Fannie and Freddie BAILOUT

It has finally happened. The gov't of the USA has nationalized FNM and FRE. They had to do it. Quote of the day goes to Treasury Secretary Hank Paulson (and I paraphrase): 'I did not want to do this, but this action is sooo much better than the next best alternative.'

Winners and losers in the aftemath; common shareholders are losers-massive dilution and last in line for any profits-likely decades into the future if at all. Preferred shareholders are losers-dividend toasted and again they stand below the equity holders-ie the gov't. Subordinated debt holders and above-Winners. The new financing is below existing debt holders. Most vocal action plan man Bill Gross wins has 61% of his portfolio is in agency paper-Nice Gamble Mr. Card Counter. Now lets see what you do-does PIMCO pony up more capital to go in with the Treasury's capital infusion.

Major Losers-US Taxpayers. Once again the Wall Cheaters take care of their own. A slap on the wrist for the total disregard of risk management. The taxpayer is getting the bill while Wall Cheaters take their multi million/billion payouts to the bank. No downside risk results in ridiculous risk taking. The system is broke and needs to change to get on better footing.

Will this fix the system. NO. US consumers are bloated with debt and that is going to require time and real wage growth to correct. As William Ackerman states: 'This is a Band Aid." The banks and financial institutions are getting some breathing space to recapitalize and again that will take time. Until the banks rebuild their balance sheets, lending will be tight.