Wiggins

Chris what are you referring to, exactly? Vartanian? all of the briefing. my reference to vartaninan was just to point out how HERA was identical to predecessor statutes I did read all the briefing as it came out and listened to the oral argument. So you shouldn't assume that I didn't read it and that my opinion was a "guess". In so doing, you missed my point which was distinct from your own. The point I made was most eloquently stated by Willett in his dissent, and I think it's a valid, completely separate point from yours (and Vartanian's) and a good counter to the issue WB brought up.

Chris what are you referring to, exactly? Vartanian?

my argument is my opinion but it's not just that.. it's an argument made by David Thompson in a previous oral argument, I think in the original DC circuit case. This argument has been made probably since then. If you're referencing something specific in the current brief, amicus (which one), or replies, etc, then why not reference it directly rather than the snipe, which isn't helpful?

I'm not a lawyer but I'm going to take a stab at this. the exact text is: " (J) INCIDENTAL POWERS.—The Agency may, as conservator or receiver— ‘‘(i) exercise all powers and authorities specifically granted to conservators or receivers, respectively, under this section, and such incidental powers as shall be necessary to carry out such powers; and ‘‘(ii) take any action authorized by this section, which the Agency determines is in the best interests of the regulated entity or the Agency. " Note that it can only take an action in the agency's "best interests" that is "authorized by this section" [emphasis added]. The NWS is not authorized for ANY conservator, thus it is not authorized by this section and cannot be done despite the fact that it's in the interest of the Agency (FHFA). So, no dice. Great challenge though and for all I know the judges will see it the wrong way (I don't think so)

how do you think collins is decided? 1) remand (win) on APA and no backwards relief on constitutional 2) immediate relief on constitutional 3) loss on both then I would think about 80% of par (+-), less a 1-2 year discount at your preferred time value of money I thought the question is what are they worth on January 21 with SCOTUS still up in the air and no administrative action. I would guess about 25% of par. no my answer is directed to what are they "worth", not what they will be priced at by market Yes I am wondering about both... immediate valuation drop and subsequent eventual value, with the latter being far more important of course. Thanks for the thoughts. In my humble opinion I'm staying in for the long term for the reasons and opinions already stated. I do worry the Fannie Gate crowd is setting up for failure by expecting action by Jan 20th, thus when it doesn't happen there will be a huge selloff, but whatevs... Good luck and Merry Christmas (and Chanukah and Kwanzaa)

how do you think collins is decided? ranked most to least likely 1) remand (win) on APA and no backwards relief on constitutional 2) immediate relief on constitutional 3) loss on both

If January 21st rolls around and absolutely nothing more has happened, then what are the JPS worth?

Thanks for posting this. I find it noteworthy that MBA is advocating for raising the cap on retained earnings which is a stark about-face from their previous stance. Their previous stance was to NOT allow retained earnings as this would take away the incentive for Congress to act. I also find it noteworthy that Forbes, AEI, and other GSE enemies have issued recent opinions stating the GSEs should be released (or rather, that efforts in that direction be carried out). This is all incredibly bullish. I also think SCOTUS will award a win to investors on the APA claim, if it gets that far of course.

Biden chief of staff a former Fannie lobbyist: https://www.aei.org/op-eds/like-fannie-mae-and-asbestos-youll-love-joe-bidens-revolving-door-chief-of-staff-ron-klain/

By taking them? Why would the Dems reverse themselves and set the twins free? Lawsuits They can't nationalize them (or their securitization functions) which was the plan hatched under Obama due to the lawsuits, so the second best option for Dems is to release them. The third option, preferred by the far right, is to destroy them via onerous regulation (i.e. Calabria's plan). Dems are less likely to choose this than Rs.

@james22 @onyx1 Given that Timothy Howard, the foremost economic expert of the twins writes this of Calabria: "he is no friend of the companies, and that his price for releasing them from conservatorship is to burden them with capital requirements that will severely constrain their competitiveness, and also to smother them with intrusive regulation. This posture would have a major, and perhaps crippling, negative effect on the companies, even after they are released.", then how do you expect anyone to invest capital to get them out of conservatorship? For those of you still believing in Mnuchin and Calabria, how do you square this? If your answer is that he will get the job done by somehow tweaking the proposed capital rule further by doing an about-face, perhaps after listening to JPM and MS, then that strikes me as more unlikely than thinking Biden would want them released. To me Calabria has potentially done more damage than the NWS, because the NWS can be reversed by the stroke of a justice's pen, whereas the capital rule once finalized will literally take an act of Congress to undo (confirm a new director under the Senate, propose a new capital rule, get buy-in from stakeholders, finalize, etc). Here's another thought: what if the lame duck session only accomplishes finalizing the capital rule, but does not write down the SPS liquidation preference? Then the administration will have accomplished MORE damage to the GSEs in the lame duck session. That's a distinct possibility, and in my view more likely than a SPS write-down. I now see Mnuchin's and Calabria's views as extensions of the Hank Paulson era. Remember HERA and FHFA were created to severely gimp the GSEs at the expense of existing shareholders. That's a fact. Mnuchin and Calabria have furthered that perfectly by 1) issuing this ridiculous capital rule and 2) failing to write down the SPS liquidation preference. Sure they've retained some capital, but they didn't have a good alternative and were otherwise forced by lawsuits. I had some hope in 2016 at the beginning of Trump's presidency like a lot of others. And to suggest that the DOJ in these lawsuits has not been controllable by the Trump administration, who fires administrators left and right on a weekly/hourly basis, is equally absurd. If you want to outsmart your enemies, a great way to do it is let them believe you're their friend. Keep them guessing. That's what Mnuchin has done to GSE shareholders, in my humble opinion. Calabria has been straight-up; he is an enemy of the GSEs, even more recently stating they have among the worst corporate cultures he's ever seen. The Dems have historically supported the twins missions, whereas Rs have not, hence the belief they may be better after a SCOTUS win. (edit: @COBFinfinity re: "I would gladly accept a deal between Mnuchin and Calabria to write off the senior preferred and settle the lawsuits". Sure, I would too. But that's just hope. And yes, Calabria's plan can be described as a hoax... it's absurd)

@COBFinity re "So your view is that everything Calabria has said and done has been a headfake?" Not at all. I was referring to the capital rule perfidy and I am agreeing with what Tim Howard and what other commenters (to the capital rule) have said that it's really not workable. So that is the lie; perhaps a better term would be Calabria is being an ideologue. I really agree with everything SnarkyPuppy wrote above and honestly I agree with most commenters here. I just don't have faith in the current administration to execute. I DO believe, as I have said before, that the current administration has taken receivership off the table which is hugely helpful. But I am not sure they would have done anything without the lawsuits hanging over their heads. I see the lawsuits as impetus to administrative action, and I see the Dems as having their hands tied by the lawsuits. Ergo, how much does it really matter whether it's a D or R administration at this point? Remember Berkowitz and other plaintiffs started lawsuits during Obama's administration, so they thought they could win under an adverse administration.

In my humble opinion, the major mistake made by a lot of GSE investors here and elsewhere is the failure to realize the continuity between the Democratic and Republican administrations toward GSE policy. Remember both parties are bankrolled by the same paymasters, which includes the large banks. Both parties have inexorably held to the demonstrably false view that the GSEs failed and/or caused the financial crisis. When I started commenting here in 2016 I was focused on the lawsuits while most others were focused on the politics of the administration. So far, those banking on the latter have been disappointed, while those depending on the former have been pleased. This administration has a few months left; we shall see. Banking on politics is akin to emotional investing. The rule of law is far sturdier ground.

This likely reflects Mr. Tim Howard's political views. Also IMO his primary objective is advancing FnF's homeownership mission over the shareholder / NWS issues. I think the cat bird seat would be PSPA, settlement, consent decree and eventual lower cap requirements for investors. Once converted to common preferred holders can pine for lower cap requirements. Why would they wait for after the election to do reform if they were not going to anyway? Why not extend the comment period if they were not going to do anything in the lame duck period? Why pre announce another amendment to the PSPA if they were not going to do anything? Why mention consent decree if they were not going to do anything? Why is it reported there has long been agreements on parts of the PSPA for months? Why put out a Treasury Plan if they were going to do nothing. Why does Calabria say he has to follow the law if they were going to do nothing? I would have to have good answers to the above before I would believe they would do nothing. More questions that would need good answers: Why would UST Reform Plan label ending the conservatorship timeline "as promptly as practicable"? Why would MC say on September 14, 2020, there is an "Urgent need to build capital at the enterprises and advance housing reform". @orthopa @onyx I sincerely hope you guys are correct but I don't invest on hope. The capital plan was a big lie, and that big lie was endorsed by FSOC (Mnuchin). You honestly think they're too stupid to realize the GSEs are not banks? Further, Calabria and Mnuchin have both gone on to say the GSEs "failed." That was a lie also. Further, Mnuchin said in 2016 they will get the GSEs out of Government control "relatively soon." How many more times does the boy need to cry wolf? These are demonstrably verifiable falsehoods, and Tim Howard has cut them to shreds (i.e. bank-like capital, the "failure" of the GSEs). So with all that as history, you think they're telling the truth about ending the conservatorship soon and in a chaotic lame duck session? That's a heavy lift. You may be correct, but...

I don't know who MTH is, but he/she is counting on SCOTUS a lot more than I am. I would much rather have a decent settlement now than shoot for the moon with SCOTUS and risk coming away with nothing. Tim Howard. I am focusing on what I see as most likely, which is that the lame duck session doesn't accomplish anything significant. I don't know that for sure so I could be wrong. But the administration can't even decide they're in a lame duck session yet. It's chaos. Unlike most folks here I have no faith in Mnuchin. My point is not what Tim Howard's preference is, it's that he sees this as a good thing, and so should we.

On Nov 9th Tim Howard wrote: "As one who for the last dozen years has worked to have Fannie and Freddie released from conservatorship in a way that maximizes their value to both homeowners and shareholders (existing as well as new), if you were ask me to choose between a quick settlement of the lawsuits and a release of the companies under a consent decree with terms set by Calabria–and Calabria remaining FHFA director for the next four years–and the invalidation of the net worth sweep by the Supreme Court next spring and the potential for their release under a new FHFA director appointed by Biden, I would unhesitatingly pick the latter. I believe that once the net worth sweep is reversed, the rationale for keeping Fannie and Freddie in conservatorship evaporates, irrespective of who is president. But I also believe that Biden will WANT them released–and functioning effectively–as a matter of public policy (and will do my best to try to convince the Biden economic team of the wisdom of doing that.) This squares with the same point I wrote on October 2: "And a Biden win could see a return to capital requirements that are more realistic. Reduced capital requirements under a GSE-friendly Democratic administration coupled with a SCOTUS win for investors is the catbird seat for holders of preferred." It looks quite good at this point. I doubt there will be much action from the lame duck administration, but there should be a steady upwards march from here.

A big argument against Treasury amending the SPSPA in a lame duck session is that Mnooch already missed the best window for doing that, so why would he speed it up now? The delay is intentional as is the continued risible defense of the NWS. He and Calabria have both made it clear they want to hamstring the business of the GSEs (e.g., bank-like capital, reduce their footprint, level the playing field, etc). They're bank locusts. By the way, the capital rule looks like it was taken straight out of the playbook of FM Watch, as it's exactly what they called for. (It wasn't, but it may as well be) As for rewarding shareholders such as Paulson who bankrolled Trump's win, that's already been done by retention of capital which took receivership off the table. It hasn't been fully realized but the die is cast. Further headway for shareholders looks to be SCOTUS-driven. And this is essential because only a SCOTUS win can assure future investors they will be protected. A consent decree is not enough. ACG puts the odds of a favorable SCOTUS outcome at 90%. And a Biden win could see a return to capital requirements that are more realistic. Reduced capital requirements under a GSE-friendly Democratic administration coupled with a SCOTUS win for investors is the catbird seat for holders of preferred. It will take a bit more time. I predict there will be some downside around the election caused by a Trump loss, followed by pretty massive buying pressure immediately thereafter. SCOTUS oral argument is going to push the prices higher and they'll be back up to 50% by January.

Question for cherzeca or anyone else that has an opinion about this: Is Seila law LLC vs CFPB the fulcrum lawsuit in this whole saga? That is, do you see a favorable ruling there as sending a signal to Mnuchin et al. that the government will ultimately lose and they must implement the recap plan in a manner more favorable to shareholders? And otherwise that an unfavorable ruling there could cause further delay and/or greatly reduce shareholder recovery? It has always been my opinion that the administration wants to recap the GSEs, and the main question is what legacy shareholders will get. That question is driven by lawsuits and is worth $30 billion (or more). JPM, MS, and new investors will make bank in a recap regardless of what legacy shareholders get. I also think that the default position is to screw anyone and everyone including legacy investors; that's just the way the world works. And yes, I know Paulson & co supported Trump, but still. As an aside, I think it's a mistake for people to continue to opine what Trump's strategy is. He's little more than a useful idiot, and his time may have come. The ruling class will rule regardless of whether Trump is in office. The bright side of this view is that when/if Trump is shown the door, the current trajectory will likely continue.

If the same person is buying all of these large blocks and buying them from various sellers, then someone is accumulating. If one person is selling all of these large blocks to various buyers, then someone is liquidating. I'm not sure how you would be able to tell the difference by looking at the charts. It's also possible it's some combination of the two.

FnF's capital has nothing to do with the market price of the commons. There is also no guarantee of any price appreciation after said events, let alone enough to get the price above $4 for 30 days to re-list. For all the good news FnF shareholders got in the last 16 months, the price is around 40% lower than it was at the end of January 2019. A reverse split is the only realistic way to get an over-$4 share price to stick, and I fully expect it to happen later this year. Somewhere between 1:10 and 1:20 is my guess for now. Moelis 2.0 is completely unrealistic anyway. Why would junior pref shareholders sign up for a plan that involves them converting at a re-IPO price in the teens (a far worse ratio than they could get right now in the open market), and giving existing common holders a much greater return than the junior prefs themselves? OK, thanks for correcting me nicely. Stupidly confusing market cap with capital, to say the least.

The $19B of junior par value is already included in the $14B. That is, everything else that contributes to the $14B adds up to a combined negative $5B. Also, the refund from Treasury could come in the form of a tax credit. In that case, I believe that Fannie (and Freddie too, of course) would only add their tax savings to capital as they occur. It could very well take 5-6 years to earn all of that refund. The upshot is that if a capital raise is needed to hit a particular number then the full amount of the refund won't count, only the taxes they would have paid. At best I can see Fannie getting $2.5B of it back per year, and that would be on earnings of around $13B. Also, I think Fannie will make more than $6B this year ($10B imo) but for now I'll use your number. If the capital raise happens a year from now, adjusting your numbers for these things leaves a gap of $56B: your $27B plus the $19B of prefs and $10B of unearned tax credits. Another thing to keep in mind is that $81B is Fannie's risk-based capital requirement. For some reason I can't explain, Calabria decided on a minimum capital standard (he calls it the Leverage Capital Requirement) that's higher than the risk-based one: $89B. Now the gap is $64B if that's the milestone. Similar calculations give a gap of $42B between Freddie's current core capital (once the seniors are dealt with) and their minimum capital requirement of $63B: Freddie has $9B of current equity, $7B of earnings between now and the capital raise, and $5B of earned tax credits. So I'm getting core capital shortfalls of $64B for Fannie and $42B for Freddie, or $106B combined. This would have to be the size of the capital raise if it occurs a year from now and is designed to hit the minimum capital standard. Treasury returning the overpayments in cash instead of tax credits would lower each company's numbers by $10B, for a total capital raise size of $86B. Quick question: are you factoring in price appreciation of common after cancellation of SPS and re-list to NYSE? Moelis had commons in the range of $14-$17 after warrants and JPS conversion dilution. That adds a lot of Tier 1 capital over the current price of ~$2.20.

@Midas Yes I had seen your post about the Citi exchange and thanks for reposting the link to that. It was really an outstanding bit of research on your part. It was good to re-read. I will continue to monitor the commons. I went back and looked and noticed that in December 2018 the FNMAS:FNMA ratio was 7. It's now at 4.5

@Midas re: "why didn't you do the same thing at the end of 2019 as you did in 2018?" The conditions were different. In 2018 the securities had gone down a lot over the year, so there was selling pressure for tax-loss harvesting. Additionally, the commons were really, really low (too much, IMO). One or both went below $1. In 2019 they didn't really lose value over the whole year, so there were likely few losses to be booked by most people. And I don't think there's a lot of selling pressure otherwise because people are waiting for recap or a ruling catalyst, so they're staying in. I should make a distinction between this strategy and the one discussed in Graham's book. In The Intelligent Investor it talks about a strategy to buy stocks in December and sell them in January, regardless of any other factors. There were a few years where people made money but soon a lot of people caught on and overall the practice is roundly discredited. What I am talking about is integrating multiple other factors into the tax-balancing strategy that many people do at year's end already; it's really a distinct strategy. The securities have to be down a lot so that many people are likely wanting to harvest the losses (hence the selling pressure), AND the thesis has to be solid so that folks will get back in them in the new year (buying pressure). All those factors were solidly present in late 2018 for the commons to my thinking. As far as rotating between preferred and common according to a ratio like you're talking about, I guess I do that a little bit and the late 2018 was part of that (some of the funds I rolled into commons came from preferreds, while some other funds came from gains I was forced to book). But I don't employ it as a general strategy because I have no great predicting strategy for it and it seems rather arbitrary and random. Plus, the spreads on preferreds make it difficult. Speaking of spreads, if you were patient you possibly could make money off of buying and selling the preferreds and working the spreads, but I have neither patience nor time for that personally, even if I could make it work which I doubt I could. Lastly, I am worried for the commons that there could be a sudden announcement for conversion of preferreds into common, and it'd be unfortunate if you weren't holding preferreds at that time. Are you worried about that? And isn't that what happened with Citi?

I wish you guys and gals flipping this stuff the best of luck, but since there's a double -> triple at risk from any number of sources I just won't play that game. @Covid Both the common AND the preferred shares in GSEs are speculative investments. In fact, according to "The Intelligent Investor" virtually all stocks are speculative. Everyone's risk tolerance is different. I try not to waste everyone's time by posting all of my personal preferences and risk tolerances unless specifically asked.

https://taibbi.substack.com/p/the-bailout-miscalculation-that-could?r=5c7vv&utm_campaign=post&utm_medium=email&utm_source=copy old news to the informed readers here but it's nice to see Taibbi staying involved with this topic