Friday, July 18, 2008



We read in this morning’s Wall Street Journal that Freddie Mac is considering a “major” sale of common and/or preferred stock in order to fortify its capital base. Fannie Mae, one supposes, cannot be far behind.

My initial reaction on reading this news is that whoever the lead banker is on this deal would do well to resurrect Mr. P.T. Barnum and put him on its sales force. A moment’s reflection, however, led me to conclude that it will not be the buyers of this paper that will be the suckers but, rather, we the taxpayers.

If common, preferred, or both, of the Brobdingnagian mortgage twins is sold, and the Treasury (I refuse to jump on the trendy fad of referring to Alexander Hamilton’s department as simply “Treasury.” It offends the ears and has a distinctly foppish ring to it.) does not buy a substantial piece of the offering(s), such a deal can only get done, at anything approaching a price that would achieve the ends for which the sale was designed, by certain, er, “understandings” being formulated. Effectively, the Treasury’s implicit guarantee of Freddie’s debt will become some sort of implicit guarantee of Freddie’s equity.

As usual, our public servants stand ready to use our money to salve any self inflicted financial boo-boos, especially those of the tough guy, free marketeer types who inhabit Wall Street, preach self-reliance, and contribute heavily to both parties, but mostly to self-proclaimed free market Republican types. However, the degree of alacrity with which our public servants throw our money at their friends seems to vary directly, and strongly, with the size of the friend in need.

The forced march to financial Gomorrah continues.

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