Bailout Watch 26: Feds Take Over Fannie Mae and Freddie Mac

The Washington Post reports that Uncle Sam is set to take yank the chain of Fannie Mae and Freddie Mac. “The government has formulated a plan to put troubled mortgage giants Fannie Mae and Freddie Mac under federal control, dismiss their top executives, and use government funds to prop them up, government officials told the two companies yesterday, according to sources familiar with the conversations.” It’s a bailout, but not as we know it. “Under the plan, the federal government would place the firms in a legal state known as conservatorship, the sources said. The value of the company’s common stock would be diluted but not wiped out while the holdings of other securities, including company debt and preferred shares, would be protected by the government.” To avoid sticker shock, the feds will “invest” your money in stages. “Instead of giving each company a big capital infusion up front, the government plans to make quarterly infusions as the companies’ losses warrant, the sources said. This would be an attempt to minimize the initial cost of the rescue.” Clearly, this is the template for the “real” Detroit bailout, once they piss-away $50b in federal low-interest loans. Either that, or it will lead to “bailout fatigue” that will torpedo the D2.8’s chances of taxpayer rescue.