Sept. 3 (Bloomberg) -- Some things I’ll never understand.

How can a show called “Flip This House” still be on television? Why didn’t the Utah Jazz basketball team change its name after leaving New Orleans? And why in the world did the common shares of Freddie Mac and Fannie Mae go berserk last month?

The last of those questions is by far the most difficult to answer.

In case you hadn’t noticed, America’s worst financial companies were the market’s best-performing stocks until a few days ago. The price of Freddie’s common shares more than tripled in August, as did Fannie’s, although this week they have given up some of their gains. It was the same story at their fellow ward of the state, American International Group Inc.

While the stock-market values of these government- controlled companies have soared this summer, it’s debatable what those values are.

For instance, you might say Freddie’s market capitalization is about $1.1 billion, based on the company’s $1.64 stock price and the 648.3 million common shares outstanding that Freddie disclosed on the cover page of its latest quarterly report. These are the inputs investors normally use to calculate market caps.

It also would be accurate to say Freddie’s market cap is $5.3 billion. That figure is based on the fully diluted shares outstanding of about 3.3 billion that the company used to calculate its loss per common share last quarter.

Pick a Number

Similarly, Fannie’s market cap is either $1.5 billion or $7.8 billion, depending on which share count you use. (The stock closed yesterday at $1.37.) The larger share counts include warrants issued to the U.S. Treasury that would allow the government to buy 79.9 percent stakes in the companies’ common shares at a nominal cost. As of yet, those warrants haven’t been exercised, and so the shares haven’t been issued.

The situation at AIG is even more confusing. The cover page for its latest quarterly report shows 134.6 million common shares outstanding, which is about the same as the fully diluted share count on its income statement. Yet in a footnote to an Aug. 13 press release, AIG also disclosed a hypothetical share count, assuming that someday it would have to convert a big slug of the preferred shares it pledged to the government into common stock.

Why Pay?

AIG had 697.4 million common shares using that method. Thus, depending on which figure you use, its market cap is either $5.1 billion or $26.5 billion, based on AIG’s $37.95 stock price. All three companies are leaving investors to sort out for themselves which share counts are the right ones to use. Go figure.

The larger question is why anyone would pay anything to own any of these companies’ common shares. Elsewhere in their disclosures, Fannie and Freddie tell you straight up that their common equity is worth less than zero.

Unlike other companies, the two government-backed mortgage financiers publish quarterly fair-value balance sheets showing estimates of the real-world values for all their assets and liabilities. (Fair value is the price at which an item would change hands in an orderly, arm’s-length transaction.) As of June 30, Freddie said the fair value of the net assets attributable to its common shareholders was negative $122.6 billion.

At Fannie, the number was negative $138.1 billion. Together, from the standpoint of a common shareholder, the two companies amount to a $260 billion black hole. The only place you’d find a bigger deficit is the federal budget itself.

No Recovery

By comparison, from 1990 through 2007, before they were seized by the government, Freddie and Fannie reported total net income of $35.9 billion and $59.8 billion, respectively. Even if the companies returned to their former glory, there is nothing in their histories to indicate they have the ability to earn their way out of their present deficits. Hope springs eternal anyway.

As for AIG, the insurance company’s common shareholder equity was negative $35.4 billion as of June 30, once you take away its $44.2 billion of deferred customer-acquisition costs and $6.4 billion of goodwill. Those assets exist only on paper and can’t be sold by themselves.

In effect, what we have here are three extremely expensive Powerball tickets. Perhaps the bet is that the Treasury might bestow a gift on the common shareholders one day, by forgoing some of its ownership rights in the event the companies can’t repay all their debts to taxpayers. Or maybe the recent rally was just the result of a monstrous squeeze on short sellers who were forced to cover their bearish bets. There’s no way to know what’s going on in Mr. Market’s head at the moment.

At least when you play the lottery, the odds of winning and losing are measurable.

(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Jonathan Weil in New York at jweil6@bloomberg.net

Last Updated: September 2, 2009 21:00 EDT