"This is a gift to Wall Street of gargantuan proportions, and so far it looks like Wall Street's winning the lobbying," Hempton says, "It's stupid, it's inane, but Wall Street is winning the lobbying."
If Wall Street succeeds, Hempton reasons, the preferred shares are worthless.
"Because effectively you dismantle Freddie and Fannie at maximum loss, which really is maximum transfer to Wall Street--and I lose. And if they decide to do it the other way which I think is perfectly rational, I win. And so does the taxpayer, anyway: I'm on the taxpayer's side here."
Needless to say, with the preferred shares trading for pennies on the dollar, the hedge fund managers are in the minority in their view.Bose George, analyst at Keefe Bruyette & Woods, sees little hope Congress would sanction a return to Fannie and Freddie as shareholder-owned vehicles. "On a fundamental basis we don't see any value," George says. But even George won't say he sees no point in trading the shares for a while. "This will be multiple years before we get this resolved. In the meantime, there are probably going to be lots of ups and downs and so if you have a security that's so close to zero as it is and with a lot of volatility it might work," he concedes.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV