A rights offering in which a shareholder participates is no more dilutive than a share repurchase is accretive. Certainly if you think the company has intrinsic value below the share price, you would not participate, but you would also not own the stock in the first place. Existing holders think the company has intrinsic value equal to or greater than the share price. Simple math shows that a rights offering does not dilute the value of a particpants holdings. If you have a bank account with $100 in it, and you do a rights offering in which you force yourself to put $10 more in, are you diluted? You are only diluted if you sell a share of your bank account to someone else for less than par.

Existing Freddie shareholders will be massively diluted. The damage to their existing holdings is not improved by offering them a priority in buying new shares. I see it as in invitation to throw good money after bad.

As for the GSE not taking interest rate risk, that is incorrect. In fact, their derivatives hedging to manage their interest rate risk is so large scale (and procyclical) as to create systemic risk. This was a big worry of Greenspan’s until the GSE accounting scandals put a brake on their growth and had the GSEs for a bit losing share relative to the size of the total credit market.

I don’t actually buy this. The GSEs have so many friends on the Hill. Dems seem to buy the “affordable housing” pile of steaming, uh, nonsense. The GOP loves anything with the stink of incompetence and corruption. So I don’t see a world in which Fannie and Freddie have a ready ear on the Hill, regardless of the administration that follows.

I wish it were different, but the days of politicians making tough decisions seem to be well behind us.

One feature of this credit crisis that has gone largely unnoticed is the extent to which existing shareholders are getting screwed during capital raises that transfer their ownership of the enterprise to someone else without giving the existing owners a right of first refusal.

If the equity offering is at market; ie, a transaction between disinterested buyers and sellers, then it’s hard to make the argument that value is being transferred from one set of shareholders to another.

Also, I don’t know why you would think Paulson, who has been urging the companies to raise capital for many months, would now think that raising private capital is a bad idea.

Finally, when a dilutive capital raise is in the offing, it is only fair for existing shareholders to be given first dibs via a rights offering. You seem to believe that it would be better for the GSE’s to go find some private equity or sovereign fund and sell shares at a deep discount, thereby transferring value from existing shareholders to new ones.

One feature of this credit crisis that has gone largely unnoticed is the extent to which existing shareholders are getting screwed during capital raises that transfer their ownership of the enterprise to someone else without giving the existing owners a right of first refusal.

That’s better written as “wants to eat his cake and have it too.” The idea is that you want to eat your cake but not have it disappear into your stomach…you want to eat it but still have it…you want to eat your cake and have it too.

JPM has an entirely different risk weighting on its assets (higher on average); the capital comparison is not equitable

This is retarded chaos at its very finest hour!