Back in 1938 America was still reeling from the Great Depression when President Franklin Roosevelt came up with a scheme to kick-start the US mortgage market.

Home ownership, it was argued, was a social good — improving schools and reducing crime. The government-sponsored Federal National Mortgage Association, soon dubbed Fannie Mae, would buy up mortgages and sell them on to investors, providing stability and liquidity for home-loan firms.

Today Fannie and its younger sibling, Federal Home Loan Mortgage Corporation, AKA Freddie Mac, guarantee about $5 trillion (£2.5 trillion) of mortgages, nearly half of all US home-mortgage debt.

Last week, with some speculating America is on the brink of another Great Depression, Fannie and Freddie were plunged into crisis — a crisis fuelled by rumour and speculation that has threatened to push the US economy over the edge, taking the rest of the world with it.

As America’s largest lenders, Fannie and Freddie have been hit hard by the slump in the housing market. The government-chartered, publicly traded companies have already raised $20 billion to cover losses amid the highest delinquency rates in at least 29 years.

Shareholders have already lost 74% this year on escalating concern that Fannie and Freddie don’t have enough capital. Until last week, though, they had avoided the worst of the rumour mills that have brought lesser entities to their knees.

No longer. On Friday the US Treasury Department was forced to move in an attempt to quash rumours that it was, in effect, going to nationalise the mortgage giants.

Both firms are public companies and operate with no guarantee of government support, but few believe the government would or could let them collapse. Were Fannie and Freddie to go under, the disaster would make the Northern Rock fiasco look like a bounced cheque at a provincial building society. Their collapse would have a profound impact not just on the US financial system but on stock markets worldwide.

The quasi-government guarantee that Fannie and Freddie hold have made them look like a good investment for foreign central banks and governments. China and Japan are among the largest investors in them. Failure for Fannie and Freddie would deal a big blow to investor confidence around the world.

“Our primary focus is supporting Fannie Mae and Freddie Mac in their current form,” the US Treasury secretary, Hank Paulson, said in a statement. “We are maintaining a dialogue with regulators and with the companies.”

His comments were soon backed by President George Bush. “Freddie Mac and Fannie Mae are very important institutions. We spent a fair amount of time discussing these institutions. He [Paulson] assured me that he and [Federal Reserve Chairman] Ben Bernanke will be working this issue very hard,” Bush told reporters.

These days, however, the markets trust no-one — not even the president. “Markets won’t wait for the regulatory authorities to propose additional supervisory or regulatory scrutiny on mortgage-related exposure,” wrote David Buik, London-based partner at the broker BGC Partners.

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