Saturday, November 22, 2014

How could F&F get new capital?

We have fannie and freddie, both profitable, both under capitalized.
How can we get from here to capitalized? Well lets say they need 100 billion each to be adequately funded.
Since the deepest of Recessions they needed $188 B it would stand to reason $200 B would be enough.

Lets say both companies become equal also. $100 B each. Since they will be competing for business it would stand to reason through CSP these two entities would be about same size and have about same amount of contracts from now on.

Lets just look at one then, Fannie Mae.

Fannie has 1.2 Billion shares out, And zero capital. Profits of about 14 billion a year. By market standards Fannie would be a market cap at P/E 12 of $168 Billion. This $140 a share with current shares.
To end all litigation, Release and Recapitalize the Treasury would have to see all Dividends collected to wipe out senior shares. Lets assume they make this concession. Fannie could Recapitalize by simply selling the Warrants for 4.6 Billion shares at $28 dollars a share.  This would raise 128 Billion in new capital for Fannie Mae. This would also give all 5.8 billion shares a value of $28 dollars.

We already Agreed that Fannie needs 100 Billion in capital to be safe. They have 28 Billion more than they needed and they can now use that 28 Billion to Pay the interest to the Junior Preferred shares.

So how does the govt gain? One: they have been paid 240B for the 188B they borrowed. Two: they have housing on safe ground. Three: they can make F&F keep the 200 Billion in Treasuries as Insurance.
$100 Billion each will stay on F&F books at all times unless there is a downturn. This money can be used to save them and then Recapitalize again From future profits just as they have done over last 6 years.

By implementing this plan,
You would have Private money support housing!
You would have the taxpayer off the hook completely in the Future!
You would have the FHFA regulating all that it wants in the mortgage industry.
You would have CSP for securitizing and Risk sharing bonds that would also be private money.
You can leave 5 Trillion dollars on F&F books and not transfer to the US national DEBT!

Mortgages would be Free again, in a Free society, run by Free men by a Free Corporation. All for Profit.
Capitalism at its finest. America is Capitalist, not Socialist. Conservatorship is Socialism.

If you look at this plan closely, Who wins? EVERYONE!  Who loses? NOBODY!
This is how I see this all playing out.

2 comments:

  1. might want to brush up on the definition of socialism.

    ReplyDelete
    Replies
    1. Socialism:
      social and economic doctrine that calls for public rather than private ownership or control of property and natural resources.

      Sounds like coservatorship to me. At least the way FHFA runs it. 100% of all profit and 100% of company directives are run by FHFA and US Treasury. Government bodies giving profit of private companies to US Slush fund. Socialism.

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