Replies to post #413901 on Fannie Mae-No Politics (FNMA)

[HoldenWalker99]

Senior preferred shares need to be cancelled for there to be anything left for preferred shareholders. That is basically the only thing needed for preferred shares to jump 300%+.

That is why it's a safer bet than common.

In wind down and liquidation, preferred just need that one thing to happen. Common get wiped out.

In recapitalization, that one thing happens, preferred win and common need to withstand significant dilution.

This is still a "rising tide raises all boats" scenario for GSEs (we all win with a court decision or shareholder friendly deal), but there is actual value in the preferred shares which makes it more of an investment than a gamble.

Good analysis. However, most company liquidation leave nothing left. Best case pennies on the dollar.

Only way to liquidate is to sell entire MBS portfolio. That's what like a trillion dollars worth. So the MBSs would either need to be sold to every private bank or the Treasury.

There is another way out. Remove the excess paid to Treasury. Pay that to preferds then use the billions made each quarter to build up the capital needed.

What ya think?

Just my two cents probably over simplified it . It is late though so I'm going to bed.