Replies to post #766148 on Fannie Mae-No Politics (FNMA)

[Donotunderstand]

?

best I can see - aside from goals and philosophy on role of F and F

it all - in $ and cents - comes down to the Seniors

[kthomp19]

1) The incentive will be to stay on the right side of the law, which they've been precariously over the line for a while now.

If Treasury thought a senior-to-common conversion was illegal they wouldn't have considered doing it. It's quite the opposite: they think writing off the seniors for nothing in return is what is illegal.

There is no such thing as a permanent conservatorship and sweeping profits of a private company forever.

Maybe not technically forever, but nothing has stopped the "temporary indefinite" conservatorship and profit sweep (first in cash, now in liquidation preference) so far.

That would be a Taking, and they would run the risk of having to pay a LOT more than the $600M chump change.

What is it that would be a taking? The CAFC (blessed by the Supreme Court's denial of cert) has already said the NWS was not either a direct or derivative taking; in that light it's hard to imagine what would be.

2.) Sounds like a red herring to me. Did anyone state a law that it violates? I don't think so...

No specific law was cited in Calabria's book, but that doesn't mean Treasury didn't have a specific one in mind.

If they thought writing off the seniors was illegal, they'd probably think the dollar for dollar LP increase off the books is illegal also.

That makes no sense at all. The two things are opposites. Writing off the seniors is throwing an asset worth potentially hundreds of billions of dollars in the trash can for no reason. The dollar-for-dollar liqiudation preference makes Treasury's stake more valuable.

3.) Political blowback for sure, because what politician doesn't like a cash-cow?

Ironically, Treasury is making no cash at all right now, hasn't for the last 4 years, and won't for a long time under the terms of the current agreements.

But the political blowback is about the perception of Treasury tossing a $200B+ asset in the trash just so greedy shareholders can line their pockets instead. It should be easy to see why politicians, especially of the party currently in power, would much rather have that money go to Treasury.

Given what has happened in the courts, and what Treasury has done (and more importantly almost done), FnF is not an investment to play offense with. Treasury has repeatedly shown a willingness to screw shareholders as much as they possibly can. Their ability to hurt the commons far exceeds their ability to hurt the juniors.