Roland Cycan

Thornburg Mortgage Must Sell Its Soul to Stay Afloat

It's a huge price to pay, but the alternative, a chapter 11 filing, is probably worse for the common shareholders.

Recent events have really highlighted the flaw in the common REIT model of borrowing short and lending long. REIT's may have to adapt to a less leveraged business practice. It might even be wise for congress to do away with the favorable tax treatment of the current model to incentivize better business practices.

Thornburg's a Huge Bargain After Monday's Crash

TMA said they issued CMO's. Typically that is a sale, selling the future cash flows for a current lump sum. They said it was profitable. Who else would have better knowledge?

As an aside, current market conditions have pointed out a deep flaw in the REIT structure, the need to pay so much of their income as dividends. They can't really accumulate any retained earnings (reserves) for when times turn bad.

When times are good, the model works. When times are bad, they are forced to sell new stock, but when times are bad, the stock price is low.