Fannie Falls Ill, Experts Vexed

Analysts and economists meet at the annual Federal Reserve Bank's annual conference in Jackson Hole, Wyoming this week

As analysts and economists meet at the annual Federal Reserve Bank's annual conference in Jackson Hole, Wyoming this week, the central bankers wonder if it's too late to inject money into the two largest mortgage powerhouses in the country. They wonder whether the injection of funds, should it occur, will be enough to stimulate the economy.

Injecting money from central banks to stave off a slackening economy has been the practice of the major players in world finance since the start of the crisis a year ago. They have repeatedly injected liquidity into markets, attempting to bolster their baselines, and while their actions haven't fixed the problem, they may have kept it from getting worse.

The biggest problem is tumbling home prices. As prices decline sharply, more homeowners default on their home loans, and banks that hold mortgage-related securities are hit devastatingly hard. This ultimately restrains the amount of money available within the economy. "It's simply not clear -- at least not clear to me -- what will stop this self-reinforcing process," Harvard economist Martin Feldstein told conference participants.

According to conference participants, it may fall to the Congress or Treasury to shoulder the majority of the burden during this economic downturn, as "The primary focus to date has been on the provision of liquidity" by lending to financial institutions, former Treasury Secretary Lawrence Summers said in an interview. While there was no formal discourse about Freddie and Fannie during the conference, casual conversation often drifted to the two struggling behemoths.