Thanks to self-serving large investors and shady accounting by GSE management, the Treasury has taken control over the mortgage agencies. ALL bond holders will be protected, including sub notes. This is as I expected. What I did not expect was the suspension of preferred dividends as it would harm banks, pensions and insurance companies. Preferred shares are not wiped out, they just won't pay dividend for a while.
I am sorry that this has happened to my readers. I really thought that GSE management was being forthright given the gravity of the situation. I also thought that the Treasury and regulators would not punish the preferred holders as they had no vote and could not have, in any way, prevented GSE mismanagement. They should have been treated as subordinate debt holders. This is the danger of investing in a politically-driven sector.
3 comments:
This is the danger of investing in a politically-driven sector.
You know that I am not a finance expert (nor have I ever played one on TV), but isn't a major cause of this problem an entity (or rather two entities) that are quasi-publicly-privately held?
Hi Mr. Hilter!
This is you know who from Utah. Here's my question:
If banks are writing down losses based on the fact that they can't "get a bid" for their CMO's, etc. would they not have to, as some point in the future, state the income from these instruments as not all mortgages that underlie these securities are in default?
Lets answer theses questions. First, serving two master ws a problem. Congress, especially those on the left side of the aisle, loved the oublic / private hybrid. Private investors would fund government programs. Although Fed and Fan were created to provide stability during times of economic dislocation, they themselves were victims because of poor management and even poorer oversight. I will explain on my next post.
As for my Utah Sweetie, It is not CMO, but CDOs, CLOs and SIVs. These are somewhat similar to CMOs, but there are some glaring differences. Again, this will be a post of its own.
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