Fannie Mae-No Politics (FNMA)

[kthomp19]

Nothing personal here Robert, I'm just responding to part of Fisher's post. It has the same "logic" behind it that I have seen often on this board (that a senior-to-common conversion will prevent a future capital raise), and I don't think Tim Howard's blog is the right place to post this so I'm putting it here.



Fisher has long argued that a senior-to-common conversion will destroy FnF's ability to raise capital in the future. But FHFA and Treasury have done the following things that should have forever destroyed any investor's willingness to ever even get close to recapitalizing FnF:

1) Strongarmed FnF's boards into consenting to conservatorship
2) Signed the SPSPAs that were extremely punitive to both the companies and shareholders
3) Entered into the NWS to prevent FnF from ever building capital and escaping conservatorship
4) Eventually agreed to let FnF retain earnings but only at the cost of the liquidation preference ratchet that keeps non-Treasury shareholders underwater

Supposedly even after all of these things happened, new investors would be willing to step forward, but a senior-to-common conversion is the last straw? That makes absolutely no damn sense.

If the things in the above list were enough to scare away investors forever, then a senior-to-common conversion won't matter. And if that list wasn't enough, a senior-to-common conversion certainly won't be what kills the effort.

Fisher's comments are comically transparent. He doesn't want Treasury to exchange the seniors for commons so he comes up with every possible reason he can think of to say why it won't happen. It's akin to creationism: start with the conclusion and only pay attention to evidence that confirms it.

He completely ignores three facts about a senior-to-common conversion:

1) It is far better for the companies than the NWS was.
2) It already almost happened! Thus it is clear that neither FHFA nor Treasury agree with his logic as to why it shouldn't happen.
3) He (and many others) are willing to own common shares right now. Therefore saying nobody will ever want to buy them in the future is an absurdity.