If the treasury protects the debt holders of fannie and freddie, how does the equity get "wiped out"?

Question

I asked a similar question, earlier but still haven't understood this one thing in particular.

How do the shareholders get wiped out if the treasury has to step in?

Answer 1

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Answer 2

Because, if the Treasury steps in, it won't step to the front of the line, but at the back.  The Treasury will only start paying after the company has liquidated all its assets and paid out all it's shareholder capital and gone bankrupt and there is still unsatisfied debt outstanding.

Answer 3

assetts minus liabilities equals book value (equity, the shareholders part). If the treasury has to dump money in, to make good on their debts (Liabilities, like bonds), it'll be because the assetts (like mortages)don't cover the liabilities.

    A lot of this mess is caused by the new FAS 157 accounting requirements, which took effect early 2007. Banks are expected to assign a market value to assetts no one currently wants to buy- mortages. This decreases the value of the banks assetts (increasing their leverage), which reduces the amount the bank can loan out (by a factor of about 10 - the reserve requirement), which makes it harder to get a good mortage rate, either to buy a home, or refinance a loan.  The actual losses due to non-performing loans will be smaller than the "mark to market", and would've been smaller yet, if credit were more available. That's my opinion. It's an unintended consequences thing - likely, the purpose was to slow down the housing bubble, and make sure banks weren't claiming bogus values for assetts, allowing more lending .

"We're from the government, we're here to help you"

Answer 4

The Treasury will take over the assets of the companies in exchange for the money they will put in. So the shares will have no asset backing and will be practically worthless.

But the  share certificates, if you have any, will still be useful for lining your kitchen wall and such.