Treasury Secretary Henry Paulson announced the governments take over of the nation’s leading mortgage giants. Paulson selected Herbert M. Allison Jr. and David M. Moffet to head the two companies Fannie Mae and Freddie Mac.
Paulson made the decision to pull Fannie and Freddie’s current CEO’s in order to avoid “systemic risk” to financial markets. In their place Paulson brought in Mr. Allison, 65, who previously was head of retirement plan manager TIAA-CREF, and named him chief executive officer of the Washington-based Fannie Mae; Mr. Moffet, an executive of Carlyle Group and at one time vice chairman of U.S. Bancorp, will head the Virginia-based Freddie Mac.
Both Allison and Moffet will have their work cut out for them as former Fannie CEO Daniel Mudd and Freddie’s Richard Syron have left the companies in shambles. Mudd and Syron were hired in 2004 to aid the mortgage giants in recovering from accounting scandals. Instead the two men continually lead their firms into risky investments “and then failed to react quickly enough when the subprime mortgage market began to deteriorate in 2007” as Bloomberg.com reported.
William Poole, former Federal Reserve Bank of St. Louis President, said today on Bloomberg Radio that the Treasury's takeover yesterday is primarily a ``stopgap to try to prevent the mortgage market from falling apart''.
Fannie Mae, formed after the Great Depression and spun off in 1968, and Freddie Mac, created in 1970, our now back under the watchful eye of the government. Bloomberg.com reports that it is “the biggest step yet in officials' efforts to grapple with a yearlong credit crisis that has caused more than $500 billion of losses and writedowns.”
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