Frannie Questions

Justin Fox asks for his readers’ questions about the Frannie bailout. Since I’m in a more-questions-than-answers mood today, I’m happy to oblige:

  • Fannie Mae and Freddie Mac are still publicly-listed companies. Does that mean they’re still owned by their shareholders, and that unless and until the government actually dilutes those shareholders, management has a responsibility to work for the companies’ actual owners, like Bill Miller?
  • Why did Paulson choose to shelter the owners of Frannie’s subordinated debt?
  • Are Frannie’s obligations now part of the US national debt? Will they be, if and when the US government becomes 80% owner of the companies?
  • What is the difference between Frannie debt now and Frannie debt on Friday? Is there more of a government guarantee than there was? Is there any credit risk in Frannie debt? Does that credit risk explain the spread between Frannie debt and Treasuries?
  • Is there option value to either Frannie equity or Frannie preferreds? How do you value a preferred share which isn’t paying dividends? Who’s buying this stuff, and why?

Feel free to add your own questions (or, better yet, answers) in the comments.

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