When faith is frayed
Tom Petruno
Los Angeles Times
July 12, 2008
In a modern financial system, nothing is more frightening than a run on the bank.
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The U.S. now has suffered through a series of them, and they are escalating in size and scope — posing a serious threat to the already reeling economy.
On Friday, rumors swamped financial markets that the federal government would be forced to step in to aid mortgage-finance giants Fannie Mae and Freddie Mac, which together own or guarantee $5 trillion in U.S. home loans.
In Wall Street’s version of a bank run, investors drove shares of Fannie Mae and Freddie Mac to 17-year lows, signaling a gnawing lack of faith in the companies’ ability to survive rising mortgage defaults without government help.
Later in the day, regulators took over IndyMac Bank of Pasadena, saying the $32-billion lender had collapsed under the weight of bad home loans and withdrawals by spooked depositors. It was the second-largest bank failure in U.S. history.
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