Fannie Mae-No Politics (FNMA)

[Barrario]

A key part of this analysis is understanding Mnuchin and Calabria’s incentives. If we assume that they view themselves as fiduciaries for the American people (which they are), it would make no sense to implement a plan that would hurt the stocks, for two reasons. First, the government still owns 79.9% of the common stock (via warrants), a stake that could be worth more than $100 billion. Why would it want to destroy this value?

Second, in order to raise the tens of billions of dollars needed to rebuild their reserves and exit conservatorship, the GSEs need to attract new investors to provide this capital. How are they supposed to do that if they crush the old shareholders? Instead, it makes far more sense to adopt a plan that causes the stocks to go up over time.