Fannie, Freddie Media Panic Overblown

Either way, it would result in taxpayers being on the hook for mortgage losses, but wouldn't involve the government writing some gigantic check up front. Taxpayers would first use the GSEs' rather large asset base first, so whether it would wind up actually costing tax payers anything is unknown. Comparing the size of the GSEs' guarantee portfolio ($4.5 trillion) to the national debt, or some such, is a spurious comparison, to put it politely.

This is by no means a recommendation to buy either the common or the preferred stock of either company. The former would almost certainly be wiped out by a Treasury-led bailout, and the latter may as well. And the Treasury will probably not wait for the companies to actually run out of cash before acting. The resulting contagion would be too great. But it's not likely that anything will happen to either senior debt holders or MBS holders. Today's action on the senior debt spreads bears this out, as they have moved about 20bps as of the open this morning.