Fannie Mae-No Politics (FNMA)

[kthomp19]

I read the comment by 'Rule of law guy' and had a laugh. If you don't understand that the SPS aren't "fully repaid", then you shouldn't be commenting at all. And certainly TH's follow-up was just as stupid.

I had submitted my own response to ruleoflawguy there, but as is Tim Howard's prerogative he chose not to publish it. I put it on Twitter instead if you care to read it.

Text version:

The two problems with trying to have the liquidation preference (LP) offset the funding commitment are:

1) As Tim said, having the funding commitment continue post-conservatorship would be very helpful compared to it disappearing. Also, the LP is valued at $220B on the government's books (as of the most recent Financial Report of the US Government), while the contingent liability of the funding commitment is at most a few billion due to the extreme unlikelihood of it having to be touched at all let alone exhausted, in the future.

2) Treasury choosing to write off the SPS rather than exchange them for commons a la AIG amounts to writing an enormous check to shareholders for no reason. Mnuchin said that it would be illegal and would result in a lot of political fallout according to Calabria's book. While LP writedown would be seen as "fair" by shareholders (though certainly not by people like Senator Warner), I don't see any reason to expect it to ever happen given all the evidence we have.