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Friday, June 27, 2014 10:17:13 AM
1. Fannie Mae and Freddie Mac will not be wound down as suggested by the Johnson-Crapo reform bill. The bill ultimately failed to attract enough votes and appears to be pretty much dead in the U.S. Senate.
2. Fannie Mae and Freddie Mac will indeed be returned to shareholders which means the common stock will not be worthless.
Since shareholders were starting to sue the government in order to have the net sweep agreement overturned, more and more investors piled into the common stock of the two GSEs and pushing up their prices over the last six months.
Bruce Berkowitz of Fairholme Funds, Bill Ackman of Pershing Square Capital Management and, most recently, activist investor Carl Icahn have all established positions in Fannie Mae's and Freddie Mac's preferred and common stock whereas the trend has been to invest in the common stock.
Add to that, the two GSEs have now repaid more than $200 billion to the government, an amount exceeding the bailout funds which further gives credibility to the argument, that Fannie Mae and Freddie Mac should be set free.
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