The Fannie-Freddie panic began on Wednesday -- that is, this Fannie-Freddie panic, as opposed to the prior ones. The firms had already lost 90 percent of their stock value, and can continue to lose half of their remaining value every day forever with no trouble. It's losing the other half that's a problem. The immediate market response is perverse: Mortgage rates have fallen a hair this week (near 6.375 percent), but Treasury bond yields have risen overnight (the 10-year from 3.81 percent to 3.92 percent), opposite the normal response to panic. The market logic: If Fannie and Freddie will be government-guaranteed, then all their mortgages and securities have suddenly improved in credit quality. Treasurys are hurt by the prospective cost of guarantee -- if it costs money, it means more borrowing and more Treasurys. Meanwhile, lending operations are normal today, closings proceeding, although we are still desperately short of credit (jumbos, ARMs, non-owner, flexible under...
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