IMF Urges Review of Fannie, Freddie Business Model

Wall Street Journal (07/29/08) P. C3; House, Jonathan
While issuing an update to the International Monetary Fund's Global Financial Stability Report, Jaime Caruana--director of IMF's monetary and capital markets division--said dramatic "systemic consequences" would occur if investors lost all confidence in Fannie Mae and Freddie Mac; and he encouraged Washington to examine the government-sponsored enterprises' business models. Caruana also said banks have generated enough capital to offset 75 percent of the $400 billion in write-downs of bad debt recorded so far but warned that more capital will be necessary because losses could hit $945 billion before the credit crisis ends. He remarked, "As economies slow, credit deterioration is widening and deepening, and as banks deleverage and rebuild capital, lending is beginning to be squeezed, restricting household spending and clouding the outlook for the real economy."