Saturday, September 06, 2008

Freddie and Fannie Bail-Outs: The Denouement

You may recall my Example No. 17 of government intervention run amuck. I told you about the mess in which our mortgage industry finds itself, helped by our semi-governmental agencies, Freddie Mac and Fannie Mae.

We now have this piece by Deborah Solomon and Damian Paletta at the Wall Street Journal, giving us an update of their situation.

bail
[Thanks to Tootstubing.com for this image.]

The bail-outs keep coming in this financial saga, and Freddie and Fannie will be no exceptions. A few months ago, Teasury Secretary Henry Paulson obtained our permission (through Congress) to bail them out, and apparently he didn't do it for nothing.

So now we have Government Intervention upon Government Intervention, both now running amuck in tandem. Not only was the very creation of these two organisms unwise, as I explain in my earlier post linked above; but now we have one more in the string of wrongs that government officials are having to commit in their effort to right the original one. To wit:

"Mr. Paulson's push to win authority was meant to reassure investors that the government wouldn't allow Fannie Mae and Freddie Mac to fail. But some believe it ultimately forced Treasury's hand. The federal government's involvement complicated the companies' already-difficult task of raising capital through the sale of common or preferred shares. Investors were leery of buying either while the government's intentions were unknown, because they feared the newly issued shares might become worthless as the result of federal action."

And look for more wrong runnings-amuck from this problem. For example, here's one I can see from a mile away:

"Among the issues with which Treasury has been wrestling is whether to make an investment at such a low price that shareholders are effectively wiped out. Mr. Paulson is cautious about any plan that appears to benefit shareholders because he doesn't want the government to be seen as bailing out investors who for years profited from the companies' success."

Bloomberg also gives their version of this news.

Ah, it would all be so entertaining if it were fiction.

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1 Comments:

Blogger Andrew said...

Hi Katy,

I'm emailing you in regards to an email I sent to you last month about a partnership, have you had a chance to think about it?

If you have any questions or would more information, please advise me and we can go from there.

Kind Regards,
Andrew Knight.
Website Manager
Banking & Finance Division
Asia-Pacific Region

OMG.com.au Pty Ltd
P: (+617) 3368 2666
E: andrew.knight@omg.com.au

6:52 PM  

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