Replies to post #720298 on Fannie Mae-No Politics (FNMA)

[kthomp19]

Prove me wrong.

I already did. Market prices prove that the market places a substantial value on liquidation preference even when a liquidation event is not even close to happening (as it wasn't in 2005).

Liquidation preference also matters in a restructuring, and the combination of FnF's capital requirements, current capital levels, and earnings show that if there is no restructuring, it will be 2038 before Fannie hits its minimum capital requirement (with the buffers empty!) and 2040 before Freddie does.

You'll be in the same boat at release, watch.

But the prefs are on a higher deck. If the juniors are underwater so are the common. If the common are above water so are the juniors. But the common could be underwater while the juniors aren't.