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FNM and FRE Bailed Out... Winners and Losers

Written By Brian Hicks

Posted September 8, 2008

Fannie and Freddie are getting bailed out.


Nothing has changed.  Housing and financial stocks are still in trouble.

And of course, we’ll begin to hear that the "credit crisis is now behind us."  The naïve on Wall Street will try to buy a select few financial and housing stocks on the idea.  And they’ll try to convince retail buyers to do the same.

But just like every other "bailout" the crisis will get worse, and investors will lose millions. And taxpayers will be on the hook, again.

The current taxpayer cost for these two companies is up to $200 billion.  But consider this.  The surging numbers of foreclosures and delinquencies has skyrocketed to four million.  A big piece of that has yet to hit Fannie or Freddie books.  And delinquencies and foreclosures will jump even higher as unemployment rockets higher.

Oh, and let’s not forget the Option ARM resets that’ll impact banks, financials and housing between 2009 and 2012.

Fannie and Freddie shareholders are screwed, too.  The conservatorship allows shares of FNM and FRE to continue trading.  Unfortunately, the government has pulled the dividends and demanded that the companies shrink their portfolios.  Paulson said his plan places "common shareholders last in terms of claims on the assets of the enterprise."

Isn’t that nice of him?

Better yet, the CEOs of these disasters walk away with millions.  Dan Mudd and Richard Syron were fired.  But both stand to walk with $23 million in severance. 

Mudd will be replaced by Herbert Allison, the former COO of Merrill Lynch, former McCain finance committee head.  Syron will be replaced by David Moffett, former CFO of US Bancorp, which got nailed by subprime, and former advisor to the Carlyle Group, a hedge fund with ties to the Bush family and Mid East oil.

This should end well.