Fannie Mae-No Politics (FNMA)

[contrarian bull]

I agree. The idea that Treasury will try to maximize the warrants but give up the seniors is pure cognitive dissonance.

Actually - forgiving the seniors is an obvious win for Treasury. Treasury owns 79.9% of fannie and freddie, so let's say they forgive $100B. The value of f&f will immediately increase by $100B, making treasury's holdings go up by $79.9B. It only costs them $20.1B to forgive $100B.

The $21.1B profit that shareholders will make will ultimately be taxed by the federal government giving them a few more percent back, so it will cost them even less to forgive.

However the good outcome for shareholders and settlement of many of the law suits that will result from such a move will likely double the value of F&F stock as well as shares in any future secondary IPO... which Treasury owns 79.9% of. So the net benefit to Treasury will be well above the cost of forgiving the seniors. I'd guess such a move would increase the returns to Treasury by $100B to $200B. Not a bad deal for us or them.