Tuesday, September 9, 2008

KNS Reports: Bailout expected to help, not heal, economy

Bailout expected to help, not heal, economy
By JEANNINE AVERSA and TOM RAUMAssociated PressTuesday, September 9, 2008

WASHINGTON - If the government bailout of Fannie Mae and Freddie Mac is a salve to help heal what's ailing the U.S. economy, it's likely to be a slow-acting medicine that may not stop the infection before it gets worse.

Analysts predict the vicious cycle where housing, credit and financial problems force Americans to hunker down further - hobbling the economy and in turn aggravating those very troubles - won't be easily broken.

"The negative psychology has become embedded and will take time to unwind," said Brian Bethune, economist at Global Insight. "It is not instant coffee."

Many are expecting the government's action will have faster relief when it comes to mortgage rates, however. The national average interest rate for a 30-year fixed rate mortgage dropped 0.3 percentage point to 6.04 on Monday, according to financial publisher HSH Associates.
And the nation's banks saw another immediate benefit -stock prices spiked. Financial stocks overall rallied Monday as the government vowed to invest up to $200 billion in Fannie Mae and Freddie Mac to help stabilize the ongoing credit crisis and the resulting problems in the housing market.

The plan could help banks feel more open to write new mortgages and to refinance existing mortgages at lower rates.


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