Professor Elam

Baron von Rothschild is said to have famously remarked that one must buy when ‘there is blood in the streets.’ He of course meant that literally.  A time of revolution when things are being torn assunder can offer great value, if of course, you can figure out what will survive the revolution. 

Bank of America ahs decided that Countrywide Financial CFC will survive. B of A put $2 B in to CFC
convertible preferred stock.    Why did B of A do that?  What is a convertible preferred stock? Convertible into what pray tell?  Read the article at the hyperlink to learn all about it. 

A preferred stock is preferred to common stock as to payment of dividends. The preferred holders must be paid before the common stock holders.  Typically in exchange for this, preferred stock holders do not get to vote for the Board.  This way B of A earns a nice return, 7.25%, CFC gets the money it needs, and B of A could become a common holder if it senses the common might go back up.

You can be sure that some very high ups, read the FED, were behind the scenes orchestrating this deal to further calm the markets. Alarm bells were ringing the last two weeks with credit downgrades of CFC by Moodys and S & P. What is a credit downgrade?  Look it up!  No doubt the stock market will be up to day as rumors of an impending CFC bankruptcy have certiainly been quelled, at least for now.