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THE FED’S TAKEOVER OF FANNIE AND FREDDIE

With all the headlines about Fannie and Freddie hemorrhaging money lately, it was hardly surprising when word came out that the government had stepped in. And, according to most of our poll respondents, that was the best thing that could be done. A vast majority of nearly 60% said this was the best possible solution, while 41% judged the move to be unfair to taxpayers, who will bear the financial burden. Ken Uranowitz, Managing Director of Gebroe-Hammer Associates, thinks that this was a necessary move. Here is what he has to say:

“This was a direct positive jolt to the capital markets. Not only did this provide billions of dollars of equity injected by the treasury, but also a much-needed psychological boost in an environment that’s had a lot of negativity lately. “The economy and markets are driven by the housing market, and this takeover was inevitable given the trillions of dollars that Fannie and Freddie own or guarantee. Those residential loans are suffering from the same subprime disease that other lenders have but on a more gargantuan scale. This had to happen to stabilize the markets and restore investor confidence and keep liquidity flowing.”I think anything in a forward upward motion that is received positively, which this has been, cannot hurt when it comes to confidence in the economy. In terms of financing and freeing up money, I believe spreads will, as a result of this move, come down. Interest rates have been unusually high given the ten-year treasury benchmark, which has been gradually coming down over the past few weeks, but the spreads have been rising. Once this takeover was announced, rates started reducing.”

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