Paulson Might Weigh Whom to Hurt in Any Fannie, Freddie Rescue

Bloomberg (08/22/08); Brinsley, John; Christie, Rebecca
Treasury Secretary Henry Paulson could choose to stabilize Fannie Mae and Freddie Mac by purchasing their bonds, a special class of preferred shares or preferred shares convertible into common stock, according to analysts and investors. The decision could determine which bondholders, large banks, insurers and pension funds lose out on their investment in the mortgage finance giants. Paulson has the authority to purchase their debt or equity, but he might decide to put Fannie Mae and Freddie Mac into receivership as their capital declines. Problems selling bonds to finance maturing debt and a failure to meet their regulatory capital standards could force his hand.