CSI: Wall Street

Feds step in to save GSEs, but investor confidence is still on the lam

July 21, 2008

In the days after the July 4 weekend, Wall Street offered its own fireworks display. US housing agencies saw the value of their shares drop to historic lows and concerns cropped up about their ability to continue to readily turn to the capital markets, prompting the Treasury Department and the Federal Reserve to make explicit what was once implicit: Fannie Mae and Freddie Mac have the backing of the US government. The concerns about the financial health of Fannie Mae and Freddie Mac and anxieties about California lender IndyMac drove US Treasury yields lower. Borrowing costs for home loans were little changed and, in some cases, increased, yet another sign that business on Mainstreet USA was being affected by the credit market mess in a way that the US economy could not afford.

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