Bernanke, Paulson Meet To Discuss Mortgage Catastrophe

In a meeting Friday Federal Reserve Chairman Ben Bernanke and Secretary of the Treasury Hank Paulson discussed plans to bailout mortgage giants Fannie Mae and Freddie Mac. On Thursday, Freddie Mac altered the company's bylaws to remove previous restrictions on a single investor's ability to take a controlling stake. Prior to the change, Freddie Mac's bylaws contained language that prevented an investor with a stake of twenty percent or more from voting without the approval of the other shareholders.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aBY8f3smq5k0&refer=home

Paulson Meets With Bernanke, Fannie, Freddie Chiefs (Update2)

By John Brinsley and Dawn Kopecki

Sept. 5 (Bloomberg) — Treasury Secretary Henry Paulson met with regulators and executives of Fannie Mae and Freddie Mac today as the Bush administration prepared to announce a plan to prop up the firms hit by $14.9 billion in losses the past year.

Paulson gathered with Federal Reserve Chairman Ben S. Bernanke, Fannie Mae Chief Executive Officer Daniel Mudd, Freddie Mac CEO Richard Syron and Federal Housing Finance Agency director James Lockhart in Washington. Mudd and his aides have also been meeting at the FHFA, which oversees the two firms, with catered food scheduled for delivery at the agency through the weekend.

The meetings come a month after Paulson hired Morgan Stanley to advise on any use of taxpayer funds to recapitalize Fannie and Freddie, and before the FHFA releases an assessment of their capital. Investors have pressed for clarity on how any intervention would work, spelling out what would happen to current and future stockowners, bondholders and other creditors.

"The Treasury wants to get in front of this and to inject some capital before the markets tend to take it the wrong way," Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. in Newport Beach, California, said in a Bloomberg Television interview, referring to the capital assessment.

Weekend Forecast

"There's probably a 95 percent chance that the moment that something will happen is Sunday or Saturday," he said, declining to comment on whether he consulted with Treasury officials.