Tuesday, September 09, 2008

Merrill Lynch offers major information resources on Freddie and Fannie conservatorship

Merrill Lynch this morning offered account holders a page “Research Insights: From Merrill Lynch Chief Investment Strategist Richard Bernstein: Behind the Fannie Mae and Freddie Mac Bailout”. There is a four-minute video and a PDF transcript of the video, along with various other materials such as discussions of the implications of “conservatorship”. The link is here. It does not appear that you have to be an account holder to view this.

The video is critical of the government’s “preferential” treatment of bondholders over stockholders. It says that many regional banks can be exposed to serious problems because of the loss of value of preferred stock. It talks about the 50-45-5 mix of stocks to bonds to cash. Other reports suggest that there are some risky bond funds that have lost most of their value over time. Furthermore, some mutual stock funds may have had a high exposure to GSE’s.

I found that the bond funds of my own went up considerably yesterday, included PIMCO, which has a lot of FMNA bonds, and apparently benefits from the government’s guarantee.

Update: Sept. 10, 2008

The Washington Post Business Section, p B01 has a story "Homeownership Mission Vulnerable After Rescue," by Binyamin Appelbaum and Renae Merle, link here. The reporters note that the suspension of the two big mortgage GSE's as "private enterprise" means that the federal government can no longer compel them to spend "shareholders' money" on low-income housing programs. Instead, affordable housing (already a big local issue in an area like Arlington, with the Board's walking tours) is now a "real" political issue for the feds, regardless of who wins the next election.

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