Freddie and Fannie panic intensifies

STEVE LADURANTAYE
The Globe and Mail
July 13, 2008

The bloodletting at Freddie Mac and Fannie Mae could have profound consequences for the U.S. economy, but it appears to stem more from a crisis of confidence than fundamentals.

“Events are moving so quickly, I’m not sure what’s relevant any more,” said Howard Shapiro, an analyst at New York’s Fox-Pitt Kelton Cochran Caronia Waller. “We’re basically in the world of psychology and panic now and nothing has anything to do with reality.”

While industry experts suggest Freddie Mac and Fannie Mae have enough capital to weather the housing crisis, shares in both companies dropped 45 per cent in the last week as investors rushed to get their money out, fearing that U.S. government intervention could wipe out their holdings.

The mortgage crisis in the United States deepened yesterday as federal regulators seized IndyMac Bank’s assets. It is the biggest regulated thrift to fail and the second-biggest financial institution to close in U.S. history.

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