It Seems Fannie and Freddie Will Get Bailed Out

That is according to rumors circulating around.

The government has formulated a plan to put troubled mortgage giants Fannie Mae and Freddie Mac under federal control, dismiss their top executives, and use government funds to prop them up, government officials told the two companies yesterday, according to sources familiar with the conversations.

Under the plan, the federal government would place the firms in a legal state known as conservatorship, the sources said. The value of the company's common stock would be diluted but not wiped out while the holdings of other securities, including company debt and preferred shares, would be protected by the government.

At least under conservatorship you won't lose all of the value of the common stock. Also the debt and preferred need to be protected or there might be a run on the two companies and foreign nations might want out at the same time.

It still sucks if you were long the stocks looking for some kind of bounce back. My guess is they will go to maybe 5 for FNM and 3 for FRE and probably trade range there. The stocks won't be liquidated but the Treasury gets to put billions in bad debt onto their balance sheet. Doesn't sound like a good thing for the dollar but perhaps the European Slowdown will keep things leveled out.