rros

Wilbur Ross' response... Interesting. Perhaps the stupid part was that he made his views public. We will have to wait. Anyway, one thing to remember: it was Lockhart who issued the infamous suspension of capital classifications that has allowed the NWS to exist. Most likely, he never envisioned the 2012 move but somehow it is in sync with what he originally did. In a twisted way, of course. https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Suspension-of-Capital-Classifications-During-Conservatorship-and-Discloses-Minimum-and-RiskBased-Cap.aspx Wouldn't it be ironic we come full circle and have him as Watt's replacement so that he can undo what he did?

Where did he say this recently? mnuchin has consistently said, and i will try to get this verbatim, that it is crazy that fannie and freddie are still in conservatorship and under govtal control, he wants to fix them (as i recall he has consistently used this word), and he no longer wants taxpayers to be on the hook while he hasnt said this specifically, one might infer that by getting out of conservatorship, they would get back into private ownership with, if the taxpayers are not to be exposed to risk, ample privately-sourced capital. I understand, Chris. I was under the impression that in the last few months he became more cautious and would only express his willingness to work with Congress on comprehensive reform purposefully avoiding references like the ones above.

Where did he say this recently?

Our friend Paul Muolo has not been very accurate in his predictions/information. A while back, rumors were of an imminent EO by Trump mandating GSE reform. Then, what was heard from *souces close to the WH* was that a utility model was the top preference. Now, hearing-through-the-grapevine we are learning W.Ross is the key guy. In my view, it is all bullcrap and Paulie knows notin'. And I hope so, because WR is an expert in bankruptcies and I would not want him to be involved in any GSE reform.

Bad news without a doubt. No capital buffer unless Watt decides to withhold and increase liquidation preference. Heck, no administrative-only reform at all given that the executive branch isn't bipartisan. Seems to me like Mnuchin is saying that he isn't going to do anything at all until Congress passes something forcing him to. he has said since his confirmation hearings that he wanted to work with congress on this in bipartisan manner. granted I was hoping for it at some point but administrative action is much less effective as a long term solution than legislative. whenever tax reform is finished, win or lose, I expect to see an active mnuchin - phillips on this matter, the reverse of radio silence in 2017. All these matter because of the vacuum we are in. If Treasury discloses a roadmap, as per Paul Muolo, prices will firm and we are in business. No matter when it happens. The main problem, one that is concerning at this stage, is Treasury not offering a work plan. Reminds me of Geithner during Congress' hearings.

I did not think of this. It is actually a very good interpretation masked by the choice of words. The ongoing discussion has been how much retained portfolio to carry, from nothing to a little. Most likely InvestorG is correct in that the words balance sheet here represent their retained assets. Then, this would be a Bill Ackman *utility* solution with important, positive outcomes for equity/preferreds. If so, I highly doubt that in the middle of the night, at the last possible minute, they decide to give us the shaft in any restructuring/rechartering/change of names. The worst case, in my view, would be a short receivership and then distribution of new equity to legacy shareholders. Complete stupidity though. Thank you, IG.

Treasury's apprehension has always been equity, not the preferred holders. After all, preferred holders do not benefit of any increase in earnings or market share. From the original internal statements made during the first few years of this novel it was clear they were pointing their guns at common equity. Mnuchin, unfortunately, did not arrive to Treasury to impose his views but to absorb Treasury's. We'll see what happens.

Because there is already a ruling by the Appeals court, now at Lamberth's, protecting specific rights of preferred holders.

A quick glance tells me the purpose is not to return to the shareholder model, so no, not Moelis. It appears no balance sheet may mean the current status where Treasury is the balance sheet. So a utility model with 1 shareholder, Treasury. So much for respecting our rights. Only saving grace would be a quick receivership where they clean up the mess and hopefully we get paid. May not be good for commons. Alternatively, little balance sheet may mean a double dip by Treasury where equity holders are left with 1%-2% of the company and capital continues to be the Treasury commitment. In this scenario, commons will not move. Or even lose value as the potential appreciation disappears.

Who knows what went on between Obama and Corker re housing/Iran. Nobody knows except admin what deals were done behind the scenes. Maybe Trump needs Corker to wrap things up or else he will own any FF issue, good or bad.

Explain how Watt can call receivership when there are still 258 billion left in taxpayers backing. You meant forced R instead of mandatory? You read HERA. Again. R requires very specific and narrow events to be triggered. It is not a free willing tool to be used at will, but of last resort. Can you respond to the question posed about incentive alignment? i.e. Making junior prefs whole is immaterial in the grand scheme of next steps, but wiping them out effectively puts a dagger through trump/mnuchin close supporters, friends, and funding for the next election cycle Not sure who you address this to but I will bite. Speaking of alignments, we should remember the name Robert Mercer. And I am not sure he cares for shareholders or the companies. And I would not put Mercer, Paulson and Berkowitz in the same league. You know who the big bad boy is. I believe TwoCities has a great point and glad to see the legal perspective here, Cherzeca/Merkhet.

Explain how Watt can call receivership when there are still 258 billion left in taxpayers backing. You meant forced R instead of mandatory? You read HERA. Again. R requires very specific and narrow events to be triggered. It is not a free willing tool to be used at will, but of last resort. I am not saying it cannot happen. But they will have to come up with a clever, nws-like argument. HERA, the law, establishes specific events that will trigger receivership and nowhere it states it can be used at will to clean up companies' balance sheet. But then, they have already shown how clever they are. Did it once, they can do it twice. Fuck them, thrice.

Explain how Watt can call receivership when there are still 258 billion left in taxpayers backing. You meant forced R instead of mandatory? You read HERA. Again. R requires very specific and narrow events to be triggered. It is not a free willing tool to be used at will, but of last resort.

Explain how Watt can call receivership when there are still 258 billion left in taxpayers backing. You meant forced R instead of mandatory?

We never speak about the market. Indexes have been rising relentlessly since September. I wonder how much longer we have to wait to see an end to the corporate profits rise. Markets will not wait till this happens. Will break down in anticipation. When this happens and all markets tank, including housing, what will be the fate of Fannie and Freddie and our fate? Are Treasury/Trump waiting to see a collapse to wrap up the whole thing into a receivership? Or are they waiting for a collapse to justify a forced recapitalization? The longer we all wait, the scarier it gets. I'd say we are pretty close to a peak in the markets with downside economic momentum in early 2018, as narrow money indicates. Besides the legal outcomes and the political issues we may soon have to consider the stock market as another variable affecting outcomes.

for message board and twitter vocalists aiming for the old system, implicit guarantee, they didn't need a bailout, etc--- it appears time to give up that ghost. an explicit paid for guarantee is the future, I believe. probably on the securities, possibly on the guarantors. utility model. I don't think its unrealistic to expect legislative action in 2018, understanding others like tim howard disagree. the House financial services committee having 3 of these in 3 weeks (another one next week) suggests to me that mnuchin - phillips instructed them to get up to speed on the matter. any thoughts on whether we can get a 4th amendment (which settles lawsuits) prior to legislative reform action / failure? a dta writedown + jump start expiration could be a catalyst in early 2018? The only saving grace to this story would be Mnuchin's belief -which he repeated in more than one ocassion- that reform is only possible after companies have been recapitalized. Does this translate into a 4th A that ends the lawsuits? dunno.

What is difficult is getting them out of conservatorship without rewarding evil speculators. Treasury does not want that no matter who the ocassional pencil pusher, Geithner, Lew, Mnuchin is. if we are talking about hedge funds buying assets cheap, then mnuchin is an evil speculator. this is precisely why i believe he will look at the issue without any of the anti-speculator bias that clearly prospered among nitwits like lew. I hope you are right, Chris. What I really meant is that once in government, you become government. Thus, Mnuchin is not really Mnuchin anymore. He may have morphed -and his views- into government and government views. Everyone goes in thinking they can change things. Then, deep state gets you.

What is difficult is getting them out of conservatorship without rewarding evil speculators. Treasury does not want that no matter who the ocassional pencil pusher, Geithner, Lew, Mnuchin is.

It is happening in his *multi-GSEs* head. Maybe if he repeats it a thousand time he will have the next Fed chair Powell believe it too and save Freddie from real competition. In the meantime, we are stuck in the mud with no clarity going forward.

Thank you, Luke. Adding to this... here is his speech on Fannie/Freddie/Housing from July 2017 https://www.federalreserve.gov/newsevents/speech/powell20170706a.htm Note his principles for reform are: 1. Mounds of private capital (although he refers to this as risk-transfers and multiple guarantors, not built-in capital). 2. Paid-for explicit guarantee to MBS, not institutions. 3. Break up the duopoly implicitly stating Congress should open up the charters to other institutions. 4. Restructure and repurpose parts of the existing architecture. 5. End the status quo by finding areas of bipartisan agreement. Overall, he is against "a government-dominated mortgage market with insufficient private capital to protect taxpayers, and insufficient competition to drive innovation." Basically, open up the system for competition, have a narrow, explicit government guarantee and restructure Fannie and Freddie into smaller guarantors. This would be in opposition to recapping and releasing, in opposition to fully re-capitalizing Fannie and Freddie and turning them into "ICBA" utilities but much closer to the original Jim Millstein plan.

I do not think preferred shares are debt. They are paid-in-capital and are part of stockholder's equity. Buying them back reduces capital. You return the money to the investor and terminate the dividend obligation. Not sure what happens with the difference when you return less than par pocketing a difference. You basically keep some of the money invested by the original investor but the possible addition of the excess to retained earnings may not compensate the loss of paid-in-capital in stockholder's equity.

repurchasing equity capital doesnt create equity or regulatory capital I think he is moving the 1/3 not being paid out to the capital structure in the balance sheet. Almost like a saving, as the Jrs. will disappear.

And... http://www.tennessean.com/story/news/2017/10/05/u-s-rep-marsha-blackburn-launches-senate-bid-bob-corker-seat/708717001/ Didn't she have a bill to recap the companies or stop the nws (supported by IU)?

Sure you can, the same way they were put in conservatorship in the first place. It only takes a fudge factor of a few billion to turn the equity portion of the balance sheet negative. A small DTA write-down (anticipating "adverse effects of tax reform") at the direction of FHFA would do it. As to your point about Watt's potential removal without cause, it isn't nearly the big deal you think it is. Mnuchin could have been refusing the NWS payments all along, and he really is removable by Trump at will. The conservatorship will not be in perpetuity. Trump will absolutely cash in on the warrants. When the ca-ching will be heard is another story. In the next few months, before his term is over in 2020 or in another 7 years if the unthinkable happens, he runs again and is re-elected. Your guess.

The current low volatility environment is scary. You all know the next thing coming is volatility with potentially big sell-offs. What event may trigger this nobody knows. Neither when. But when it happens healthcare may not be the only industry pushing us into a recession. Extremely low unemployment, rising rates and industry bottlenecks will also contribute to have corporate profits take a hit. In a downturn the nws will not add to neither benefit the government. Instead, it will become another burden. The logic of keeping it may then go up in flames. This is a case of 'know when to fold them'. Looking at the rear-view mirror the nws was awesome to Treasury in many ways. Going forward it is a question mark. KWTFT means cashing in the warrants.