Banks On Hook for Fannie/Freddie Wind-Down

Banks are down today on concerns that they may be on the hook for a wind-down of Fannie Mae and Freddie Mac.

Huh? Suddenly, at the final hour of negotiations on financial regulatory reform, the House appears to have included both FNM and FRE under provisions that would allow both of these companies to be wound-down in an orderly liquidation process. Other large companies (those with over $50 billion in assets) would be required to pay for this.

Forget about it — never mind that FNM and FRE has never been a part of the negotiations. The big issue: no one has any idea what the liabilities could be here — but there have been numbers as high as $400 billion and above.

The betting is that none of this will make it in the final bill. However, just the fact that the banks are going to be POTENTIALLY tied into bailing out FNM and FRE down the road — when it was the government who created the monster — has financial investors a bit freaked out.

Rep. Barney Frank has said that negotiations for the financial reform bill will be ended today, in time for the G20 meeting.

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