Fannie Mae (FNMA)

[obiterdictum]

Governement exercising the warrants is not an option, as follows:
1. Perhaps the compelling reason is that the government, upon exercising the warrants, would become the major owner of the company, and be responsible for its 3.1 trillion in debt. If you own the company, then you are responsible for its debt. The government has already repeatedly declined adding the 3.1 trillion of fannie debt to its coffers for some very very good reasons. Most importantly, most economists believe the 19 trillion in debt is already unsustainable, and another 3 trillion would be the straw that broke the camels back. With the combined debt of over 5 trillion including fannie and freddie, this amounts to increasing the national debt 26%, which would have disastrous consequences, and could cause China to "pull" all of its borrowed money out of the US, where America's excessive spending could come crashing down like a borrower who ran up too much credit card debt.

The US Treasury's reason for receiving a warrant for a potential 79.9% equity stake in each GSE is directly related to prohibiting pushdown accounting from being enacted under US accounting rules.

If the warrants are exercised and the US Treasury comes to own and retain 79.9% of the common stock of the GSEs, the GSEs are not substantially owned by the US Government (US Treasury). Substantially owned, in FASB practices, means 95% or more. Pushdown accounting is allowed, if ownership of the GSEs ranges between 80 and 95 percent. Pushdown accounting is prohibited with a threshold of less than 80 percent ownership. If this accountant standard holds, then the exercise of the warrants does not force pushdown accounting and does not move assets and liabilities to the US account.

See:
FASB publishes new rules for pushdown accounting
http://www.journalofaccountancy.com/news/2014/nov/201411388.html

FASB Clarifies Guidance for Using Pushdown Accounting
http://ww2.cfo.com/management-accounting/2014/11/fasb-clarifies-guidance-using-pushdown-accounting/

Pushdown Accounting a consensus of the FASB Emerging Issues Task Force - Accounting Standards Update
http://www.fasb.org/resources/ccurl/345/908/ASU%202014-17.pdf - See: page 19

The SEC staff’s guidance further states that pushdown accounting is (a) required when 95 percent or more of an entity’s ownership is acquired, (b) permitted when 80 to 95 percent is acquired, and (c) prohibited when less than 80 percent is acquired. The existence of other interests, such as public debt, preferred stock, or a significant noncontrolling interest, however, may exempt an entity from applying pushdown accounting.

2. By "taking" over 50 billion in excess dividends, AND many more billions from profits gained by exercising the warrants, the US government motives for the conservator ship just got clearer: They wanted our money. They are avoiding an appearance of impropriety even when/especially when the evidence shows otherwise.

This cannot void or prevent the exercise of the warrant.

3. The government has stated that they do not intend to exercise the warrants, essentially as that would be an admission they "took" the company from shareholders. The US Government is clinging desperately to the postion, "we didnt take anything from shareholders, we just got paid interest on the loan". Well, exercising the warrants changes all that.

Chessmaster, please give a source for this.

4. Trump wont let it happen, he has made it clear by selecting Munchkin that he wants fannie privatized, and exercising the warrants is in opposition to that position.

Privatization is not directly related to the exercise or non-exercise of the warrants or prevention of privatization. Privatization also does not mean release from conservatorship. Privatization has more to do with ending the GSE congressional charters and ending the hybrid status of the GSEs as a private corporation with public purpose and advantages. Privatization requires a shareholder vote after release from the conservatorship.

For an example of the privatization of a GSE see:
Lessons Learned From The Privatization of Sallie Mae
https://www.treasury.gov/about/organizational-structure/offices/Documents/SallieMaePrivatizationReport.pdf

Privatizing a Government Sponsored Enterprise: Lessons from the Sallie Mae Experience
http://fic.wharton.upenn.edu/fic/papers/05/0534.pdf

The two GSE warrants can be exercised (repurchased by the GSEs, auctioned, or otherwise sold profitably or not with proceeds used in various ways), they do not need to be exercised and can allowed to expire in 2028, the warrants can be voided by the new US Treasury and FHFA by amending or waiving the SPSPAs.