Jerome wrote,
"Also, I should add that the new preferred stock will be senior to the existing one, which will not have much of an impact in the first year"

What!?

"Fitch has also downgraded FNM and FRE's preferred stock to 'C/RR6' from 'BBB-'. The downgrade of the preferred stock reflects the subordination of the preferred to any Treasury interest and interest payments are unlikely to resume in the foreseeable future. Thus, any recovery is expected to be minimal. "

from

Fitch Affirms Fannie Mae & Freddie Mac's 'AAA' IDR; Lowers Pfd Stock; Sub Debt on Watch Evolving
Last update: 4:28 p.m. EDT Sept. 7, 2008
CHICAGO, Sep 07, 2008 (BUSINESS WIRE)

This is an immediate hit to the market value of the preferred. All financial institutions holding these preferred as part of their capital will take an immediate hit.

****

U.S. watching Macs' preferred shareholders

WASHINGTON, Aug. 23 (UPI) -- U.S. Treasury officials are watching Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE)'s preferred shareholders -- which include many banks -- for signs of panic, sources say.

Citing sources close to the department, The Washington Post said Saturday that Treasury Secretary Henry Paulson is looking to avoid wider financial turmoil by making moves that would prompt the preferred shareholders of the troubled mortgage finance companies to sell their shares.

Paulson is said to be keeping a close watch for any sign of panic among those institutional shareholders as he decides whether to inject government money into the two companies, the Post said.

The value of the shares, estimated to be worth $36 billion, has fallen recently, with Fannie's dropping 26 percent and Freddie's falling 36 percent in the last week.

Analysts say the situation may reach a moment of truth in early September when the two Macs will seek to refinance about $225 billion in mostly short-term loans that are coming due. Any sign of a sell-off by the preferred shareholders will likely persuade Paulson to act to inject the government funds, the newspaper reported.