Fannie Mae-No Politics (FNMA)

[Stockman1010101]

Excerpt from Seeking Alpha article:

http://seekingalpha.com/article/4028737-golden-share-simple-solution-fannie-freddie-situation-possible-easy?app=1&auth_param=sg2f:1c4fema:1e54ea170d7fc2f5d0cfc4b1c8ebd3f5

I would suggest the following sequential steps:
Phase I:
-A 4th Amendment would end the net worth sweep and lower the senior preferred stock dividend rate from 10 percent to five percent.
-The GSE common and preferred stocks would be re-listed on the NYSE.
-Treasury would acknowledge that it has been fully repaid and the Senior Preferred Stock certificates and the warrants would be cancelled. In exchange, Treasury would get a golden share, giving it veto power in certain corporate situations.
-There would be a collateral-based line of credit going forward from Treasury to the GSEs, with an interest rate of (perhaps) 50 basis points above the Treasury Bill rate plus a commitment fee of perhaps 50 basis points. Note that this would not be an explicit or implicit "guarantee," but merely a collateral-based line of credit.

Phase II:
-Financial recapitalization of the GSEs' would begin, subject to regulation by the FHFA.
-To facilitate the attraction of new common stock investors, the dividends on GSE preferred stocks would be restored and a small common stock dividend would be established.
-Once the financial recapitalization has been accomplished, the conservatorships and the SPSPAs would end, replaced by the golden share and the collateral-based line of credit.
None of this would require action in Congress. I would argue that this solution is consistent with the public interest while also treating existing GSE common and preferred holders fairly.
This simple solution would support the financial recapitalization of the GSEs thereby restoring the GSEs' financial integrity, meaning that it would, going forward, be able to raise new equity capital at favorable terms in both good markets and bad without the support provided by the SPSPAs.
3. A "golden share" is sometimes used to give a government veto powers
A golden share gives a government the right of decisive vote, thus it can outvote all other shares in a shareholder meeting. This gives a government veto powers over major corporate actions of a company's board of directors, such as the sale of a company or a major asset or subsidiary of the company. More generally, it can be used to prevent the GSEs from doing something that Treasury believes is not in the public interest.