Stock Market Information

There’s no question that many investors seemed quite sure that Fannie Mae and Freddie Mac were destined to go under, and in turn that the government would have to step in and snap them up. The stock has been mercilessly punished in recent weeks, but there are some signs of hope for the stock.

One sign in particular is that the stocks have been up for 3 days straight despite continual sell-offs in the broader market. What may have seemed like an imminent bailout could actually have been overblown, according to a number of analysts:

“Merrill Lynch analyst Kenneth Bruce wrote in a research note Wednesday that speculation about an infusion of capital by the U.S. government is “somewhat premature” as Fannie and Freddie’s financial cushion against losses won’t be depleted “for several quarters.” Investors “are overly discounting a possible catastrophic event,” he wrote.”

It isn’t all rose-colored glasses of course. While Freddie and Fannie currently have enough cushion for the next couple quarters, what will happen afterward if both companies continue to bleed profusely is less certain. The risks are certainly still very high. Given that the two government-sponsored firms hold or guarantee half the U.S. mortgage debt, there would more or less have to be an intervention on behalf of the government to prevent an economic collapse. Stockholders however, would be left in the cold in this case, as shares of both firms would likely be nigh on worthless in this event. While obviously some investors smell an opportunity if the firms survive there’s a distinct possibility that shares could still go to zero at some point.