Real Estate Rescue Package Set For Only a Short Term Relief
Published in Dagens Industri
(Sweden) on July 14th, 2008
by Tidningarnas Telegrambyrå (link to original)
The crisis package that the United States government has presented to save Fannie Mae and Freddie Mac is at the most similar to ”putting a damp cloth on the American finance market, which has come down with a burning hot fever” according to a Swedish financial advisor. The US Treasury on Sunday took comprehensive measures to save mortgage institutions Fannie Mae and Freddie "Mac in order to re-establish investor confidence in both, together insuring a staggering 5.2 trillion dollar, or almost half of the United States mortgage market.
The companies were deep in trouble at close on Friday. The Federal Reserve Bank is therefore standing ready to lend them huge amounts of money and the Treasury is ready to buy parts of the institutions.
"Their support for the housing market is particularly important as we work through the current housing correction," Secretary of Treasury Henry Paulson said in a statement.
The Congress is set to pass the rescue package later in the week.
The rescue plan seemed to work in calming the market on Monday. The US dollar gained in a number of currencies from a record low and Fannie Mae and Freddie Mac stock value increased.
But the world is still anxious about the health of the American financial markets.
The American rescue package ”might cool the patient down, but will not cure the fever,” said Rodney Alfvén, head advisor at Cheuvreuax Nordic, to Tidningarnas Telegrambyrå*.
The crisis epicenter lies in the American real-estate market, which in recent years has seen a structure never seen before.
The supply on real estate far out-weights the demand, which leads to a price drop that translates into huge losses for mortgage companies.
Banks and other lending institutions have since had to raise the mortgage interest rate in order to make up for losses.
In just the last quarter, 700,000 American families had to move out of their house due to raising interest rates, which have then been sold on fore closure at record low prices.
"At a recent house auction where 1000 houses where set to be sold at once, houses with a price tag of 300,000 to 500,000 were sold for between 1,000 and 46,000," Rodney Alfven says.
According to the advisor Swedish banks have done a better job then their international colleagues, and not handed out credit to easily.
There is no immediate risk that there is not enough capital in Swedish banks." Alfven says.
This according to TT
The companies were deep in trouble at close on Friday. The Federal Reserve Bank is therefore standing ready to lend them huge amounts of money and the Treasury is ready to buy parts of the institutions.
"Their support for the housing market is particularly important as we work through the current housing correction," Secretary of Treasury Henry Paulson said in a statement.
The Congress is set to pass the rescue package later in the week.
The rescue plan seemed to work in calming the market on Monday. The US dollar gained in a number of currencies from a record low and Fannie Mae and Freddie Mac stock value increased.
But the world is still anxious about the health of the American financial markets.
The American rescue package ”might cool the patient down, but will not cure the fever,” said Rodney Alfvén, head advisor at Cheuvreuax Nordic, to Tidningarnas Telegrambyrå*.
The crisis epicenter lies in the American real-estate market, which in recent years has seen a structure never seen before.
The supply on real estate far out-weights the demand, which leads to a price drop that translates into huge losses for mortgage companies.
Banks and other lending institutions have since had to raise the mortgage interest rate in order to make up for losses.
In just the last quarter, 700,000 American families had to move out of their house due to raising interest rates, which have then been sold on fore closure at record low prices.
"At a recent house auction where 1000 houses where set to be sold at once, houses with a price tag of 300,000 to 500,000 were sold for between 1,000 and 46,000," Rodney Alfven says.
According to the advisor Swedish banks have done a better job then their international colleagues, and not handed out credit to easily.
There is no immediate risk that there is not enough capital in Swedish banks." Alfven says.
This according to TT