Here is a hypothetical solution I've been thinking over. For clarity, this is not what I think will happen base case, but it shows the flexibility to recap the GSE's that create a win-win-win outcome for all parties. This scenario relates specifically to Freddie Mac 1/10 $FMCC

First, assume that Treasury sells its 79.9% warrants in $FMCC to Berkshire Hathaway. Warren pays Treasury ~$20B to take these off their hands, this is a 260% premium to where they currently trade. Buffett prob never pays this much, but just for the sake of argument... $BRK.B 2/10

Treasury retires the Seniors and deems them repaid, signing a PSPA amendment to formally unwind the net worth sweep. This is a boilerplate assumption for any (realistic) scenario... ahem Collins. 3/10

Now Warren and Charlie are sitting on $142B in cash and equivalents, mostly across their insurance subs. Freddie Mac needs $73B in statutory capital, of which they have $14B already. Warren decides to "park" an additional $60B in excess cash at Freddie Mac. 4/10

This is simply a reallocation of working capital from one Berkshire subsidiary (e.g. Gen Re, Geico etc.) to another. Berkshire does this type of capital management in its normal course of business. 5/10

But the impact is MASSIVE. $FMCC is now fully recapitalized under its statutory requirement. Freddie does not need to issue one additional share. Buffett spends the next six years allowing Freddie to rebuild the $60B from retained earnings. Then he takes back his $60B. 6/10

At the end of six years, Warren is sitting with 80% interest in an asset that generates $10B a yr, with a ~$80B capital cushion. The stub 20% equity piece implies a total value for $FMCC at this point of >$150B, of which Buffett owns $120B! 7/10

In the span of 6 years, Berkshire has earned 500% on its initial $20B investment. It leveraged its float from P&C insurance biz to stand up a massive mortgage insurance business at effectively zero cost of capital, and added $100B (20%) to $BRK.B mkt cap almost immediately. 8/10

So what does everyone get?
Treasury gets $20B upfront, and earns profit $62B on its FMCC inv, 13% IRR
Jr Prefs get dividends turned on and securities worth par+
Berkshire makes 500% and controls a phenom biz
Common shares face no add'l dilution, $2 EPS, $20/shr
9/10

Other thoughts / appendix:
Berkshire disclosed confidential position in 13-F
Berkshire sold entire $JPM stake - conflict of interest with Freddie's advisors?
David Brickman leaves Freddie. Possible he joins BRK to run mortgage insurance business and make more $$$?
10/10

Please discuss . I'm not sure where Fannie Mae could land, but leave that as an exercise. @CGasparino @MariaBartiromo @SalehaMohsin @amacker @GabyHeffesse @ACGAnalytics @HoldenWalker99 @RuleofLawGuy1 @Jkylebass @BillAckman @KapsHouse @UrbanKaoboy @DoNotLose