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Fannie-Freddie Merger: The Math Adds Up

As both companies plummet, combining them might make sense

By Clay Dillow, Newser Staff

Posted Sep 2, 2008 10:54 AM CDT

(Newser) – With Fannie Mae and Freddie Mac struggling to stay afloat, arguments for a merger are gathering steam. “Sometimes size can be a strength,” writes Andrew Ross Sorkin in the New York Times. The companies spent $1.825 billion in total overhead in the first half of 2008 doing exactly the same thing; a merged entity could save some $1.2 billion a year.

The merger would come at the cost of some 11,400 jobs, Sorkin acknowledges, but “pink slips are bound to be part of any fix.” A merger could also cut $1.8 billion in foreclosure costs and trim $300 million annually through increased leverage, creating as much as $19 billion in value overnight. “It would instill a huge amount of confidence,” one investment firm CEO said, and “doesn’t cost taxpayers one nickel.”

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A merger between Fannie Mae and Freddie Mac, the mortgage giants who are bleeding money doing the exact same things, is starting to make more sense. (AP Photo/Manuel Balce Ceneta, File)

Freddie Mac, the embattled mortgage giant, wouldn't do better if combined with Fannie Mae. But it certainly wouldn't do worse. (AP Photo/Pablo Martinez Monsivais, file)

As foreclosures rise and home values plummet, Fannie Mae's and Freddie Mac's shares are plummeting. Why have two companies bleeding money when we could have one company bleeding less? (AP Photo/Rich Pedroncelli, file)

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Most mergers fail. And the idea of mating two losers doesn’t exactly inspire the idea you'll get a winner. But with few practical solutions, this one is as good as any. - Andrew Ross Sorkin

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Fannie-Freddie Merger: The Math Adds Up