According to the NYT, the Bush administration is going to announce shortly that it is taking to Congress a multi-billion dollar deal to shore up failing mortgage financing firms Freddie Mac and Fannie Mae. The key points are allegedly the following:
- A two-year deal to buy an unspecified amount of stock in Fannie/Freddie. I’m assuming this is some sort of dilutive preferred stock structure.
- Greater Freddie/Fannie access to Treasury, in particular by expanding their $2.25-billion credit lines. So much for the "arm’s length" protestations.
- More Freddie/Fannie oversight for the Fed, including a role setting how much capital the two must hold.
is to be announced shortlyhas now been announced, and the Administration wants Congress to take it up immediately as part of the current housing bailout package.
So, is it enough? It depends on what you mean by "enough". It will let the market know that the U.S. government is going to let Fannie/Freddie fail, but the market knew that already. Or at least it should have. Beyond that it’s awfully hard to say, because markets will mostly read in this what they want to: Bulls will see the U.S. backstopping things, and bears will say the last plank just fell out of the U.S. economy and Dow 8,000 is straight ahead.
These are tough times, folks, and we’re headed to a whole new place that has never been explored.