In early July, stock markets reached new lows for the year, with the U.S. financial sector in panic over Fannie Mae and Freddie Mac, the two giant American government-sponsored mortgage finance companies. Because they were created by the United States government to increase home ownership, the market perceived them as having the implicit backing of the government. Fannie Mae's stock price fell from 70 dollars (44 euros) in August 2007 to 6.68 dollar on July 7, and then almost doubled to12 dollars by July 30. Freddie Mac's stock price followed a similar trajectory.What caused these gyrat...
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