How does the fed go about bailing out fannie/freddie shareholders? ?

Question

hypothetically speaking

Answer 1

First off Fannie and Freddie have basically been nationalized. The burden of the debt is now placed upon the taxpayer just as the government debt is. The loans issued and backed by Freddie and Fannie are now basically like government bonds. To understand how the Fed is bailing out the shareholders in this you must understand that the the government and the Fed have become the lender of last resort. The Fed and the government have removed the risk factor to the investors and that risk factor has been placed on the taxpayer.

The Feds role in this is really interesting and their role in this will destroy the dollar more then they already have. Just like Bear Stern a private investment firm, Fannie and Freddie nw are able to borrow from the Federal Reserve discount window. The loans that Freddie and Fannie have, which are owned and are liabilities to the investors and now the government have become assts in the eyes of the FED for the ability of Fannie and Freddie to borrow from the discount window. The Fed creates money out of nothing when they issue money from the discount window. You need to understand fractional reserve banking and how it works. The borrowing from the Fed is inflationary. However we are currently in a freezing and deflation situation, just like what happened during the Great Depression. The Fed is inflating as quickly as they can to counter this but they cant create enough money to offset the amount of contraction by the banks. Bear Sterns, Fannie, Freddie and all these non banks that the Fed is allowing to borrow from the discount window are now able to create money at will just like a bank can using the libalities of the companies to back the creation of the money or loans. This is exactly how the Congress creates mony. They monitize debt. No debt, no money. No debt no money = bank and credit freeze, and vise versa.

People dont truly understand what the FED and the congress have done here. They have destroyed the dollar, the economey and the future of this country in the moves they have made in the last 6 months. We were in an inflationary enviroment but now with the contraction in credit we are in a deflation which is a million times worse. Once the deflation runs its course look out, the next step that history shows us is HYPER INFLATION takes hold.  

Answer 2

it doesn't.

the fed won't be the one to bail out the gse's - treasury would be.

but they don't care at all about equity holders.  they're just trying to keep the debt afloat, and keep the housing mess from becoming 1929.