Government Bailout Looking More Likely for Fannie and Freddie

Posted by Patrick O'Connor on 8/18/08 10:44 am

The odds of the Treasury backstopping Fannie Mae and Freddie Mac are looking stronger by the day.  Freddie Mac experienced weak bids for some of its debt at an auction last week, and Barron’s published an article over the weekend, saying “It is growing increasingly likely that the Treasury will recapitalize Fannie and Freddie in the months ahead on the taxpayer’s dime, availing itself of powers granted it under the new housing bill signed into law last month. Such a move almost certainly would wipe out existing holders of the agencies’ common stock, with preferred shareholders and even holders of the two entities’ $19 billion of subordinated debt also suffering losses.”

Financial stocks took a beating as a result.
Mortgage Sector
Banking Sector
Brokerage Sector

Fannie and Freddie in the news
Reuters Article
Bloomberg Article
WSJ Article
MarketWatch Article
NY Times Article

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