housingbill

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What fueled this latest crisis in confidence was a Barron'sarticle last weekend that speculated the government's likelihood ofa takeover is increasing, Peter Cohan, principal of the consultingfirm Peter Cohan & Associates, tells GlobeSt.com. "That isdefinitely one of the reasons: the article said if Fannie andFreddie cannot raise the $10 billion each that they need, Treasurywill take over it and sell off its bad loans. Shareholders will beleft with nothing in that scenario."

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According to public comments by Treasury Secretary HenryPaulson, no government takeover is planned. Fannie Mae and FreddieMac did not return calls in time for deadline.

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There are other signs of financial stress that worry investors,Cohan adds. "Freddie Mac tried to raise money this week and theyhad to pay a much higher spread than they have in the past." Theagency raised $3 billion in five-year debt, but at 1.13 percentagepoints over the rate the federal government pays for comparableborrowing, he notes. Another worrisome sign: Asian investors onlypurchased a small percentage of Fannie Mae paper recently. A yearago, these investors purchased as much as two-thirds of it,according to Cohan. "What is happening is that they are having moretrouble raising short-term financing."

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These events follow very poor earnings performance from the GSEsfor Q2. On Aug. 6, 2008, Freddie Mac reported a loss of $821million loss, or $1.63 per share for Q2. Two days later, Fannie Maereported aloss that took even wary Wall Street analysts by surprise,losing $2.3 billion, or $2.54 per share.

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