• News/Talk
  • Music
  • Entertainment

Marketplace

Wednesday, August 20, 2008

Listen to the show

Shareholders fear being bailout losers

Freddie Mac and Fannie Mae logos

Sales of Fannie Mae and Freddie Mac plummeted today on fears that if the government steps in to save the mortgage giants, taxpayers will benefit but shareholders will be wiped out. Steve Henn reports.

The logos for Freddie Mac and Fannie Mae (freddiemac.com/fanniemae.com)

More on The Economy, Housing - Real Estate, Domestic, Wall Street, America's Financial Crisis

TEXT OF STORY

Kai Ryssdal: Investors seemed to believe that if Treasury Secretary Henry Paulson does step in -- with billions in taxpayer dollars -- individual shareholders will be wiped out. But why do investors believe that? Here's Marketplace's Steve Henn in Washington.


Steve Henn: Wall Street's betting that if Uncle Sam steps in to help Fannie and Freddie, taxpayers will come first, shareholders will get the shaft.

Doug Elmendorf: Fannie and Freddie are so important to the mortgage market and thus to the housing market that we can't afford to let them fail.

That's economist Doug Elmendorf at Brookings. He's worked all over the federal government.

Elmendorf: But it is very important that we think about the way in which the government can become involved. So that the taxpayers don't bear the risk of loss, while the private shareholders gain the benefits.

Elmendorf says the government can offer the mortgage giants a loan, buy a stake in the companies or do both.

Elmendorf: The problem with a loan is that the upside potential if the companies do well is captured by the shareholders. While the downside risk that the companies are unable to repay the loan falls on the taxpayers.

That's a political nightmare. The other alternative is the feds take an equity stake in the companies. The feds would buy newly issued shares in Fannie and Freddie, diluting the value of old shares to next to nothing. That's exactly what Wall Street fears, even though taxpayers could profit if the businesses succeed.

Elmendorf: Well, I don't want to speculate on what Secretary Paulson might do.

Fannie Mae's CEO appeared on public radio's Diane Rehm Show this morning to reassure investors a bailout wasn't on the horizon.

Daniel Mudd [on the radio Diane Rehm Show]: They haven't offered anything and we haven't asked for anything. I don't anticipate that we will do that.

Shareholders weren't reassured. After that interview, Fannie's stock continued to plunge.

In Washington, I'm Steve Henn for Marketplace.

Comments

  • Comment | Refresh

  • Post a Comment: Please be civil, brief and relevant.

    Email addresses are never displayed, but they are required to confirm your comments. All comments are moderated. Marketplace reserves the right to edit any comments on this site and to read them on the air if they are extra-interesting. Please read the Comment Guidelines before posting.

    * indicates required field

    *
    *
    *
     




     

    You must be 13 or over to submit information to American Public Media. The information entered into this form will not be used to send unsolicited email and will not be sold to a third party. For more information see Terms and Conditions and Privacy Policy.

Music From This Show

  • North Phoenix Buy
  • Kids Oracular Spectacular Buy
  • Mothership Connection Starchild George Clinton Buy
  • Green Grass of Tunnel Mum Buy
Podcast »

After the Bell

Scott Jagow makes sense of the week in business and the economy. Subscribe now.

The Whiteboard »

The 'repo' market

Paddy stands in front of the whiteboardWatch the video

Senior Editor Paddy Hirsch explains why the repurchase (or repo) market is a vital part of the financial system, and why the government is considering changes to it. Watch the video.

More Whiteboard Videos »

Getting Personal »
Chris Farrell

Q: Parent PLUS loans

I took out a Parent Plus loan with Sallie Mae when my son started school. He's finished now. Can I get the loan changed to his name? Thanks. Mary, Breese, IL Read Chris Farrell's answer »

Special Reports and Series

States of unemployment »

The experience of being out of a job can vary greatly, depending on where you live. Get more.

The Big Shift »

How the recession is changing our lives. Get more.

The Borrowers »

A series of reports on Americans' changing relationship with credit. Get more.

Taking Stock »

Conversations with individuals who can give us the long view of our economic situation. Get their views.

Here's what I'm doing »

A wide range of people tell how they're handling investments and savings in this tough economy. Get their stories.

What's the fix? »

Economists, financial experts, business leaders and others on how to deal with the current economic crisis. Get a fix.

Who can you trust?

Marketplace Money asks how we got into this financial mess and who we can trust to guide us back to stability. Find out.

Road to Ruin?

Marketplace goes on the road to talk to Americans about the economic challenges they're facing. Hit the road.

More Reports & Series »

The Decoder »

More Decoder »

The Specials

GAME: Budget Hero

Budget Hero

Think you could balance the federal budget? Play the game.

Conversations from the Corner OfficeTM

Conversations From the Corner Office

Marketplace goes one-on-one with CEOs, company founders, head honchos...

Sit in

Working

Working

Intimate profiles of workers in the global economy.

Meet them

Marketplace on iTunes U

iTunes U

Marketplace is on Apple's online education platform, iTunesU. Get free downloads in subjects like History, Science, Business and more. Study up

 ©2009 American Public Media