No Senior Debt Guarantee For Fannie and Freddie? The Rescue Hound That Didnt Bark

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Not only did the Treasury Department avoid a direct capital injection into Fannie Mae and Freddie Mac, it has also avoided making an explicit guarantee of the senior debt of the two mortgage companies. Many people expected that the government would explicitly back the senior debt issued by the two companies.
Instead of a direct promise to support the debt with the full faith and credit of the United States, the government has pledged to maintain a positive net worth at the companies, buy mortgage backed securities from them, continue meeting their business obligations, and provide a huge line of credit. The promise to maintain a positive net worth at the companies means that they will be able to maintain debt payments, and so it amounts to a back door promise on the debt. But nowhere has the government made a direct pledge to the bondholders. It's still an implicit, "in effect" guarantee.
"I think that the stunner of what Paulson said this morning was not about the equity haircuts, but that they didn't explicitly guarantee the GSE debt," one DealBreaker reader writes. "This suggest that the fear of a flight from Treasuries and a consequent dollar run is real."

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