Insolvency concerns have driven the share prices for the once venerable firms of Freddie Mac and Fannie Mae almost into the ground. Today, share prices for these two have fallen substantially. Freddie Mac's 52 week high is $67.20 and it closed yesterday at $8.00 and today's low share price (as of noon CST) was $3.90 although it has crept "up" to the $5 to 6 dollar range. The fear is that the Federal government might have to put these companies into a conservatorship based on a law set up in 1992. This "credit crunch" or "bumpy period" as some have called it is not limited to the mortgage business and is far from over.

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The two firms, which have no explicit government backing despite their government charter, provide liquidity to the housing market by buying mortgages and repackaging them into securities sold to investors. But the horrific housing slump has led to billions of dollars in losses for the firms.

Freddie Mac has a loan portfolio of 1.5 trillion dollars and Fannie Mae's is over 700 billion. Together they own or guarantee some 5.2 trillion dollars in loans, or about 40 percent of the total value of home loans in the United States.

The prospect of insolvency for the so-called government-sponsored entities or GSEs could send more shockwaves through the global financial system because of the size of the companies, and the notion of a bailout has prompted heated debate.

"The markets are concerned that these GSEs would default on their five trillion dollars of debt," said Andrew Busch at BMO Capital Markets.

Michael