It was obvious from the a brief glance at the financial statements of Fannie and Freddie that the "common stock" was basically worth nothing. Barrons almost killed Fannie And Freddie with the article declaring to the reading Public they have negative equity values of about (-$50) Billion Dollars a peice. All Hopes of getting private capital to invest was done. These people had lost enough money already. The Stocks bounced and rallied hard to over 100% in a week on the annocements the government was "working on a resuce plan".
Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart yesterday placed the two firms in a government-operated conservatorship, ousting their chief executives and eliminating their dividends. The Treasury may purchase up to $200 billion of stock in the firms to keep them solvent. Paulson even said the equity holders would likley not likely make their money back. Who ever is not out of these stocks now will likely just watch these babies drift to around zero Dollars soon, as I suggested in a previous Blog Post.
The Traders figured the Gov was going to save the stocks. They Bought Large Amounts of the Cheap Shares. Uh oh. The government guarantees the debt obligations of the company. The Key is so these companies can continue to buy mortgages and housing market does not collapse any further. The government needed to do something to Protect Fannie and Fannie bondholders, which include many pension funds, foreign central banks and mutual funds.
``This action should lead to an increased availability of mortgage financing, which will help achieve stability in housing,'' Bank of America Corp. Chief Executive Officer Kenneth Lewis.
Only time will tell if this is a Band Aid or a Long Term Solution to the Housing Market Melt Down. Happy Trading.
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