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  • lowriskincome lowriskincome Sep 7, 2008 12:44 PM Flag

    Paulson confirms Common and Preferreds will have significant losses

    IMHO, Paulson is nicely saying GSE Preferred Stocks going forward are not good investments.

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    • Merely a precautionary statement in unlikely event stocks tank

      • 3 Replies to knumbz
      • Paulson - Market discipline is best served when shareholders bear both the risk and the reward of their investment. While conservatorship does not eliminate the common stock, it does place common shareholders last in terms of claims on the assets of the enterprise.

        Similarly, conservatorship does not eliminate the outstanding preferred stock, but does place preferred shareholders second, after the common shareholders, in absorbing losses. The federal banking agencies are assessing the exposures of banks and thrifts to Fannie Mae and Freddie Mac. The agencies believe that, while many institutions hold common or preferred shares of these two GSEs, only a limited number of smaller institutions have holdings that are significant compared to their capital.

        **Common and Preferred Shareholders WILL be absorbing losses, this is not an unlikely event - this is a fact now. Paulson would not be making statements such as "only a limited number of smaller institutions have holdings (in FNM/FRE) that are significant compared to their capital" unless he was certain that losses were not going to be significant.

      • Ever read a prospectus? Full of the same kind of guarded risk language used by Sec. Paulson today.

      • Right! Like lipstick on a pig.

 
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