Fannie Mae-No Politics (FNMA)

[kthomp19]

I’ve never seen anything where the government is in the business of making the most profit.

Don't fall for the false dichotomy logical fallacy here. If Treasury isn't trying to maximize its profit, that does not mean that they will necessarily write off the senior prefs.

True maximization of Treasury's profit would be a restart of the cash NWS plus exchanging all but $1B of the liquidation preference of the seniors for 99.99999% of FnF's commons. Even I don't think that's going to happen.

Treasury writing off the seniors would be a minimization of their profits from this point forward. Instead of asking if Treasury is in the business of maximizing its profits, we should ask whether they are in the business of minimizing their profits. I think the answer to that is a clear "no".

Once again AIG provides a good comparison. Treasury did not act in such a way as to maximize its profits (because it only took a 92% stake in the common), but that didn't stop them from exchanging their AIG preferred shares for commons rather than write those shares off.