Bill Gross: Fannie and Freddie common stock will be worth zero

Gross, founder of Pimco (they manage hundreds of billions in bonds) is one of those big dogs we blogged about yesterday. Secretary Paulson apparently thought he could play chicken with the bond market on bailing out Fannie Mae and Freddie Mac. But they don’t get bluffed easily, if at all. Gross sees the coming government bailout being $40 billion rather than previous estimates of $5-10 billion. As for the common stock, it’ll be worth zero. Soon.

Lots of pension funds own Fannie and Freddie. They were supposed to be the safest of the safe investments too. Not any more. More than a few retirement funds will take a big hit on this. Maybe yours.

(Pimco has been buying Fannie and Freddie preferred stock and bonds. Those probably won’t get wiped out and thus holders will make a tidy profit.)

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