Hank Paulson used that bazooka after all, says Lex. Washington’s decision to place Fannie Mae and Freddie Mac into “conservatorship” came without a specific cause – such as a failed debt refinancing – but rather a sense they were both failing to provide affordable mortgage debt while also threatening to derail the US financial system. The looming election, combined with growing aversion among foreign central banks to US mortgage-backed paper, may also have prompted his early intervention. The bailout is potentially huge, although probably not America’s biggest: the public cost of the S&L crisis was $300bn in today’s money. Still, drastically extending the role of the state cannot be what Paulson imagined he would do when he joined the Treasury from Goldman Sachs in 2006. Perhaps he is simply behaving like any good banker – expanding his balance sheet. And in this case, it’s pretty much the last one left in town.

This entry was posted by Gwen Robinson on Monday, September 8th, 2008 at 5:42 and is filed under Capital markets, People. Tagged with Fannie Mae, freddie mac, hank paulson. Edit this entry.