Banking, finance, and taxes
A Government Bail-Out Of Fannie Mae (FNM) And Freddie Mac (FRE): Shareholders Get Nothing
Published:
It has started to look like a pattern. A financial company gets in trouble. It stocks falls. The shareholders take a haircut. Sometimes that haircut is 60% and sometimes the stockholders end up bald.
The US government is at least thinking of taking complete control of Fannie Mae (FNM) and Freddie Mac (FRE). If their financial situations get worse, the Feds reasons that the entire global financial system could take on water. Paper from the two firms is held by banks and brokerages from here to Timbucktu.
What the government may not have looked at closely is the $60 billion in shareholder wealth which will disappear if the two lending underwriters fail. The Fed has bailed out banks and brokerages without taking away all of the value of their stocks. Is it too much to ask with FNM and FRE?
Someone has to pay for bad corporate decisions. Why not the shareholder who had nothing to do with the errors.
Douglas A. McIntyre
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