WASHINGTON: Top officials in Washington struggled Thursday to reassure the markets about the financial health of the nation's two largest mortgage finance companies as their stock prices plunged to their lowest levels in 17 years on fears that they could face the possibility of a government bailout.
The rapid sell-off of shares of Fannie Mae and Freddie Mac followed comments from a former central banker that the institutions might not be solvent, as well as a critical report about Freddie from an analyst at UBS.
Emphasis added by me.
Truth Or Dare Time:
At a congressional hearing Thursday morning, both the Treasury secretary, Henry Paulson Jr., and the Federal Reserve chairman, Ben Bernanke, said that the regulator of both Fannie and Freddie had found that they were, in the words of Paulson "adequately capitalized."
Emphasis added by me.
I want all of you to bookmark this post.
If both -- or even one -- of these institutions requires a Federal bailout, then the credibility of both Paulson and Bernanke are shot. Even though they are both plainly engaged in a "Well, he said so!" game here by citing "the regulator" of both.
Look at this weaseling:
Neither official would address a question posed by Representative Dennis Moore, a Kansas Democrat, who asked whether the failure of either institution would pose a risk to the entire U.S. financial system.
"In today's world I don't think it is helpful to discuss any financial institutions and whether they pose systemic risk," Paulson said.
Nor would they answer a question about whether Congress needed to give the regulators more tools to deal with the possible insolvency at either company.
"I don't think we should be speculating about what if's with Fannie and Freddie," Paulson said, as Bernanke sat silently at his side.
More:
A collapse at either of the two companies, which operate under an implicit government guarantee, could cause catastrophic consequences for the U.S. economy. Analysts said they expected the companies to announce a new round of write-downs and possibly be required to issue more stock, which would dilute the value of the shares currently held by investors.
Emphasis added by me.
And finally:
Freddie Mac had previously announced that it intended to raise $5.5 billion this year. Both Freddie and Fannie are widely expected to post additional losses this year that would require them to raise more money from investors. But with their stock prices plummeting, such fund-raising may be made difficult.
Emphasis added by me.
Yeah: Just what I said earlier right here.
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