Don't Miss Out On Great Gains! - Best Investment Newsletter

Don't miss out! Subscribe Now

Search For More

Sunday, September 07, 2008

US Treasury Bailout of GSEs

A Treasury-led bailout of the GSEs (government sponsored enterprises Fannie Mae and Freddie Mac) was announced after the markets closed on Friday by the Wall Street Journal.

The Treasury announced the terms of the GSE bailout. Read the full text of Paulson's statement at the following link:

With this agreement, Treasury receives senior preferred equity shares and warrants that protect taxpayers. Additionally, under the terms of the agreement, common and preferred shareholders bear losses ahead of the new government senior preferred shares.
Key: The Treasury position will be "senior" to the current preferred and common stockholder positions. We'll have to wait and see what this means after the markets open tomorrow. Hopefully, this means they are "buying low" and can sell in the future at a nice profit for taxpayers.

This may put a fork in the bear market in BOTH equities and housing as it should allow people to get reasonably priced mortgages and home equity loans again.

The shareholders may be wiped out or at least severely diluted since the government will be first in line. Already, the GSE shares trade more like options than stocks. (Stocks that trade under $5 are very risky. I consider them "options that don't expire" since you can buy cheap stocks in companies you like for a potential recovery and hold for years if needed.)

Charts of Fannie Mae and Freddie Mac

Feel free to discuss this and your thoughts in the comments section below:

Kirk Lindstrom's Investment Letter Performance

Followers (New)