By Mike forgiving him, Fredo wouldnt have grown any smarter.Enemies would still be able to trick him into betreying mike over and over again. Reducing his power in the family might have even made it worse, because I highly doubt Fredo had a lot of power to begin with, and now he would be even hungrier for power, for" something in it for me, on my own!" What do you mean he wasnt a threat!