Ackman is short the junior debt and equity of both, but not the senior debt.
First watch Rep. Paul Ryan from the Ways and Means and listen to his concerns regarding Fannie (FNM) and Freddie (FRE).
Now listen to Ackman’s plan:
Part 1:
Part 2:
Ackman’s plan is brilliant as it restores the institutions financially so they can help the housing market, punishes equity holders for investing in a company with equity of 140 to 1, save senior debt that has the implicit guarantee and uses most likely, no tax payer funds.
If you do not get it, listen to the plan again. It is very simple and covers all the bases as far as the current objections to any government involvement in them.
With all the hand wringing out there over both entities, this solution is by far the best proposed. Now, the skeptics will say “Ackman just wants to make money”. So what? Let him is he saves us all a whole lot more losses. Besides, if he comes up with the plan, why shouldn’t he profit?
Disclosure (“none” means no position):None
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10 replies on “Ackman on Fannie (FNM) and Freddie (FRE) (video)”
Ackman is larger than life right now. Standing on the shoulders of giants, todd.
Amazing that the media trips over themselves for Ackman’s latest grand scheme. After his let’s save-the-bond-insurers-by-bankrupting-them idea, it’s surprising that anyone even takes his plan seriously.
Ackman would be taken more seriously, other than CNBC that is, if he came up with an idea and didn’t profit off it. By coming up with his “brilliant plan”, supposedly on Thursday after the crisis, and trying to profit is nothing more than a self-serving strategy…
siv,
i am surprised…..
Let’s flip it around. what is a better option? unless they (fne fre,) recover, housing won’t anytime soon….
as housing deteriorates, so do they, and looses mount…
the worse it gets, a massive gov’t bailout will be necessary which will tank the dollar and kill financials even more…
this is the best idea i have seen as both are dead in the water
Ram,
I have to agree with Todd here. It kills me when people go immediately to motive and background when Ackman or Einhorn or any of these guys come out with an idea. If you came up with what you thought to be a great idea, wouldn’t you try to profit off of it? Would you be doing your job if you didn’t?
Instead, I want to see detractors come up with a better idea that proves why Ackman’s (or any manager with a profit motive) plan is not the correct way to solve the problem, for ____ reason, not why Ackman’s motive makes the plan wrong.
Assuming that everything happens as Ackman is proposing, what is the likelihood that regular joes, like you and I, will have first crack at the common equity in newly formed Fannie & Freddie?
JEFF: “If you came up with what you thought to be a great idea, wouldn’t you try to profit off of it? Would you be doing your job if you didn’t?”
I wouldn’t go on TV and say it is to benefit the country or something like that. Also don’t you think it’s kind of odd that he comes up with the plan after going short late last week (according to what he was saying)? What was he doing all this time? Nothing changed in the last week.
There is nothing wrong with trying to profit by passing off a plan to your benefit; but don’t go around claiming its for the best for the taxpayers or something like that. He clearly knows that defaulting on GSE debt (which is what his restructuring implies) will lead to higher costs for the US government in the future (less trust)…
siv,
he is not defaulting the debt…. just equity
If I’m not mistaken, Ackman is calling for senior debtholders to take 10% haircut and get a weird sort of “equity”. I say weird because the bondholders with new equity get a 3 year put option paid for by the government.
If Fannie and Freddie go bankrupt, who is going to ever invest in a new firm? What’s the value of that? Not much.
He is also calling for all junior debt to be wiped out forcefully, as well as current equity…
siv,
you have it wrong…
senior debt is made whole
junior get 90 cents on dollar and 10
% in warrants for new stock in new co.
common is wiped out…
Nope, senior unsecured bond holders get a haircut. Junior bondholders get wiped out. Why do you think Ackman is also short the junior stuff if that is safe?
Check this summary near the top from Naked Capitalism:
http://www.nakedcapitalism.com/2008/07/on-ackman-gse-restructuring-plan.html