Replies to post #616468 on Fannie Mae-No Politics (FNMA)

[10yrsholding]

Actually - forgiving the seniors is an obvious win for Treasury. Treasury owns 79.9% of fannie and freddie, so let's say they forgive $100B. The value of f&f will immediately increase by $100B,

Not saying this will happen and meant more to argue cap stack understanding, but a better win for govt. (maximizing profits) would be to convert both senior preferreds and warrants immediately prior to the re-ipo? Tax payers maximize their payout, politicians get cover on screwing the hedgefunds that hold the equity, preferred suits goes away with the conversion of the seniors, new shareholder's are not harmed nor worry about the cap structure overhang.

[kthomp19]

Actually - forgiving the seniors is an obvious win for Treasury.

Um...

Before forgiveness, Treasury has $210B of liquidation preference, rights to the first $21B of income FnF make every year, and 79.9% warrants.

After forgiveness, they have 79.9% warrants.

That's no "win" for Treasury. The only reason for them to cancel the seniors is to get rid of the lawsuits and save $100B in payments.

Also, you miss the fact that Treasury converting the seniors to common is better for them than forgiving the seniors if all else is equal. Every argument you gave applies even more to the senior-to-common conversion scenario because they would own around 99% of the commons instead of 80%.