Yes, Virginia, Henry Paulson is Bailing Out Fannie and Freddie Shareholders

Since comments here and elsewhere suggest confusion about Treasury's role in the Fannie/Freddie bailout, let me try to quickly clarify matters. The Treasury is telling the markets that it is prepared to buy shares if the stock of Freddie and Fannie fall below a certain level. Without this commitment, short sellers would see these two bankrupt giants sitting there with positive valuations and push their price very close to zero. This is as much a bailout as if Treasury just sent a multi-billion dollar check to be divided among the shareholders. This is exactly the sort of nonsense that Treasury invents so that it can do a bailout without owning up to it. Reporters are supposed to catch this sort of deception and inform the public of what is really going on. Paulson is betting that the U.S. press corps is sufficiently incompetent that the public will not realize that they are being taxed to reduce the losses of Fannie and Freddie shareholders.

--Dean Baker