THE US government’s announcement that it was going to take over two major mortgage lenders, Freddie Mac and Fannie Mae, led to a rise in global market shares.
US Treasury Secretary Henry Paulson announced the rescue plan for the two companies on Sunday, before markets opened.
He said that the government was intervening in the wider interests of the financial system and of taxpayers since the financial position of the two firms was fast deteriorating.
This move is intended to keep the two companies afloat, amid fears that either could go bankrupt as borrowers default on their home loans.
Following the announcement, major shares added 2.58 per cent in trading on Wall Street while key European and Asian indexes were up by at least two per cent.
Together, Freddie Mac and Fannie Mae own, or guarantee, around 5.3 trillion dollars (3.7 trillion euros) of mortgages, around 50 per cent of all mortgages in the US, but have made a combined loss of 14 billion dollars (9.8 billion euros) in the past year.
The most recent figures show that around nine per cent of US mortgage holders were behind on their payments or faced repossession.
A rescue plan passed by Congress in July also gave the US government the authority to offer unlimited liquidity to the two companies, and to buy their shares, in order to keep them afloat.
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