Author Topic: Government to take over Fannie Mae and Freddie Mac  (Read 1260 times)

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Offline pmp6nl

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Government to take over Fannie Mae and Freddie Mac
« on: September 06, 2008, 01:17:57 am »
It turns out the government is essentially taking over Fannie Mae and Freddie Mac.  They are ousting board members and propping up the company with government funds.

Quote
U.S. Rescue Seen at Hand for 2 Mortgage Giants
By STEPHEN LABATON and ANDREW ROSS SORKIN
Published: September 5, 2008

WASHINGTON ó Senior officials from the Bush administration and the Federal Reserve on Friday called in top executives of Fannie Mae and Freddie Mac, the mortgage finance giants, and told them that the government was preparing to place the two companies under federal control, officials and company executives briefed on the discussions said.

The plan, which would place the companies into a conservatorship, was outlined in separate meetings with the chief executives at the office of the companiesí new regulator. The executives were told that, under the plan, they and their boards would be replaced and shareholders would be virtually wiped out, but that the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.

It is not possible to calculate the cost of any government bailout, but the huge potential liabilities of the companies could cost taxpayers tens of billions of dollars and make any rescue among the largest in the nationís history.

The drastic effort follows the bailout this year of Bear Stearns, the investment bank, as government officials continue to grapple with how to stem the credit crisis and housing crisis that have hobbled the economy. With Bear Stearns, the government provided guarantees, and the bulk of its assets were transferred to JPMorgan Chase, leaving shareholders with a nominal amount.

Under a conservatorship, the common and preferred shares of Fannie and Freddie would be reduced to little or nothing, and any losses on mortgages they own or guarantee could be paid by taxpayers. Shareholders have already lost billions of dollars as the stocks have plunged more than 80 percent this year.
Read on in the New York Times

Wow, I dont ever remember hearing anything this drastic for such large companies.  Well I suppose if it has to be done to stabilize the market, then its a good thing.  Hopefully this will be a good step to starting to fix the economy; but we will probably have to wait until after November for that ;)
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