Midas79

Mnuchin's tone flipped once the court rejected the appeal, so I think it's safe to say that he isn't exactly in our corner anymore. If he can accomplish what he prefers while screwing us is another matter. Mnuchin isn't pro-FnF shareholders, he's pro-Treasury. That's his job. I haven't seen anything from him to indicate that he wants to specifically help or screw FnF shareholders. Given that some people included Mnuchin's relationships with shareholders as a positive in the investment thesis, I would give Mnuchin some credit for showing integrity in his job and not overtly favoring them. I still don't think Mnuchin will go out of his way to screw shareholders. To me, he has been consistent that FnF need to continue to exist because they provide necessary liquidity and would, as private shareholder-owned companies, also provide private capital as a buffer to taxpayer support in the event of crisis. But neither is he going to cut a deal that hands shareholders a huge windfall profit for no reason.

Not that I would expect this from Mnuchin, but this would have been a great chance to expose Corker's "public losses, private gains" spiel for the lie that it is. Private shareholders got crushed in 2008 and the public has made a handsome profit on the "bailout." The numbers don't lie.

I think this is apples and oranges. A SIFI that went under would presumably be fully privately owned at the time, so shareholders would justifiably be wiped out. This is probably what should have happened with FnF to begin with. Allowing shares to trade and still be outstanding has caused the government no end of headaches. I don't think FnF can qualify to be SIFIs while under government control (how much more government oversight could they impose?), and if they were to be released they would not be on the brink of bankruptcy. I took the question to be more about Mnuchin's stated aversion to bailouts and desire to have private capital take the brunt of any crisis. This is what Mnuchin was agreeing with.

https://www.treasury.gov/press-center/press-releases/Pages/sm0089.aspx Mnuchin's prepared statement. Effectively nothing about the GSEs: they're mentioned but nothing new.

I agree with the first part. I just think there are plausible scenarios where the junior prefs come out good and the commons come out way better. This is the basis of my "higher upside" opinion.

I think this is the operative phrase. Both are very risky, so calling one more risky than the other isn't necessarily saying much. For me, I am in mostly preferreds to align myself with the big money, i.e. those who have brought and paid for the big lawsuits. Though following Berkowitz on SHLD would have been a disaster... My position in commons is because I see a relatively small probability of junior prefs winning and commons losing, and that the upside is a good bit higher.

75/25 pref/common for me, have been in the 90/10 to 60/40 range depending on relative strength and weakness of the prefs and commons but usually where I am now. 100% of my individual brokerage and self-directed retirement accounts, but that's only ~10% of net worth.

i suspect that watt has precleared everything with mnuchin. and indeed watt is carrying mnuchin's water at this stage, laying foundation for an administrative solution if congress doesnt act in a suitable fashion The bolded part has to be correct. Watt has shown no willingness to act on his own (i.e. without direction or support from Treasury) in the past. I'm just surprised this is happening so soon. What happened to all the "Mnuchin won't tip his hand yet" talk?

You shouldn't be surprised at how the left/right split breaks down. Democrats want FnF recapped and released to continue their affordable housing mandate. Republicans (especially the libertarians) want the government charter and mandate rescinded. Efforts to kill FnF have mostly come from the right. Hmm... That's strange. Didn't the board members say if Hillary got elected, the FnF stocks would be trading at a fraction of today's price? Yes, but that's more of a function of who Hillary would have put in charge. Instead of Mnuchin and Mulvaney we would have "fellow travelers" Jim Parrott and Gene Sperling, for example. And I spoke too broadly about the Democrats' motives. There are certainly some (e.g. Warner) that want FnF dead. But by and large that party supports government-mandated affordable housing.

You shouldn't be surprised at how the left/right split breaks down. Democrats want FnF recapped and released to continue their affordable housing mandate. Republicans (especially the libertarians) want the government charter and mandate rescinded. Efforts to kill FnF have mostly come from the right.

Mnuchin has mentioned the Treasury's line of credit to Fannie and Freddie several times recently. Some appear to interpret this as Mnuchin thinking the GSEs owe their existence to the government or some other negative. But I see this as just more reiteration that since the line of credit exists and FnF have close to zero capital, they are in constant danger of needing another bailout. Mnuchin wants to end this line of credit as it is a source of risk to taxpayers.

The prospect of Congress getting involved actually scares me. That's where the players are who want to screw shareholders.

would you please explain the underlined portion of your post? (snipped quote for readability) This is directly stated in the SPSPA. https://www.treasury.gov/press-center/press-releases/Documents/seniorpreferredstockpurchaseagreementfnm1.pdf Section 3.1(a), top of page 6.

I watched the clip, and I didn't hear Mnuchin say the word "legislation." Not only can he not affect that personally, I think getting Congress involved is worse for shareholders than the administration doing whatever they can.

For all the focus on the judicial and executive branches, the legislative branch also has the potential to blindside us. Nothing has been done on that front in almost 9 years, but that's no guarantee that we won't see shady political maneuverings (led by Crapo, Corker etc.) to pull the rug from under the administration if they think that Mnuchin will act without them. This could lead to an interesting, if heart attack-inducing for investors, race between Congress and Mnuchin to get something done before the other does. Congress moves much more slowly but its actions are far more powerful. We need to root for legislative gridlock. We also must continue to hope that Mnuchin's relative silence on the issue is cover for introducing a sweeping (ha!) solution all at once.

This could be a huge negative in disguise. If Treasury (or Congress) insists that the senior preferreds are still outstanding in their full amount (i.e. no reduction in principal even after all dividend payments) then it's possible there is only a tiny percentage of the capital structure left for current shareholders. I don't see this as likely, but it's one possible interpretation.

I've seen you make this point before. I see the logic behind it, but as you said Congress has had almost 5 years since the NWS to pass a bill. Why does Mnuchin personally need to give them even more time? Is there that much of a difference between 5 and 6 years? I don't see much of a difference between Mnuchin waiting until 2018 to take action and say "you asked me to wait but you're not actually getting anything done" and doing it sooner. In fact, sooner has more justification to avoid the companies hitting zero capital in 9 months. Edit: I get the feeling this has been addressed before. I've read the last 400 pages of posts at one time or another but I don't remember all of them. I'm thinking the answer to my question is "politics" and I don't understand that realm very well.

I think the author's point is that this reserve doesn't immediately count towards earnings and so the NWS won't take it away until it is released. If the NWS is stopped, this reserve could even count towards a recap.

that's how i read it too merkhet. i didnt realize that. so if junior pref exchanges for common, for example, the number of govt warrants increases. i agree that govt warrants and common are not parri passu. i have never seen this for a public company. this also makes it impossible to issue more common stock, imo. who wants to pay up for a share of common stock knowing that he is also funding a free .8 share warrant for govt? so if there is to be a recap, this provision has to change, because there is no recap. taking it one step further, no junior pref holder would exchange for common for the same reason, which govt may want to do, so this provision (if used by treasury) makes any kind of workout that restores equity value unworkable. I agree. As a preferred shareholder that can't forcibly be converted to common, I first need to know if and under what terms the warrants will be exercised before I accept any offer. Changing the language to a fixed number of shares would be a great first step. If the strike price also gets changed I would know both that Treasury intends to exercise the warrants and how much capital would be injected into the GSEs.

Not sure how to embed tweets, but I saw a good one in response to Mnuchin's GSE comments on Fox Business this morning: To me that's just more reinforcement that Mnuchin has taken a wind-down off the table. I wonder if we'll see pages like this one: (headline: Treasury Department Announces Further Steps to Expedite Wind Down of Fannie Mae and Freddie Mac) https://www.treasury.gov/press-center/press-releases/Pages/tg1684.aspx disappear from the Treasury website or get buried? If so I think it will be a telling sign.

if reheard en banc, the merits panel decision is voided Who all would have to agree to an en banc hearing? It seems unlikely to me but it's worth getting a read on the players involved.

That would be one hell of a way to force a wind-down: pull all commitments and leave a capital buffer of zero. Nearly guaranteed insolvency at some point. What I'm hanging my hat on now is Mnuchin's language about getting the GSEs out of government control safely. To me that takes a wind-down off the table completely. But it's hard to maintain that faith now that the plaintiffs have a much-diminished bargaining position and one path to victory appears to be closed off. On the plus side, the preferred-to-common price ratio actually hasn't changed much so swapping from commons into preferreds isn't much more expensive than it was yesterday. I saw today's ruling as much more harmful to common shareholders.

millett wrote the opinion i thought she would write, and so did borwn. i am shocked that ginsburg joined millett. now, we are on mnuchin watch. Anything regarding an administrative record or is that not even in there? Anything in this that leads you to believe Lambert changes his mind or is this basically a weak take a second look? The only mention I saw of an administrative record was in this footnote on page 33: It appears to me that the administrative record doesn't matter to Ginsburg or Millett either. Bad news in that case. It's hard to tell what Lamberth will do, but I can't place much faith in a reversal because he seems to read the law at least as narrowly as Ginsburg and Millett.

Just curious: have you always thought this or only after Trump was elected? For me it's the latter. If Clinton was elected I would have seen the courts as the only path to victory. Imagine this ruling under a Clinton administration. I think I'd have to bail at a substantial loss; the commons would be under $1 and FNMAS would be sub $3.

I'm surprised to see the preferreds dropping so much. The contract claims were upheld. I guess the writing on the wall is that waiting for a courts-only solution will take much more time than originally thought. The commons, on the other hand, are getting slaughtered for good reason. The courts hold no succor for them. About the only cards that the plaintiffs hold are the outstanding contractual claims that the court remanded and a possible Supreme Court appeal.