FIG trader_

GSEs: The Tail Wagging the Credit Market Dog?

1) Market reflects bad news, needs housing price stability. But, worse case scenario is behind us; a 1/100 year crisis of confidence event in the credit markets/mortgage paper.
2) reversing 2/3 of the MBS mark to market (non-subprime) probably a gradual 12-18 month event
3)Capital will be costly, and it is a race against time, the wider the spreads and deeper discount to book the stock carries, the more dilutive the action. Conversely, if allowed to expand mortgage portfolio aggressively on the cheap and MBS spreads tighten late 2008 2009, they will print money in 2009/2010/2011 and beyond. Lots of thrifts well below book (most of them in fact, of special interest are those based in California). This is the safest if there is another big leg down (which I doubt, but you never know)