The monetary value of a share of stock that represents ownership of a small part of a company that originally issued it, is what a shareholder would receive if the company was liquidated and all its assets were sold for cash and then the cash distributed according to a liquidation preference to the shareholders.
What is being said is that if you liquidate the GSEs, the liquidation cash from the assets sold would first go to the senior preferred shares held by the US Treasury (117 billion) and then whatever cash remained would be distributed to the junior preferred and then next to the common shareholders.
There is the assumption that after such liquidation occurred along with the dilution of the shares by exercise of the warrant for 79.9% of the common shares now being owned by the US Treasury, that no cash would be left for the commons.
All of that is pure speculation. Liquidation is a most unlikely future of the GSEs. The effort to liquidate them is now going on five years and the only result are failed bills, talking heads predicting, one sided conferences of like minded political and financial leaders and papers and articles. Nothing substantial. These same people are now declaring that it will happen "10 years" from now.
Well, the GSEs have grown in the 4.5 years since entering the conservatorship and are more interwoven into the housing finance market and system. What will they be like in ten more years!
Now is the time for the restructuring and privatization sides to step up to see what they can do. They have no intention of liquidation, unlike the BPC, Corker, Warner, Hensarling, Calabria, Stevens and the rest.
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