Bottom’s Up!

As Princess Leia said to Luke Skywalker, “This is some rescue!”

Since the Treasury assured investors that Fannie and Freddie would continue “as is,” stocks of the big mortgage originators have fallen another 50%. What gives?

This is a case of safe investments being … safe. Bondholders in Fannie and Freddie have hardly seen a hiccup.  But stock investors are rightly concerned that if the Feds take control, they’re gonna get wiped out. Remember Bear Stearns? That “bailout” cost equity investors 95% off the stock’s highest level.

But Bear’s bondholders did fine. And Agency bondholders have hardly seen their investments’ prices change at all. The Fed’s are stepping in because Fannie or Freddie’s outright failure would result in a cascade of bank insolvencies across the financial landscape.

Too big to fail? Maybe. But equity investors, the true risk-takers here, could still get wiped out.


Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-03T20:10:02+00:00 July 15th, 2008|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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