Interest Rate Roundup

Friday, July 11, 2008

What could be done for Fannie and Freddie?

Several options have been suggested today. An excerpt from a Bloomberg story:

"The U.S. government should increase its $2.25 billion credit line to Fannie Mae and Freddie Mac to as much as $100 billion to bolster investor confidence that it won't allow them to fail, according to Barclays Capital.

"The government should expand the credit line to at least $50 billion as a ``grand gesture'' to ease investor concern, Ajay Rajadhyaksha, head of U.S. fixed income strategy at Barclays Capital in New York, said in a telephone interview yesterday."

Other ideas? The story continues ...

"A government takeover of one or both companies is among several options being weighed by the Bush administration, said Joshua Rosner, an analyst with Graham Fisher & Co., who met with officials in Washington yesterday. The government may push for the firms to be placed in a conservatorship if their problems get worse, he said. A government-led takeover would likely make the common stock of each company worthless.

"Boosting the government's credit line to the companies would "have a dramatic psychological effect on senior debtholders and would serve to buy time to address the underlying capital issues,'' though it would represent "a tiny fraction'' of their overall balance sheets, Bank of America interest-rate strategists led by Michael Cloherty in New York wrote in a note to investors yesterday."

And finally ...

"A credit line extension, or a lending facility similar to the one the Federal Reserve created to prevent a collapse by investment banks in March, are potential options for the government, Credit Suisse interest-rate strategist Ira Jersey said on a conference call with investors today.

"That would give a lot of comfort to a lot of investors in the fixed-income securities,'' said Jersey, who is based in New York."

Sen. Chris Dodd also just held a news conference designed to calm some of the Fannie and Freddie fears. He said the Fed and Treasury are considering options which include using the Fed's discount window. He added that both companies are sound.


  • How about dropping the surplus 20bps capital requirement that OFHEO imposed during the accounting restatement period, and not requiring the companies to raise extra capital until their stock stabalizes.

    The funny thing is how it is assumed now that the companies need rescuing. I would consider them the safest port in the mortgage storm. They can issue debt at only a slight spread over the US treasury, why do they need anyone else's money?

    By Anonymous Anonymous, at July 11, 2008 at 3:25 PM  

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