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Sovereign Bancorp Inc., the second-largest savings and loan, owns $629 million of Fannie and Freddie stock; Wells Fargo & Co., owns $480 million; and many smaller banks have devoted large shares of their capital to the stock investments.

Some smaller banks are so heavily invested in Fannie and Freddie that they risk being shut down in the face of huge losses. The Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Office of Thrift Supervision have offered to work with those lenders on “capital restoration plans.”

Joshua Rosner, managing director at Graham Fisher & Co., said the markets’ “jubilation” over the Treasury plan is “insanity” because the bailout could have been avoided with stricter regulation of Fannie and Freddie.

“It was generally the right thing to do, but that is different from it being positive for capital markets,” he said. “The markets are rallying aggressively, many banks who will take losses on [Fannie and Freddie] preferred and equity securities are rallying as well. Perhaps there is an assumption that the government will not allow anyone to fail.

“This euphoria will not be lasting,” he predicted.