why would they exercise the warrants at their lowest possible value.please explain that.The whole idea of gov takeover is to rehabilitate the mortgage market and make fnm/fre profitable again.Thats why they are in conservatorship.the 40bln or so ordered for purchase by these institutes are the funds provided by you and i i-e the taxpayers.Don't you think it would be foolish of the gov to load up bad debts(although some may not be)on already ailing companies which are as they put it"vital" to our economy.It's a way of removing toxicity from banks via fnm/fre all supported by taxpayer money.fnm/fre get to charge a fee and may end up making money off the deal when the market stablizes and house prices start going up. The gov is not going to make the GSEs bankrupt.That would be contrary to the reason for takeover.
You. Government is the people, the taxpayers, so you foot the bill for every decisions the government made and everything the politicians promise you, the American public.
Also ignore both of what Obama's and McCain's promises of tax cut in their campaigne, you are not going to get any tax cut after the election under both, whoever wins the election. We are too broke to afford a tax cut. You will definitely see a tax increase under both Obama and McCain, the only difference is how much tax increase. History shows that democrats promises more social programs and they have always raised higher taxes than republicans.
1 - I think the 20 billion is the face value of the securites to be purchased, not the actual price FRE will be paying. For instance, if the terms of the agreement are 15 cents on the dollar, then it would cost FRE 300 million a month to purchase these securities and not 20 billion.
2 - Where will the money come from? Could redirect money already earmarked for underwriting new home loans to the purchase of these securities and/or auction off additional debt securities to cover the cost.
When the Govt passed the resuce bill (700 bil)They said they were going to purchase some bad mortgages from banks. They will use FRE and possibly FNM for this purpose. They announced Sat Evening that Freddie Mac now has loans available for 5.9%. Because the GSE's are under consevatorship, this will be new money from the treasury they will be using. Not to worry about further share dilution or going broke. The Gov wants these companies to succeed so they can sell them for a profit over time and privatize them. Watch out for upgrades in the future.