Fannie Mae (FNMA)

[contrarian bull]

The warrants were collateral in case the bailout money wasn't returned.

They are more than that. The assumption is that at the time of a bailout the company is worth virtually nothing. If the gov't bails them out - guides them along - is a wise and honorable conservator - they deserve to see some gain from all their efforts when the stock goes back up. So the warrants mean they enter into a "profit sharing" plan with the stock holders where they get 80% of the profits.

The warrants are as much to reward and motivate them to be a wise and honorable conservator as they are collateral.

At the time of the bailout the gov't assumed they might never get paid back and thus why they charged 10% interest... kind of a "hard money" loan. The warrants would be worthless if the company never recovered enough to pay back the "loan".

2 separate things.

Of course in the case of F&F... many of the assumptions above were false... but that is a different story playing out in the courts.