Treasury Secretary Henry Paulson today announced that the Treasury would buy $600 billion in mortgage-backed securities from banks, as well as $200 billion from Fannie Mae and Freddie Mac, signaling support for the government-sponsored enterprises in order to help those agencies provide more affordable lending to consumers by lowering the spreads on interest rates. “The Federal Government has guaranteed Fannie Mae and Freddie paper,” Paulson said. Paulson said that “we are seeing some distortions and dislocations as a result of this financial crisis” that are “clearly not right.” That is why the Treasury made the move, he said. The Treasury's prior moves were not compelling consumers to spend, resulting in the lowest drop in consumer spending in 20 years last month. “It is very important that lending continue to be available to consumers,” Paulson said. “This Fannie Freddie agency action is aimed at the housing market and at mortgage financing. The root cause of this financial crisis is in the housing market.” Paulson said the primary reason for the government buying the mortgage-backed securities is to lower rates and boost consumer confidence. At the same time, he said, in the long-term, it may be a good investment for the American taxpayer. Paulson said that the $200 billion is a “starting point,” as it will “take awhile to get this program up and going.”
