This means that Fairholme, along with "thousands" of shareholders (voters) would be quite pleased to see the government's senior preferred shares in Fannie and Freddie converted to common shares. A similar action was taken for AIG, enabling the insurer to move past its bailout, the government and the Federal Reserve both claiming significant profits.

George isn't buying this argument either: "The GSE dividend sweep has helped improve the federal budget situation and money being paid to the Treasury is helping to fund government operations," he wrote. "At a time of sequestration, it would be politically difficult to stop the sweep and dividends while the government is cutting spending on some popular programs and furloughing some government employees."

The analyst also sees the scenario of Fannie and Freddie simply continuing to operate following a conversion of government preferred shares to common shares, as "politically unpopular."

"The political objection would be that hedge fund managers should not benefit to the detriment of taxpayers, the government, and government programs for the poor," he wrote. "Congress, especially Democrats, would find it difficult to explain to constituents why the government has to raise taxes or cut spending on programs like food stamps or Medicare while institutional investors are benefiting from the rescue of Fannie and Freddie."

-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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