Fannie Mae-No Politics (FNMA)

[The Man With No Name]

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%.

Dilution is something new investors won't blink an eye at, nor will the government. If existing commons were diluted into oblivion, the total damages would only be the difference in price after the news broke, which could be nothing....since retailers won't understand what is happening anyway....but in the most unlikely scenario it dropped to a few pennies....the max damages are peanuts as compared to the upside the government will have.

Investment banks line up to buy newco shares of re-orged bankrupt companies.....they will do the same here.