Fannie Mae-No Politics (FNMA)

[Red Cloud]

The Silver Lining / Fly in the Ointment.....

It occurred to me yesterday the potential conundrum associated with any GSE Recapitalization Plan which utilizes an exercise of the warrants and corresponding massive dilution of the commons.

The problem for the Government in such a plan is: in order for the "dilution shares" to be worth anything - have market value - full shareholder rights have to be restored to the shareholders.

The legal basis upon which the Government has been prevailing in court pertains to the seizure of "..all rights, titles,
powers, and privileges.." of the shareholders, thereby foreclosing the shareholder's rights even to sue to recover our property.

So, if F 'n' F are recapped and released in accordance with a recapitalization plan which uses massive dilution but also restores shareholder rights, then 1) the legal obstruction against shareholder lawsuits would be removed, 2) two classes of common shareholders would be created - pre-dilution and post-dilution commons, 3) shareholders would now be free to SUE THE BEJEEZUS out of the Federal Government, 4) the remedies sought in these lawsuits would certainly contain revocation of the post-dilution shares, 5) the uncertainty surrounding the disposition of post-dilution shares would have a suppressive effect on the price of F 'n' F commons.