What is the upside for their shares?
Fannie and Freddie are selling for 25% or 35% of what they are worth. The upside is three- or four-fold once the mortgage crisis unfolds. These stocks in the $20s don't make any sense, even in a bear case where they have to raise lots of capital. Even if Freddie has to issue $5 billion in equity at $20 a share, massively diluting the existing shareholder base, you still come up with earnings power of almost $4 a share. In a best-case situation, assuming nobody else gets back into this market and they are the only game in town, you can get $9-$10 of earnings power for a stock that is in the $20s. You don't ever see that kind of risk/reward trade-off. Hence, big positions for us in both Fannie and Freddie.