Photograph of Treasury Secretary Henry Paulson, Jr., left, and Federal Housing Finance Agency Director James Lockhart, right, discussing the Fannie Mae and Freddie Mac bailout by Susan Walsh/AP
After the U.S. federal government moved to take over mortgage companies Fannie Mae and Freddie Mac this past weekend, stock markets around the world rallied--trading in Tokyo ending 3.4% higher and in Hong Kong, it ended 4.3% higher. And in Europe, stocks also rose 3-4%.
While the markets may be happy, there's a huge amount of risk on taxpayers--"trillions of dollar of risk," per USA Today. Richard Yamarone, director of economic research at Argus Research, told USAT, "You can call it a bailout, you can call it a safety net or you can call it a rescue package, but the bottom line is the American taxpayer is left footing the bill." Bloomberg News adds that "Investors may be forced to settle contracts protecting more than $1.4 trillion" of Fannie and Freedie bonds, because the government's "rescue constitutes a credit event triggering payment or delivery of the companies' bonds."
In the meantime, Treasury Secretary Henry Paulson said, "The new Congress and the next administration must decide what role government in general, and these entities in particular, should play in the housing market." (Here are his full remarks.) One investor told Bloomberg News that the government has "not saved Fannie and Freddie, what they've done is they've bought 15 months," but Warren Buffett told CNBC the Treasury did the right thing.
From CNBC, here's what the bailout means for you
