Weekend Thinking: An Agency Recapitalization Proposal

July 11, 2008

I had a conversation with a research analyst at a large investment bank whose purview is the GSEs. This particular gentleman believes that a direct government bail out of Freddie Mac and FNMA is an unlikely government event. He posits that it is an unlikely event at the outset of this episode and ,if necessary, would only play out much further along in the process .He suggests that Hank Paulson is flipping through his Rolodex (much better than a Blackberry) and he is busy stitching together a plan which would require money from other large banks , central banks and private pools of equity capital from around the globe.

In his view the losses which the GSEs will suffer over the next 2 years will be in the vicinity of 40 billion to $50 billion and that could be handled without direct intervention by the US.

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