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Monday, July 14, 2008

Treasury could buy Fanniew Mae and Freddie Mac

Treasuries gained as stocks fell, led by financial companies, highlighting rising concern that problems for the U.S. banking system may be worsening. U.S. stocks fell, sending financial shares to their lowest level since October 1998, on heightened concern that bank failures will spread. Washington Mutual Inc. posted its biggest drop ever and National City Corp. tumbled to a 24-year low after last week's collapse of IndyMac Bancorp Inc. spurred speculation that more regional banks may be short of capital.

Treasuries initially declined, pushing the yield on the 10- year note to the highest in almost two weeks, after Treasury Secretary Henry Paulson put a plan before Congress to provide support to Fannie and Freddie, the government-sponsored enterprises that purchase or finance almost half of the $12 trillion of U.S. mortgages.

There are some that feel that the U.S. Treasury Department's plan to shore up Fannie Mae and Freddie Mac is an unmitigated disaster and the largest U.S. mortgage lenders are basically insolvent. Some bet that Fannie Mae shares will keep tumbling. Fannie Mae's market value is now about $10 billion, down from $38.9 billion at the end of 2007. Freddie Mac's market value has shrunk to about $5 billion from $22 billion at the end of last year.

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