Much like everything else tied to the stock market, we have analysts, and stock trading investors that love to jump the gun. When they jump the gun, everything comes tumbling down so to speak.
When investors feel the market is not doing what they think it should and bring them record profits, they pull away from certain stocks, or sell what they own. When investors do not have confidence in any market sector, they are not going to buy stocks in that sector whether it is the housing market, oil, or even electronics. We see this trend all the time in every sector across the board.
Of course, you heard it on the news that Fannie Mae and Freddie Mac were in trouble, once again, you are listening to the Media that loves to blow everything out of proportion to get a rise out of investors, consumers, and everyone that listens.
When this occurred, the Fedâ€™s had to do something just to ease the minds of the general public and of course those investors on Wall Street. What did they do? Well, all they really did was state that Fannie Mae and Freddy Mac cannot fail as they are both government sponsored enterprises and they will do what is necessary to stop the failure, which will never happen.
The Fedâ€™s devised an emergency plan just to put everyone at ease, which includes:
Congress was asked to pass legislation to extend lines of credit for a temporary time period over the 2.25 billion limits at the present time.
This will give the Treasury has the option to buy equity in Fannie Mae and Freddie Mac.
In addition, grant the Federal Reserve Bank of New York the authority to lend funds to Fannie Mae and Freddie Mac if needed.
After the initial statement from the Fedâ€™s we heard from both Fannie Mae and Freddie Mac.
Daniel H. Mudd, President, and CEO of Fannie Mae stated, â€œWe continue to hold more than adequate capital reserves and maintain access to liquidity from the capital markets,â€¦â€œGiven the market turmoil, having options to access provisional sources of liquidity if needed will help to strengthen overall confidence in the market.â€
Words of Richard F. Syron, Chairman and CEO of Freddie Mac were, â€œThe company (Freddie Mac) is adequately capitalized, has a large liquidity portfolio and access to the world’s debt markets. The company’s capital and liquidity resources will enable it to continue to serve its public mission as it has always done.â€