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Fannie and Freddie: 80% Dilution

The opening market reaction: S&P 500 futures rose 30.30 points. Dow Jones industrial average futures rose 239 points and Nasdaq 100 futures gained 35.25 points.

Fannie and Freddie: 80% Dilution

Another reaction:
BASEL, Sept 7 (Reuters) - Hong Kong welcomes moves by the U.S. government to seize control of mortgage finance firms Fannie Mae (FNM:$7.04,00$0.62,009... and Freddie Mac (FRE:$5.10,00$0.15,003... as this should stabilise the stressed market, its central bank chief said.
Speaking to Reuters, Joseph Yam, who heads the Hong Kong Monetary Authority, said the bailout of the two government-sponsored Enterprises was an unusual and "possibly controversial" step but necessary given the circumstances.
"As investors in debt issued by the two GSEs, we of course welcome the measures," Yam said.
"It should have a useful, tranquillising effect on the very stressful market," he said on the sidelines of a bi-monthly meeting of central bank governors at the Bank for International Settlements.

Fannie and Freddie: 80% Dilution

Reactions today....
"This is a stop-gap measure," said Peter Kenny, managing director of Knight Equity Markets in Jersey City. "It's not going to address the credit crisis."

In the short term, the U.S. government's action should buoy financial stocks by lifting concerns that Fannie and Freddie could be left insolvent, analysts said.

The government action also reassures banks that trade with the companies that their trading agreements and debt will be honored.

"Hopefully the capital injection will allow (Fannie and Freddie) to get out there and buy mortgages and create some liquidity," said Peter Goldman, principal at Front Barnett Associates, which manages about $600 million in Chicago.

"That could help the housing market put a bottom in, which would put one stable leg back into the economy."

Fannie and Freddie: 80% Dilution

They are going to need a lot more than that 1 billion. But the plan should cheer the rest of the financials and boost the broad market.