Shares of Freddie Mac and Fannie Mae have continued to drop this afternoon. Their credit-default swaps are up sharply, and there is lots of talk that they might need to raise more capital. Both plunged to their lowest price in 13 years.
There are a number of contributing factors this morning. Lehman Brotherss analysts pointed to an accounting change may force them to raise a combined $75 billion of new capital. Traders are talking about further write-downs. This morning's "Heard on The Street" column added fuel to the fire, focusing attention at the challenges faced by Freddie.
Unconfirmed, unsubstantiated and possibly baseless rumors began circulating late this afternoon that the Federal Reserve may step in to bailout the government sponsored home lending giants. Both firms definitely fit the bill of being too big and too connected to be allowed to fail, and today's losses may be truly frightening to regulators and Fed economists. The biggest problem with this rumor, however, is that it would involve very quick action by the Fed, something many doubt the backward looking economist types at the Fed are capable of.
Freddie Mac, Fannie Mae Plunge on Capital Concerns [Bloomberg]
Posted by guest , Jul 07, 2008 3:28PM
One down 15% today and the other down 17%. Who invented those credit default swaps anyway? Wasn't it those dumb, poor, illiterate homeowners? Yes, they're to blame for the whole damn mess.
Posted by ab , Jul 07, 2008 3:59PM
@3:28
WTF are you talking about?
Posted by guest , Jul 07, 2008 4:05PM
Obviously there is no SOP for a GSE bailout, but doesn't the implied guarantee and the credit line with the Treasury indicate that Hank Paulson's boys would take the lead on this one?
Posted by guest , Jul 07, 2008 4:46PM
If we all stopped talking about it, maybe it will all go away?
Posted by guest , Jul 07, 2008 6:09PM
Fannie and Fannie????
Did Carney hit the bottle a little earlier than usual today
Posted by guest , Jul 07, 2008 6:14PM
Anyone else feeling a sense of impending doom?
Posted by guest , Jul 08, 2008 9:34AM
One interesting thing is that the rating agencies have been haircutting Fannie and Freddie paper at about 15% or more for four + years when it is posted as collateral in a structured finance transaction. This was pointed out to credit officers repeatedly at my bulge-bracket i-bank who declined to take similar measures when the bank took in the paper as a collateral holder. Are they still the bailout plan du jour for individuals with jumbo mortgages in danger of foreclosure?