Much of the disparity in the performance of preferred and common shares in recent months may be attributed to a correction from an earlier period of outperformance by the common. During a stretch in May, the common shares exploded on little more than the words of a few investors such as Berkowitz, who made clear at the time he didn't even own the common shares (though he acknowledged he saw some potential value in them).

The preferred shares, which despite their deceptive name have more in common with bonds than stock, still trade at just about 25% of their value at the time they were issued. They will ultimately need to be paid in full before common shares are worth a penny. That's why my colleague Phil van Doorn and I have argued during past run-ups in the common stock that investors should focus on the preferred shares.

But at a certain point the common shares start to look like an interesting gamble.

How much should the preferred be worth relative to the common? It's difficult to say. But by and large, what benefits one should benefit the other, since both will require a legal change in their status so they can claim a share of Fannie and Freddie's profits.

While not all the lawsuits argue on behalf of the common shares, Perry attorney Olson, a former U.S. solicitor general under the George W. Bush administration, may be the best in the business when it comes to winning lawsuits against the U.S. government. In other words, common shareholders could hardly ask for a better advocate.

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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