Fannie Mae-No Politics (FNMA)

[LuLeVan]

There will be no receivership because FnF have $120 billion in cash. It is true that the Liquidation Preference (LP) has increased by the same amount (now over $300 billion). But the LP is only partially on the balance sheets (the $191 billion in SPS), and what is on the shadow balance sheets is irrelevant to day-to-day operations.

Receivership could only be considered if available cash falls below zero. That would require thousands of loans in the MBS to go bad. But since FnF have been constantly selling unperforming loans to Wall Street, the MBS are relatively crisis-proof. So the probability of bankruptcy is close to zero.

NavyCommander is wrong in his assertion that the JPS would be paid in the event of a receivership and the commons would become worthless - and that therefore JPS holders would favor receivership. Fact is: In the event of a receivership, both the JPS and the commons would become worthless.

The LP is a partially off-balance sheet accounting item for which it is unclear what purpose it serves. Upon recap/release the government could write it off in whole or in part, and probably convert the rest to commons. The extent to which the LP becomes a financial burden is therefore a political decision. I hardly believe that the government would let FnF go bankrupt because of it.