Fannie Mae-No Politics (FNMA)

[LuLeVan]

I agree that it is impossible to know if there will be a cramdown or not. No one knows, except maybe a few insiders. I also agree that a cramdown is an act that could undermine confidence. But some people here claim that this is not the case because the underwriters of the new shares are selfish and want to get the most for themselves (at the expense of legacy commons). The same goes for the government.

What definitely supports a cramdown is the fact that Calabria claims in his book that Congress considers a write-down of the SPS illegal. This may or may not be true. In any case, it fits perfectly with the FHFA's and Treasury's previous ignorance of existing shareholders.

The government doesn't have to fear a lawsuit over the cramdown because 1) according to Scotus, the FHFA can do whatever it wants, and 2) the most common shareholders will gain from this decision is the loss in share price. That's less than 73 cents per share at today's price. The Lamberth trial also showed that the FHFA only had to pay 38% of the price loss on the day of the NWS announcement for its breach of good faith, even though Lamberth had previously ruled 100%.