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The Treasury plans to privatise Fannie Mae and Freddie Mac

THE EFFECTS of financial crises have a habit of lingering. In 2008, having suffered heavy losses amid the wreckage of America’s housing market, Fannie Mae and Freddie Mac, the two “government-sponsored enterprises” (GSEs) that support much of the country’s mortgage finance, were bailed out by the federal government to the tune of $188bn. They were placed in “conservatorship”, a form of government control. That was supposed to be temporary. It has lasted for more than a decade. On September 5th the treasury secretary, Steven Mnuchin, published a long-awaited plan to privatise Fannie and Freddie. He calls their status “the last unfinished business of the financial crisis”.Fannie and Freddie are at the core of America’s system of housing finance. They buy mortgages, mainly from banks, then bundle them into securities which they guarantee. They then either retain those securities on their own balance-sheets or, far more often, sell them to investors. (European banks, by contrast, tend to retain the mortgages they originate as loans on their balance-sheets.) Between them the two GSEs provided $460bn of mortgage finance in the first half of this year; more than $5trn of housing-related securities or guarantees sits on their balance-sheets, nearly half the total outstanding in America.
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