Posted by Tina
“Government seizes control of GSEs, by Glenn Somerville
“Our economy and our markets will not recover until the bulk of this housing correction is behind us,” U.S. Treasury Secretary Henry Paulson said at a news conference. “Fannie Mae and Freddie Mac are critical to turning the corner on housing.” *** The two companies, publicly traded but also serving a government mission to support housing, were put in a conservatorship that allows their stock to keep trading but puts common shareholders last in any claims. *** Their top executives were ousted. Freddie Mac chief executive Richard Syron and Fannie Mae’s CEO, Daniel Mudd, were replaced by David Moffett, a former top official at US Bancorp (USB.N) and Herb Allison, a former top official at both Merrill Lynch and pension fund TIAA-CREF. *** In addition, the U.S. Treasury will immediately take $1 billion equity stakes in each company that could grow to be as large as $100 billion each and which would be senior to both existing preferred and common shares. The senior preferred stock in each GSE will carry warrants that will give the government an ownership stake of 79.9 percent. *** Paulson said Fannie Mae and Freddie Mac were so large that “a failure of either of them would cause great turmoil in our financial markets here at home and around the globe.” *** Several analysts said the move should help instill some confidence in shaky credit markets and lower mortgage costs. *** The Treasury Department said the plan to shore up the finances of the two government-sponsored enterprises, which have $1.6 trillion in debt outstanding, should not cost U.S. taxpayers money in the long run and could even return cash to the government coffers eventually.
A good plan. The market will get a much needed shot in the arm, taxpayers are protected, investors take the last position (taking the hit) and a potential for investment return for the taxpayers is part of the mix. They are calling it a “bailout” but the word is generally understood as a tax dollar giveaway. It is not.