re details
I can't search old posts, so I can't dig up whatever you might have written on it. I'm happy to follow links, if you have the ability to search.
Sure, the notes are paid for, the bad debt is secured by the US Treasury, and FRE/FNM will survive; albeit in a different form.
The question I have is whether the federal government's debt guarantee comes with the price a rescuing creditor usually has: being first in line to get paid. Assuming the net value is presently negative (ie, there's a ton of bad debt FNM/FRE have secured), is there any reason to think the federal government will inject more assets than needed to take care of the debtors? In other words, will there be anything left for existing common stock holders?
So, what do I see? I see a LOT of restructuring, volatility, and a rough ride. But in the long term the companies and their securities will be salavged.
Sure, the companies may end up as shareholder-run operations some time in the distant future, but will current shareholders be part of that deal? In the course of the restructuring, will the current debt holders not be paid off in a way that leaves them the new owners?
What I understood from the descriptions given by officials is that debt holders' interests would be protected. The fact that those will be salvaged is not the same as saying equity holders will be given a free safety net.
Unless the federal government simply feels like making a big handout, it would seem that a creditor bailout would be lights-out for the current field of equity holders.
Do you have links to the details of the bailout transaction, so one would see the path of current shareholders to ownership of a restructured, post-rescue FNM/FRE?
Take care,
--Tex.
