Paulson Says No Plan for Capital Injection

United States Treasury Secretary Henry Paulson said there is no plan to use his new authority to inject capital into mortgage companies Fannie Mae and Freddie Mac, which both posted worse-than-expected earnings last week.

We do not plan to insert money into either of those two institutions, Paulson said in an interview with NBC's Meet the Press broadcast on Sunday from Beijing. He added that their earnings results were not a surprise.

Paulson and Congress last month brokered a plan to bolster the two government-sponsored enterprises that includes giving Treasury the right to buy their shares. Fannie and Freddie, which account for almost half of the US$12-trillion mortgage market, reported losses three times worse than estimated, prompting some analysts to predict that Paulson will have to act.

Given that Fannie Mae and Freddie Mac are solely involved in housing, that's their sole business, and given the magnitude of the housing correction we've had, it's not a surprise to me to see those losses, Paulson said.

He said Freddie and Fannie's financial problems underscored his view that the housing crisis is the biggest threat to the US economy and the worst housing slump since the Depression won't end quickly.

We have got some serious issues that we're dealing with in our economy, he said. I believe it's going to take us well beyond the end of the year to work through all the housing problems.

Shares in Fannie and Freddie have plummeted more than 80 percent this year on concern they don't have sufficient capital to withstand record foreclosures on the US$5.2 trillion of mortgages they own or guarantee, Bloomberg News said.

Source: CRIEnglish