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Saturday, September 06, 2008 12:50 AM

Fannie, Freddie Headed For Conservatorship

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More Fannie, Freddie rescue details are slowing becoming available after hours. Please consider U.S. Nears Rescue Plan For Fannie And Freddie.

The government has formulated a plan to put troubled mortgage giants Fannie Mae and Freddie Mac under federal control, dismiss their top executives and prop them up financially, federal officials told the two companies yesterday, according to three sources familiar with the conversations.

Under the plan, which could prompt one of the most sweeping government interventions in financial markets in U.S. history, federal officials would place the firms under a conservatorship, a legal status giving the government the option and time to restructure and revive the companies, the sources said. The value of the companies' common stock would be diluted but not wiped out, while the holdings of other securities, including company debt and preferred shares might be protected by the government.

Instead of giving each company a big capital infusion upfront, the government could make quarterly injections as the companies' losses warrant, the sources said. This would be an attempt to minimize the initial cost of the rescue.

The chief executives of the two companies were called into afternoon meetings yesterday at the 17th Street NW offices of the Federal Housing Finance Agency, their direct regulator, sources familiar with the events said. Executives of the two companies were told to show up without being told of an agenda.

The plan was described by three sources: an official, a former official who was told of the plans and a mortgage industry executive with direct information. They spoke on condition of anonymity because its specifics had yet to be announced.

Placing the companies in conservatorship, rather than receivership, could signal that the government does not intend to nationalize or liquidate Fannie Mae and Freddie Mac. Instead, under the terms of a federal law passed this summer, conservatorship is designed to allow the government to restructure the companies and return them to private control. Treasury officials have previously compared the process to Chapter 11 bankruptcy.
Rescue Me

Rescue me
Oh take me in your arms
Rescue me
I want your tender charms
'Coz I'm lonely and I'm blue
I need you and your love too
Come on and rescue me
Come on baby, take me baby, hold me baby, love me baby
Can't you see that I need you baby
Can't you see that I'm lonely
Rescue me

Mike "Mish" Shedlock
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