July 10, 2008, 7:08 am
White House mulls Fannie and Freddie failure
By Katie Benner

The Bush administration has held talks about what to do if mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) fail, The Wall Street Journal reports Thursday, citing people familiar with the matter.

Even though the discussions have been ongoing for months and are described as part of the Treasury Department’s normal contingency planning, the newspaper says talks have become more serious as the stocks of both companies continue to fall. On Wednesday, shares hit their lowest closing prices in more than 15 years after plummeting Monday. Freddie shares fell more than 25% and Fannie shares dropped 15% in early trading Thursday.

Former St. Louis Federal Reserve president William Poole tells Bloomberg that the firms are already insolvent and may need a bailout. Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair-value accounting rules, Poole said.

“Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer,â€