The position at that point was limited to 80% only because otherwise, FRE and FNM would have to be consolidated on the governments balance sheet, which would ave cracked the debt ceiling (at least that’s what I recall).
Anyways, I have spent more than 2 h on this and still don’t know what to make of it. I think it’s basically a political bet and if the political wind blows in a different direction going forward before it is privatized, I think the status remains as is, which pretty much would be the best for any stakeholder (government, homeowner) but the current shareholders.
That’s why this is an “oddball” and not a regular value investment, imo.
Sure that could have been the stated reason, but I think they could have raised the ceiling if they wanted to. IMO and maybe it’s not valid for Fannie Mae, but for the US government to nationalize a business is basically a third rail in 2007. That’s likely why they didn’t bother.
if any private entity bailed out the banks or Fannie Mae they would have taken ownership of the company outright
But if any private entity would have bailed out banks or Fannie Mae they would have required share holder approval and/or go through a bankruptcy process where bond holders, perf holders and equity would have had some say in the outcome.
Where you alive during the Great Recession? (Jk) Bondholders would have accepted massive haircuts would have happily accepted a expedited bankruptcy process and equity holders would surely have no say (and wiped clean) in the bankruptcy of banks nor Fannie and Freddie. No way anyone would have argued with a white knight as people thought like the world was ending. Instead bondholders were made whole and equity holders still maintained some ownership share.
