A federal bailout for Fannie Mae and Freddie Mac looks more likely every day, both the Wall Street Journal and the New York Times report, as the mortgage giants find it increasingly difficult to borrow and their stock continues to take a pounding. Freddie was able to auction $3 billion in debt yesterday, but at unusually hefty interest rates, which in turn could be passed on to borrowers.
The Journal spells out rescue options Treasury is considering, which could include forcing out management. "If Treasury were to take an equity stake at a high price, it would benefit shareholders. Coming in at a low price would essentially wipe out the shareholders, making the government the de facto owner of the firms." Treasury had hoped authorization of a federal rescue would boost investor confidence, but uncertainty over what exactly the government might do is having the opposite effect, the Journal notes.