U.S. Mulls Future of Fannie, Freddie

Wall Street Journal (07/10/08) P. A1; Hagerty, James R.; Solomon, Deborah;
Paletta, Damian
Although the Treasury Department and other financial regulators have been discussing for months what the government should do to prevent or manage a failure of Fannie Mae or Freddie Mac as part of its regular contingency planning, sources say the discussions have become more serious as the government-sponsored enterprises' share price loses value. Officials and analysts generally believe the GSEs will weather the credit crisis, but former Treasury Department general counsel Peter Wallison insists that they cannot be allowed to fail because "the losses would extend through so much of our economy, and so much of the world economy." Among the options analysts say the government could employ are a Federal Reserve credit line, a government equity investment and an explicit federal guarantee of the GSEs' mortgage debt; but Graham Fisher & Co. analyst Josh Rosner believes the GSEs would probably obtain capital from private investors regardless of the impact such a move would have on shares.