Treasury rescue Q&A, Fan & Fred off the floor, and more
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Some late night or early morning reading from around the markets:
--- Your tax dollars at work: The U.S. Treasury on Thursday put up a Q&A on its website, answering what it said were frequently asked questions about its plan to pump up to $100 billion each into Fannie Mae and Freddie Mac via purchases of special preferred stock. Read it here.
Pointedly, the Q&A seeks to dispel the idea that ‘a future Congress could pass a law that would abrogate the agreement’ to support the companies. The Treasury assures us that ‘any such law would be inconsistent with the U.S. government’s longstanding history of honoring its obligations.’
In other words, the admonishment to the next administration and Congress is: ‘Don’t mess with this deal.’
--- Fannie and Freddie, off the floor: The New York Stock Exchange on Monday had given Fannie Mae and Freddie Mac an exemption from the exchange’s normal rules about penny stocks, by allowing them to continuing trading on the NYSE floor even after they fell below $1 (as I noted here on Wednesday). On Thursday the NYSE reconsidered, and booted the stocks off the floor and into the all-electronic NYSE Arca market.
The exchange said it believed that the market impact of the government’s seizure of the companies on Sunday ‘has been fully absorbed by the market,’ so it no longer felt the need to accord Fannie and Freddie special treatment.
Floor trading has the advantage of human oversight, but I’m not sure any of the speculators trading Fannie and Freddie will notice a difference in the Arca market. If there is a big difference, I’d like to know, so feel free to share your comments.
--- Downer of a day at the beach: Downey Financial Corp., already operating under the close scrutiny of its federal regulators, got more bad news Thursday: Standard & Poor’s cut the Newport Beach-based thrift’s credit rating deeper into ‘junk’ territory, to B-minus from B-plus. S&P predicted that Downey wouldn’t be able to find enough new capital to keep the Office of Thrift Supervision happy. ‘We are also concerned that continued publicity of Downey’s problems could lead to material deposit outflows that would overwhelm Downey’s liquidity,’ S&P said.
Downey’s stock slid 8 cents to $1.54 on Thursday, before the S&P move. Year to date the loss now is 95%.