Some Investors Say U.S. Bailout of Housing Giants Is Inevitable

New York Times (08/20/08) P. C1; Duhigg, Charles; Bajaj, Vikas
Fannie Mae and Freddie Mac will need to ask the federal government for financial assistance if they are unable to obtain additional capital from investors and banks, according to some investors. "At some point, investors are going to say these companies are too big a risk to buy their debt, and that precipitates a self-fulfilling prophecy that ends up with the government having to step in," says William Gross, chief investment officer of money management firm Pimco. The stock prices of the mortgage finance giants continue to fall, and raising money will only become more expensive. Sean Egan, managing director of independent credit ratings firm Egan-Jones Ratings, believes the Treasury will have to pump about $20 billion into each company and that a decision could come within the next couple of weeks.