waynepolsonAtoZ

Treasury is already getting 10 basis points, used it to fund an extension of unemployment benefits or some such. That lasts probably another 15 years or so. They must want to get more. The interesting thing to me is that the SPSPAs are a more or less explicit backstop to FnF, although it's explicitly not a "guarantee." Is the "explicit backstop" they are talking about something that would begin after the SPSPAs expire in 2028?

Point taken. I need to do an amortization schedule. Well, that's why I asked for comments--I knew I was missing something. Thanks!!!

I'd love to see the calculations behind the Jacobs Hindes numbers. Here are my calculations. I've updated the spreadsheet I posted yesterday. For Freddie, cumulative draws have been $71.336 b. Last draw was 2nd Q2012. Actual cum. dividends are $108.158 b so dividends have exceeded draws by $36.822 b. However, the original deal doesn't allow repayment of principal. So, "what if" the 10% had continued in place. That's an easy calculation to make because draws haven't occurred. So you just continue the $1.808 d payment each quarter. In this "what if," dividends of $56.298 billion would have been paid instead of the $108.158 b. The difference between $108.158 b and $56.298 would then be viewed as repayment of principal. That amount is $51.860 b. Easy as pie. Problem. Draws are $71.336 b so $19.476 hasn't been repaid in this case. Fannie has the same problem. FnF_Draws_and_SPDividends_v_2.1.xlsx

"@cherzeca, others, can you post a good source for how much is outstanding to Tsy by Fannie?" I haven't updated this recently, but I thought I would post my draws and senior preferred dividends spreadsheet. What I did was I pulled the draws and dividends into a spreadsheet. I might try to update this over the weekend, not sure. Then, I calculated dividends AS IF the 10% dividend had been paid. As there have been no draws since 2012 or so this was an easy calculation to make. Just reverting back as if 8/17/2012 hadn't happened. Next, I calculated dividends AS IF the dividend rate had been 5% not 10%. Again, pretty easy calculation. This was the approach that Rep. Capuano set forth in his bill. The data is from the FHFA so should be right. https://www.fhfa.gov/DataTools/Downloads/Documents/Market-Data/Table_1.pdf https://www.fhfa.gov/DataTools/Downloads/Documents/Market-Data/Table_2.pdf FnF_Draws_and_SPDividends.xlsx

To me, Richard Epstein is bringing up the Alexander Hamilton point, i.e., "speculators" should be treated the same as the original holders vis-a-vis the Federal government paying off the obligations of the states to fund the Revolutionary War.

Giving up the NWS would be a problem re the debt ceiling issue. Hope for the best though.

There is also the pending debt crisis. Can the Rs plausibly take away the NWS from Tsy?https://newrepublic.com/article/143144/debt-limit-nightmares-coming-true The theory was that the Trump error would be good for GSE equity investors. LOL.

[i am just trying to rationalize mnuchin going from a (seemingly) gung ho quick (administrative) solution early on to a more deferential posture now.... if mnuchin and watt want to go with an administrative reform, the blueprint is ready to be adopted and executed.] I realize it's your job to advocate for the Moelis plan, but I have to admit I'm a little bit skeptical. Moelis is slow to deal with relisting and dividend restoration, probably to be palatable to the "optics." Delisting caused banks and traditional fiduciary investors to exit FnF investments, leaving hedge funds to invest in the GSEs. The "beltway boys" use this as a way to try to disenfranchise GSE equity investors from participating in the GSE reform process. Waiting on dividend restoration makes achieving the Moelis price targets a bit difficult. Corker and the rest of the beltway boys have done everything to keep the GSE equity investors out of the process. There are encouraging signs with respect to Watt. With Mnuchin, it's a lot more ambiguous.

The ICBA was key to getting Dodd Frank passed. https://www.washingtonpost.com/business/economy/act-of-congress-how-barney-frank-foiled-the-banking-lobby-to-form-a-new-financial-watchdog/2013/05/05/94d93ed2-b0eb-11e2-9a98-4be1688d7d84_story.html Not sure what role ICBA will play in 2017 though.

"Under the proposed solution, preferreds and common have a similar upside." I agree, but the preferreds are a simpler play. With the commons you have to worry more about the "end game" and all the things that could go wrong. Based on what the real Tim Howard said a few months ago it seems like this plan might provide "too much" equity, which would require higher gfees. The higher gfees might be hard to get FHFA to agree to, plus if gfees were raised then FnF might become unattractive relative to FHA and lose market share. I have enough stress in my body without having to deal with all that stuff too much.

"Why would hedge funds be interested in conversion?" I would think that would be for the ones that have huge blocks of preferreds. It builds in a transition mechanism for them--just in case they decide they want to switch.

"So a lot of dilution, but not down to 2-3%." OK, I get it. Thanks!

"the one you have about Goldman Sachs." The counterargument (which is pretty plausible) is that GS and so on are basically IBanks and should be able to see the opportunities that recap can provide, i.e., pretty big fees. I don't know what the IBanks got out of AIG and the other ones, but they probably did pretty well. As a quid pro quo GS might want "open access" to use the FnF securitization infrastructure to do private label stuff. That could be ok with FnF if they got paid adequately for doing so.

Does anyone understand the numbers in Figure 16? I guess Tsy exercises warrants and sell them for $75 b with the proceeds going to Tsy. Tsy ends of selling all of its warrants for $75 b. So new has 80%, existing has 20%. Some junior preferreds convert preferred stock to common. This dilutes existing commoners further. Say, commoners to maybe 15%, just a guess. Then new issues of common stock occur. This raises about $80 billion. I haven't done the calculations but I would think that this brings down existing commoners to 2% or 4% of the combined firm. Just a rough guess. This what I always thought would happen and why I've avoided the commons. There would be horrendous earnings dilutions for existing commoners. I guess it all depends on what the new commons are sold at. If sold for little, the dilution of existing common would be much worse.

Mike Allen, John Paulson https://www.axios.com/first-look-john-paulsons-blueprint-for-reforming-fannie-freddie-2428957928.html First look: John Paulson, a hedge-fund billionaire famous for his lucrative short of the U.S. subprime mortgage market ("The Greatest Trade Ever"), recently talked exclusively to me from New York as he promoted a blueprint published Thursday, providing a reform prescription for Fannie Mae and Freddie Mac. Paulson is a big investor in the two mortgage finance giants — also called government-sponsored enterprises, or GSEs. The paper, "Restoring Safety and Soundness to the GSEs," is available here. It was written by Moelis & Company, as financial adviser to some Fannie and Freddie stockholders, including Paulson & Co. and Blackstone GSO Capital Partners. An announcement teleconference and webinar was scheduled for Thursday. A quick scan: Among the key elements: "Protects Taxpayers from Future Bailouts ... Promotes Home Ownership and Preserves the 30-Year Mortgage ... Repays the Government in Full ... Produces ... Profits for Taxpayers." Paulson, on the proposal: It "returns Fannie and Freddie to the private sector. ... t's very important now for the government to exit its stake in Fannie and Freddie." Paulson, on his role: "We've been involved in almost every major financial restructuring in the U.S. ... [W]hat was important is that once the financial institution was stabilized, there was an opportunity for the government to exit and to [be replaced] by private capital." What critics say: The plan doesn't adequately grapple with a key issue in GSE reform: public risk but private gain. Backers responded that it "protects the taxpayer." Paulson, who supported President Trump's campaign: "[H]e's doing well on a path to achieve [pro-growth and pro-business] objectives. But, obviously, the political environment is, you know, very — let's call it 'emotional.'" His book recommendations: "Washington: A Life" and "Alexander Hamilton," both by Ron Chernow.

"beyond this, i dont know what utility regulation does for anybody." One possible relevant way to characterize the "regulatory bargain" for utilities is that it is a balancing act between the "public interest" and "treating investors fairly." Thus, in a simplistic way the "public interest" might be to keep utility rates as low as possible. However, a utility will not be able to raise capital at the lowest possible costs in good times and bad if investors aren't treated fairly. Another way to say this is that utility must include the recovery of capital costs in the rates paid by customers. So, the embedded cost of debt and the forward-looking cost of common equity is an important part of utility rate cases. This is relevant to the GSE recapitalization. The public interest will be to maximize the value of the warrants and common stock to the extent that is consistent with the public interest. To induce new investors to provide new book equity capital, existing GSE investors will need to be treated fairly.

"Regulatory sense" needs to make market sense. I just think this isn't the way to maximize the value of the warrants, the value of which, when sold, go to Treasury and--ultimately--to taxpayers. Fool me once shame on you, fool me twice shame on me. I realize that Blueprint is trying to accommodate "politics," which is fine, I don't blame them. It just makes their assumptions about the value of the warrants in the market way optimistic.

Couple things Blueprint didn't do. 1. Relisting. I'd do it ASAP. Hedge fund ownership is an excuse to complain about "windfalls," but delisting drove conventional institutional investors. 2. Dividends. I have trouble seeing how they can attract new equity capital if they don't restore dividends right away on both common and preferreds. I realize they delay this for "optics" and to treat common, preferreds, and Senior Preferred Stock symmetrically. At the very least they could have announced a target dividend payout ratio for the common equity.

Wayne Paul Olson. I do get junk mail for someone named Polson though.

It's gratifying-- and fun-- to read a plan like the "Blueprint," which complies with nearly everything that I laid out in my five most recent Seeking Alpha articles on FnF. Skeptics might say "just a coincidence." Fair enough. Maybe it's just that great minds think alike.

"Further, the Blueprint maintains a strong independent regulator, the FHFA, and grants them the continued oversight of guarantee fees." LOL. They might have said instead that the HERA of 2008 grants them the continued oversight of guarantee fees and that the "Blueprint" wouldn't alter HERA in any way shape or form.

"hedge fund ownership is an issue for pols when the little red light is on." FHFA forced FnF stocks off the NYSE. FnF are huge firms with many millions of shares outstanding. They moved to OTC BB. OTC is an over the counter market and relatively illiquid compared to the NYSE. Banks more-or-less had to sell. Hedge funds took their place. And then they complain about the hedge funds owning FnF stocks. LOL. IMHO.

Gator has the preferreds is his "hedge" fund (longs and shorts). Not in any of his more successful funds. He does disclose them though (at least he did last time I looked).

Fun article, zany. https://rockytoppolitics.com/2017/05/17/meet-the-new-never-trumper/ :-\

I think this makes a decent (encouraging) point. "“Even if Secretary Mnuchin doesn’t appear warm to the idea but does have a statement ready, then it could indicate Treasury is open to considering new directions to jump start GSE reform,” stated Jim Vogel, Interest Rate Strategies Group executive president and manager. “It seems too early to dismiss Watt’s idea this spring, so a firm ‘no’ presents a different story,” Vogel continued." http://www.housingwire.com/articles/40147-treasury-secretary-mnuchin-to-address-senate-banking-committee-on-gse-reform