Investors in Freddie and Fannie preferreds are finally speaking out. Letters in last Friday's Wall Street Journal correctly point out that investors who purchased GSE preferreds were not billionaire speculators, but Mom and Pop, banks and pensions. An article in today's Wall Street Journal reports that some banks are experiencing significant financial pain from their exposure to GSE preferreds. Banks are asking the government that at least some dividends be paid on GSE preferreds.
This exposes the problem with Treasury Secretary Paulson. Mr. Paulson is an extremely intelligent man and is the right person for the job. However, it appears as though he is disconnected from the retail and small investor side of the business. He needs to consider the impact to main street his actions cause as well as the impact to Wall Street. Preferred dividends could be paid without impacting his GSE plan. Suspending the preferred dividends was purely political. Congress agreed, initially. Let's see how it responds to complaints from banks and constituents.
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