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NEW YORK, Aug 17 (Reuters) - The U.S. Treasury is growing increasingly likely to recapitalize Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) in the months ahead on the taxpayer’s dime, Barron’s reported in its Aug. 18 edition.

The weekly financial newspaper said that such a move could wipe out existing holders of the agencies’ common stock, with preferred shareholders and even holders of the two entities’ $19 billion of subordinated debt also suffering losses.

An insider in the Bush administration told Barron’s that Fannie and Freddie “are being jawboned” by the Treasury Department and their new regulator, the Federal Housing Finance Agency (FHFA), to raise more equity.

But government officials don’t expect the agencies to succeed, Barron’s reported.

Fannie and Freddie were never out of the woods. I just don’t understand why the government wants to use taxpayer money to bail them out when they are not true governmental agencies. They have stock just like a regular company. I have read but not confirmed that there is a ton of foreign investors that would get destroyed it the stocks went to $0. That is the risk associated with any investment when you are looking to get higher returns. Why does the Bush Administration and this democrat controlled Congress feel the need to spend tax dollars to help out foreign investors in an already awful economy?

Asian institutions and investors hold some $800 billion in securities issued by Fannie and Freddie, the bulk of that in China and Japan. China held $376 billion and Japan $228 billion as of June 2007, the most recent country-specific Treasury figures.

In Europe, roughly $39 billion in Fannie and Freddie debt is held in Luxembourg and $33 billion more in Belgium, countries that are home to large investment management firms. Investors in Britain hold $28 billion, and Russian buyers hold $75 billion. Sovereign wealth funds in the Middle East are also believed to be big investors in Fannie and Freddie debt.

The trillions in securities issued by Fannie and Freddie and backed by American mortgages were never explicitly guaranteed by the United States government, but foreign and domestic investors alike have always believed, because of the companies’ integral role in the housing market and their marketing pitch, that the guarantee would be backed up if it were tested.

The decisions that Bush, Bernanke, and Paulson make will determine whether the housing crisis will become worse and if the nightmare recession we are in can actually become worse. So far, they have consistently made the wrong decisions.