Largest Gvt bailout in history - largely unannounced
Yesterday, I read a small WSJ report announcing that the Treasury was close to finalization on rescue plans for Fannie and Freddie... We all knew this was coming, but why was this not headline news during the day? hmm...
Well, at least after market traders understand the implications:
Washington's Fannie And Freddie Plan: Why Now?
Fannie Mae and Freddie Mac, the mortgage finance giants that fund half the U.S. housing market, are about to become subsidiaries of the U.S. government.
The Treasury Department late Friday was putting together final details of a plan to take the two into conservatorship, effectively a government takeover, at a potential cost of tens of billions to taxpayers.
Reports circulating Friday night have the two companies entering conservatorship, which would nearly wipe out equity holders but preserve the interests of debt holders. The chief executives of both companies would lose their jobs, but the companies could continue to operate, with quarterly infusions of capital from the Treasury depending on losses.
After hours, shares of Fannie Mae dove 25%, and Freddie Mac plunged more than 27% after both had risen sharply before the end of regular trading.
Though details have yet to be released, I imagine the ramifications will be felt hard next week.
As I see it, there are still several huge unanswered questions:
1) Is this merely the opening salvo for more rescues to come (FDIC, PBGC, Big 3 Auto, etc)
2) Will this be an open-ended bailout
3) How much will this cost the US taxpayer and how will we ever pay for it
4) What are the longer-term consequenses to our country's debt rating
5) How will this impact the US Economy and Dollar?