America’s two largest mortgage finance companies own or guarantee USD $5 trillion worth of mortgages - nearly half of all the country's outstanding home loan debt - and they're crashing.

Current US national debt is nine and a half trillion dollars.

On Friday at the close of trading on Wall Street Fannie May lost $2.95 at $10.25, while Freddie Mac lost $0.25 to $7.75 in New York Stock Exchange composite trading. CNN reports that “Fannie has fallen 32 percent this week and 65 percent since the beginning of the year. Freddie plunged 47 percent so far this week and is down 75 percent since January.”

First set up in the 1930’s as part of The New Deal, the two companies are ‘quasi-governmental’ agencies that have always been assumed to have an implicit, though never explicit backing from the US government. That is about to change.

Robert Reich, former Secretary of Labour under Bill Clinton blogs that, “as a practical matter, we're facing a Bear Stearns squared. Fannie and Freddie are way too big to fail -- especially now.”

“A default by either one of the companies could be catastrophic for the financial system” says The New York Times. Accordingly, The Bush administration has just announced they will ask Congress to approve a rescue package that would give the government the authority to buy billions of dollars in stock in Fannie Mae and Freddie Mac and also lend to the companies to meet their short-term funding needs.

The plan calls on Congress to give the government the authority over the next two years to buy an unspecified amount of stock in the two companies. Over the same period of time, it would permit the companies to have greater access to the Treasury, by expanding the credit line that each company has from the Treasury. Each company now has a $2.25 billion credit line, set nearly 40 years ago by Congress. At the time, Fannie had only about $15 billion in outstanding debt. It now has total debt of about $800 billion, while Freddie has about $740 billion.

The NZX-50 index was down 23.35 points, or 0.75 percent, to 3098.2 at 10.15am today. NBR will provide rolling coverage over the course of the day as the ASX and other markets come online.