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Freddie and Fannie Get Owned
In its most aggressive move to date, the government is now taking control of the nation's largest lenders in order to save them.
The government's plan is multifaceted and involves offering secured financing to both companies in order to pull them out of the financial trouble they currently face. Beyond that, the plan is to allow the government to buy the two companies' securities that are backed by mortgages, as well as receive $1 billion of senior preferred stock with rights to buy common shares equal to 79.9% stake in each company. Both Fannie and Freddie will be expected to pay the government quarterly fees beginning March 2010.
This aggressive takeover is believed to be beneficial as President Bush feels a collapse of either company would have serious consequences and pose "unacceptable" risks for the economy. According to Treasury Secretary Henry Paulson, a takeover was necessary because if either company were allowed to collapse or deteriorate further, it would "affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance."
What do you think of the government's actions in this case? Is it warranted, or do you have some reservations that the government now owns two of the nation's largest companies? [USA Today]