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Hedge Fund’s Suit on Fannie and Freddie May Spell Trouble for U.S.

Dealbook – The lawsuit brought by the hedge fund Perry Capital against the federal government over the Fannie Mae and Freddie Mac bailout may be the case that finally subjects the government’s bailout practices to closer outside scrutiny.

The Fannie Mae and Freddie Mac bailouts were two of the biggest and earliest of the financial crisis. In September 2008, a government team led by the Treasury secretary at the time, Henry M. Paulson Jr., placed the companies into a conservatorship and provided them with hundreds of billions of dollars in backstop financing. In return, the government required the companies to issue super-preferred stock to the Treasury Department, stock that would pay the government before all other creditors, at a 10 percent rate.

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