Lending institutions government bail out?

September 6, 2008

Fannie Mae and Freddie Mac, the secondary  mortgage market giants that fund half the U.S. housing market loans, are about to become subsidiaries of the U.S. government.

Reports circulating Friday night have the two companies entering conservatorship, which would nearly wipe out equity holders but preserve the interests of debt holders. The chief executives of both companies would lose their jobs, but the companies could continue to operate, with quarterly infusions of capital from the Treasury depending on losses.

Any announcement would come just weeks before the two companies have to refinance $225 billion of mostly short-term notes. Fannie and Freddie sell debt to investors regularly, but concern about their financial position threatens to scare away those needed buyers, many of them foreign banks. A solid federal guarantee would allay investor fears and allow Fannie and Freddie to continue to raise funds as needed. Stay tuned….

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One Response to “Lending institutions government bail out?”


  1. from a historical point of view, it’s hard to object to the government’s mass bailouts since similar debt-producing methods were used to bring the U.S. out of the Depression… our economy has been supported and driven by debt ever since


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