

U.S. Unveils Takeover of Two Mortgage Giants - furiouslol
http://online.wsj.com/article/SB122079276849707821.html?mod=hpp_us_whats_news

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ctkrohn
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.

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furiouslol
And they manage to pull it off without an explicit wipe-off of the
common/preferred shareholders. Bravo.

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bilbo0s
Can I ask what you mean by this?

Just trying to get a better understanding of your position.

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furiouslol
Under 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.

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bilbo0s
Right.

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?

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furiouslol
You 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.

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raganwald
"Treasury Secretary Henry Paulson said the moves will increase the
availability of credit for home buyers."

Hopefully they mean "increase the availability of credit for _qualified_ home
buyers."

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bilbo0s
There is no such thing, in this economy, as a qualified home buyer . . . who
MUST have a mortgage to purchase.

