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This is a very, very good thing. It will reduce mortgage rates and reinvigorate the housing market while ultimately reducing our economy's dependence on housin
by ctkrohn 18y ago
This is a very, very good thing. It will reduce mortgage rates and reinvigorate the housing market while ultimately reducing our economy's dependence on housing. In summary, here are the four key parts of the plan:
(1) The Treasury purchases Fannie and Freddie preferred stock
(2) Treasury purchases Fannie- and Freddie-guaranteed mortgage-backed securities
(3) Fannie and Freddie are put into "conservatorship," meaning that the government takes control of their day-to-day operations. Their common stock dividends are eliminated.
(4) Fannie and Freddie can buy modest amounts of MBS in 2009, but ultimately will be forced to reduce the size of their mortgage portfolios.
This is all good news. It will reduce mortgage rates (by providing a backstop buyer for mortgages), yet ultimately reducing our economy's reliance on the housing market and gradually reducing the housing market's reliance on the GSEs.
- furiouslol 18y agoAnd they manage to pull it off without an explicit wipe-off of the common/preferred shareholders. Bravo.
- bilbo0s 18y agoCan I ask what you mean by this? Just trying to get a better understanding of your position.
- furiouslol 18y agoUnder the usual nationalization, the common shares will be worth nothing as the entire company will be under public ownership. However, under this scheme, the common shares, while diluted, are not explicitly worthless as the common shareholders still own a part of the company. As to how the shares will trade today, that would depend on whether the market had already anticipated this move and priced it in.
- bilbo0s 18y agoRight. And does this strike you as a bail out of the shareholders derived from an entirely understandable desire to avert the consequences that would attend their financial losses? Or, does it strike you as socialist capitalism. That is to say, the socialization of risk . . . and the privatization of reward?
- furiouslol 18y agoYou have to understand - the preferred shares of both companies are held widely by regional banks in the States as part of the min capital requirements. If the shares are totally wiped out, it will trigger widespread failures of these banks.