Word: paulson
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Federal Reserve chairman Ben Bernanke, who in March put up $29 billion to entice JP Morgan Chase to take over struggling Bear Stearns, and Treasury Secretary Hank Paulson, who just over a week ago committed up to $200 billion in taxpayer funds to rescue mortgage lenders Fannie Mae and Freddie Mac, have opted not to go the bailout route this time. The Fed did announce yet another expansion of its lending programs to banks and investment banks, but so far that's it. The hope seems to be that if Lehman's (and perhaps AIG's) liquidation transpires...
...sure to be volatile, even as our captains of industry try their best to keep the faith. The CEOs of Bank of America and Merrill Lynch held a joint press conference to discuss in upbeat tones B of A's planned takeover of Merrill, while Treasury Secretary Hank Paulson held a press conference to tell Americans they should remain confident in the "soundness and resilience in the American financial system...
...debtor, the U.S. can ill afford to develop a reputation for stiffing its creditors, the reasoning went. Rates might rise sharply not just on mortgage securities but for all kinds of U.S. debt, including Treasuries. Such fears say a lot about this country's newfound financial dependence. So does Paulson's preference for making announcements on Sunday--just before the markets open for the week in Asia. "I suspect this is the first case where foreign central banks exercised their leverage as creditors to push the U.S. government to make a policy decision that protected their interests," wrote Brad Setser...
...course, by extending a taxpayer guarantee to $5.3 trillion in mortgage debt, Paulson and Congress do risk sparking global worries about the U.S. government's ability to service its debts. But so far, such concerns, while raised occasionally in the financial media, have had no discernible effect on interest rates...
Whether you believe that or not, it's certainly true that Frannie has since stepped up precisely as private lenders have pulled back. Paulson's takeover plan envisions the GSES continuing to step up through the end of 2009, after which Treasury's backing expires and the next Administration and Congress will decide the companies' future...