Fanny and Freddie Being Sold Out????

Barron’s Is reporting on the possible “end game” for Fannie Mae and Freedie Mack, two agencies that give out mortgage loans, often high risk loans. The question is, are these agencies being sold out as part of a JP Morgan Like plan to get them cheap and make the taxpayers cover their debts?

According to the article, part of their problem is pressure from the Treasury for them raise $10 billion in capital when together they only have market capitalizations of around $12.5 Billion (a fact that will prevent investors from wanting to invest).

Of course if, or when, the government “bails” them out the management and investors will end up with a balance of zero in terms of the stock they now own in these companies. This article, speculative as it is, based on :inside sources”, will almost certainly lead to a sell off today and tomorrow and a collapse of these companies in short order.

The article leaves out two things that should interest you:

1. Fannie and Freedie were mandated by their charter and federal law to give out these loans

2. The present “crisis” is as much about pressure from the treasury as it is from market forces

3. LOOK FOR another JP Morgan like sweeheart deal in which a private company, perhaps even JP Morgan, buys them both for a song and the government guarantees their debt

4. this article ITSELF may play a role in their demise and the “leaked” information is no doubt designed to undermine already low investor confidence, this making any attempt to raise the $10 billion in capital untenable!

The article is here (OPENS IN NEW WINDOW)

SUBSCRIBE to our blog by REGISTERING FOR FREE

This entry was posted on 21. August 2008 at 17:27 and is filed under AFRadio. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.

| Print