Thursday, August 21, 2008

My Man, Henry Paulson

In case you missed it, our latest stock pick, Federal National Mortgage (FNM), is about to go to zero. We bought what shares we could at $7.77 when the rumors of an equity-destroying government bailout intensified again last week (I'm not posting the chart because it makes me dizzy), and yesterday FNM closed at $4.40. Today, who knows. The media is touting the end, that some day very very soon, probably today, Treasury Secretary Henry M. Paulson, Jr. will confiscate FNM's current net worth of $50 billion.

Really? Didn't I just hear my man Henry say, on the steps of U.S. Treasury, that the government "was committed" to keeping FNM and its sister agengy, the Federal Home Loan Mortgage Corp., "shareholder-owned institutions."

I guess he didn't say which shareholders, right?

The government, and indeed the nation, need to keep these agencies alive and healthy. So restore the market's confidence, which total access to the Treasury didn't do last month, the Treasury needs to somehow help these agencies raise capital. The story on the street says, why bother? Just grab'em.

Henry, my man! You wouldn't do that, would you? Please don't wipe out my trading portfolio. I believed you. And frankly, the solution is so simple, even a stockbroker from New Jersey can see it.

Have the Treasury buy a new convertible preferred, give the agencies new capital. Let the U.S. taxpayers put up some cash now, but reap their rewards about seven years from now. Dilute the stock in 2015 when everything's working again and Federal housing policy isn't being run by shortsellers named Kass.

Come on, Henry. Make me smile again. It's been a very tough three days.

2 comments:

corkface said...

austin,
the fre/fnm story is a real disaster. they will be nationalized with fha under a new cabinet position. bonds will be secured by us gov't and the common is zero. that's been my position for 3 months now. swap into mbi.
paulson is not bigger then the housing mess and doesn't have dorothy's ruby slippers either. 5 inning of this game with one major bank to fall soon.
i'm out!!1
corkface

Austin Carr said...

:-(