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Free Commentary
Freddie's Plan
Incredibly Stupid
published July 21
We did a double take on the following headline atop Friday’s edition of the Wall Street Journal: “Mortgage Giant Freddie Mac Considers Major Stock Sale”. This plan gets our vote for the dumbest idea we’ve ever heard from Wall Street. A cruel joke on shareholders, perhaps? After all, the stock has already fallen 75% -- and now the same geniuses who have practically run Freddie in to the groundare proposing to further dilute shareholder equity down to the vanishing point. What might Freddie hope to achieve via this “hyperinflationary” tactic? The issuance of new stock totaling as much as $10 billion supposedly is being considered, but how much could it help?Fannie’s troubled portfolio is nominally valued in the trillions of dollars, and raising another $10 billion from shareholders would be like piling up a few more sandbags after a mighty river has inundated its levees and put half the U.S. under water.
