It means alot of different things, but basically, we’re screwed!
For one example from the article: “Similarly, conservatorship does not eliminate the outstanding preferred stock, but does place preferred shareholders second, after the common shareholders, in absorbing losses. The federal banking agencies are assessing the exposures of banks and thrifts to Fannie Mae and Freddie Mac. The agencies believe that, while many institutions hold common or preferred shares of these two GSEs, only a limited number of smaller institutions have holdings that are significant compared to their capital.”
Sounds reasonable, and it is. The trouble is that many banks have their required reserves IN Fannie and Freddie “preferred stocks.” So, more banks will need to raise capital to replace the losses. Some banks will fail because of this. I have no idea how many. So, ultimately it means that the bank implosion continues.
This is very bad news if it is true that banks keep their capital reserves in instruments that are hemorrahging. Very bad news.
Yeah, right out of the Japan model.
"Given that Treasury can hold these securities to maturity, the spreads between Treasury issuances and GSE MBS indicate that there is no reason to expect taxpayer losses from this program, and, in fact, it could produce gains."
Just don't let HUD get in on this.
The Fed can hold to maturity. More likely, these very banks being bailed out will offer to take the good stuff off Uncle Sam's hands ala the Savings and Loan fiasco. Leaving the Feds with crap.
yitbos