September 6, 2008

Fannie & Freddie Govt. Takeover

The government’s planned takeover of Fannie Mae and Freddie Mac, expected to be announced as early as this weekend. Treasury Department concluded that Freddie’s accounting methods had overstated its capital cushion, according to the New York times.

he proposal to place Fannie and Freddie into a government-run conservatorship grew as the fear that foreign investors might not be repaid. Much of the securitized debt is sold to foreing investors. Asia is a big investor and the United States cannot afford to have its debt considered risky.

The NY Times reports that the consensus is that common stock holders may be virtually wiped out (Didnt that already happen) and the Preferred holders may not fare that much better.

McCain and Obama have already stepped up with support for a government take-over.

My understanding is that the total Fannie and Freddie mortgage debt is equal to the National Debt. The big question in my mind is how will this be structured and will it effectively double the nation debt overnight.


Where was it. According to the Times the companies have been fooling with accounting procedure since 2003.

For years, both companies have effectively recognized losses whenever payments on a loan are 90 days past due. But, in recent months, the companies said they would wait until payments were two years late. As a result, tens of thousands of loans have not been marked down in value.

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Howard Bell
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