Historically what happens

Reader comment on: David Wessel on Fannie, Hank Paulson, and China

Submitted by Lyle (United States), Sep 6, 2012 16:31

In a reorg, the stockholders get nothing, and the bond holders become stock holders. Since the biggest "bondholder" of the GSE's was the federal government (all be it it did not get paid as such) it took the stock position. Recall that Paulson was upset by the way WaMu was handled where the holding company was left to go to chap 7. Of course any bondholder in the WaMu holding company if they bothered to read at all knew that the FDIC had dibs on the bank subsidiary, and they had no claim against the FDIC. Of course this again raises the question, why loan money to a holding company the slight bump on returns does not appear to justify the risk.

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