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July 12, 2008

Rumor: $15-Billion Government Injection Considered Into Fannie/Freddie

According to the Times of London -- in a very thinly-sourced story today -- Treasury Secretary Paulson is considering (or is that planning?) a $15-billion Federal Government cash injection into troubled U.S. mortgage firms Freddie Mac and Fannie Mae. The supposed plan would involve a new class of shares, almost certainly preferreds, and would hugely dilute existing shareholders. The firms would also get access to the Fed's reserve window under the plan.

This story is so thinly sourced that I was initially hesitant to post it, to be frank. These are skittish and perilous times, and no unnamed person is even quoted indirectly in the article, let alone directly. In many ways it sounds like an echo chamber version of what was discussed all day Friday by the chattering class.

That makes it hard to know what to make of it. Are we just hearing a cross-Atlantic repeat of what was discussed Friday, or is this story sourced sufficiently well so as to make it anything other than a stupid, contagious and dangerous rumor?

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