Fears of a collapse of Fannie Mae or Freddie Mac finally eased yesterday after a stomach-churning rollercoaster ride that saw a 50% nosedive for the mortgage giants in early trading, writes the Wall Street Journal. A week of panic, prompted in part by reports that the government was preparing rescue scenarios, seem to have abated, as Fannie and Freddie were able to continue their regular borrowing. But a bigger test looms Monday when Freddie is due to sell $3 billion of short-term debt.
Henry Paulson moved to assure investors the giants would not be nationalized even if they had to be rescued; insiders tell the Journal that the treasury secretary is keen to ensure a taxpayer bailout doesn't benefit shareholders. Things could turn ugly if the sale Monday fails. The week-long crisis of confidence cost Fannie and Freddy stocks nearly half their value.