Fannie and Freddie Fallout: What the Experts Say

By CNBC.com
Friday, 11 Jul 2008 | 4:51 PM ET

As shares of Fannie Mae and Freddie Mac ,continue to drop Friday, concerns are being raised about capital constraints, interest rates and a possible government takeover.

Could a collapse of these mortgage giants may set off more fallout in the housing market and add another kick to the already down dollar?

Here's what experts and commentators are saying on CNBC ...

Fannie, Freddie & the Discount Window
Reuters is reporting the Fed might grant Fannie Mae and Freddie Mac access to the emergency discount window. Ira Jersey, U.S. interest rate strategist at Credit Suisse, shares his insight.

Capital May Offer Comfort to Debt Investors

"On the debt side, an ongoing concern that is really what the government and regulators are looking at, is really whether or not they can fund the discount notes. [Raising capital] is something that really helps with that and really should give debt investors a lot of comfort."

-Ira Jersey, U.S. interest rate strategist at Credit Suisse

Fannie & Freddie: Worst Week Ever
Discussing the fate of Fannie Mae and Freddie Mac, with Sean Egan, of Egan-Jones Ratings Company, and Jerry O'Driscoll, of the Cato Institute

Time to Get Rid of Fan and Fred?

"If you want to get rid of them let's do it in an orderly fashion. I agree with Sean, you start downsizing them and then we can disagree on how far downsized they have to be, getting rid of them being the limit of downsizing."

-Jerry O'Driscoll, of the Cato Institute

Why They Matter
Why Fannie and Freddie matter so much to all home owners, with CNBC's Jane Wells

Home Owners Can Relax, Share Holders May Not

"All this panic about Freddie Mac and Fannie Mae not being able to meet their obligations is silly. The federal government simply cannot afford to let them fail. They were created by the federal government to make it possible for people to own homes and I think Americans can remain confident that that facility will remain in place."

-Peter Morici University of Maryland School of Business

Fannie & Freddie Shares Plummet
Confidence that the U.S. government won't let them fail, with Dan Fuss, Loomis Sayles vice chairman/portfolio manager

The Optimistic Outlook

"The key point right now with Fannie and Freddie is at the increment on transactions being done now... Their spread, now this is my guess work because their report hasn't come out yet... the difference between there costed funds and what they make on their investments, I believe, is at modern day record on the upside."

-Dan Fuss, Loomis Sayles vice chairman/portfolio manager

Fannie Mae & Freddie Shares Get Hit Hard
A look at the troubled lenders, with Robert Napoli, Piper Jaffray; Jim Paulsen, Wells Capital Management and Mad Money host Jim Cramer

Losses May Spiral Out

"Capital has to go up and rates have to go up over the long term... but if [Fannie and Freddie] have to pull back substantially [on their lending] the housing market is at risk of another significantly down [move] not only in home purchases but in prices. And that's a spiraling effect on losses for the U.S., Fannie and Freddie and banks."

- Robert Napoli, Managing director Piper Jeffray

Fannie & Freddie Gov't Takeover?
The Bush administration is considering having the government take over Fannie Mae and Freddie Mac if their problems worsen, with Mad Money host Jim Cramer; Addison Armstrong, Tradition Energy and Jim Paulsen, Wells Capital Management

Why The Government Should Bail Them Out

"These companies are giant money makers. The government should put money in them. Three years from now we're all going to come out of this and say, 'Why weren't we in with the government?' The tax payers will make money. This is a bailout you want the government to be in."

-Jim Cramer, Mad Money

The Global Downside to the Bailout

"A bail out of these two institutions could have significant ramifications, further ramifications for deterioration of the dollar. You may even draw in some questions in regard to sovereign debt downgrades. It's going to cost that much."

-Manus Cranny, MF Global

Advantages to Short Selling

"I think short sellers are going after them, but I don't think in an unreasonable way. I think there are a lot of mortgages they've guaranteed and there's just not that much equity there."

-Manny Weintraub, Intefre Advisors

The Underlying Issues

"I think [a bail out] is a short term fix. Just like Bear Sterns, it gives the market a bit of comfort in the short term. I think in the longer term the underlying problems have to be addressed. The U.S. housing market is still very very weak, foreclosures are at a record high, and prices could head farther south."

- Vasu Menon, OCBC Bank

Dollar in Deeper Trouble

"Initially it is good news that there is going to be government backing and there is going to some form of a bailout but over the larger scenario the fact that these institutions are in such trouble could not be good for the U.S. dollar."

- Simon Grose-Hodge, LGT Bank Liechtenstein

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