Fannie Mae (FNMA)

[GAK-]

I've never denied that the Treasury would or should exercise their warrants. They are well within their legal rights to do so (or sell them back to FNMA). But even with the exercise of warrants and the raising of $140B of capital (at 4% capital ratio) or $55B (at 2.5% capital ratio), the commons shares would be worth between $30-$20 (accounting for 4 years of retained earnings). That accounts for the dilution that Calabria speaks about repeatedly.

The major problem, of course, is that nearly everyone understands that raising $140B on the capital markets is virtually impossible, especially if historic shareholders are not treated fairly (per Calabria's comments in his paper and also per Ackman's recent comment letter). Fair treatment, according to his paper, is to allow them to benefit from the financial value of the company as it has continued to operate.