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Buffett: Game is Over For Freddie and Fannie

Friday, 22 Aug 2008 10:15 AM

"The game is over" for Freddie Mac and Fannie Mae as independent companies, says billionaire investor Warren Buffett.

"They were able to borrow without any of the normal restraints. They had a blank check from the federal government," the chairman of Berkshire Hathaway told CNBC.

Buffett predicts that, "You'll see some action fairly soon" to support the companies.

Fannie and Freddie shares have plummeted amid speculation about a government bailout of the government-sponsored enterprises (GSEs) which together own or guarantee almost half of the $12 trillion U.S. mortgage market.

Shares of both mortgage companies have dropped more than 90 percent in the past year. The companies touched 20-year lows yesterday on the New York Stock Exchange.

The two mortgage companies recorded almost $15 billion in combined net losses in the past four quarters as delinquencies rose to record levels.

Last month, U.S. Treasury Secretary Henry Paulson won congressional approval to pump emergency capital into Fannie and Freddie.

Paulson, former Federal Reserve Chairman Alan Greenspan, and Richmond Federal Reserve Bank President Jeffrey Lacker have called for the companies to be nationalized.

"They're too big to fail," says Buffett.

"That doesn't mean that the equity can't get wiped out, and it almost has. In a practical sense, as institutions, they don't have any net worth … People who own their insured mortgages or own their debt, nothing is going to happen to them. The equity and preferred stock is another question."

Buffett had an 8.5 percent stake in Freddie Mac until he became "uncomfortable" with the risks Freddie was taking on.

In 2005, he said "it would not be the end of the world" if Fannie and Freddie stopped buying new mortgages.

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"The game is over" for Freddie Mac and Fannie Mae as independent companies, says billionaire investor Warren Buffett."They were able to borrow without any of the normal restraints. They had a blank check from the federal government," the chairman of Berkshire Hathaway told...
warren,buffett
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2008-15-22
Friday, 22 Aug 2008 10:15 AM
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