BONDTRADER1

Why Treasury Shielded Frannie's Sub Debt

"In structuring his rescue, Treasury Secretary Henry Paulson gave a haircut to holders of both common and preferred stock. In the process, he socked it to many small banks that had much of their capital in Fan or Fred shares. He was right to do so, and he should have wiped them out given how much those holders had profited over the years from a government guarantee"

OK Felix, so the treasury had the right to wipe out preferred holders because they (banks) had profited over the years from a government guarantee? But what about the individual investor? FNMA issued their last preferred stock on May 19th,2008. That was 109 days before seizure! It had an AA- rating from S&P and Aa3 from Moody's. Both services had FNMA on negative creditwatch, but the prospectus had said it had gone through an audit with Deloitte & Touche.

Of course every investment has risk, but in this case wouldn't you have questions about this offering and its quick collapse also?

MBIA’s Dazzling 2Q Results: What I Meant By 'Adjusted Book Value'

Tom,thanks for your commentary. In one of your previous articles you mentioned how little analyst coverage this company received and how their last quarterly earnings were downplayed. The dirty little secret on wall street is that brokerages make more money when insurers like MBIA are NOT around. Municipalities are now seeing just what kind of a difference (savings) having an AAA rating provided. Without this AAA rating bond spreads widen and brokerages can increase their sales credit built into the bond price with the higher yields.