From the FT
The US Treasury’s plan to bolster the two mortgage giants with extra liquidity and the pledge to buy a stake if needed, announced on Sunday, helped to steady the nerves of bond investors who queued up to buy Freddie debt.
But equity investors remained unsettled amid concerns that the two companies, which guarantee $5,300bn in mortgages – almost half the US home loans market – were still vulnerable. Fannie and Freddie shares saw early gains wiped out and ended 7.6 per cent and 8.4 per cent lower, respectively.
The equity gets wiped out but the debt remains attractive because it is guaranteed by tax-payers. The spread is 200 bips and the risk is nil?
I have a morbid fascination watching this movie unfold. It feels like one big train wreck in slow-motion. I wonder if one day we will tell stories of "this is how it all went down" or we will tell stories of "don't panic, once I thought the world would end, and guess what, it didn't!"
I still stand by my earlier call: wait for the shoe to drop, wait for it, wait for it. Shoe will drop. FED will commit final balance (another 400B minus what they just committed here). And then it is on our own, UNLESS the FED resort to presses, which... I don't think they will. In the meantime part of the US financial infrastructure is being nationalized.