Any hope the world has that the credit crisis gripping America has done its worst was blown out of the water this past week. After the collapse of IndyMac Bancorp Inc, there is now huge trouble at mortgage giants Fannie Mae and Freddie Mac.
To its credit, the U.S government isn’t taking any chances. The American Federal Reserve and the U.S Treasury has announced steps to shore up both Fannie Mae and Freddie Mac, who owned about half the outstanding mortgages in the United States. That’s around US$5.3 trillion.
The Fed said that it would lend to the two companies "should such lending prove necessary" and would pay 2.25 percent for any borrowed funds. All good steps that are needed to prevent the credit market troubles from engulfing the world’s financial markets.
For anyone who thinks that Fannie Mae and Freddie Mac are too big to fail, I should remind you that IndyMac had $19.06 billion in total deposits and collapsed after depositors withdraw more than $1.3 billion during the 11 days. This proves that despite all the government’s steps, the American people are still very nervous about their economy.
Let’s just hope the market turmoil do not turn into a tsunami that will engulf the world.