Saturday, August 23, 2008

More Fannie and Freddie

by Calculated Risk on 8/23/2008 10:13:00 AM

A quote from Bloomberg: Freddie, Fannie Failure Could Be World `Catastrophe,' Yu Says

``If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,'' [Yu Yongding, a former adviser to China's central bank] said in e-mailed answers to questions yesterday. ``If it is not the end of the world, it is the end of the current international financial system.'
And from the WaPo: Treasury's Vigil On Fannie, Freddie
A top concern of Treasury Secretary Henry M. Paulson Jr. as he ponders whether to pull the trigger on a rescue plan for mortgage financiers Fannie Mae and Freddie Mac is the fate of its "preferred" shareholders, which include regional and community banks across the nation and central banks around the world, according to private analysts who closely follow the department.
...
Treasury officials are worried that a sell-off of these [preferred] shares poses serious risks to the broader financial system, the analysts said.
And from the NY Times: Uncertainty Over Fannie and Freddie
“We’re in a Catch 22,” said an executive with one of the mortgage firms who was not authorized to speak to the media. “As long as there is uncertainty over Treasury’s plan, we can’t raise money, and as long as we can’t raise money, there’s going to be more and more speculation about Treasury’s plan.”
...
“You would have to be insane to invest in these companies right now, and we’ve basically told them that,” said an investment professional with one firm that was approached by Freddie Mac, but who is not authorized to speak to the media. “When Treasury comes in, they are guaranteed to get a better deal than us, which would push down the value of our investment. So why would we ever invest before we know what Treasury is going to do?”
It seems like just a matter of when - not if - Paulson's hand will be forced and the Treasury will rescue Fannie and Freddie.