07/19/2008 05:12 am ET | Updated May 25, 2011

The Fannie Effect: Financials Feeling The Hurt

Jitters about the solvency of Fannie Mae and Freddie Mac, two government-sponsored mortgage financing companies, took a big toll on financial-industry stocks Friday. Looming over Wall Street was the fear that if these companies should fail, it might completely shut down the market for mortgage-backed securities.

But it wasn't just a deepening freeze in the securitization market that had investors rushing to sell shares of firms such as Lehman Brothers and JPMorgan. "It is impossible to contemplate all of the negative events that will occur if Fannie and Freddie go under,'' Richard Bove, an analyst at Ladenburg Thalmann, told Bloomberg News.

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