"Dilution theory" is just that: An unproven theory.
And, its not even that great of a theory. The "dilution theory" presupposes that new stock will be required, and, that the new shares will be common shares.
1. There is no guarantee that "any" new issues will be required.
Or
2. That, even if new issue shares are issued, that they will BE common shares. (Fannie has used preferred shares to raise capital in the past).
3. The worst part of "dilution theory" is that it neglects to understand PEOPLE are not like chickens.
Chickens wait in a long line to be butchered and put into packages. They cant seem to understand the noises ahead of them from other chickens, are not "chicken laughter".
Instead, if HUMan investors "see" previous human investors "getting butchered" they RUN AWAY fast.
If I, as a common shareholder "get butchered", I promise to alert other investors to stay away. Others will also.
There wont be any new investors when the last batch was butchered, and there is nothing to prevent that from happening to the new investors.
How would our government attract new investors? I can see it now:
"Ok, folks we need new investors for fnma. Yes, I know we butchered the last group, but we wont butcher you. Im "not lying" THIS time. Yes we lied to the last investors, telling them in 2008 that no new captial will be needed for fannie. But THIS time I mean it!! We wont butcher YOU, just because we butchered the last investors...Hey, wait...come back, investors, what did I say?
How come everyone is leaving??? You say you wont invest until I make it right with the last set of investors???
Would YOU want to invest in a new enron formed by Bernie Madoff from his jail cell? Im not interested.
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