Fannie Mae, Freddie Rescue a `Disaster,' Rogers Says (Update1)

By Carol Massar and Eric Martin

July 14 (Bloomberg) -- The U.S. Treasury Department's plan to shore up Fannie Mae and Freddie Mac is an ``unmitigated disaster'' and the largest U.S. mortgage lenders are ``basically insolvent,'' according to investor Jim Rogers.

Taxpayers will be saddled with debt if Congress approves U.S. Treasury Secretary Henry Paulson's request for the authority to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac, Rogers said in a Bloomberg Television interview. The chairman of Rogers Holdings, who in 2006 correctly predicted oil would reach $100 a barrel and gold $1,000 an ounce, also said the commodities bull market has a ``long way to go.''

Fannie Mae and Freddie Mac each surged more than 20 percent in pre-market trading today after Paulson moved to stem a collapse in confidence in the two companies that purchase or finance almost half of the $12 trillion in U.S. home loans.

``These companies were going to go bankrupt if they hadn't stepped in to do something, and they should've gone bankrupt,'' Rogers, 65, said from Singapore.

Freddie Mac rose $1.75 to $9.50 as of 8:30 a.m. in New York, while Fannie Mae added $2.30 to $12.55. Paulson's proposal, which the Treasury anticipates will be incorporated into an existing congressional bill and approved this week, signals a shift toward an explicit guarantee of Fannie Mae and Freddie Mac debt.

The Federal Reserve separately authorized the firms to borrow directly from the central bank.

Last Week's Slump

Washington-based Fannie Mae slid 45 percent last week, while McLean, Virginia-based Freddie Mac sank 47 percent on concern they may require a bailout that would wipe out shareholders.

Rogers said he had not covered his so-called short positions in Fannie Mae. Short sellers borrow stock and then sell it in an effort to profit by repurchasing the securities later at a lower price and returning them to the holder.

The U.S. economy is in a recession, possibly the worst since World War II, Rogers said. He advised buying agricultural commodities because the bull market in raw materials has ``a long way to go.''

Rogers, a former partner of hedge fund manager George Soros, predicted the start of the commodities rally in 1999.

To contact the reporters on this story: Carol Massar in New York at cmassar@bloomberg.net; Eric Martin in New York at emartin21@bloomberg.net.