StickWithANose

With public anger over Wall Street at a high and Obama’s approval rating on the economy at a low, it is becoming increasingly clear how the Obama administration is going to try and win some votes for the Democrats in the coming year. The X-mas eve announcement that the feds are lifting the debt ceiling on Freddie/Frannie Mac by another $200 billion means that the two institutions are by now nationalized and will be used as a policy tool. Keep an eye out in the coming year for a new series of policy proposals to utilize the former GSE’s as a mechanism to offer services to struggling homeowners. As for the companies themselves, Ritholtz makes a straightforward prediction:

What did it mean to investors when Freddie & Fannie shares jumped (27% and 21%) and their trading volume for both was the highest since late October?

Not much. The most recent political news is that the White House has granted the former GSEs a blank check — no cap on aid. (Hence, why they are now former GSEs). That was the cause of their share price rally. But what does this mean for the companie’s future?

Nothing good. It signals that Uncle Sam will likely use the firms — the government owns 80% of both — to intervene further in the housing market…

Likely outcomes? The two firms actual value falls to zero . . .

Could Team Obama really be planning to bleed the GSE’s out of existence to stem their own political blood-loss? Either way, you know that I have to do this…