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Originally Posted by tc-sacto
This is going to be a serious issue for many banks who bought their preferred shares. Some banks have 20% of there capital in these companies. FNM/FRE have 36 billion of preferred shares outstanding and 19 million in Sub-Deb bonds.(watch out if these Credit default swaps trigger. 62 trillion in CDS's outstanding)
If you wipe out the current preferred and issue new ones those banks holing the old worhtless stock will be lining up at the FDIC window...at the very least severely restrict their ability to lend money to local business and consumers. The Feds are in a very tuff positioin.
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They have to support the preferred shares, because not doing so would create more defaults/failures and the government would have to step in again. It is a case of pay now or pay later with interest. In other words, bend over.