The only reason there is any concern about which GSE investors get “wiped out” is because nobody wants to follow the time-tested strategy of recapitalizing private firms. Under that strategy, the government takes a senior stake with control rights and shuts down dividends on all other equity.
But that dividend shut down is not permanent. After the new management structure, installed by the recapitalization authority as part and parcel of its private equity-type stake, restores the firm to stability the ordinary shareholders (who still have votes) will indubitably vote to repurchase the government shares. In the event the firms are broken up, repurchase will be affected as part of the breakup and sale agreement.
The whole problem, therefore, becomes do we nationalize the GSEs or privatize them? In a nationalization, shareholders get wiped out, management salaries are slashed, and we end up with three (or more) FHA-equivalents. In a privatization, shareholders eventually recover some value (although not the returns they experienced previously, when the GSEs shifted risk to the full faith and credit implicit guarantee) and we end up with four or five WAMU-sized mortgage firms and a couple more players in the private mortgage insurance market.
The nationalize or privatize decision, however, is not for the Treasury Secretary, but for Congress, to decide. In fact, socializing or privatizing $5 trillion of the housing sector in a $14 trillion economy should be a key election year campaign issue. Pity no one wants to address this crisis while half-baked regulatory measures create more investor uncertainty and market volatility.