Fannie and Freddie: Massive Dilution On the Horizon

Fannie Mae (FNM) and Freddie Mae (FRE) are trading up and I am scratching my head. In his testimony before the Senate Banking Committee yesterday, former Treasury Secretary Lawrence Summers said that we are in "crisis mode" and that he does not believe that the housing market will correct itself without intervention by the goverment.

But don't be confused...the government's intention is to help homeowners at risk of foreclosure, not shareholders of companies who made those loans. Summers said that "government should strongly urge government-sponsored enterprises Fannie Mae and Freddie Mac to raise substantial amounts of capital. Summers acknowledged this might not please the shareholders of the two publicly-traded companies, but said it was the "single most important step the government could take." Shareholders, watch out below!

Disclosure: none

Comments

[Zeon]

FNM dropped 5 points this week. Don't see the "trading up" theme.