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Fannie Mae, Freddie Mac to be Put Under Federal Control, Sources Say
washingtonpost.com ^ | September 5, 2008 | David S. Hilzenrath, Neil Irwin, and Zachary A.Goldfarb

Posted on 09/05/2008 6:22:39 PM PDT by John W

The government has formulated a plan to put troubled mortgage giants Fannie Mae and Freddie Mac under federal control, dismiss their top executives, and use government funds to prop them up, government officials told the two companies yesterday, according to sources familiar with the conversations.

Under the plan, the federal government would place the firms in a legal state known as conservatorship, the sources said. The value of the company's common stock would be diluted but not wiped out while the holdings of other securities, including company debt and preferred shares, would be protected by the government.

As the pace of discussions accelerated today, Treasury officials contacted senior congressional leaders, telling them they might be briefed on the plan this weekend and asking for telephone numbers at which they could be reached.

(Excerpt) Read more at washingtonpost.com ...


TOPICS: Breaking News; Business/Economy; Front Page News; Government; News/Current Events
KEYWORDS: bernanke; demron; fanniemae; fed; fnm; fre; freddiemac; govwatch; housingbubble; mortgage; paulson; socialism; treasury
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1 posted on 09/05/2008 6:22:40 PM PDT by John W
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To: John W

oh my.


2 posted on 09/05/2008 6:23:57 PM PDT by Principled (Vaporize the "Divide and Conquer" taxes - Have everyone pay the same marginal rate!. NRST!)
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To: John W

From bad to worse.

These two government sanctioned ‘franchises’ should not exist. But they shouldn’t be government controlled either.


3 posted on 09/05/2008 6:25:18 PM PDT by Skywalk (Transdimensional Jihad!)
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To: John W; TigerLikesRooster
The government has formulated a plan to put troubled mortgage giants Fannie Mae and Freddie Mac under federal control, dismiss their top executives, and use government funds to prop them up, government officials told the two companies yesterday, according to sources familiar with the conversations.

You know it's Friday night when the Government is seizing control of insolvent financial institutions.

There's just one problem: the Government itself is insolvent, too.

4 posted on 09/05/2008 6:26:20 PM PDT by rabscuttle385 (Life's uncertain. Eat dessert first.)
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To: John W

This means, the “government” [read: taxpayer} will become the ultimate guarantor of every garbage loan every bank has on its’ books. Without limit.

Congratulations, everyone. We own all the banks....or, wait...do I have that backwards?


5 posted on 09/05/2008 6:27:31 PM PDT by Attention Surplus Disorder (Congrasites = Congressional parasites.)
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To: John W

oh lawdy.


6 posted on 09/05/2008 6:27:42 PM PDT by happinesswithoutpeace (You are receiving this broadcast as a dream)
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To: John W

OK, have the “formulated a plan”, or are the executing a plan?

The only thing that suggests the plan might be more than just a plan is that they wanted phone numbers for the weekend.


7 posted on 09/05/2008 6:34:25 PM PDT by CharlesWayneCT
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To: rabscuttle385
You know it's Friday night when the Government is seizing control of insolvent financial institutions.


And wiping out the equity of hundreds of thousands of stockholders.
8 posted on 09/05/2008 6:44:43 PM PDT by Deo volente
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To: John W

http://www.freerepublic.com/focus/f-news/2075763/posts


9 posted on 09/05/2008 6:51:40 PM PDT by Principled (Vaporize the "Divide and Conquer" taxes - Have everyone pay the same marginal rate!. NRST!)
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To: John W
Here's an older thread from 2004 worth tossing into the mix...

Jamie Gorelick's law firm represents Fannie Mae, which cooked books, gave Gorelick big bonus
10 posted on 09/05/2008 6:55:10 PM PDT by SpaceBar
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To: John W

Congratulations...you’ve just been robbed!

Good for all the pigmen bankers who got to dump their trash loans on us taxpayers.


11 posted on 09/05/2008 6:59:31 PM PDT by Thoreau
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To: John W
since the taxpayer is stuck paying for this, firing the management is not good enough for me - anyone that got a bonus check from these failures should be prosecuted - that should have made clear to anyone accepting a job with them

especially raines and gorelick since they cooked the books (raines got fined $2 million but got bonuses in the tens of millions - his insurance paid the fine (but i bet fannie mae paid the insurance premiums))

it may be that congress forced all these bad loans into fannie mae - i am not sure about that - but i recall barney frank wanting to shove bad mortgages into fannie mae - but i bet all the clintonistas did not improve things there

democrats ran these failures - but want to demonize successful big oil - that needs to be made clear to every voter

12 posted on 09/05/2008 7:00:48 PM PDT by sloop (pfc in the quiet civil war)
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To: John W

So who is going to oversee the Conservator??

Senator Chris Dodd, and the Senate Banking Committee??...


13 posted on 09/05/2008 7:04:57 PM PDT by Bean Counter (Stout Hearts.....)
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To: John W
I have been watching this story for 2 weeks because I held options on the stock and to say the least was very concerned; I got out last week at a profit and am sure glad I didn't hold over the weekend.

In this case it's the conservatives who want to put the companies under Fed control temporarily in order to chop them up and then auction them out to private companies; they are way too big now for anyone to buy them as they currently exist. Fannie and Freddy were partially privatized a couple of decades ago but now conservatives want to go all the way.

The liberals (Barney Frank is one who is quite outspoken about it) wants to leave the situation as is but the Gorelick-Raines corruption has convinced conservatives that something must be done in a dramatic fashion since Fannie Mae-Freddie Mac are now holding back real estate recovery.

When I heard that the FDIC chairman under Reagan was advocating that the government move in so that they can ultimately be privatized I felt it was probably going to happen.

14 posted on 09/05/2008 7:05:26 PM PDT by what's up
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To: John W

It’s ......... FDIC Friday!


15 posted on 09/05/2008 7:14:53 PM PDT by ikka
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To: John W
... dismiss their top executives, ...

That's a good first step -- and down go some more Community Organizers from their perches.

16 posted on 09/05/2008 7:39:11 PM PDT by meadsjn (Socialists promote neighbors selling out their neighbors; Free Traitors promote just the opposite.)
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To: ikka
After hours trading has dumped both stocks.

These stocks may be penny stocks at opening bell Monday.

17 posted on 09/05/2008 7:40:43 PM PDT by evad (.!.)
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To: Attention Surplus Disorder
This means, the “government” [read: taxpayer} will become the ultimate guarantor of every garbage loan every bank has on its’ books. Without limit.

Congratulations, everyone. We own all the banks....or, wait...do I have that backwards?

What will happen is the government will get warrants to purchase common shares at a later date and will end up making money on the deal.

18 posted on 09/05/2008 7:47:30 PM PDT by Moonman62 (The issue of whether cheap labor makes America great should have been settled by the Civil War.)
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To: evad
Its already being reported as a done deal on Yahoo headlines.

U.S. to seize mortgage giants

The U.S. government is expected to take control of Fannie Mae and Freddie Mac.

19 posted on 09/05/2008 7:49:58 PM PDT by Orange1998
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To: sloop
it may be that congress forced all these bad loans into fannie mae - i am not sure about that - but i recall barney frank wanting to shove bad mortgages into fannie mae - but i bet all the clintonistas did not improve things there

It was HUD under Andrew Cuomo and to some degree W also pushed home ownership.

20 posted on 09/05/2008 7:53:11 PM PDT by Moonman62 (The issue of whether cheap labor makes America great should have been settled by the Civil War.)
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To: Deo volente
You know it's Friday night when the Government is seizing control of insolvent financial institutions.

And wiping out the equity of hundreds of thousands of stockholders.

The equity value was wiped out by the executive crooks over the years (Gorelick, et. al.), most of whom walked away with far too many millions.

The stockholders were just contributing their money to the cause of puffing up the market value of the stock and providing cover for the crooks to slip out with the real money.

21 posted on 09/05/2008 7:57:42 PM PDT by meadsjn (Socialists promote neighbors selling out their neighbors; Free Traitors promote just the opposite.)
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To: sloop

“democrats ran these failures”

That does not matter to the ‘Rats and MSM. Bush will still be blamed/s


22 posted on 09/05/2008 8:01:31 PM PDT by Frank_2001
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To: John W

“Mortgage Conrail”


23 posted on 09/05/2008 8:02:08 PM PDT by headstamp 2 (Been here before)
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To: John W

Is that so whoever is in charge can steal from each at the same time.


24 posted on 09/05/2008 8:12:25 PM PDT by org.whodat (Republicans should support the SAM Walton business model, and then drill???)
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To: Moonman62
thanks - seems i am always late to the table on financial scandals (read a couple of books about bcci after the fact)

odd that this stuff is unreported (or ignored by most of us) while the paternity of trig and the bridge to nowhere are front page

i’ll take my basic economics book by sowell with me on my trip

25 posted on 09/05/2008 8:15:13 PM PDT by sloop (pfc in the quiet civil war)
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To: what's up
In this case it's the conservatives who want to put the companies under Fed control temporarily in order to chop them up and then auction them out to private companies; they are way too big now for anyone to buy them as they currently exist. Fannie and Freddy were partially privatized a couple of decades ago but now conservatives want to go all the way.

The liberals (Barney Frank is one who is quite outspoken about it) wants to leave the situation as is but the Gorelick-Raines corruption has convinced conservatives that something must be done in a dramatic fashion since Fannie Mae-Freddie Mac are now holding back real estate recovery.

Thanks. That explains a few things. I was wondering why the fed hadn't dumped Fannie and Freddie long ago.

26 posted on 09/05/2008 9:10:57 PM PDT by Desdemona (On top of everything else, the Palin pick coaxed this FReeper out of posting and pinging retirement.)
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To: Moonman62

“What will happen is the government will get warrants to purchase common shares at a later date and will end up making money on the deal.”

If you can foresee that future, that’s just great. That’s like saying the government will make money from socializing the medical system. Yeah, they probably will. And your end of the deal? In the meantime, the combined books of FNM & FRE are likely to experience minimally 1 trillion to as much as 3 trillion in dollar losses as every bank gleefully unloads every fetid piece of trash loan they ever made and were dumb enough to get stuck with onto this new “entity”. So what the earnings of those companies will be over the course of time it takes to “normalize” their earnings is unknowable. Any monetary value ascribed to FRE/FNM common is an utter joke. Just how the common dividends of these companies should be categorized under government control is an interesting and quite ironic financial construct.

This is being done so that the banks can offload their sewage into an Enron-like off-balance-sheet entity, and so the Chinese and Russians will not perform some sort of radical moves with regard to the something like 2 trillion in GSE preferred debt owned by them. I like working for these guys, don’t you?

Meanwhile, the Congress, according to the Constitution, is the sole disburser of Treasury money collected as tax revenues, so I guess that’s yet another obsolete concept we can just throw out as we move into out new and improved and freshly-created future. Because, well, we have money center banks to tell us how our money should be spent. On them. To strengthen their balance sheets. On our dime. Booyah!

Yeah, the government will make money. Right. They make money on everything else they do, don’t they? They got Morgan Stanley to advise them on the details of this bailout, and I’m sure as the sun rises that MS has no other interest than making the US government money. Got it. Love it when a plan comes together.


27 posted on 09/05/2008 9:23:02 PM PDT by Attention Surplus Disorder (Congrasites = Congressional parasites.)
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To: rabscuttle385
...the Government itself is insolvent...

Uh, no.

28 posted on 09/05/2008 9:26:54 PM PDT by Petronski (Zero-bama. All this time we thought it was an "O" but, nope, it's just a "0".)
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To: Attention Surplus Disorder
If you can foresee that future, that’s just great. That’s like saying the government will make money from socializing the medical system.

No it isn't. The government made money on the Chrysler deal with stock warrants, and that's what they'll do this time, too.

29 posted on 09/05/2008 9:36:23 PM PDT by Moonman62 (The issue of whether cheap labor makes America great should have been settled by the Civil War.)
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To: Moonman62

What will the government pay for those warrants? Nothing? I’ll bet those warrants have a floor value, based on my calculations of....zero. So they will make money.

The Chrysler bailout had a nominally predictable outcome, in the sense that the underlying factories would not vanish into vapor, and were capable of producing cars (or...something else) Plus, had the workers become unemployed, and the suppliers lost all the parts business...the ripple effects were fairly predictable and obviously negative.

This bailout will perhaps make money in far more ephemeral ways. It will, I guess, prevent the banks from being able to take gargantuan tax losses on the eventual mark to market of hundreds of thousands or millions of non-performing loans. But if a bank loses $1 million on a loan, it can nominally take about a 35% tax loss. If the government takes over the loan, the governmant will likely incur about a 60%-80% loss after the insiders raid, cherrypick, and sweetheart-deal themselves the assets. Plus whatever amortized share of the 15 six-figure bureaucrats’ salaries who divvy out the assets. Who do you think is going to take those assets off the govts’ books? Ya think it could be...THE BANKS who offloaded the bad loans onto the government in the first place? Who do you think has the inside skinny on the assets underlying the loans? That bother you at all? Of course, then the assets can be returned to productive use and the govt can collect taxes on the revs generated by the assets. But those assets will start brand-new depreciation schedules for the new holders and so will likely throw off nearly zero taxable income if a good Wall St. accountant is involved. So I don’t consider that making money. I consider it insider dealing.

It will also prevent macro-economic bank runs
by institutional bond holders like Bill Gross, sovereign wealth funds, and multiple large holders, and maybe in the sense of preventing a near-collapse of the US banking system, will make the government money.

Here’s my bottom line: This is an extra-Constitutional insider deal whose immediate and ultimate beneficiaries are and will be none other than the banks who encouraged and engineered and benefitted from the biggest piece of this debacle going in, but who will likewise benefit ABSOLUTELY the most going out. If that makes you happy, God bless you. Mortgage your home and buy every share of JPM, MS, GS common you can because there is now utterly no limit on the earnings these stocks will enjoy. Because each and every risk they take is guaranteed to be underwritten by the government. You and me.


30 posted on 09/05/2008 10:26:55 PM PDT by Attention Surplus Disorder (Congrasites = Congressional parasites.)
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To: Attention Surplus Disorder

Understanding that the “conservative” position on making money for oneself is its a good thing, I believe the opinions expressed on FR by some at some times are flexible based on the issues impact on them personally. In other words, maybe you’re arguing with bankers on this thread for all we know.


31 posted on 09/06/2008 2:07:39 AM PDT by John W
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To: All

Interesting discussion here-—

http://www.freerepublic.com/focus/news/2075744/posts?page=31#31


32 posted on 09/06/2008 2:20:16 AM PDT by John W
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To: John W

Post # 32 went to wrong thread.


33 posted on 09/06/2008 2:21:10 AM PDT by John W
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To: John W

News reports as of early Saturday AM say takeover is imminent.
All shareholder equity is likely to be wiped clean, and the stocks go close to zero.

Current quote FNM $7.04 and FRE $5.10


34 posted on 09/06/2008 3:10:45 AM PDT by djf (I always see turkeys in Oregon. Sometimes, I see birds as well.)
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To: djf
Current quote FNM $7.04 and FRE $5.10

That's interesting. When the news first came out FNM, shares dropped to the 5's in off hours trading.
Somebody must like what they see.

It's also comforting to note that while the equity shareholders will be allowed to go to zero, the preferred stock shareholders will be made whole.

WHY??

Becaused they are owned by "The Banks".

I smell S&L bailout x 10.

35 posted on 09/06/2008 7:26:05 AM PDT by evad (.!.)
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To: Attention Surplus Disorder

I hope you took your blood pressure medicine before writing all of that. I agree with you that there will be positive macroeconomic effects, and this is going to help a lot of little guys too. It’s significant that the equity of the common shareholders isn’t going to be wiped out. That means it isn’t as bad as you think.


36 posted on 09/06/2008 7:29:59 AM PDT by Moonman62 (The issue of whether cheap labor makes America great should have been settled by the Civil War.)
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To: John W

This should be on the breaking news sidebar.

This is more important than showing the RNC viewer numbers.


37 posted on 09/06/2008 8:39:27 AM PDT by BGHater (Democracy is the road to socialism.)
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To: BGHater

I wouldn’t disagree with that, but, I didn’t even try based on recent decisions as to what is “breaking news”.

For instance, under current restrictions for that sidebar, the last story showing was posted September 1st. Thats ridiculous.

I did put it in Front Page News and it stayed there miraculously, although it is now the very bottom story showing in that sidebar.


38 posted on 09/06/2008 8:46:04 AM PDT by John W
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To: John W

I can only say that the dollar collapsing will make it there soon.

The Fabians will love McCain.


39 posted on 09/06/2008 8:50:50 AM PDT by BGHater (Democracy is the road to socialism.)
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To: Attention Surplus Disorder
This means, the “government” [read: taxpayer} will become the ultimate guarantor of every garbage loan every bank has on its’ books. Without limit.

Congratulations, everyone. We own all the banks....or, wait...do I have that backwards?


This is nothing new, the taxpayer reimburses for theft all the time.

The long term damage is that we are removing "risk" from the free market system. If you make bad economic choices you can run to Congress and they will bail you out. "Risk" is a critical part of the system and by making it go away you promote people to create economic bubbles (with reduced risk).
40 posted on 09/06/2008 9:42:32 AM PDT by Arkinsaw
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To: Pride in the USA

sh*t


41 posted on 09/06/2008 9:54:49 AM PDT by lonevoice (John McCain was a Kinoki foot pad in the Reagan Revolution)
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To: All

Nothing good can come of this.

The loans being backed are 1 trillion dollars. The government is in effect creating 1 trillion dollars of money entity.

How is it conceivable that this does not dilute the value of every dollar in existence? And if that happens, given that oil is priced in dollars, what happens to its price — denominated in dollars.


42 posted on 09/06/2008 9:57:51 AM PDT by Owen
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To: Attention Surplus Disorder

You’ve said it, very well.


43 posted on 09/06/2008 10:45:24 AM PDT by ConservativeMind (1 conservative = 5 RINOs. You can expect 4 out of 5 RINOs to bolt to the liberal side on any vote.)
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To: John W
This is expected and has been priced in. However, the stock will dive to the penny price anyway.

The reason for the failure is the Democrat Congress who have opened the companies up to major risks, but you will never hear that said by anyone with authority to say it.

44 posted on 09/06/2008 10:49:03 AM PDT by Cold Heat (Well....................................That's .....that.........)
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To: John W

Socialism, pure and simple.

These institutions were run poorly, the managers taking risks knowing that the citizens would be forced to pay the bill for their recklessness.

GOP: party of fiscal responsibility? Dear God, when will this end? Time for conservatives to rise up. This is crazy. I’m tired of paying and paying for the greed and mistakes of others.


45 posted on 09/06/2008 10:54:44 AM PDT by VictoryGal (Never give up, never surrender!)
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To: SpaceBar

Oh, what a surprise that a professional Washington flunkie like Gorelick is involved and cashes in. Folks in Washington don’t represent the public or the public interest, they represent themselves.


46 posted on 09/06/2008 10:55:59 AM PDT by popdonnelly (Obama was not properly vetted.)
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To: John W

Very much like the present Federal government. Taking action to correct the problem it created.

Why is it the government never gets blamed for these failures?


47 posted on 09/06/2008 10:58:00 AM PDT by popdonnelly (Obama was not properly vetted.)
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To: meadsjn

>>... dismiss their top executives, ...

> That’s a good first step — and down go some more Community Organizers from their perches.

The executives should have their entire finances stripped from them to help pay for their mistakes. What do you want to bet these guys are still millionaires, while the government picks OUR pocket to fix their mess?


48 posted on 09/06/2008 10:58:27 AM PDT by VictoryGal (Never give up, never surrender!)
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To: John W

I have an idea. Why doesn’t the government stop forcing lenders to make risky loans? Why doesn’t the government encourage people to stop getting into debt over their heads? I guess it wouldn’t be “fair”.


49 posted on 09/06/2008 10:59:55 AM PDT by popdonnelly (Obama was not properly vetted.)
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To: Principled
Thursdays' INVESTORS BUISNESS DAILY, front page above the fold has an article saying Lehmans is about to go under and that a South Korean concern is looking to buy it if failure becmes impending (the value drops).

Things could start getting really dicy with Freddie, Fannie, Lehman going.

50 posted on 09/06/2008 11:03:28 AM PDT by Texas Songwriter
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