Replies to post #367605 on Fannie Mae-No Politics (FNMA)

[tcj]

From Tim Howard over the weekend. This is basically exactly my opinion. BY - what you propose will happen would be terrific and I hope you're right, but the major players are not going to care if the gov makes money on warrants as long as their investments pay off. Most of the boards, blogs, article comments are loaded with peoples feelings about what should happen, what's morally right/wrong vs the likely probability of what will happen. Thanks for your feedback as I consider you one of maybe a dozen people who actually have the knowledge to make intelligent, educated analysis on the subject.

"There have been numerous points of view expressed and opinions offered about the best way to handle the warrants Treasury granted itself for 79.9 percent of Fannie’s and Freddie’s common stock. Whatever we may think about the merits of any of them, in a negotiated settlement what actually is done with the warrants will depend on what is agreed to by the principals of that negotiation–the plaintiffs in the lawsuits on the one hand and the designated representatives of the Trump administration on the other. None of us outside that small circle has any direct ability to influence the outcome (much as we/they may wish to.)

The representatives of the Trump administration will in my view want to be able to extract some additional money from the settlement (over and above the $67 billion the government already has received through the 10 percent after-tax dividend on the companies’ outstanding senior preferred stock), while plaintiffs will want to receive full value for the outstanding junior preferred stock and also maximize the value of Fannie and Freddie as going concerns. Given that, I now think it most likely that the warrants WILL be converted, but at a strike price and over a time frame that balances the need to recapitalize the companies with allowing the government to extract value for their warrants without excessive negative effects on the companies’ stock prices (which would both jeopardize the recapitalization and reduce the proceeds to the government from warrant conversion). Fortunately, this sort of balancing act is what the investment professionals who now will be on both sides of this negotiation are good at, and we will have to wait and watch to see how they plan to pull it off. If it makes us feel better we can all express our opinions in the meantime, but speaking for myself I don’t pretend to know more about how to do this than the people who will be sitting around the table negotiating it."