"a government bailout of Fannie or Freddie" would lower "rating on the creditworthiness of the US"

[Pale Blue Dot]

The Fannie and Freddie doomsday scenario

By Katie Benner, writer-reporter

"The major issue is that these are very leveraged financial institutions, leveraged much more than any other bank, and they have lots of mortgage assets. As real estate values decline every day, the value of are called into question," says Dalton Investments co-founder Steve Persky, who has been focused on distressed mortgage assets.

The possibility of government aid looms because it's hard to see how the private market can help the companies. Their stock market values have dropped so low that it would be difficult for them to raise money. For example, Egan estimates that Freddie alone will need to raise $7 billion over the next two quarters due to writedowns and losses. But the company's market capitalization - the number of outstanding shares times the share price stands at $8.7 billion.

"An investment banker would be hard pressed to raise an amount of money nearly equal to the value of the entire company," Egan says.

...

The doomsday scenario could cost taxpayers more than $1 trillion, says the S&P report. The report went so far as to say that a government bailout of Fannie or Freddie could force the agency to lower its rating on the creditworthiness of the United States.

http://money.cnn.com/2008/07/09/news/companies/benner_fanniefreddie.fortune/index.htm?postversion=2008070914

...And that would be the end, folks.

Our entire economy exists because investors trust the U.S. Government to pay back its debts. Without that faith, the whole system falls apart. It would create a massive run on the banks, with the United States as the bank. We would, quite literally, lose everything.

[MadMaddie]

1. But...But isn't the Rethuglican mantra ..."It's a free Market....

I hate to say it but they are a buisness and they made bad business decisons and if those decisions lead to failure and banktruptcy......oh well.

[babylonsister]

2. This won't make you feel better...

Fannie, Freddie Are Too Big to Fail, Lawmakers Say (Update1)

By Dawn Kopecki


July 10 (Bloomberg) -- Fannie Mae and Freddie Mac, the largest buyers of U.S. home loans, are too big for the government to let them fail, leading Republican and Democratic lawmakers said.

The government-chartered companies, which own or guarantee about half the $12 trillion of U.S. mortgages, can count on a federal lifeline, said Republican Senator John McCain, of Arizona, and Democratic Senator Charles Schumer, of New York.

The remarks by the presumptive Republican presidential candidate and the head of the congressional Joint Economic Committee followed a slide in the firms' shares to the lowest level since 1991. They indicate Congress would push the administration to use government funds to prevent the companies from failing and threatening a deeper housing recession.

``They must not fail,'' McCain said today during a campaign stop in Belleville, Michigan. Fannie Mae and Freddie Mac ``are vital to Americans' ability to own their own homes,'' he said at an earlier stop in the state, one of the worst affected by the surge in foreclosures.

more...

http://www.bloomberg.com/apps/news?pid=20601087&sid=avnMyKESZ2qk&refer=home

[Deja Q]

3. Great, Fannie is mooning us and I ain't sayin' what Freddy's doin'...

:o

[Double T]

4. The crash is inevitable; one 'nothing' and a billion 'nothings' have the same value,..........

nothing. The obscenely wealthy are about to join the ranks of the poor. The economic and financial end times are coming soon.

[mmonk]

5. As far as Fannie Mae and Freddie Mac goes, we crash if we don't,

we crash if we do.

[Pale Blue Dot]

6. This is why I believe that the speculation will be over soon.

Good. The sooner we face the inevitable the sooner we can dig ourselves out of it.

[mmonk]

7. The quandry is the loans are backed by the US.

Therefore, if we renege on them and allow the collapse, our word is bad, and if we bail them out, we can't sustain another trillion dollars, especially by still trying to cover debt by printing money and keeping tax cuts which will put us into a high inflationary spiral during a weak economony in which raising interest rates too rapidly would quicken the fall. Drives me crazy thinking about it, especially since Americans as a whole have most of their net worth tied up in the value of their homes.

[cliffordu]

10. That's right. Time to pay the piper.

And the fiddler and his mafia-connected brother in law and the lawyers and the people who created this fucking mess.

The only ones who will really pay are the people who have had nothing to do with it.

As usual.

[soothsayer]

8. We're all suckers. The big boys have made their money inflating the housing bubble, and

now they're making it (via shorts, not to mention the hostile takeover of bear stearns, and by the consolidation of power and throwing more power to the evil Fed) on the way down. The market's being played right now (well..it always is, but this is soooo obvious) and EVERYTHING is done at taxpayer's expense---not just a freddie/fannie bailout, should it come to that. We're just idiot bodies whose only purpose is to feed the tapeworms sucking us dry.

[nadinbrzezinski]

9. Fun times are coming

shit