Paulson Plans to Bring Fannie, Freddie Under Government Control

Fannie and Freddie Bailout is coming, the big question is how do they handle the common shareholders, the preferred shareholders and bondholders. Bondholders appear safe, common shareholders will likely be wiped out or heavily diluted, preferred shareholders unclear (in my opinion they should be wiped out if taxpayer funds are used--but they will likely be protected). Remember many commercial banks hold millions of shares of the FNM/FRE preferreds (will that be enough to protect them?). Investing in todays bailout world is a little like playing monopoly and changing the rules in the middle of the game. Too big to fail should not coexist in a capitalist economy. How much will this cost the taxpayers? Next up the auto-makers? Who is running our financial system anyway? Goldman Sachs? PIMCO (Gross would not answer questions yesterday as to whether he had talked to Paulson about the bailout)? Enough of my sarcasm, below is the story from Bloomberg.

(Bloomberg) Treasury Secretary Henry Paulson is preparing to announce plans to bring Fannie Mae and Freddie Mac under government control, seeking to halt the crisis of confidence in the companies that make up almost half the U.S. mortgage market.

Paulson met with Fannie Mae Chief Executive Officer Daniel Mudd and Freddie Mac CEO Richard Syron yesterday to brief them on the decision to put the companies into a conservatorship, where they would be removed from their jobs, according to a person briefed on the discussions. A public announcement is expected this weekend, the person said.

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