Fannie Mae-No Politics (FNMA)

[kthomp19]

As for the big bucks plus $90B more - it sounds like you are talking about net dividends paid. Which kinda shows up as an ASSET under LIABILITIES as a negative ACCUMULATED DEFICIT. I still don't fully understand that but hey it's only $200 billion so I just let that one go.

Okay I think I finally understand our misunderstanding. I am nowhere near an expert on accounting, but I do understand the basic 'Assets = Liabilities + Equity' equation.

I believe you (and bcde) have been lumping Liabilities and Equity together and calling anything belonging to either category a "liability" (right side of the equation), while I consider them to be two (very!) separate things. The argument has mostly been over terminology, though I believe the distinction to be important else I would not have carried on this long!

You're right that the extra dividend payments on top of the $187.5B have appeared as the accumulated deficit; when a dividend was paid cash was decreased and so the right side of the equation had to go down, so the accumulated deficit went further negative.

This is too funny - we have the Juniors fighting with the commons on the sidelines as treasury beats us both on the field.

My main argument with bcde has been about what happens if the NWS is retroactively revoked and the senior preferreds are extinguished. bcde (and you, if I interpret your last few posts correctly) believe that it would amount to an instant recap with no additional equity raises needed, while I believe that extinguishing the senior preferreds would just erase the accumulated deficit, leaving the companies with the same amount of capital they have now, i.e. nearly zero.

I believe this is an important argument because if I am correct, an equity raise to recap the companies is quite likely somewhere along the way (it doesn't cost the government anything!), and that would affect how I choose to allocate my money between commons and prefs.

Just so you know where I stand - I have pretty much equal amounts of common and juniors - so I don't really care which fares better.

I am more heavily weighted to preferreds, but much of that is due to the commons being currently strong versus them, at least using the last year of price data. Since investing into FnF (almost 2 years now, yeah I'm a newbie!) I have gone between 95/5 and 60/40, always with more weight in prefs. I am around 70/30 right now but shifting more into prefs little by little.

I don't know if I would go any further than 60/40 because a favorable conversion ratio is a great way to settle the lawsuits if it's part of a package that extinguishes the senior preferreds and recaps the companies. Any conversion would be at a premium, probably a substantial one, to today's ratios. That is perhaps my biggest reason to own junior prefs over common. A conversion offer has tons of precedent (I doubt any lawsuits on the matter would go anywhere) and doesn't cost the government any money either.

This would still be true if the warrants are cancelled, which is why I tend to argue less strenuously about those.