve appears to be running out of tools to combat the convergence of broader economic pressures. 'The effort to contain the financial crisis seems to be failing,' argued economist Paul Krugman in a New York Times commentary. Despite the Fed's aggressive cuts in interest rates and pushing funds into the private sector, credit has become tighter, not easier. Mr Krugman also criticised the fiscal stimulus as 'too small and poorly targeted'.
'The Fannie-Freddie rescue was a good thing. But it takes place in the context of a broader economic struggle - a struggle we seem to be losing.'
Now that Mr Paulson has used his infamous 'bazooka' - his new authority to seize Fannie and Freddie - to blast a way out of the financial sector morass, will this herald even more government intervention? With Wall Street's writedowns linked to the credit crunch expected to zoom up to US$2 trillion by next year, it may take a drastic move like socialising a larger share of these losses to thoroughly purge the system of toxic loans.
But which sovereign wealth fund or private equity fund is willing to step in to recapitalise even larger parts of the crippled financial sector? None came to the rescue of Fannie and Freddie.
The lone white knight left standing amid the chaos in the land of free enterprise appears to be the US government. And as Merrill Lynch economist David Rosenberg pointed out: 'No banking sector crisis ever ended without massive doses of government intervention.' [email protected]
