“The credit crisis has obviously entered into a new phase — the government has one bailout left in them, and this is it,” said Jeffrey Gundlach, chief investment officer of TCW Group in Los Angeles, which invests $160 billion.
“One consequence of Freddie and Fannie is that other firms are allowed to go under,” he said. “If you couldn’t get your act together after four months of unprecedented financing terms, maybe you don’t deserve to be thrown yet another lifeline.”
Worries about financial companies failing intensified after a run on IndyMac Bancorp Inc. led to the bank’s takeover by the government on Friday. It wasn’t the Treasury or Fed helping to keep IndyMac in business, but a transfer of control to the Federal Deposit Insurance Corp. — which backs deposits on all the nation’s banks.
Analysts said these kind of failures will curtail competition among financial institutions, which might in turn make it even harder for some borrowers to get mortgages, personal or auto loans or credit cards.
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On Wall Street, Monday could be a critical day, with investors quite nervous amid the uncertainty in the financial sector. Friday saw the Dow Jones industrial average dropping below 11,000 for the first time in nearly two years, and the overall market was down for the fourth week in a row. The government’s support of Fannie and Freddie in part was meant to assuage investors ahead of the opening, and also to reassure markets in Asia and Europe that will begin trading hours before the U.S.
Wall Street will get a better sense of how concerned investors are with Fannie Mae and Freddie Mac’s future immediately Monday morning. Freddie Mac is scheduled to hold its weekly debt auction beginning at 8 a.m. EDT. The auction closes at 9:45 a.m., shortly after U.S. markets open.