Rather than marking the turning point that assures an economic recovery, the support that had to be provided to US mortgage giants Fannie Mae and Freddie Mac last weekend simply underlines the severity of the ongoing credit crisis.
The bailout will help to avoid the worst-case scenario of a complete financial meltdown, but the outlook for the housing market and the wider economy remains grim. The US government's stunning takeover of Fannie and Freddie saves the mortgage giants' lives, but fails to determine what they will look like once they unplug from life support. The job of rehabilitating America's largest housing finance companies will fall to the next US congress and the next president.
Hours after Fannie Mae and Freddie Mac were placed under federal conservatorship by treasury secretary Henry Paulson, US housing experts were predicting a struggle next year over the ultimate fate of the government-sponsored enterprises, or GSEs.
Reform scenarios for Fannie and Freddie have been debated for years, ranging from nationalisation at one extreme to privatisation at the other. Taking into account next year's political changes on Capitol Hill and in the White House, chances for radical change in the next year or two may be remote. The Democratic Party is widely expected to keep House of Representatives control next year, while possibly increasing its narrow senate advantage.
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