Freddie Mac or Big Mac?

What should you do with that $5 bill—indulge your fast-food craving or invest in one of America's mightiest enterprises? We'll help you decide

by Will Andrews

The alarming decline in shares of government-sponsored enterprises Fannie Mae (FNM) and Freddie Mac (FRE)—amid rising worries about an eventual government bailout of the two capital-challenged mortgage financiers—is so worrisome and demoralizing to the financial markets and the citizens of this great republic that we're just going to have to make fun of the situation.

To wit: With Fannie's and Freddie's stock both trading well below $5—at $4.85 and $3.16, respectively, their lowest point in two decades—ordinary folks with a fiver to spare could snag a share of these once-mighty financial enterprises and have change left over. But as economists tell us, money is a scarce resource (even for a government-sponsored entity) and there are many competing ways you can allocate your $5, especially if you're hungry and happen to be walking or driving past a convenience store or fast-food outlet.

So what's it to be? Fannie? Freddie? French fries? Frappuccino? Here's our helpful side-by-side comparison of Fan, Fred, a couple of their distressed financial-sector siblings, and your favorite fast food.

1. Fannie Mae or a Slurpee

Fannie Mae share price (Aug. 21): $4.85

Slurpee retail price (7-Eleven, Wayne, N.J.): $1.70 for an extra large

The case for Fannie: Fannie Mae's chief executive has sought to reassure investors that no bailout is imminent and that the company's financial position remains solid. According to S&P Equity Research, "It is still uncertain when, or if, the Treasury will inject capital into Fannie, and any effect on current holders has not been specified." However, the equity markets seem to have arrived at their own conclusion.

Why a Slurpee: Brrrrrr. You could buy a couple extra-large Slurpees for the same price. At least the brain freeze you get from ingesting the icy concoction will fade quickly. The similar neurological malfunction that seized the better judgment of Fannie execs—namely, the too-rapid expansion of lending activity in recent years—will haunt taxpayers for decades to come.

2. Freddie Mac or a Big Mac

Freddie Mac share price (Aug. 21): $3.16

Big Mac retail price (McDonald's, New York City): $3.95

The case for Freddie: Freddie earlier this year promised to raise $5.5 billion to shore up its finances but has not yet done so, and its sinking share price makes raising that money far less feasible, according to the Associated Press. Oh, and then there's the possibility that the company will be effectively nationalized, and the shares will become essentially worthless. And Freddie had a negative fair value of $5.6 billion as of June 30, though the company points to its $37.1 billion in capital at the end of the second quarter, $2.7 billion more than its mandatory capital surplus (BW.com, 8/6/08). Wait, we didn't make much of a case, did we?

Why a Big Mac: To borrow Eric Idle's immortal phrase, this gloppy favorite of the carefree carnivore provides "memories to last a lunchtime." The 540-calorie behemoth is often cited as one of the ultimate comfort foods. And comfort is something that's in short supply to investors in the financial sector these days.

3. Washington Mutual or a Chai Latte

WaMu share price (Aug. 21): $3.90

Chai Latte retail price (Starbucks, New York City): $4.05 for a grande

The case for WaMu (WM): The home-lending kingpin's shares have been kicked into the basement, then into the sub-basement, resulting in a 90% haircut over the past year. The company was able to raise $7.2 billion to boost its capital ratios, but it may need to go to the equity-funding well again, which could dilute shareholders' equity even further.

Why a Chai: While you're waiting for the next big capital infusion, kick back with a nice spicy cuppa the Starbucks favorite. The only dilution going on here is the steamed milk.

4. Thornburg Mortgage or Wrigley's Doublemint Gum

Thornburg Mortgage share price (Aug. 21): 32 cents

Wrigley's Doublemint Gum, five-stick pack (Wally Mart, Harriman, N.Y.): 35 cents

The case for Thornburg (TMA): You should plunk down 32 cents for the distressed mortgage lender, which specializes in ARMs, because, um, we're not sure. Especially since common shareholders don't stand to gain from the company's recapitalization plan. "Common shareholders will be diluted by up to 95% due to new share issues, and preferred shareholders are being asked to take a little over 20% of their initial investment as the company tries to buy back its preferred," wrote Zacks Equity Research analysts on Aug. 1. Talk about a low-cal treat.

Why a Doublemint: As long as you're not worried about cavities, sugar intake, or bridgework, a stick of the elastic, minty confection can help remove the taste of soured mortgage investments from your mouth, at least temporarily. And we do like those cheeky twins in the TV ads.

Andrews is managing editor of the Investing Channel for BusinessWeek.com .