There will be no hedge-fund-backed recapitalization of Fannie Mae and Freddie Mac, the White House said yesterday.
Gene Sperling, the director of the National Economic Council, said that such a restructuring would not lead to greater stability in the U.S. mortgage market because it would not address Fannie and Freddie's major role in mortgage finance. Sperling did not directly address a proposal last week from Fairholme Capital Management, but made it apparent it was a non-starter.
"I want to make clear our administration believes the risks are simply too great that this would re-create the problems of the past," which led to a $188 billion bailout of the companies.
The White House has previously said it would move forward with plans to wind down Fannie and Freddie. Any recapitalization would require Congressional approval, which does not appear to be forthcoming.
Fairholme last week proposed recapitalizing the companies using preferred shares, an approach backed by Pershing Square Capital Management. In July, Fairholme joined Perry Capital in suing the U.S. Treasury Department for seizing the companies' profits.