Replies to post #150228 on Fannie Mae-No Politics (FNMA)

[Donotunderstand]

redsox

yes - this is getting real attention and .... and .....


yet - the part that bothers me is indeed repeated in a section of possible holes in the proposal - or ways hedgies make way too much day one

quote



But of course there is a trick. The big trick is that the plan calls for the new companies to be capitalized with $52 billion consisting of "$17.3 billion in new cash raised in a rights offering" from Fairholme & friends plus, what is this, "$34.6 billion of restricted capital from conversion of existing preferred stock." That existing preferred stock is the stock that Fairholme & friends currently own, and it trades at, I don't know, not that much, call it 30 to 40 cents on the dollar.5


That means that Fairholme & friends will stump up $17.3 billion in cash and $10 or $12 or $14 billion worth of preferred stock, and will be handed in exchange a brand new, pristine, no-debt company with $52 billion in assets,6 for an immediate first-day gain of $20 billion or so. Which is pretty good!


Actually, this understates the issue a bit; that preferred stock might be trading for 30 to 40 cents on the dollar, but if you ask a lot of people they'll tell you it's worth zero cents on the dollar, and some of them are in the sorts of positions in the U.S. government that can make that a reality. If you believe that, then this plan is more like a $34.6 billion one-day windfall to those preferred holders.