Kiss Your Fannie (Phony) FNMA & Freddie (Fraudy) FHLMC Goodbye

Hank Paulson met with Fannie Mae Chief Executive Officer Daniel Mudd and Freddie Mac CEO Richard Syron yesterday...

to tell them of the decision to put the companies into a conservatorship under the Federal Housing Finance Agency, where they would both be removed from their jobs.

The FHFA has the authority to place Fannie or Freddie into conservatorships or receiverships under the law.

The legislation that Shrub Jr. signed July 30 also gave the Treasury the power through the end of next year to extend unlimited credit to or make equity purchases in the firms.

The Washington Post reported that the government would make quarterly injections of funds as the companies' losses warranted, avoiding a large up-front taxpayer cost, citing sources it didn't name.

Debt and preferred shares would be protected, and common stock would be diluted while not wiped out, the Post said.

The New York Times said most or all of both the common and preferred shares would be worth little or nothing.

PIMCO Pacific Investment Management Co., manager of the world's biggest bond fund, and other large investors may put in their own money...

once the Treasury decides to inject government funds, said Bill Gross.

"They have to open their wallet." predicting that the Treasury will act this weekend.

The Nattering One muses... This is the mother of all bailouts...

It is certain that Bill Gross will open his wallet further, chasing bad money on the guvmint dole...

Common stockholders will be wiped out, but the Treasury action amounts to a bailout of the debt holders...

the $5.2 trillion of debt outstanding is held by investors including, just to name a few...

insurance companies; major pension funds; Wall Street brokerage firms, sovereign money funds; the BOJ Bank of Japan; PBOC Peoples Bank of China and PIMCO.

Hattip to Bloomberg.

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