Paulson's Plan to Buy Fannie, Freddie Equity 'Insane' ($)

LIPPER HedgeWorld's Inside Edge - July 15, 2008
By Martin de Sa’Pinto, Senior Financial Correspondent

CHICAGO (HedgeWorld.com)—U.S. Treasury Secretary Henry Paulson’s idea to buy equity capital in Fannie Mae and Freddie Mac is “insane,” said Janet Tavakoli, president of Tavakoli Structured Finance.

“The shares should be allowed to go to zero, since Fannie and Freddie are insolvent,” said Ms. Tavakoli.

“For new mortgages they should require a 20% down payment, verified appraisals and verified income or job history at the very least, and a much lower cap needs to be put on the total debt load,” she said. “In other words, we have to go back to prudent lending before we use taxpayer dollars to bail out the debt. Then the world will trust the debt again, and the U.S. taxpayer will have a lower bailout bill. It is still a bailout, and that is bad enough, but it is a debt bailout.”

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