Freddie, Fannie Should Split, Not Get Aid, Faber Says (Update3)

Freddie, Fannie Should Split, Not Get Aid, Faber Says (Update3)

By Carol Massar and Alexis Xydias

July 23 (Bloomberg) -- Freddie Mac and Fannie Mae should close down their business or split into private companies and not get government aid, investor Marc Faber said.

``They should close down Fannie Mae and Freddie Mac or what they should do is split them into 10 different companies and let them run as private companies,'' said Faber, who forecast the so-called Black Monday crash in 1987, in an interview with Bloomberg Television from Chicago. ``What Freddie Mac and Fannie Mae should right away do is not obtain any federal aid, but issue additional shares'' to avoid using taxpayers' money in a rescue plan, he said.

Fannie Mae and Freddie Mac, which own or guarantee about half of the $12 trillion of U.S. mortgages, have fallen 31 percent and 41 percent respectively this month, on concern the companies have insufficient capital to cover writedowns and losses amid the mortgage-market collapse.

The U.S. Congress may vote today on a rescue plan for Fannie Mae and Freddie Mac after lawmakers reached a deal on legislation aimed at alleviating the worst housing recession in a quarter century.

Fannie Mae gained $2.24 to $15.65 at 11:47 a.m. in New York. Freddie Mac added $1.07 to $10.77.

`Colossal Bust'

Faber said the ``world may already be in recession,'' and reiterated a prediction for a ``bust'' in global markets.

Markets may enter ``a vicious cycle on the downside'' whose worst scenario is a ``colossal bust with inflation,'' as central banks are unable to manage the economic slowdown and faster growth in prices.

Still, Faber forecast the Standard & Poor's 500 Index may climb about 5.7 percent from current levels, to 1,350. Oil may drop $30 a barrel to ``about'' $100 in the near term, he said, although the ``long-term'' prospect for oil prices is to remain ``tight.''

``In the last two months I've asked businesses around the world, and business is down everywhere, and slowing down very considerably,'' Faber said. ``A lot of earnings will start to decelerate. One sector that is quite vulnerable is technology.''

Stocks worldwide have tumbled this year, erasing about $11 trillion in value, as $467 billion in credit-related losses and accelerating inflation weigh on the outlook for economic and profit growth.

Oil is down 14 percent from a record $147.27 on July 11 in New York as the dollar strengthened and high prices curbed gasoline demand.