Paulson Seeks Authority to Shore Up Fannie, Freddie (Update2)

**LogansPapa** · 07-14-2008, 10:38 AM

By Brendan Murray and Dawn Kopecki

July 13 (Bloomberg) -- Treasury Secretary Henry Paulson swung the weight of the federal government behind Fannie Mae and Freddie Mac, the beleaguered companies that buy or finance almost half of the $12 trillion of U.S. mortgages.

Paulson, speaking on the steps of the Treasury facing the White House, asked Congress for authority to buy unlimited stakes in and lend to the companies, aiming to stem a collapse in confidence. The Federal Reserve separately authorized the firms to borrow directly from the central bank.

The announcement followed crisis talks between the firms, government officials, lawmakers and regulators, after Fannie Mae and Freddie Mac lost about half their value last week. Paulson and Fed Chairman Ben S. Bernanke are trying to prevent a collapse in the companies that would exacerbate the worst housing recession in 25 years and deepen the economic slowdown.

Paulson's proposal, which the Treasury anticipates will be incorporated into an existing congressional bill and approved this week, signals a shift toward an explicit guarantee of Fannie Mae and Freddie Mac debt. The two shareholder-owned companies are government-sponsored enterprises, giving investors the indication of an implicit federal backing.

http://www.bloomberg.com/apps/news?p...efer=worldwide

**Cold Warrior** · 07-14-2008, 10:42 AM

This obviously had to happen and only the details were in doubt. Again, what you have is the federal government assuming more debt and more risk. This will tend to stall any rise in the dollar, ensuring continued high gas and commodity prices.

**LogansPapa** · 07-14-2008, 10:47 AM

Knowing that it’s virtually illegal to use the word "recession", has their ever been a precedent for this kind of action in the last hundred years in our country?

**Cold Warrior** · 07-14-2008, 10:52 AM

Originally Posted by LogansPapa

Knowing that it’s virtually illegal to use the word "recession", has their ever been a precedent for this kind of action in the last hundred years in our country?

That's hard to measure, but it is relatively unprecedented. Fannie Mae and Freddie Mac hold approximately $5T worth of mortgage debt. Of course, that amount is spread profusely over millions of homeowners. So, it's certainly more significant than say the Chrysler bailout whose potential impact, the company's failure, would have been much less widespread.

**Cold Warrior** · 07-14-2008, 02:04 PM

Paulson's plan is getting pretty poor reviews in financial circles...

Fannie Plan a `Disaster' to Rogers; Goldman Says Sell (Update3)
By Carol Massar and Eric Martin

July 14 (Bloomberg) -- The U.S. Treasury Department's plan to shore up Fannie Mae and Freddie Mac is an ``unmitigated disaster'' and the largest U.S. mortgage lenders are ``basically insolvent,'' according to investor Jim Rogers.

Taxpayers will be saddled with debt if Congress approves U.S. Treasury Secretary Henry Paulson's request for the authority to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac, Rogers said in a Bloomberg Television interview. Rogers is betting that Fannie Mae shares will keep tumbling.

Goldman Sachs Group Inc. analyst Daniel Zimmerman said the mortgage finance companies' shares may fall another 35 percent and lowered his share-price estimate for Fannie Mae to $7 from $18 and for Freddie Mac to $5 from $17. Freddie Mac fell 18 cents, or 2.3 percent, to $7.57 at 11:16 a.m. in New York Stock Exchange trading, while Fannie Mae rose 13 cents, or 1.3 percent, to $10.38.

``I don't know where these guys get the audacity to take our money, taxpayer money, and buy stock in Fannie Mae,'' Rogers, 65, said in an interview from Singapore. ``So we're going to bail out everybody else in the world. And it ruins the Federal Reserve's balance sheet and it makes the dollar more vulnerable and it increases inflation.''

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