Sawbonese

The crisis at Fannie Mae and Freddie Mac is a crucial test of US economic policymaking. If mishandled, their woes could spread through the economy with dire consequences for banks, consumers and the government itself. Policy wonks need to act fast to cauterise the wound. Here’s the doomsday scenario: The government-sponsored entities’ woes cause the value of their trillions of dollars of outstanding debt to plunge. Banks stuffed full of this paper face huge losses, which some can’t survive. They...