If they do then expect this to be printed: FED saves FRE & FNM and destroys US sovereign rating in the process.
http://www.telegraph.co.uk/money/mai...2/cndow112.xml
....The fears of a banking crisis gripped Wall Street, Lehman Brothers shares fell 22pc. Investors have been spooked by a filing this week showing that the bank still has $41bn of mortgage debt and other "toxic" Level III assets.
Lehman now risks the same spiralling loss of confidence that engulfed Bear Stearns, though the Federal Reserve's emergency lending window for broker-dealers offers a lifeline.
The credit default swaps on Lehman debt leapt 55 basis points to 380, flashing an extreme stress signal.
The implosion of Fannie and Freddie is disturbing. Neither has exposure to sub-prime loans.
"The situation is far more serious than Bear Stearns," said Bill King, chief strategist at Ramsey King Securities.
Under the US stimulus plan the pair have been deployed as lenders of last resort to the housing market, carrying out a quasi-official rescue mission on behalf of Congress since March. Now the rescuers themselves need rescuing.
Charles Schumer, chair of the Senate banking committee, said: "Fannie Mae and Freddie Mac are too important to go under. If they need additional support, Congress will act quickly."
If Washington does take on the liabilities of the two, this would double the US Treasury's outstanding debt load at a stroke and raise serious concerns about the triple-A sovereign rating of the US itself.
There may be no choice. Bill Gross, head of the bond giant Pimco, said a default by the two agencies would set off a "firestorm of intolerable proportions".
Standard and Poor's said in a recent report that Fannie and Freddie posed "a large contingent fiscal risk: if the risks were to translate into increased government debt, they could hurt US credit standing".
The markets have already begun to sense danger. The cost of insuring against default on 10-year US Treasury bonds surged from 8 basis points to 15 at one stage yesterday.
"America's 'AAA' rating has become a joke," said Peter Schiff, head of EuroPacific Capital.
"I believe the losses from Fannie and Freddie alone could reach $500bn to $1 trillion dollars.
'' The US government will not be able to meet repayments on its debt once interest rates rise," he said.
Mr Schiff said a big chunk of the agency debt is held by foreigners. A collapse of confidence could set off a dollar exodus.
It is unclear if Mr Paulson can delay a state bail-out for long. "There is concern that Fannie, Freddie, and Lehman will not be around on Monday," said one analyst.
Ironically, Fannie and Freddie shares, having halved in value at one stage, recovered slightly after Mr Paulson's comments. Investors were relieved the agencies might yet be spared a state seizure aimed at limiting "moral hazard".
This is what occurred in the Nordic financial rescues of the early 1990s, which left shareholders with nothing.
http://www.telegraph.co.uk/money/mai...2/cndow112.xml
....The fears of a banking crisis gripped Wall Street, Lehman Brothers shares fell 22pc. Investors have been spooked by a filing this week showing that the bank still has $41bn of mortgage debt and other "toxic" Level III assets.
Lehman now risks the same spiralling loss of confidence that engulfed Bear Stearns, though the Federal Reserve's emergency lending window for broker-dealers offers a lifeline.
The credit default swaps on Lehman debt leapt 55 basis points to 380, flashing an extreme stress signal.
The implosion of Fannie and Freddie is disturbing. Neither has exposure to sub-prime loans.
"The situation is far more serious than Bear Stearns," said Bill King, chief strategist at Ramsey King Securities.
Under the US stimulus plan the pair have been deployed as lenders of last resort to the housing market, carrying out a quasi-official rescue mission on behalf of Congress since March. Now the rescuers themselves need rescuing.
Charles Schumer, chair of the Senate banking committee, said: "Fannie Mae and Freddie Mac are too important to go under. If they need additional support, Congress will act quickly."
If Washington does take on the liabilities of the two, this would double the US Treasury's outstanding debt load at a stroke and raise serious concerns about the triple-A sovereign rating of the US itself.
There may be no choice. Bill Gross, head of the bond giant Pimco, said a default by the two agencies would set off a "firestorm of intolerable proportions".
Standard and Poor's said in a recent report that Fannie and Freddie posed "a large contingent fiscal risk: if the risks were to translate into increased government debt, they could hurt US credit standing".
The markets have already begun to sense danger. The cost of insuring against default on 10-year US Treasury bonds surged from 8 basis points to 15 at one stage yesterday.
"America's 'AAA' rating has become a joke," said Peter Schiff, head of EuroPacific Capital.
"I believe the losses from Fannie and Freddie alone could reach $500bn to $1 trillion dollars.
'' The US government will not be able to meet repayments on its debt once interest rates rise," he said.
Mr Schiff said a big chunk of the agency debt is held by foreigners. A collapse of confidence could set off a dollar exodus.
It is unclear if Mr Paulson can delay a state bail-out for long. "There is concern that Fannie, Freddie, and Lehman will not be around on Monday," said one analyst.
Ironically, Fannie and Freddie shares, having halved in value at one stage, recovered slightly after Mr Paulson's comments. Investors were relieved the agencies might yet be spared a state seizure aimed at limiting "moral hazard".
This is what occurred in the Nordic financial rescues of the early 1990s, which left shareholders with nothing.
