For Fannie May and Freddie Mac the game is over. The Sage of Omaha has spoken.

Warren Buffett, the world’s richest man, said it was no longer feasible for America’s two biggest mortgage finance companies to exist independently. He went on to forecast that the US economy would remain in the doldrums for at least five months.

Fannie and Freddie, which underpin America’s mortgage market by buying home loans and packaging them into bonds, did not have any net worth, Mr Buffett told CNBC. Both face losses of tens of billions of dollars on the bonds.

Analysts said they look increasingly likely to need a cash injection from the Government and Mr Buffett said they were too big to fail, predicting: “You will see some action fairly soon.”

Expectations that the Government will bail out Freddie and Fannie have been growing since Congress granted permission for it to inject money into the two groups if required.

However, any government infusion would see it buying newly issued shares in a transaction that investors believe would wipe out the value of its previously issued stock. As a result, investors are fleeing the groups’ shares, both of which are down by more than 90 per cent this year.

Mr Buffett was also downbeat about the housing market and, in turn, the broader economy. “What we’re seeing in business, in our retail business, or anything having to do with housing, is a further slowing down in June and July, both in terms of credit experience where people first got into trouble with house payments, and now credit card payments,” he said. “In my judgment, it [the economy] won’t be any better five months from now.”

Mr Buffett, who runs the Berkshire Hathaway investment group from its headquarters in Omaha, Nebraska, added: “You always find out who’s been swimming naked when the tide goes out. We found out that Wall Street has been kind of a nudist beach.”

Mr Buffett said he expected more banks to fail, especially in areas where there was a housing bubble. “We will see failures where the bankers were dumb in what they did,” he said.

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