Fannie Mae (FNMA)

[kthomp19]

The stock market is not a zero sum game like options. The mkt is a positive sum game in the long run. No guarantee that continues but it’s likely.

Options are a zero sum game except for commissions and fees….

I think her point is the same as one I have made before: the total available equity of FnF is a fixed pie at the time capital is raised, and the new money will insist on the biggest possible piece of that pie at the expense of everyone else.

In that sense, every dollar existing commons keep is one fewer dollar in the pockets of someone else (new money, Treasury). The existing commons have absolutely no power or say in this process and therefore they are the ones who will get squeezed because both new money and Treasury (via senior-to-common conversion) have every reason to crush the existing common as much as possible.

That's why I think that if there is a senior-to-common conversion (and the chances of that are much, much higher than they were before the Supreme Court's Collins ruling), it will probably happen at the same time capital is raised so that Treasury and the new money (and the juniors if the new money insists on a junior-to-common conversion) can negotiate over who gets what, with the existing common getting whatever scraps those three parties deign to leave behind (which I don't expect to be very much at all).

The whole "you can't crush the existing common because it will spook the new money" argument has always been absurd. The new money wants to dilute the existing common as much as possible! If the new money needs to be reassured, it is 2008 (conservatorship onset) or 2012 (NWS) investors that would have to be paid, not those in 2021.