Chris Cummings, Director General of the AMI, said: "The most interesting part of the rescue plan is that the US Government will begin to buy Mortgage Backed Securities. This move will directly address the capital markets and we believe this will have the biggest single impact. It will help to bring confidence and entice more entrants into the market freeing up liquidity as it does. As we stated in our ‘Fixing the Crunch' White Paper an injection of new capital into the market is needed if we are to achieve some stability.
"Fannie Mae and Freddie Mac have been given around $50 billion in order for them to continue lending - the total bill may be in the region of $200 billion. This will place a burden on the US Government and the tax payer and this short term fix may have longer term negative consequences if the rescue is not handled properly. However, this move by the US Government is indicative of the scale of the problem and clearly signals a desire to help the wider economy which is now suffering as a result of the problems in the mortgage market.
"This is the US endeavouring to fix capital markets in contrast to the announcement last week by the UK Government, which only sought to deal with retail markets. We urge Sir James Crosby to study the US action and to produce a considered and relevant response in relation to the travails of UK capital markets when he reports to the Chancellor in September. Work is needed to fix the capital markets and the US has shown the way."
