Sept. 7 (Bloomberg) — William Poole, former president of the Federal Reserve Bank of St. Louis, said taxpayers may face a $300 billion bill to revive Fannie Mae and Freddie Mac, the mortgage giants being taken over by the Federal government.
“I would not be surprised if their total losses aggregate about 5 percent of their obligations” of about $6 trillion, Poole said today in an interview on Bloomberg Radio. “Five percent does not seem to me to be an outrageous guess.”
Poole welcomed the decision to put the companies into conservatorship by the Federal Housing Finance Agency, calling it preferable to action by the Federal Reserve. He said financial fallout from Fannie and Freddie was likely to be a long-term drain on the Treasury.
“It’s extremely healthy that it’s now the Congress and the Treasury and not the Federal Reserve putting funds in,” he said. “It’s not the purpose of a central bank to put funds in to save or bail out failing companies.”
Treasury Secretary Henry Paulson said today he would replace the chief executives of Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac and eliminate their dividends. The Treasury will purchase up to $100 billion of senior-preferred stock in each company as needed to maintain a positive net worth.
The Treasury said it would reduce the portfolios of both companies by 10 percent a year starting in 2010. “I think that’s a good way to go, and I just hope that the government can complete that course,” Poole said.
Last Updated: September 7, 2008 16:39 EDT
By Christopher Swann and Pimm Fox