Regulators won’t lift investment limits for GSEs

Last week, Fannie Mae requested permission to increase its investment portfolio in order to help spur the slumping mortgage market. It is currently subject to a limitation of 727.2 billion on its portfolio. The Office of Federal Housing Enterprise Oversight, or OFHEO, said on Friday it will not lift the investment caps on Fannie Mae and Freddie Mac. President Bush said that allowing Fannie Mae to purchase more loans was out of the question for the moment. However, “requests for an increase in the portfolio caps” will be kept “under active consideration”, according to a statement by the OFHEO. Freddie Mac’s spokesman expressed disagreement with the OFHEO’s decision.

To prop up the financial system, the Fed injected $38 billion into the market on Friday in the biggest move since the 9/11 terrorist attacks. Similar moves were made by other central banks last week, including those of Germany, Australia and Japan. Consequences of the turmoil in the U.S. financial system are turning up in unexpected places, as a consequence of the interrelations of various investment instruments traded all over the world.