Do we build them up or knock them down?

Step one: avoid a run on the bank. Check. Step two: recapitalise. Er, we'll get back to you. Step three: stop this from ever happening again. Um ... When Hank Paulson bounded down the steps of the US Treasury a week ago to promise the US government would do whatever it takes to prop up Fannie Mae and Freddie Mac, he raised more questions than anyone was able to answer. This weekend the Treasury Secretary is still fighting to persuade a sceptical Congress that it should write him a blank cheque to lend money and buy shares in Fannie and Freddie. Republicans, in particular, worry that the taxpayer could end up on the hook for tens of billions of dollars. With more and more US homeowners defaulting and house prices collapsing in many parts of the country, reducing the value of Fannie and Freddie's collateral, no one knows how... [read full story]