June 30 was the day when Thornburg Mortgage Inc. (NYSE: TMA) had hoped to complete at least 90% of its preferred stock repurchase as part of a last ditch effort to save the company from bankruptcy and return it to viability. CEO Larry Goldstone continues to state that bankruptcy is not an option.

Well, when the stock has lost 99% of its value, the company posted a $3 billion quarterly loss, no one will buy what you have to sell, shareholders who have lost just about everything don't want to play anymore, and Moody's handed the company a C (for crap) rating.

Bankruptcy looks like a realistic scenario. And just to keep things interesting, the SEC is investigating the company's 2007 financial results, the timing of margin calls, as well as accounting practices for the company's mortgage-backed securities.

Thornburg's problems have nothing to do with the sub-prime mortgage debacle, at least not directly. Thornburg specializes in jumbo mortgages to those with impeccable credit. Its default rate is the envy of the mortgage industry. So the problem is not creditworthiness, but liquidity. Investors simply are not interested in purchasing mortgage-backed securities of whatever quality in the secondary market.

Thornburg's latest last ditch effort calls for the company to purchase 90% of its preferred stock in exchange for $5 and 3.5 shares of common stock for each share of preferred stock. Shareholders recently gave the company permission to increase the number of shares outstanding from 500 million to four billion in order to make the tender offer possible. The deadline for tendering preferred shares has been extended to September 30. The stock is currently trading at $0.22 per share, way down from its 52 week high of $27.82.

Even a contrarian speculator will have to work very hard to find value in this one.