Published on Thu, Aug 28 2008
Freddie Mac and Fannie Mae are not the solution but are considered right now as the main problem of the United States mortgage zone since their only existence gives the fuel for investors to take more risks that they would have taken. Indeed, strict regulation in the U.S. credit markets continues to hold back the economy and the USD could be vulnerable to a violent pullback in a wave of profit taking and assuring the money goes right into the pockets.

This week a report on the U.S. housing market showed that New Home Sales went high by 2.4% in July after having drop 0.6% in JUN. However, one data point does not make a trend and these numbers reflect more short term measures introduced by the Bush administration than real strength in the housing market. Indeed, Henry Paulson, the U.S. Secretary of the Treasury, recently announced a plan to provide liquidity, stability and affordability to the U.S. residential mortgage market. Among those measures was one to increase lending to Freddie Mac and Fannie Mae since many investors argue that they can not fall because they are large enough to be backed up financially and by the government. Since then Freddie Mac and Fannie Mae have been in the market buying mortgages and issuing complex securities and bonds. Yet, their investment strategy is not that different from the one taken by some of Bear Stearns or 80s Salomon Brothers hedge funds and bonds just before the firms collapse.