Many money managers are at least somewhat confident that the U.S. government's takeover of mortgage giants Fannie Mae and Freddie Mac is a turning point in the rambling credit crisis because it eliminates the single largest potential cause of systemic risk to the financial system.
“I'm very thankful they (U.S. officials) took this action ... that ultimately will be viewed as a turning point,” said Phillip N. Maisano, chief investment strategist at BNY Mellon Asset Management, New York, with $1.1 trillion in assets under management.
“If they had not acted ... it would have been financial Armageddon,” Mr. Maisano added. His comment echoed the warning of “financial tsunami” and “debt liquidation of historic proportions” that William H. Gross, chief investment officer at Pacific Investment Management Co., Newport Beach, Calif., had sounded a few days before the rescue.
Treasury Secretary Henry Paulson announced on Sept. 7 that the Federal Housing Finance Agency was taking control of the two government-sponsored enterprises. Together, the Federal National Mortgage Association, Washington, and the Federal Home Loan Mortgage Corp., McLean, Va., are backing $5 trillion of the $12 trillion in outstanding U.S. mortgages. In comparison, the U.S. gross domestic product stands at $14.3 trillion.
The feeling of relief was felt across the investment spectrum in a Pensions & Investments survey that drew responses from 327 investment professionals: 28.7% said the bailout was “definitely” or “probably” a turning point in the credit crunch; another 47.7% said “possibly.”