Fannie Mae-No Politics (FNMA)

[kthomp19]

Issue 8 Billion shares at 20 bucks a share (I think this fits earnings and 10x PE but not sure) . 8 Billion is about 6-7X current outstanding

$160B or so is secured ... (and some one help on can we get 20 bucks for 8B more shares or is this too high?)

THEN - per prior agreement and with market (that buys the 8B) in the know Fannie turns around pays GOV about 50-60B to extinguish the warrants

I suppose this would work. Current shares of 1.8B means the new buyers end up with 8B / (8B + 1.8B) = 81.6% of the companies.

But what if the companies instead issued 16B shares at $10 per share? Now the new buyers get 16B / (16B + 1.8B) = 89.9% of the companies, for the same price! Treasury also gets the same amount of money so they have no reason to say no. The new buyers would clearly prefer this scenario over the $20-per-share one.

And why stop there? Issue 32B shares at $5 per share, so the new buyers end up with 32B / (32B + 1.8B) = 94.7% of the companies, and Treasury gets the same amount of money.

Nothing would stop them from issuing 160B shares at $1 either. A reverse split would take care of relisting requirements.

Hopefully you see the problem by now. If the new buyers are putting in a set amount of money, they will want the largest possible percentage ownership possible in the companies. By making Treasury's warrant revenue fixed, you eliminate their incentive to keep the share price up. It could go down to a nickel because FHFA and Treasury have no incentive to say no, and the only ones hurt by it (current common shareholders) have no voice or vote.

It wouldn't even spark a lawsuit, or at least an eventually successful one, because either the whole arrangement is either legal at any price or illegal at any price, and I don't think any current common shareholder would find fault with it at the $20 level. The warrants wouldn't be exercised in this scenario, and it would be a transaction with private actors (the new buyers) on one side, so a Fifth Amendment takings claim would be DOA.

In fact, I think that I should thank you for coming up with a plausible scenario that involves the warrants never being exercised but the commons being crushed to near-nothing anyway. This makes me even more glad I don't own any commons.