Last Thursday, PIMCO's Bill Gross stated that he believed that the Treasury would be forced to bailout the GSEs. I received calls and e-mails from my readers stating their concern that their preferred and, maybe, their subordinate debt holdings owuld be wiped out. Again, sensationalism triumphed over reality.
First, the Treasury and the Fed can lend money to the GSEs without "owning" them. Secondly, Treasury Secretary Paulson (in my opinion the most neutral arbiter in this situation) has explicitly stated that he has no intention of utilizing his powers granted by the rescue plan.
Not one reader heard Freddie CEO Richard Syron's comments on CNBC (30 minutes after Bill Gross) stating that Freddie will not need Treasury assistance. On Friday, Fitch announced that FNMA was a single-A-rated enterprise, at worst, and that preferred dividends should be safe for now. Again, my readers were oblivious to this report. Could it be that readers are looking for disaster and are looking past any positive news? It sure seems as such.
Here is another tidbit of information for you all; Bill Gross is long large quantities of GSE MBS. On Thursday, credit spreads on these securities widened to historic levels. He was getting crushed. If the Treasury nationalized the GSEs, his MBS would have a near-explicit backing by the U.S. Government. By talking down the GSEs, he was talking up his book in an attempt to save his behind!
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