As you can plainly see in the charts above, since their mid-May high, Fannie Mae's preferred shares (NYSE: FNM PH) are down a shocking 58.8%, falling almost as quickly as the common shares, which have lost 77% of their value.
Freddie Mac's preferred shares (NYSE: FRE PK) have plunged even more: Down 65.5%. (The Freddie common shares, meanwhile, have suffered an 89.6% wash-out!)
And all of this has happened just since May 15, a meager 102 days ago! All in two giant companies that were the darlings of Wall Street, the creation of Washington and supposedly among the most "conservative" investments in the world!
Event #3. At financial institutions across the country, these devastating losses in Fannie and Freddie paper are ripping through balance sheets like an F-5 tornado. That includes:
* Sovereign Bank, the third largest savings and loan in the United States. In our "X" List video, we listed it as a prime candidate for bankruptcy because of its D+ rating and its big exposure to mortgages. Now, it's been revealed that Sovereign has a $632 million stake in Fannie and Freddie preferred shares — the same shares that have lost about two-thirds of their value just since May 15.
* Hundreds of other banks and thrifts. They were encouraged by banking regulators to buy billions of dollars in similar Fannie and Freddie preferred shares. In fact, the regulators thought these investments were so reliable, they let the banks use them for capital that's required as a cushion against loan losses. They even allowed banks to take a tax break on 70% of these securities!
* Countless U.S. brokerage firms, life and health insurers, property and casualty insurers. Some are in good shape. But many have loaded up with similar investments.
* Major financial institutions overseas.
All assumed these shares were safe. All believed they were getting something akin to a government-guaranteed investment. All could be severely disappointed when they discover the truth.
