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Into the Abyss: Fannie Mae and Freddie Mac

Published 08/21/08 Craig Harrington - Print Article
E-mail - editor@economyincisis.org

Fannie Mae and Freddie Mac are now nearly worthless, having each lost nearly 90 percent of their value in the last year alone. Fannie Mae shares dropped to just $3.75 on Thursday; Freddie Mac shares bottomed at one point at $2.68. A government bailout is now all but certain, and the possibility that the two federally-sponsored giants will be dismantled and sold for scrap is now a serious concern, according to Reuters.

The continued downfall of the two firms has been well-covered in the media, but the sheer magnitude of the problem is difficult to encapsulate. The 52-week share prices for Fannie Mae and Freddie Mac show a disturbing mirror image. The two companies posted monstrous budget deficits in the second quarter of 2008: $826 million for Freddie Mac and $2.3 billion for the larger Fannie Mae. And now, what amounts to a hostile government takeover is in the works. This takeover is likely to wipe out most common shareholders while also costing the American taxpayer an additional $225 billion or more.

Source Reuters:

Heightened expectations of a government bailout of U.S. home-funding giants Fannie Mae and Freddie Mac drove the two companies' shares down more than 14 percent on Thursday, as investors feared such government action would wipe out shareholders.

…

Freddie shares tumbled by 17.5 percent to hit $2.68 at one point in early trade on Thursday, while Fannie fell 14.5 percent to $3.75.

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