July 14, 2008

Bush steps into the Fannie/Freddie mess

Oh, please don't do this...

WASHINGTON — Alarmed about the sharply eroding confidence in the nation’s two largest mortgage finance companies, the Bush administration will ask Congress to approve a rescue package that would give the government the authority to buy billions of dollars in stock in Fannie Mae and Freddie Mac and also lend to the companies to meet their short-term funding needs, people briefed about the plan said on Sunday.

Here's the thing, bubba. There's no need to BUY equity off the market. For one thing, that doesn't get new capital to Freddie and Fannie. It's not even the big problem since what has the equity holders panicked is the fear that Fannie and Freddie will have to raise equity capital and be diluted out of existence. If they don't have to do this, as Paulson and Bernanke have told them they by allowing them to use Treasury and the Fed as a counterparty for some of their illiquid assets, then the equity will reappreciate.

Posted by mcblogger at July 14, 2008 06:46 AM

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The Fed will make some money available to them to borrow.

Surely, even Bush is not dumb enough to buy the stock on the open market. There would have to be an additional stock issue.

In principle, I somewhat agree with the idea that if the federal government (we, the taxpayers) are going to be propping them up, then we need to drive a hard bargain and get some of their equity. They are getting a sweet deal with those rates.

Dilution or not, I'm sure that rational shareholders would rather have a piece of something, than a larger piece of nothing. I don't think the taxpayers should be concerned what the stock price is, as long as they remain in business, right?

Of course, it has to be structured right. Maybe preferred stock?

Anyhow, given that it's Bush, I'm sure they will find a way to siphon more money into the hands of campaign donors.

Posted by: WhosPlayin? [TypeKey Profile Page] at July 14, 2008 09:09 AM

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