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Paul Kiesel
Paul Kiesel
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Secretary Paulson: Housing Crisis Remains the Biggest Threat to U.S. Economy

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Even after Fannie Mae and Freddie Mac announced last week that their losses were three times worse than estimated, Treasury Secretary Paulson said, “We have no plans to insert money into either of those two institutions.”

The government might not have plans as of this moment to inject capital into the struggling mortgage giants, however, if they didn’t have plans at some point to support Fannie and Freddie financially (even if it’s just buying up their stocks), then they wouldn’t have added provisions to the recent housing bill that explicitly guarantees government aid if the mortgage lenders continue to report losses. It’s likely that if the next wave of foreclosures is more depressing on the U.S. economy than what we’ve seen so far, and is preventing Fannie and Freddie from originating new mortgages, then Paulson will give the signal to relieve the two companies from their financial distresses.

Paulson, however, did point out that the financial problems at Fannie and Freddie validated his recent assessments that the housing crisis remained the biggest threat to the nation’s economy.

According to the New York Times, Paulson said that he believes the housing crisis is going to take us well into next year before the economy is able to work through all its housing problems.

Even with all of these problems, Paulson made a point to say that he would not stay on as Treasury secretary after President Bush’s term ends in January. His successor will have, potentially, a big mess to clean up if Paulson isn’t able to mitigate the next stage of foreclosures in a more appropriate manner than the first round of mortgage defaults (i.e. Hope Now program).