Who's the patsy

Fannie/Freddie Bailout 'Disastrous Fiasco'

I bought the preferred FNM.S in May, relying on broker's assurances and the companies representation that the company was more than adequately capitalized.
Management repeated this lie in a conference call in August 2008.
Anyone know of a class action lawsuit commencing against the company?

A Closer Look at the Treasury's GSE Preferred Stock Purchase Plan

This reminds me of Warren Buffett's story - when you are playing poker, if you don't know who the patsy is after 10 minutes, then you're the patsy.

I listened to my Morgan Stanley broker and bought FNMA preferred last year, without really examining his contention that the company had an implicit government guarantee.

When the preferred fell to 10 this August, I bought some more figuring that the government would not let all the US banks that owned preferreds fail - that they would save the banks now rather than saving them later (through the FDIC).

Little did I realize that when it came to a showdown between US banks (preferred holders) and foreign central banks (debt holders), the foreign banks would win. The US can afford to let US banks fail, but cannot afford to alienate the foreigners who have been financing our government for the past decade or more.

Bill Gross was smart enough to figure this out long before me. I was the patsy. Shucks. And I thought I was being smart by not investing in real estate. Turns out the Treasury is going to take my money and invest in a McMansion for me.

Now what? The equity ticket-holders have been allowed to keep their ticket-stubs, in case FNMA emerges from this crisis with anything left. Common has been diluted 80%, but will probably be further diluted if the Treasury's exit strategy is a sale to private capital down the road.

What is a preferred share worth without any dividends? Can I get some share certificates for my wall, or maybe on second thoughts, for my bathroom?

Maybe it won't be so bad. There is $22 billion outstanding preferred, with dividend obligations of $1.7 billion. As I understand this plan, this will stand behind the Treasury's up to $100 billion in 10% senior preferred. If the full $100 billion is called upon, there probably won't be anything left to pay the ticket stub-holders. So this forces us shareholders to hope that the country's housing problems turn around, that the government can sell off non-performing assets, improve management and avoid dipping too deeply into the taxpayer's pocket. If the company emerges from conservatorship, shrunken yet profitable, with $30 billion or less in senior preferred, then the existing preferred (and possibly common) shareholders will get a decent return.

But maybe I am just being a patsy again.

In any event, we won't know for years. Any predictions for what will happen on Monday?

Just How Terrible Is Housing as an Asset Class? Roubini Weighs In

Home is an essential, yes, but as a home, not as an investment. It is dangerous to become emotionally attached to any investment. Sadly, this principle is forgotten when people make their home their biggest investment. Egos get caught up in "keeping up with the Jones' s" . As a result, the decision to invest in a house isn't based on sound investment principles at all, the most basic of which is surely not to put all of your eggs in one basket.
I have owned six homes in my lifetime and I have never made as much money on any of them as I have in the stock market, particularly when you adjust for risk.
Since most people sell their homes within 5 years anyway, the idea of "ownership" is a psychological illusion. Especially when it is mortgaged to the hilt (The bank owns it then; you just own a leveraged option). I sold my last home in 2003 and have rented ever since. No single asset accounts for more than 10% of my investment portfolio. And I find it is perfectly possible to feel at home in a place you have rented for years. Actually, my ideal "home" would be a hotel. An apartment in the Carlyle in New York.