This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Why Was Wall Street Blindsided by Fannie, Freddie Wind-Down?

Stocks in this article: FNMA FMCC GM

NEW YORK (TheStreet) -- For years Wall Street and Republicans in Congress have pounded the table, in unison.

Wind down Fannie Mae (FNMA) and Freddie Mac (FMCC)!

Stop interfering in the private mortgage market! It's Fannie and Freddie who are to blame for the Great Recession -- all those cut-rate mortgages Democrats insisted upon starting in the 1990s. All those liar loans. The economic damage could have been contained but for those pesky government types and their Democratic friends in Congress.

Close them down!

OK, then. Senate Banking Committee Chairman Tim Johnson (D., S.D.) and Republican counterpart Mike Crapo (Idaho) have agreed, along with the Obama administration, on a plan to wind down Fannie and Freddie.

The bill would transfer control of the market to a new Federal Mortgage Insurance Corp. modeled on the Federal Deposit Insurance Corp., which protects consumer bank deposits. It would create a new mortgage insurance fund, 10% of which would come from private capital in the form of a user fee.

The plan is good for taxpayers, even though a White House analysis estimated that, left on their own, the two government-sponsored enterprises could return more than $179 billion to the taxpayers over the next 10 years. That enormous government bailout of $187 billion? It will be repaid.

The proposal is also good for Wall Street. The mortgage market will be freed from federal control. All that estimated $179 billion in profit over the next 10 years, and probably much more, will be flowing into private hands.

You would think the reaction on Wall Street would be cheers. The market is getting a millstone off its neck. Washington is finally doing what Wall Street wants. Right?

Because now Fannie Mae and Freddie Mac are making money, you see. A lot of money. A ton of money. Big hedge funds, such as Bill Ackman's Pershing Square, figured this out and piled into the stocks. Martin McGuire, managing director of TJM Institutional Services, recently predicted a bright future in his charts, with both companies rising by 250%.

Instead, Fannie Mae shares fell almost 31% and Freddie Mac fell almost 27% in one day. Ackman must have lost a fortune.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,959.44 +154.64 0.87%
S&P 500 2,078.54 +7.89 0.38%
NASDAQ 4,781.4240 +16.0440 0.34%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs