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On Friday the recently issued Preff issue of FNM (8% coupon issued 5/08) was trading at 13 to produce a yield of 16%
Jul 13 08:05 am
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All Comments by Bruce Krasting »Beware of Sending Fannie and Freddie Stock to Zero [View article]
The GSE can not borrow preff money at 16. It will just add to their losses.
If Treasury buys a $10b Preff with a coupon of 4% then Paulson will have failed the moral hazard test.
Lets face it. There is no "market solution". There is no level of Government support that does not meet the definition of a moral hazard.
If there is a big subsidized preff deal it will have to done with the stock at near 0. Sorry.