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Treasury Near Finalizing Fannie, Freddie Backstop: Report



September 05, 2008 – Comments (8) | RELATED TICKERS: FNMA , FMCC

SAN FRANCISCO -- The U.S. Treasury is near finalizing a plan to backstop Fannie Mae and Freddie Mac and may make an announcement as soon as this weekend, The Wall Street Journal reported late Friday on its Web site. The Treasury plan includes senior management changes at the two government-sponsored enterprises, according to the Journal.

Copyright © 2008 MarketWatch, Inc.

(What I want to know is... what exactly does this mean, and what exactly is this Treasury plan?  And most importantly, does it really even matter?)

8 Comments – Post Your Own

#1) On September 05, 2008 at 5:43 PM, kdakota630 (29.11) wrote:

Here's a scary follow-up:

Precise details of Treasurys plan couldnt be learned. The plan is expected to involve a creative use of Treasurys new authority to make a capital injection into the beleaguered giants.

The plan includes changes to senior management at both companies, according to a person familiar with the plans. An announcement could come as early as this weekend. On Friday, a series of high-level meeting were planned between Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, the chief executives of Fannie Mae and Freddie Mac and the companies new regulator, the Federal Housing Finance Agency.

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#2) On September 05, 2008 at 6:07 PM, DemonDoug (31.28) wrote:

Well if we go by what was said before, what the treasury would do is "buy" a stake in each GSE, with newly created "super" shares that would be senior to all other common shares.  Some have speculated that the common shares might go to zero if these happens, we'll see.  Before that happens yeah the managements will probably be shaken up.  The govenrnment would get any future profits the company makes due to their ownership of these super shares before the common shares would see any profit (which is why it might go to zero).  This is all in support of the bondholders, of which there are what almost 6T dollars locked up in GSE bonds out there.

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#3) On September 05, 2008 at 7:17 PM, DeerHunter73 (73.40) wrote:

if the gov bails out fre & fnm causing the shareholder vaule to drop to 0, they might as well pour fuel on the economy and light it. The catastropic events that would follwoing in the houseing market would put 60+% of the banks out of business. Millions or people would loose there jobs unemployment would rise making the current number look like a bad week in a local town with a tire company closing its doors. The great depression would look like a bad  nightmare. Thats why i cant see them whiping out a shareholder owned companies. This is only my opinion no fatcs here just my own thoughts. So if the gov feels thats what they have to do so be it.I own my own business and up untill now ive been str8 paid taxes done everything on the up and up. They cause that to happen and i wouldnt pay a dime. Ill be dammed if im going to bail out another gov mistake

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#4) On September 05, 2008 at 9:12 PM, Option1307 (30.62) wrote:

You forgot to mention that I'd score some serious much needed caps points if they fail...which obviously is worth the likely depression you speak of, right???

Sorry do downplay and make jokes, I have the same serious thoughts as you Deer, but hey, it is friday. So enjoy the weekend, and we'll see what the fed brings use in regards to fre/fnm.

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#5) On September 05, 2008 at 10:32 PM, GenSkill (< 20) wrote:

Washington Post article indicates the plan is firmer

"The government has formulated a plan to put troubled mortgage giants Fannie Mae and Freddie Mac under federal control, dismiss their top executives, and use government funds to prop them up, government officials told the two companies yesterday, according to sources familiar with the conversations.

Under the plan, the federal government would place the firms in a legal state known as conservatorship, the sources said. The value of the company's common stock would be diluted but not wiped out while the holdings of other securities, including company debt and preferred shares, would be protected by the government.

Instead of giving each company a big capital infusion up front, the government plans to make quarterly infusions as the companies' losses warrant, the sources said. This would be an attempt to minimize the initial cost of the rescue. "

NYT is reporting the company boards will be completely replaced, too. 

Not sorry to see them booted, but the bailout is going to hurt.

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#6) On September 06, 2008 at 10:30 AM, kdakota630 (29.11) wrote:

I simply didn't like the line that said that the Fed would get "creative" with it's newly expanded powers.  Can't say I like the Fed having expanded powers considering I didn't like what they were doing with their powers before.

My reason for the blog in the first place was that it sure didn't sound like what was being reported about FRE and FNM 2-3 weeks ago and I couldn't figure out for the life of me what else they could've had in mind outside of bailout or letting them finally fail.

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#7) On September 07, 2008 at 10:03 AM, DeerHunter73 (73.40) wrote:

"Under the plan, the federal government would place the firms in a legal state known as conservatorship, the sources said. The value of the company's common stock would be diluted but not wiped out while the holdings of other securities, including company debt and preferred shares, would be protected by the government. " Quote.


Also no matter what the decision is made , The entire market is gonna drop huge this week. Every stock but oil will fall, oil wont due to IKE.  yes all shareholders will take a massive hit in every class, which is good not just the common should be hurt by this. Im waiting to see how low it goes since the gov has said " they will keep fre and fnm going for 1 year. Which leaves some room for profit and chances for a rebound. In the meantime the market is going to pay for the gov screw up again, You watch they will cover there own screw up with a rate cut if not this meeting then the next. All that will due is cause the dollar to weaken and oil to rise causing the over all market to drop again. There isnt a financial stock safe right now, and im betting banks are going to fail left and right now. Ill be selling my shares at open on monday unless things change over night

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#8) On September 08, 2008 at 8:59 AM, DeerHunter73 (73.40) wrote:

Heres a thought now. With fre and fnm going down big time this week what will the bottom be? .25 to .75?  How ironic is this going to be once they drop that low and stay down there the sec will issue a form stating they have to get there stock back up over 1.00 or they will be delisted. The Gov cant afford on there part now to allow that. So my self question is how long will it take b4 the Gov bails out the common stock and gets the value back up over 1.00. as they have stated they will leave this mess for the next pres and he wont take office till Jan. So i guess wait it out wont be worth rating in caps but you MIGHT be able to make a few dollars once fre and fnm hit bottom as they will have to get the share price back up.

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