Replies to post #756817 on Fannie Mae-No Politics (FNMA)

[LuLeVan]

Another argument against an equal conversion/equal haircut on JPS/SPS is that the JPS are senior to commons. If there were a haircut on JPS, commons would become worthless. (This was the case with AIG, where there was a 10% haircut on JPS, and commons became worthless.). Otherwise, the seniority of JPS relative to commons would not be taken into account.

On the other hand, commons becoming worthless is not desired by the government. After all, it wants to monetize its common holdings. Even if treasury held two trillion common shares worth 0 cents after an equal SPS/JPS conversion, the total value of this position would still be zero:

This is because 2 trillion x 0 = 0

By contrast, two trillion shares of common stock x 5 cents yields the desired $100 billion.

KThomp19 wrote several times: If commons were worth even one cent, JPS would be worth par.

[NeoSunTzu]

Let me disabuse of the notion that CBO, or its analyses, will have any role in the resolution, or determination of the agreements that will end the c'ship; it will have NO role. The CBO does nothing more than produce independent analyses of budgetary and economic issues to support the Congressional budget process; CBO does not make policy recommendations - both as defined by the Congressional Budget Act of 1974. The abscence of scenarios where both the SPS and JPS take a haircut is not proof that the scenario is in any way not a potential consideration as Calabria's book alludes to.

Anyone who has any background in scenario analysis knows that increased complexity of the subject or process to be examined necessarily limits the number of scenarios that can be fully analyzed and reported. As just one example, look at the limited number of rates of return chosen in each scenario; furthermore, the CBO would not be able to report on ongoing or closed-door negotiations between UST and FHFA - especially those conducted after the report was published almost three years ago now. Statutorily, it is the UST and FHFA that will have to agree on the final "settlement," which will be based on or influenced by the mortgage industry players, courts, Congress, and the administration that eventually acts - just to name a few. The CBO does nothing more than estimate and score the costs to the government.