Bailout Stings Fannie, Freddie Stocks, Bolsters Debt
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NEW YORK (Reuters)
- Shares in mortgage finance companies Fannie Mae and Freddie Mac
plunged while their debt soared Monday, one day after the U.S.
government took over the companies, as investors bet the action would
wipe out stockholders but fully guarantee their bonds.
Equity markets around the world surged on the bailout news as hopes
rose that the U.S. Treasury's plan to take control of the companies --
which together back about half of the country's $12 trillion in home
mortgages -- might put at least a temporary floor under troubled
financial markets.
The Dow Jones industrial average surged 2 percent but Fannie Mae's
and Freddie Mac's stocks got hammered, losing about 80 percent of their
value and trading only a few cents above $1.
The government action came as worries heightened over shrinking
capital at the companies, with the congressionally chartered companies
suffering combined losses of nearly $14 billion in the last four
quarters.
Large holders of their debt, including overseas central banks, had
shown increasing nervousness over their financial health. The take-over
came as welcome news to China and Japan, the biggest buyers of the two
companies' bonds, who praised Washington for its rescue for the
mortgage giants.
On Wall Street, though, many said the takeover of the institutions,
which could be the biggest U.S. government bailout ever, was merely a
symptom of the dismal state of credit markets.
This is only the latest in a string of bailouts, analysts noted, none of which has achieved any lasting success.
"The rapid tide of the financial market deterioration combined with
the persistent escalation in unemployment has managed to overwhelm the
effectiveness of these interventions," said Ashraf Laidi, chief FX
strategist at CMC Markets US.
Government 
