Fannie Mae-No Politics (FNMA)

[kthomp19]

The "solution" will most likely be heavy dilution of the existing shares, however unfair this may seem to existing shareholders. After all, the less the old shareholders receive, the more is left for the government (SPS holder), the JPS (whose rights are contractually secured) and for subscribers to the new shares. The tone of the negotiations is set by those who invest the most money - i.e. the government as SPS holder and the new investors.

The government meets the interest of these new investors the most if it converts the SPS into commons, which leads to maximum dilution. This suits the government (it then gets about $100 billion for itself, which can be used for affordable housing), but it also suits the new investors, who want as much of the pie for as little money as possible. The losers are the old shareholders, because they are in the worst legal position and, on top of that, are the most dependent on the other parties providing the capital.

Couldn't have said it better myself. In the end this is what will dictate the per-share price of the common shares.