rros

:D ;) :D I'm wondering after watching this video and his legal thoughts, which are similar to ours and perhaps any reasonable person, that continued conservatorship is unlikely - 1) scenario 1: exit conservatorship with recap and release - but neither Mnuchin or Calabria have stated support for that 2) scenario 2: receivership - if Treasury/FHFA want to run the companies through receivership and have them re-emerge as whatever they envision (may be 1 or 2 or more likely 4-6 smaller new companies in a competitive market,) then what is the bare minimum they have to do to take care of the preferred and common shareholders in a way that Treasury can still monetize its equity position? That is likely what they will do, with the help of large shareholders who are already friendly with the decision makers - otherwise the alternative to not reaching a negotiated agreement is that restructuring may leave preferred and common owners to fend for themselves in court another decade. And they are not so stupid to leave the big Treasury equity position on the table just to break up/ restructure the companies. My thesis is they will run this through receivership with some legal arrangement for the current shareholders to get equity when the new companies emerge. you likely won't get much support on this (and other) boards for this point of view but I think there's a good chance you're right. the common price @ 1.20 with endless re-loading supply indicates so. edit: could they send them through receivership with a pre-arranged ratio of cash flow proceeds directed between the 3 buckets (govt / jr pref / common) rather than the typical full waterfall based on seniority? As long as Calabria/Mnuchin establish the Srs. have been paid off and acknowledge any excess over the 10% return belongs to the companies a receivership scenario with what might be a large waterfall will cover the Jrs. So what really matters is the full removal of the Srs. This would be consistent with all Calabria's prior stance.

Which makes you wonder, are Otting/Calabria really good news for us?

Maybe they do the 4th with Otting while Calabria "inherits" the situation and appears cleaner.

Watt is shining his dance shoes.

While Calabria would like to go back to the gold standard and have banks keep mortgages in their books, this doesn't seem realistic. Banks aren't the ones making the loans. https://www.economist.com/finance-and-economics/2018/12/01/non-bank-firms-are-now-big-players-in-americas-mortgage-market And, related... https://www.theinstitutionalriskanalyst.com/single-post/2018/11/26/Ragin-Contagion-in-Non-Bank-Finance And found one more... https://www.financialsense.com/podcast/18827/large-funds-preparing-credit-bust-says-chris-whalen?utm_source=dlvr.it&utm_medium=twitter

Naive of me to think he would mention housing. This China thing seems to have taken over and anything else on the agenda is way below.

Mnuchin to appear on CNBC Live Squawk box tomorrow at 8am.

Two more recent views from Calabria: (from January 2016): http://investorsunite.org/wp-content/uploads/2015/01/Krimminger-Calabria-HERA-White-Paper-Jan-29.pdf (from November 2017): https://www.housingwire.com/articles/41714-mark-calabria-trump-administration-committed-to-ending-conservatorship He certainly seems to have at least taken several steps back from the "kill FnF" ledge. However, that 2016 paper calls out Treasury for lots of bad (and even unlawful) behavior. If Mnuchin really is going to hand-pick the next FHFA director, would he choose Calabria knowing about Calabria's views on Treasury's actions? (of course, Mnuchin wasn't in office then, but he hasn't really acted much different than Lew other than last December's letter agreement) The 2016 paper shows that Calabria is anti-NWS, but would he have enough power to really do anything about it? Would he go so far as to withhold the dividend payments? Things will get interesting soon, and this is a key thread to follow. I've read the Krimminger-Calabria paper and it points out four important points if Calabria is nominated and appointed; [*]There's a bright line between receivership and conservatorship due to objective tests, i.e. mandatory receivership at balance sheet insolvency [*]Historical rates for conservatorship "debtor-in-possession" financing is much lower than 10% and only covers FDIC costs. The SPS rate is antithetical to a conservator [*]Shareholders must only be diluted in proportion to the assistance they received from the conservator [*]FHFA alone has authority and Treasury has been abusing its power as lender of last resort If you take point one, with the minimum capital buffer of $3 billion per GSE, that means receivership is off the table. Point two, could there be a case for a fourth amendment that reduces the SPSA rate to something more akin to conservator financing, with the remainder re-reimbursed to the GSE's for an immediate capital boost? This would likely be a substantial amount and if you take Moelis as a recap plan, that would reduce the capital required from a common capital raise. I don't think this is out of the question, considering a bill has been raised to do just that. It got nowhere, obviously. Point 3, if something like point 2 is enacted and the financing is gone, is there a case against the warrants? Could a combination of point 2 and a capital raise result in less dilution overall? Point 4, well we know this. But if Treasury does want to get the GSE's out of conservatorship, as evidenced by all the public comments and point one above, then its likely that points 2 and 3 could be considered. I'd feel great about Calabria running the FHFA considering his paper as I think it would be hard for receivership to be justified, or his comments walked back. Getting the government out of housing starts and ends with private companies, back-stop or no back-stop, special funding terms or no special funding terms. I am not sure about your point #1. It looks to me the Director could easily determine the companies to be "critically undercapitalized" and use the receivership powers. We are still under James Lockhart suspension of capital classifications. But a future Director can unravel this I believe the most important point for us in that paper is his notion that Treasury's commitment was never about financial gain and it was not meant to be a mechanism to profit from. Now that both companies have achieved their 10% return this concept becomes key and I would expect Calabria to stop any future transfer of money or reverse money flows in a receivership. The implication being that any excess being paid out to Treasury will flow straight to the Jrs. if a receivership takes place. And by the end of the year there will be quite a few billions in that category. So a nomination is bullish, in my opinion.

You're right that conversion, instead of cancellation, doesn't help build capital, but neither does it hurt the capital rebuild. I disagree that cancellation is the only way forward. Conversion just allows Treasury to suck out even more money than they already have while letting the companies out of conservatorship. Given Treasury's past actions, would you really be surprised if they insisted on a conversion? I'm starting to think that cancellation would only happen if a court forces it, and that would be years away because any court-enforced recharacterization would be appealed all the way up to SCOTUS. I agree with everything you said. But if Calabria gets the post I think he will act differently than Watt and use the full power of FHFA either as receiver or a real conservator, bringing sound and solvency back. Which could mean somehow terminating the commitment. He obviously believes the Srs. are an impediment and an about face of this magnitude is unlikely, in my view. Although everybody who becomes a US official seems to have to cross Lethe, the river of forgetfulness.

Whatever you convert the Srs into, they do not really disappear -just the dividend payment disappears- and the converted shares continue to be property of the US government. Selling the converted Srs (as new commons or new Jrs.) or directly selling the Srs leads to the same result: it is money that goes to taxpayers (or Treasury's general fund). So it does not help to build capital. There is only one way for that and it is cancelling them. But Calabria did not use that word. This is why Stegman used to say recapitalization comes at a cost to taxpayers. Because taxpayers will have to let *their* Srs. go. I think.

Well... Calabria wants Fannie and Freddie to become banks! Not utilities, no securitization market, no secondary market, no government guarantee. Problem solved. We will all have shares of Fannie and Freddie National Banks. And a corresponding check book. https://www.urban.org/policy-centers/housing-finance-policy-center/projects/housing-finance-reform-incubator/mark-calabria-coming-full-circle-mortgage-finance Can someone please explain how selling the SRs will help the companies meet bank capital levels? May be he meant declaring them paid off so that GSEs can finally retain earnings?

Dilution does not make the companies weaker while recapitalization revives them. What the shares are and what the companies are, are two different things. I think at this point, where the housing market is beginning to falter, the argument that common sense must prevail (not kill the shares, not over-dilute, not continue hurting shareholders, etc.) is as powerful as the old Obama argument that 'not one penny of profits should go their way'.

Originally, Treasury added a moral note to the story. Obama's moral high ground by which shareholders don't deserve a penny out of any government rescue. Right before he was elected Obama publicly stated in an interview that speculators weren't going to benefit from the GSEs bailout. Some Senators jumped unto this bandwagon to perpetuate the narrative, notably Senators Corker and Warner. Then, this was compounded by court rulings. All together, with some media outlets, solidified this moral view over the years which resulted on a major impediment to progress. That, on top of the inherent complexities of it all. There is still some lingering effect from upholding Obama's universal principle of justice. Doing the common sense thing you suggest relies entirely on how much of this moral standard remains. Breitbart (Robert Mercer) is trying to fully revive it and this is why some members here -InvestorG for one- believe a compromise not only is necessary but it will happen. I don't.

Given what we know about Carney, and the rest of the horribly biased article (which I regret reading, as with all of his stuff), he's using this line to warn Congress and those in the administration that are not pro-Moelis. Given Carney's obvious biases, I'm not sure we can even trust this line that you quoted. Agreed. Was just throwing the article out there so we're aware of it, for what it's worth. definitely a call to arms. but does anyone still read Breitbart? Exactly. The idea that this article will have any influence on anything is laughable. This is Robert Mercer's work and at this stage of the game Trump has proven that he will throw anyone under the bus. I'd say if Trump/Mnuchin want to go the Moelis route -which we don't know- there will not be any compromise and it is 'fait accompli'. regarding moelis, it's hard to raise many tens of billions of dollars from investors without having some sort of legislative stamp of approval. what we need, imo, is a spark to get congress to compromise and get a deal done -- and that spark is the NWS stoppage next month. This is also inline with the main idea behind my post. With Corker and Hernsanling out, expecting a wink from Congress is more realistic. I am not sure how much influence Robert Mercer can pull in Congress.

This assumes a Treasury that is out to get the commons. That was Obama's. If current Treasury dpt. aligns with Moelis or similar while there will be dilution there won't be punishment, in my view.

Given what we know about Carney, and the rest of the horribly biased article (which I regret reading, as with all of his stuff), he's using this line to warn Congress and those in the administration that are not pro-Moelis. Given Carney's obvious biases, I'm not sure we can even trust this line that you quoted. Agreed. Was just throwing the article out there so we're aware of it, for what it's worth. definitely a call to arms. but does anyone still read Breitbart? Exactly. The idea that this article will have any influence on anything is laughable. This is Robert Mercer's work and at this stage of the game Trump has proven that he will throw anyone under the bus. I'd say if Trump/Mnuchin want to go the Moelis route -which we don't know- there will not be any compromise and it is 'fait accompli'.

This idea interferes directly on how free markets operate. Free markets function based on the liquidity that allows any item to be freely exchanged between parties through price discovery. If only the original buyer of an object that has lost most of its value is subject to a recovery claim, any exit for that buyer is literally shut down. No subsequent buyers would buy that object so the price of the object becomes zero. No bids, no liquidity. Whereas in true free markets the holder of that loss+claim can exit the position at an agreed price and find the next buyer (or bagholder) who may believe the claim has a chance to succeed. I would love to be paid for all my pre-nws shares, half of which I already sold (years ago). But I see an issue with this so I do not think it is a good idea. Neither I think it has any ears on Mnuchin who has expressed admiration for Alexander Hamilton. But then, judges are a whole different ball game. And some have no clue on capital markets.

Many have argued that the main incentive, if not the only one, for Treasury to continue with the status quo has been the greed factor. Given the most likely substantial slow down right ahead, next 2 quarters if not longer, wouldn't the fact that the companies may face great turbulence act in the opposite fashion, with Treasury trying to disengage? In this case, it will no be about politics, legal cases, Congress or even reform. It will simply be that there is no more money to steal.

Sure, because the commons would only be disadvantaged vis a vis the juniors. Relative terms, not absolute terms. The warrants are magic, Treasury might not care how the total pie given to the current commons and juniors is split. In that fight the juniors hold all the cards. so you are saying in effect that the ratchet in the warrants ('magic") will protect treasury after the common and preferred hash things out. I see that. not sure screwing the common holders before you exercise and try to sell all of your common will be a wise execution strategy, but it is available. Treasury will still own 79.9% of whatever hits the fan, so not revelant for them. Today's commons could end up owning a big or a small chunk of the remaining 20.1%. Future common holders post-restructuring will all do well, including Treasury. In the screwing, and I hope it never happens, only today's holders may see reduction of ownership. As per Moelis, Jrs. will chip away and hopefully not both Jrs. AND Treasury who may decide to add to their stake in a double dip. Then, owning Jrs. today is a safer way to own the commons after conversion. Common shares are guaranteed to do well for a long time after all is said and done... but do you use your funds to buy todays commons or, instead, buy the Jrs. that will still become common shares? How do you end up owning more with the same amount of money? at some point price is relevant. over past 6 months, fnmas has outperformed fnma by 30%. so at some point the dog has his day You could be right in that common has now too much pessimism priced in.

Sure, because the commons would only be disadvantaged vis a vis the juniors. Relative terms, not absolute terms. The warrants are magic, Treasury might not care how the total pie given to the current commons and juniors is split. In that fight the juniors hold all the cards. so you are saying in effect that the ratchet in the warrants ('magic") will protect treasury after the common and preferred hash things out. I see that. not sure screwing the common holders before you exercise and try to sell all of your common will be a wise execution strategy, but it is available. Treasury will still own 79.9% of whatever hits the fan, so not revelant for them. Today's commons could end up owning a big or a small chunk of the remaining 20.1%. Future common holders post-restructuring will all do well, including Treasury. In the screwing, and I hope it never happens, only today's holders may see reduction of ownership. As per Moelis, Jrs. will chip away and hopefully not both Jrs. AND Treasury who may decide to add to their stake in a double dip. Then, owning Jrs. today is a safer way to own the commons after conversion. Common shares are guaranteed to do well for a long time after all is said and done... but do you use your funds to buy todays commons or, instead, buy the Jrs. that will still become common shares? How do you end up owning more with the same amount of money?

It's around minute 43'. https://www.banking.senate.gov/hearings/10/22/2018/the-semiannual-testimony-on-the-federal-reserves-supervision-and-regulation-of-the-financial-system

Thank you. It makes sense.. Tsy would lose its warrants. Did not notice the infamous "may".

Here we go again :)

Here it is: Looks like money flows will reverse and the umbilical cord is cut.

I think you may want to read the entire PSPAs agreement one more time, with all due respect. They have a built-in clause to self-destruct in case of an injunction by any court. So can invalidating one section of an amendment (the 3rd also included the reduction of the net worth to zero in 5 years) to the general agreement be the same as an "injunction"? This is the word included in the PSPAs. I can't remember all the exact wording but if I am correct it was worded in a way that an injunction unwinds the agreement.