Friday, September 05, 2008
Under the plan, which could prompt one of the most sweeping government interventions in the workings of financial markets in U.S. history, federal officials would place the firms under a conservatorship, a legal status giving the government the option and time to restructure and revive the companies, the sources said. The value of the companies' common stock would be diluted but not wiped out; while the holdings of other securities, including company debt and preferred shares might be protected by the government.I fervently hope they will announce a plan to truly privatize these dinosaurs and take the government completely off the hook at some later date. If they can get past Barney Frank.
Any public money injected to save these institutions should be considered an investment. The public should expect a return on that investment, and the ability to reclaim the principle in the future after the crisis pasts.
This is another huge scam to take the tax paying public's money.
Neither of these institutions were run responsibly. This is not the first bail out for them either.
Bill Clinton appointed Franklin Raines, as CEO, to head the banking changes in the mortgage business. As a result, these institutions gave loans to people without jobs. They changed the banking rules to fit particular congressional districts.
The bottom line is that you and I are paying for bad business loans. We are paying for political loans. After all is said and done, you and I have to pay for mortgages that never should have been issued. We also have to pay for our own mortgages.
Who is going to bail out my mortgage? If you think this is a good idea, please send me your cash.
It's good for financials, or rather banks, because it shores up a big chunk of regional bank balance sheets. Although preferred stocks, which are widely held, remain an open issue. All that being said, did you notice the rally in financial stocks late Friday?
For my positioning it is more a matter of the spread between Treasuries and agencies/agency mortgages. The public policy imperative here has been to keep these hulks lending, and they have to do that by lowering the cost of the instruments that give them the liquidity to do so.