Department of Uh-Oh, The End of the Mortgage Agencies

Fannie and Freddie’s
preferred shares have been considered so safe that banking regulators
let banks count them in the capital required as a cushion against loan
losses.

That should read "*had* been considered so safe."  Further background is here and here.  We also have an impossibility theorem.  I do not see how our government can let the value of this preferred stock fall much further, given the extent to which bank insolvency would increase.  I also do not see how our government can prop up the value of this preferred stock to a significant degree.  Silly me.  I guess that means I bet on the latter impossibility.

Here is yet further discussion of the end game.  It seems the common stock owners will end up suffering more dilution than they had been expecting.  The $340 billion in agency debt held by the Chinese central bank will be protected, as it must be.  Have a nice day.

And the newspapers were wondering why the Dow tanked 345 points.