Fannie Mae-No Politics (FNMA)

[kthomp19]

Being out of touch I got a bit rusty on the technicalities.

You are listening to the wrong person here.

1) With the seniors and their 10% dividend in place, the common shares had (and still have) little if any economic value. Nobody in their right mind would pay $400B for 79.9% of FnF's common shares right now. In fact, according to objective data (in the form of market prices), they wouldn't pay more than $1.6B!
2) $500B is a gross (and completely irrelevant) overstatement of the companies' value, especially at the time the warrants were issued.
3) Takings awards are based only on what the property owner lost (not what the government gains), which in the case of publicly traded shares is the drop in share price. There's a reason Washington Federal asks for $41B in their lawsuit: that was the total loss in share value, measured by market share price, for the commons and prefs combined from the day before to the day of conservatorship appointment.
4) That means a takings case based on the warrants will cost Treasury at the most $2B, the current market value of the commons, and that's only if the commons go to zero.
5) The only use of "Fair Market Value" defined on page 1 of the warrant contract, in relation to common shares, is used to calculate fractional shares in section 4 on page 6. It has nothing whatsoever to do with any potential takings cases or what Treasury later sells the warrant shares for.

Having said all that, the warrants are unlikely to be exercised because a senior-to-common conversion gives Treasury even more value while representing only a slightly larger takings liability.

Some reading on points 3 and 4:

Compensation for Takings: How Much Is Just

(p. 725) In determining the amount of compensation that is just, courts have established the market value of the taken property as the central guide.

(p. 728) The Court considers the prices paid by willing buyers and accepted by willing sellers for comparable property on an open market to be the best evidence of the taken property's market value.

Taken together, these establish that the most that a holder of a publicly traded share can lose via a government taking is the price of that share just before the taking happened.

Judge Wheeler's Starr/AIG Opinion

(p. 65) Common sense suggests that the Government should return to AIG’s shareholders the $22.7 billion in revenue it received from selling the AIG common stock it illegally exacted from the shareholders for virtually nothing. However, case law construing “just compensation” under the Fifth Amendment holds that the Court must look to the property owner’s loss, not to the Government’s gain. Brown v. Legal Found. of Wash., 538 U.S. 216, 235-36 (2003) (The “‘just compensation’ required by the Fifth Amendment is measured by the property owner’s loss rather than the [G]overnment’s gain.”); Kimball Laundry Co. v. United States, 338 U.S. 1, 5 (1949) (“Because gain to the taker . . . may be wholly unrelated to the deprivation imposed upon the owner, it must also be rejected as a measure of public obligation to requite for that deprivation.”); United States v. Miller, 317 U.S. 369, 375 (1943) (“Since the owner is to receive no more than indemnity for his loss, his award cannot be enhanced by any gain to the taker.”); Boston Chamber of Commerce v. Boston, 217 U.S. 189, 195 (1910) (Holmes, J.) (“And the question is, What has the owner lost? not, What has the taker gained?”).

Not one, not two, not three, but four Supreme Court cases cited supporting my argument. Add on footnote 32 from the TAMU paper on page 728 (citing the Supreme Court's Lutheran Synod opinion) and you get five.

Again, what Treasury later gains from the sale of the warrant shares means NOTHING WHATSOEVER when it comes to a taking award. If the commons close at $2 the day before the warrants are exercised, the only taking Treasury is liable for is the drop in share price from that point. And if the share price somehow goes up, there are no damages at all!