Warrants

I’ve wondered why many people state that the US Gov “owns 80% of Fannie and Freddie.” I think I remember Mr. Berkowitz and Mr. Cooper making this statement, too.

If we’re trying to convince a judge why the Sweep is such a bad thing by saying the US Gov went from owning 80% to 100% it’s not as convincing (or accurate) as stating the US Gov went from 0% to 100%. Am I wrong?

I’ve also seen several times that people encourage the US Gov to exercise the warrants.These bloggers must own junior preferred shares as no common shareholder should encourage their investment to be diluted by 80%.

Anyway, I am one of those that believe that the warrants will never be exercised. The warrants were a financial vehicle to pay back UST…and they have already paid back regardless of what some may claim.

The purpose of the warrants is stated clearly here:

“Need to maintain the Enterprises’ and the FHLBs’ status as private shareholder-owned companies – Fannie Mae and Freddie Mac may emerge from conservatorship to resume independent operations, or they may emerge in some other form reflecting legislative changes to their congressional charters. Conservatorship preserves the status and claims of the preferred and common shareholders. The value of the warrants issued to the government under the terms of the PSPAs could potentially increase, thereby providing enhanced value to the taxpayers. Upon the government’s exercise of the warrants, the GSEs would be required under the terms of the PSPAs to apply the net cash proceeds to pay-down the liquidation preference of the senior preferred stock.”

http://www.treasury.gov/about/budget-performance/Documents/CJ_FY2012_GSE_508.pdf

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