Signs at Fannie Mae, Freddie Mac buildings
Signs at Fannie Mae, Freddie Mac buildings - 
Listen To The Story


TESS VIGELAND: There is a bit of news we need to tackle before returning to New Orleans. Shares in Fannie Mae and Freddie Mac suffered yet another meltdown this week. A report in Barron's said the company was low on capital, and the government might step in to bail it out. If that happens, shareholders risk losing all their money. Even so, Marketplace's Rico Gagliano discovered, some of them are staying put.

RICO GAGLIANO: For years, video producer Josh Cook has dreamed of doing the impossible: buying an apartment in New York City.

JOSH COOK: So, to increase the capital for a downpayment, I started investing in the stock market.

Last July, he bought into Fannie and Freddie. Their stock had just plunged and Josh thought it hit bottom. Guess what:

COOK: Since July it's dropped about 50%, especially in the past couple of days.

Nevertheless, he's holding on to Fannie and Freddie shares. And so, by the way, is the manager of the equity index fund in my 401(k) -- and maybe your fund manager, too. Why? I asked Charles Lieberman, chief investment officer at Advisors Capital Management.

CHARLES LIEBERMAN: We've held on to some of our positions on the basis that these stocks are so depressed that you can lose 100 percent of what's left -- but typically those are small dollars -- and the upside is very substantial.

Provided, that is, if the mortgage giants raise about 10 billion bucks in new capital. They'd avoid a bailout and their loans could keep generating cash. If the housing crisis lifts, the reward for holding the stock could outweigh the risks.

As for new buyers, Lieberman recommends buying in only if you've got a very strong stomach. But he's looking seriously at the bonds the companies have issued to scare up all that capital.

LIEBERMAN: Even if Fannie Mae or Freddie Mac were to be taken over by the government, the government would back the bonds. They would not back the shareholders, but the bonds would be supported. You end up getting a higher interest rate than you would on a Treasury and you, at least conceptually, have government backing.

Of course, the interest rate is high because not all investors are convinced those bonds are a sure thing. And as Josh Cook discovered last July, when it comes to risky bets, you can't predict the future. He still hasn't got that apartment.

In Los Angeles, I'm Rico Gagliano for Marketplace Money.