My Proposal to Resolve the SPS Convert vs Cancel Controversy in a GSE Recap/Release: A Golden Share for Trump

We all know the GSEs' SPS have been economically paid off. We also all know Trump drives a hard bargain. So....

GSE investors anticipating a GSE recap/release are sorting themselves out along the risk/reward lines of holding the various GSE junior preferred series (limited risk in any senior preferred stock (SPS) conversion into common stock, with lesser potential return) vs the GSE common stock (substantial risk in any SPS conversion into common stock, with greater potential return).

The common stock does far better than the junior preferred in the event of SPS cancellation, but there lies the rub: even though the SPS has been more than paid off economically, SCOTUS in the Collins case has given POTUS free reign to be rapacious to a fault in any GSE recap/release.

In this case, a recapitalization rapacious to a fault would convert the SPS into additional common stock even though to do so, because Treasury is already an 80% holder of common stock through costless warrants, Treasury would inflict 100% dilutive pain on existing common shareholders for a 20% benefit for itself.

Alas, it is often human nature that those having an opportunity to rip others off find themselves permission to do so.

I have a painless solution that protects the fair financial interests of all parties to a GSE recap/release, promotes the federal government’s interest in maintaining managerial control over the GSEs even after Treasury’s financial ownership has been sold down, and gives Trump that little bit something more, just because he can.

My idea comes from the vaguely reported terms upon which Trump would approve the Nippon Steel/US Steel acquisition: a Trump “golden share”.

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