Fannie And Freddie's Latest Dumb Idea To Save Themselves: Merge

Should ailing mortgage lenders Fannie Mae and Freddie Mac merge? It’s an idea Andrew Ross Sorkin says is being considered within both companies and in some parts of Wall Street. The conventional wisdom is that if you tie two bricks together, they still won’t float, but what if they’re the same brick, er, company? Sorkin argues that merging the similar Freddie and Fannie and eliminating the redundant components, including a few thousand employees, would create a stronger company, not just a bigger mess.

(Congress would never let it happen–the companies are already too big–but when your companies are on life support you might as well exhaust all conceivable options).

NYT: Granted, the idea is easily dismissed as a long shot. But with taxpayers potentially on the hook for tens of billions of dollars to rescue Fannie and Freddie, virtually every alternative should be on the table, alongside other usual-suspect scenarios: from a cash injection to a full-scale nationalization to breaking up the companies into a dozen smaller firms, so that none of them is ever considered too big to fail.

By merging them, they would really become too big to fail. And sometimes size can be a strength.

A merger wouldn’t undo the mess that these two companies have made, nor does it erase the billions of dollars in potentially toxic loans they own or have guaranteed. Nor would it address the question of whether these companies deserve the implicit backing of the government in the future.

But the economics of a merger are compelling.

Yes, but even if Congress could be convinced to approve a merger of two companies already hated by most people for so badly managing their businesses that they need a taxpayer bailout, the approval would likely take too long to matter.

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