Proposal for Fed to buy stock in Fannie and Freddie!

[kstar]

Paulson wants Congress to give the Fed power to take an equity position in Fannie Mae and Freddie Mac!

How about that?

Excerpt:

July 13 (Bloomberg) -- Treasury Secretary Henry Paulson swung the weight of the federal government behind Fannie Mae and Freddie Mac, the beleaguered companies that buy or finance almost half of the $12 trillion of U.S. mortgages.

Paulson, speaking on the steps of the Treasury facing the White House, asked Congress for authority to buy unlimited stakes in and lend to the companies, aiming to stem a collapse in confidence. The Federal Reserve separately authorized the firms to borrow directly from the central bank.

The announcement followed crisis talks between the firms, government officials, lawmakers and regulators, after Fannie Mae and Freddie Mac lost about half their value last week. Paulson and Fed Chairman Ben S. Bernanke are trying to prevent a collapse in the companies that would exacerbate the worst housing recession in 25 years and deepen the economic slowdown.

Paulson's proposal, which the Treasury anticipates will be incorporated into an existing congressional bill and approved this week, signals a shift toward an explicit guarantee of Fannie Mae and Freddie Mac debt. The two shareholder-owned companies are government-sponsored enterprises, giving investors the indication of an implicit federal backing.

http://www.bloomberg.com/apps/news?p...efer=worldwide
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[kstar]

I am surprised there are no comments on this topic.

I guess most would have expected the Fed to step in and help FNM and FRE with the low interest cash, but the prospect of Uncle Sam supporting these equities via open market purchases is remarkable, IMO. I'm not aware of any precedent in this regard??

While traders might have expected some support, I would guess they will also be caught off-guard with the potential of Uncle Sam buying in the market.

These two issues will have an interesting day tomorrow, both the stock and the options of each, IMO.

FWIW.

[kstar]

No one has problems with the Fed taking an equity position here? Becoming a "player" on the floor of an exchange?

The slippery slope of the nationalization of financial institutions?

Anyone? Bueller?