Sunday, September 7, 2008

Shareholders of Fannie And Freddie Likely to Suffer on Monday

US Takes Control of Fannie Mae and Freddie Mac. The US government will take control of Fannie Mae and Freddie Mac. This was made possible by a housing legislation signed into law by President George W. Bush in July. Whether the stock markets have priced in this situation remains to be seen when the stock markets open on Monday. An investment by the U.S. Treasury would back the companies' $1.6 trillion in debt but will at the same time leave the shares of Fannie Mae and Freddie Mac worthless. Fannie Mae and Freddie Mac together hold or back half of the nation's mortgage debt, and have played an increasingly important role in the real estate market since the credit crisis started in August 2007. A government bailout could cost taxpayers around $25 billion, according to the Congressional Budget Office.

U.S. Presidential Nominees Obama and McCain's view on Fannie Mae and Freddie Mac. Both presidential nominees expressed support for the government to take over control of the two companies. McCain considered it an "unfortunate but necessary step" while Obama said that not acting would put the housing crisis in further duress. Obama however highlighted that it was important to protect taxpayers without bailing out the shareholders and management of Fannie Mae and Freddie Mac.

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