Fannie And Freddie In Freefall

As expected, Fannie and Freddie common stock have plummeted into the toilet.

Fannie Mae's and Freddie Mac's stocks took a dive while their debt soared Monday, as investors bet the U.S. government's takeover of the mortgage finance firms would wipe out shareholders but fully guarantee their bonds.

Equity markets around the world surged on the bailout news as hopes rose that the U.S. Treasury's plan to take control over the companies, which together back about half of the country's $12 trillion in mortgages, might put at least a temporary floor under troubled financial markets.

The Dow Jones industrial average surged over 2 percent, but Fannie Mae's stock got hammered, swooning more than about 80 percent to $1.30. Freddie Mac shares fell more than 75 percent to $1.25.

Many on Wall Street said the takeover of the institutions was merely a symptom of the dismal state of credit markets.

Now keep in mind Fannie Mae's had a 52 week high of $68.90 and Freddie Mac's was $65.88...both of these stocks are now most likely going to be worth less than a dollar by the end of trading today (as I'm looking at my Bloomberg app on my iPhone, FRE stock is at $1.01 and falling here at noon) and will stay there.

A lot of 401(k) funds had Fannie and Freddie stock as part of their portfolios. A whole lot of money just went poof today. Ignore the stock market's Mother Of All Dead Cat Bounces. The underlying problem is still going on.

And having said that, the Dow WAS up 300, and now is up only 125...and that's going down too.