Despite a handful of reasons that could be offered to completely wipe out the shares of American International Group ( AIG), Fannie Mae ( FNM) and Freddie Mac ( FRE), there's a laundry list of arguments to keep all three stocks trading.

It may be hard to accept the idea that shareholders -- many of them hedge funds -- could be "saved" at this point after all three companies are essentially under the conservatorship of the U.S. government. Shares of all three companies have plummeted 97% over the last 12 months, and all three had traded close to or below $1 a share. So wiping out another $1 per share is really nothing compared to the pain shareholders have already endured.

Another point in favor of eliminating the common stock of all three companies is that the market capitalization of each has dwindled considerably. What does remain is a tiny fraction of the total amount of money the U.S. government has poured into each company.

For instance, AIG is in debt to the government by a whopping $173 billion, according to the latest tally, but it has a market cap of less than $4 billion. As an investor, the U.S. has committed $1.5 trillion to Fannie Mae and Freddie Mac. While it has only spent $358 billion thus far, that figure dwarfs Fannie's market cap of $1 billion and Freddie's market cap of just $641 million.

The government is trying to ameliorate the effects of another Lehman Brothers, and that leaves the U.S. with another half-in, half-out situation where you have a zombie institution that is neither completely free nor completely nationalized, much like Citigroup ( C).

AIG, Fannie and Freddie are not banks, but all three have received so much cash from the federal government one could argue they are as close to being nationalized as anybody is. And it's not the government's place to worry about saving common shareholders. So why, then, do these company stocks continue to trade on the New York Stock Exchange?

Paul Nolte, director of investments with Hinsdale Associates, said he understands the case that's made against keeping the common shares of Fannie, Freddie and AIG around, but he argues that the government shouldn't jump from de facto nationalization to actual nationalization.

"By holding out and allowing some of the shares to trade publicly, the government is keeping up the appearance that these are public companies," Nolte said. He also points out that all three entities have massive amounts of debt outstanding.

"Is the government going to take that over by 100% too?" Nolte asked. "By taking over AIG, Fannie or Freddie, it would go from an implicit guarantee from the government to an actual guarantee of all the debt. It makes more sense to keep the debt structure. Changing that raises a lot more questions and issues, and it's not worth all that to wipe out the equity holders."

Paul Mendelsohn, chief investment strategist with Windham Financial, has a simple if not very optimistic theory. "The shareholders haven't been totally wiped out," he said. "The shareholders are being diluted here, yes, but they have a stake in the government getting paid back also. If the government gets paid back, then they make money."

Simply put, Mendelsohn says that there may actually be some shareholder value at the end of the road. His evidence, though, is a long list of sad facts for all three names.

Additionally, there is no advantage for the government to seize complete ownership of companies and business units that nobody seems to want. For instance, AIG is having trouble getting bidders for several parts of the company. Two of AIG's international divisions have failed to find a buyer despite being on the market for some time. British insurer Prudential recently backed out of the auction for AIA, the Asian division of AIG.

"You don't want to sell these things in a market that doesn't exist," Mendelsohn said. "You want to hold these things together, keep it functioning, and in three years some of these parts will be worth double or triple what you would get right now."

There are also some positive catalysts that could affect all three names. For instance, now that the Financial Accounting Standards Board has decided to change fair value, or mark-to-market, accounting rules, it could be good news for both current shareholders and the U.S. government.

During testimony on Capitol Hill last month, AIG CEO Edward Liddy said that mark-to-market accounting is "a good concept, run amok" since it assumes there is a willing buyer for every seller. As anyone who has followed the mark-to-market accounting argument knows, that hasn't been the case lately.

"Liddy made it very clear that mark-to-market rules did have a major impact on AIG, and it probably did on Fannie Mae and Freddie Mac, also," Mendelsohn said. "If mark-to-market rules are changed and markets do improve from this point on, then AIG is worth a lot more money than we think it is today."

Mendelsohn also says that leads back to the discussion on the market cap of AIG, Fannie and Freddie, and whether they are properly valued.

"What are you basing the market cap on? That's the critical question," he said. "What market conditions are you basing it on, and what accounting are you basing it on? It's not that easy to put a price on something and say what it's worth because you don't have a market of willing buyers."

For Fannie and Freddie, the Federal Reserve's $1.2 trillion effort to lower rates on mortgages and other consumer debt, spur spending and revive the economy is a major boon. The Fed said it will spend up to $300 billion to buy long-term government bonds and an additional $750 billion in agency mortgage-backed securities.

"The recent moves by the government to buy mortgage-backed securities and asset-backed securities actually helps these companies," said Robert Pavlik, chief market strategist with Banyan Partners. "If these are not going into default, it takes the companies out of the danger zone. That's why you're seeing a rally lately in all three names."

Indeed, AIG, Fannie and Freddie have all seen a pop in the last few weeks, although they have lately pulled back again recently.

"Leave them as they are, let them trade, be patient," Mendelsohn said. "If the capital markets do open up, it's possible that investors will see these as undervalued down the road. Then you can reverse the public capital with private capital that's coming in.

"At some point, these firms may need to be recapitalized," he added. "By leaving the stocks trading, they certainly make it easier to spin off Fannie or Freddie. Even with AIG, there is a company left at the end of the road."

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