This topic reminds me of President Clinton's now famous line to a Grand Jury, "It depends on what the meaning of the word 'is' is". While Fannie and Freddie were in dire straights and there were myriad options at its disposal, the Fed opted to take the following actions to stem the bleeding as posted last week:

• Both companies will be run by the government indefinitely
• Both CEOs ousted
• US Govt investing up to $100 billion in each in order to retain solvency
• Shares will continue to trade, but shareholder powers will be muted
• Treasury will buy shares in the open market

According to some recent statements by Treasury Secretary Hank Paulson, he feels that the mechanisms utilized for this initiative protect taxpayers. How? The taxpayers get repaid prior to shareholders. He actually believes shareholders may recoup their investment under several scenarios.

He did concede that the GSE (government sponsored enterprise) concept that had been in place previously was inappropriate. Having an organization that is "half-public, half-private" generated several problems in retrospect.

Is this really a government-funded bailout?

According to dictionary.com, a bailout definition is as follows:

an instance of coming to the rescue, esp. financially: a
government bailout of a large company

According to Merriam-Webster, it's:

a rescue from financial distress

However,

Cambridge's definition is the following:

to help a person or organization that is in difficulty,
usually by giving or lending them money

and Learner's definition is:

when a company is given money to solve its financial
problems

Well, I guess it depends which dictionary you're using.

What do you think? Not only about this particular action related to Freddie/Fannie, but also, about the state of the fragility of the financial system.


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