Government intervention in private enterprise

Fazle Rashid from New YorkbrThe US federal government set to rest weeks of speculations in the Wall Street by finally taking over the managements of two troubled mortgage banks namely Fannie Mae and Freddie Mac in what the analysts said to pull the nation out of its worst crisis in decades. The urgency of the move is well reflected by the accomplishment of the take-over last Sunday.brThe rescue package was seen as an extraordinary federal government intervention in private enterprise. It could become one of the most expensive financial bailouts in American history, the New York Times (NYT) in a report said last Monday.brThe Chief Executive Officer (CEO) of the banks have been shown the doors but the hefty severance package they will take home has angered the investors. The Fannie Mae boss will be richer by $9.3 million. The losers are the shareholders, rank and file employees and eventually the American taxpayers. Treasury Secretary Henry Paulson who engineered the scheme remained reticent about how much capital the government will have to pay. An earlier speculation said it could cost the government as much as $25 billion.brThe Treasury Secretary said government intervention became necessary because failure of either company would cause turmoil in the financial markets in the United States and in Asia. Before the housing crisis set in the two mortgage giants could borrow money at a small premium over the federal government's rates. If it becomes like US treasuries that will be a positive sign for Asia, the New York Times quoted Afzal Ali, the chief economist of the Asian Development Bank as saying. brThe takeover of the troubled mortgage banks reinforced concerns about troubles of the American economy and underlined its reliance on foreign investors, particularly in Asia. This action -- the takeover of the banks -- known as conservatorship in US will protect the central banks in Asia which have amassed hundreds of billions of dollars in the form of bonds of the two banks.brThe treasury secretary and his team had been working long hours to avert the crisis, hoping against hope that they would never have to step in. A consensus later emerged leaving very little option for the federal government. The collapse of the mortgage banks would have entailed disastrous consequences for the global economy. President Bush holidaying at his ranch gave his blessings to the move last Sunday permitting Henry Paulson to disclose the decision of the takeover.brThe conservatorship received wide bipartisanship support from Congressional lawmakers and both the Presidential candidates Barack Hossain Obama and John McCain. The government would provide as much as $100 billion to each company to ' backstop any shortfalls in capital'.