US loan crisis threatens markets

Fannie Mae and Freddie Mac, the two biggest housing-loan providers and guarantors, accounting for half of America's mortgages, have become the latest victims of a credit meltdown, prompting interventions by the US Treasury and Federal Reserve.

Tarisa said the BOT did not invest in securities issued by either entity, but rather only in US government bonds. There is no damage in that regard.

At this stage, excess liquidity in Thailand remains high, because commercial banks have parked money in Bt500 billion worth of government bonds and short-term money markets, while the loan-to-deposit ratio is considered low.

Meanwhile, the US dollar rose against the euro after four days of losses after US Treasury Secretary Henry Paulson sought the support of Congress to buy big stakes in Freddie Mac and Fannie Mae, in order to restore confidence in financial markets, said Bloomberg.

The dollar also climbed against the yen after the Fed separately authorised the firms, which buy or finance almost half of the US$12 trillion (Bt404 trillion) worth of mortgages in the US, to borrow directly from the central bank.

The US plans for Fannie and Freddie "alleviated some near-term concerns of impending problems for those companies", said Kamal Sharma, a currency strategist in London at JP Morgan Chase.

"The market has taken that as a positive to infer that there's little less financial risk to the system, and that's been a boost for the dollar," Sharma said.

In Frankfurt, Germany, Fannie and Freddie rose after Paulson said he would seek approval from Congress to shore up the companies by buying equity stakes and increasing lines of credit.

His plan may put a floor under the shares, which dropped about 50 per cent last week on concerns shareholders would be wiped out if the companies collapsed or were taken over by the government.

Concern that Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac may collapse escalated last week.