Bill Ackman, a hedge fund manager who runs Pershing Square Capital Management, recently was interviewed by CNBC. He discussed his plan to "save" Fannie Mae and Freedie Mac and disclosed that he had short positions in Fannie Mae and Freddie Mac's junior debts and equities:

Ackman on Fannie & Freddie Part 1: His plan to save Fannie and Freddie.

Ackman on Fannie & Freddie Part 2: His plan to save Fannie and Freddie.

I just wonder with the recent efforts by government to clamp down short sellers, why Bill Ackman tried to be very high profile (and in a very public way) with his plan to save FNM and FRE (that could wipe out common stocks value) while disclosing he had short positions in junior debts and commons of FNM and FRE on CNBC.  Does he truly believe that US government could not possibly go after him just to give other short-sellers "an example" what US government could do to a famous short seller of GSE-entities? I think short sellers need to be very careful nowadays because in difficult situation like this, US government/congress could come up with more laws and regulations that negatively affect short-sellers.

The reason FNM and FRE were structured as GSE-entities is because, just like Bill Ackman said, FNM and FRE have about 140-to-1 leverage (even bigger than Bear Stearns' leverage before it collapsed). Only government backed entities can handle such massive leverage. So, government has all the incentives and reasons to ensure high-level of market confidence in these 2 entities' securities and will do whatever they can to protect these GSE-entities securities value. I think short-sellers of GSE-entities should consider this as a risk. Government could go after few big short-seller as "scapegoats" especially short-sellers of FNM and FRE securities. If a U.S. president like George Bush could get approval from congress to go to war with Iraq costing tax-payers hundreds of billions of dollars with inadequate reasons, certainly regulators and congress nowadays could approve laws/regulations that could negatively affect short sellers especially short-sellers of GSE-entities' securities. Afterall, majority of government officials' money (e.g.: their retirement accounts) are on the long-side not on the short-side. Therefore, outcome of shorting securities of FNM and FRE may not be what short-sellers expect. Ackman can say whatever he wants (he wants public exposure so that more people follow his acts to short FNM and FRE securities - the junior debt and common stocks; he has to do this to hopefully influence the market to move according to what he wants), however there are huge risks that U.S. government will do whatever it takes to save their babies Fannie Mae and Freddie Mac at any cost which could include banning short-sellers to have any short positions in any FNM and FRE securities. You have been warned here. Happy Investing!