Fannie and Freddie continued...

It is a very confusing situation. If Paulson wants to avoid moral hazard, he has to extinguish current shareholders. He has done that once to Bear Sterns shareholders. Will he do the same with Fannie and Freddie shareholders? If these stocks stay where they are, there is no way these companies can raise the requisite equity. So treasury will step in, which will involve wiping out existing shareholders. Now logic might not work and Paulson might change tracks. But I will go with logic.

The survival of existing shareholders is contingent on stock going up. Stock price is driving the fundamentals. Interesting stuff. Don't think I will, can or should punt.