This WSJ article again points out that government intervention in Freddie Mac (and Fannie Mae) would mean extensive losses to current investors.
The term 'bailout' is a misnomer when applied to Fannie Mae and Freddie Mac. While implying that there would be a rescue that would enable things to sail along as before, only better, that's simply not the case.
The tone here is 'nope, not going there' when it comes to investing.
The road is likely to get tougher for Freddie Mac and Fannie Mae. It's hard to see why anyone would find such an investment attractive, given the situation.
Can investor confidence in these organizations be restored? The facts are to the contrary, as indicated by a 90% plunge in stock market value over the past year.
Here's the WSJ piece:
Freddie Mac executives are sounding out private-equity firms and other investors about the possibility of buying new common or preferred shares in the mortgage company.
But that effort is running up against what may be an insurmountable hurdle: Many investors fear any money they invest now in Freddie or its main rival, Fannie Mae, will be lost later if the U.S. Treasury bails out the companies through a purchase of equity in them. Investors believe such a purchase would likely involve terms that would wipe out the value of previously issued shares.
"Senior management has been talking with a wide array of possible investors this week," said David Palombi, Freddie Mac's chief spokesman. He noted that the company remains above its current regulatory capital requirements but has pledged to raise $5.5 billion of capital "given appropriate market conditions."
Fannie Mae raised $7.4 billion in May but has said it may need to tap the market again, depending on how large losses turn out to be in coming quarters.
In July, Congress gave the Treasury authority to lend money to or acquire equity in the companies if needed to prop them up. That helped reassure buyers of Fannie and Freddie debt that the government would stand behind them in a crisis.
But the Treasury's authority may make it harder for them to sell equity because of uncertainty over how the Treasury would treat private shareholders if a bailout is needed.
Some people involved in the discussions hope the Treasury might be persuaded to clarify how shareholders would be affected by a bailout. Treasury officials declined to comment.
Another huge uncertainty is how the companies' new regulator, the Federal Housing Finance Agency, will apply its authority to set higher capital requirements for Fannie and Freddie.
The agency has said it will need time to work out those requirements, a process that will involve writing regulations and seeking public comment. Meanwhile, investors find it hard to assess the companies' profit prospects without knowing how much capital they will have to hold.
Fannie and Freddie also fear their prospects are being undermined by negative comments from unidentified government officials in various media reports.
On Aug. 1, Rep. Henry Waxman (D., Calif.), chairman of the House Oversight and Government Reform Committee, sent letters to Fannie and Freddie asking for any documents that would suggest government leaks in July about their financial conditions. The companies have already turned over materials, according to a committee staff member.
Freddie shares slipped 2.8% to $3.16 in 4 p.m. composite trading Thursday on the New York Stock Exchange. Fannie was up 10% to $4.85.
Both stocks have plunged more than 90% over the past 12 months. Freddie's stock-market value of about $2 billion is now less than a quarter that of Hudson City Bancorp Inc., a savings-bank operator in Paramus, N.J. Hudson City has about $49 billion of assets, compared with $879 billion at Freddie.