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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: koan who wrote (81468)	7/14/2008 1:14:39 AM
From: Sr K	Read Replies (1) \| Respond to of 116555

Tonight Krugman says it wasn't Fannie and Freddie's faults. They were safe lenders, but read it here: Op-Ed Columnist Fannie, Freddie and You By PAUL KRUGMAN Published: July 14, 2008 nytimes.com - But how will Treasury and Congress do it? Let's say they inject $15 B in equity in the ratio of Friday's closing market caps. That would be $10 B for FNM and $5 B for FRE. 1. Preferred stock only? This would kill the common. Maybe down 50% to 80% after the "naked" shorts unwind after options expiration. But if the Fed discount advantage lasts a long time, it could flow to the common shareholders. 2. Convertible preferred? Pretty much the same as above. 3. Straight equity? Too risky according to Paulson's own criteria Friday. But if they did it, they could hold a public auction to determine the price per share. Raise 20% from the public and 80% from Treasury. What would the common go for if FNM tried to raise $2 Billion and FRE raised $1 Billion from the public? For FNM: At $4 they would issue 500 m shares diluting current common by 1/3. The Treasury puts up $8 B and gets 2,000,000,000 shares (change of control), and capitalization would be: current holders 975 m shares 28% New public holders 500 m --- 14% U,S, Government 2000 m --- 58% Total shares 3,475 m At $2 they would issue 1000 m shares diluting current common by 50%. The Treasury puts up $8 B and gets 4,000,000,000 shares (change of control), and capitalization would be: current holders 975 m shares 16% New public holders 1000 m --- 17% U,S, Government 4000 m --- 67% Total shares 5,975 m For FRE: At $1.50 they would issue 667 m shares diluting current common by 50%. The Treasury puts up $4 B and gets 2,666,666,667 shares (change of control), and capitalization would be: current holders 675 m shares 17% New public holders 667 m --- 17% U,S, Government 2667 m --- 66% Total shares 4,009 m At $.75 they would issue 1333 m shares diluting current common by 2/3. The Treasury puts up $4 B and gets 5,333,333,333 shares (change of control), and capitalization would be: current holders 675 m shares 9% New public holders 1333 m --- 18% U,S, Government 5333 m --- 73% Total shares 7,341 m -