NEW YORK (

TheStreet

) -- Famous consumer advocate and former presidential candidate Ralph Nader has renewed his efforts on behalf of common shareholders of bailed out mortgage giants

Fannie Mae

(FNMA)

and

Freddie Mac

(FMCC)

.

In a

Wall Street Journal

op-ed

, Nader argues that the government treated shareholders of the government sponsored enterprises or GSEs unfairly when it placed the agencies in conservatorship in 2008. Nader made a similar

case

in the newspaper in 2011.

Shareholders, including Nader himself, had purchased Fannie Mae and Freddie Mac shares believing them to be safe investments, he said. They had held on to their investments even as the financial crisis loomed larger, encouraged by statements from the companies' executives and high-ranking government officials that the agencies were "adequately capitalized."

Then the government placed the agencies in conservatorship in September 2008. The scheme allowed the government to receive warrants to buy 79.9% of the common stock. Shareholders held on to the remaining 20%, but they were just "zombie shareholders" with no rights or remedies against Fannie and Freddie.

While

Citigroup

(C) - Get Report

and

AIG

(AIG) - Get Report

shareholders were "beaten down" on those bailouts, they have had the opportunity to recover their investment in the companies, Nader pointed out.

Also see: Why Fannie and Freddie Differ From AIG >>

But institutional and individual shareholders of Fannie Mae and Freddie Mac were neither "vanquished not given an opportunity to recover" and are "trapped in limbo," he wrote.

Nader also, separately, wrote a

letter

to Treasury Secretary Jack Lew calling for a proposal that would address the concerns of the common shareholders.

"Regardless of the final outcome of the deliberations on the structure of these GSEs, Fannie and Freddie common shareholders deserve a chance to recover some of the value of their stock," he wrote in his letter. "The common shareholders have been in a financial limbo far too long. It is unfair to punish the common shareholders who have held their Fannie and Freddie stock, in the hopes of recouping some of their losses. Fannie Mae and Freddie Mac should be relisted on the NYSE and their conservatorships should, over time, be terminated."

Nader may be fighting a losing battle, with policymakers still undecided on what to do with the bailed out giants.

Fannie Mae and Freddie Mac have both returned to profitability on the back of improving home prices and are now paying

billions of dollars in quarterly dividends

to the Treasury.

Their turnaround has sparked a

gravity-defying rally

in common shares -- shares of Fannie Mae are up more than 1000% year-to-date , while Freddie Mac shares have rocketed more than 900%.

Also see:Fannie Freddie Rally Returns With a Vengeance >>

The junior preferred shares of both companies have seen multi-fold gains as well.

Shareholders were wiped out when the government-sponsored enterprises or GSEs were placed in conservatorship in 2008. The Treasury also stopped paying dividends on junior preferred shares.

Investors betting on junior preferreds and common shares are hoping the record profitability will soon allow the agencies to repay the government and offer investors a chance to recover some of their investment.

But there is no provision in the bailout agreement that allows the agencies to repurchase the senior preferred shares from the government and become private.

Political analysts say shareholders betting on junior preferreds and common shares are in

"total fantasy"

as the government seems to have little inclination to change the status quo.

For one, the agencies are now

government cash cows

, filling the Treasury's coffers and

reducing the deficit

.

Also see: Barney Frank Addresses Fannie Freddie Shareholders >>

For another, there is no desire on either side of the political aisle to return the GSEs to their former quasi-government selves. Policymakers agree that they need to wind down the agencies, but there is no agreement on how to do so without hurting the already fragile mortgage market.

Still

hedge funds are piling on to junior preferred shares

which has a higher claim on profits than common shares. They do so knowing the political risk is considerable but some believe they will be able to win their case in court, if necessary.

Common shares, however, are viewed by most professional investors as excessively risky, given the potential for a roughly five-fold return in preferred shares.

Nonetheless, common shares continued their amazing rally on Friday, with Fannie Mae shares rising 33.33% to $2.80 and Freddie shares up 34.50% to $2.69 in early afternoon trading.

Also see:Sell Fannie and Freddie Commons, Buy the Preferreds >>

-- Written by Shanthi Bharatwaj in New York.

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