Private Investor Intervention
Fairholme Capital Management would privatize Fannie Mae and Freddie Mac's mortgage guarantee businesses and create two newly capitalized entities that issue privately insured mortgage-backed securities. The plan will work regardless of whether Congress decides to provide some form of a government guarantee for mortgage-backed securities. Most observers consider the Fairholme plan dead on arrival because it would be a very opportunistic private sector play. However, hedge fund manager Bill Ackman (pictured) has stepped up his purchases of GSE stock and Pershing Square Capital Management LP currently controls nearly 10% of Fannie and Freddie stock. This move could put more pressure on the GSE regulator and Treasury Department to negotiate or face a long legal fight. Photo: Bloomberg News.