Wiggins

Why is the prospect of receivership so far fetched? The administration could tweak required capital levels or fiddle with some other controls of the GSEs in such a way that mandatory receivership is invoked under HERA, which would then give them authority to sell the core business to a clean LLC. That intention could be announced Friday. The preferred shareholders could continue to fight it in court, and if they won 100% of their claims it would amount to ~33 billion, a capped liability for FHFA/Treasury. To me, this is the greatest threat. I would love to be told I am wrong. I see it as unlikely and yet as a distinct possibility.

Maybe possibly we'll get an answer sooner.... https://financialservices.house.gov/uploadedfiles/2019.1.25.ltr_to_comptrollerotting.fhfa.hera.pdf First a comment: just want to reiterate how much I enjoy ALL the comments I read here daily, including the esp. legal and other thoughts of cherzeca. Also appreciated Midas' in-depth assessment recently. Question: Having agreed with all the positive commentary as of late, how can we get screwed? The way I see it would be FHFA selling the (core) assets and leaving a worthless shell behind, which HERA says they can do. Yes I know: that is exceedingly unlikely and would bolster lawsuits, etc, but it's the #1 way I can see us getting screwed. Any other thoughts? That's my principal concern at the moment. I'm not ready to count the chips yet. I thought the 5th circuit was huge and thought Judge Jones comments cut deep (in a great way). Haven't had much other commentary because of the great comments here and I can't add anything more. I've already shared my thoughts on much of this, including Calabria. I find the lawsuits to be key, even if just a threat in the background. Overall, IMHO it's not looking just good ...but great. But that just makes it all the more important to try hard and negate the thesis. Again, really enjoying the comments and thanks to anyone who takes on the above question...

Thanks for posting this. You were right: it's a short read and encouraging. One would hope he would apply the same ire to the DOJ's/Treasury's obfuscation and misleading statements in the Perry case, now that he is considering the merits of "implied covenant of good faith and fair dealing." Please someone correct me if I'm wrong, but I believe the reason discovery didn't come out in 2014 in Lamberth's court is that he never got to the merits. Given Lamberth's strong pro-transparency language in his Judicial Watch memorandum ordering discovery, it seems likely that he will be even tougher than Sweeney when it comes to discovery. That can only be good for the plaintiffs. Especially look at the last sentence before "II. Conclusion" on page 9. Lamberth is not going to leave any stone unturned, though I would hope that the extensive discovery already done in the Sweeney case will give him a head start. I would recommend reading this, to anyone here. At 9 pages, it's a short read. It's a veritable transparency-gasm, and has several very strongly worded sentences denouncing the actions of the State Department, among others. I would copy and paste the juicy ones, but the document appears to just be a scan and my alt-tab transcription speed is terrible. http://www.judicialwatch.org/wp-content/uploads/2018/12/JW-v.-State-Dept.-14-1242-Lamberth-ruling-1.pdf I suppose one could rightly ask why Lamberth dismissed the Perry case in the first place, but at that point Lamberth didn't know the extent of the government's lies regarding the "death spiral", among other things. He seems to be quite displeased with what he deems State's deliberate obfuscations. Similar reasons, after seeing Sweeney's discovery documents, might have led him to finding a way to get this case to proceed.

I'm encouraged. The latest brief from Otting's FHFA argues that common shares after HERA but before the NWS were "nearly worthless" and traded for their "speculative value." That's a whole helluva lot different than saying they were worthless and had NO value. This is simply a negotiation before any restructuring/settlement. The 5th circuit may or may not sweeten the pot for common holders.

Happy New Year. Congrats on the run up in price. It's great especially for the commons that when the end of NWS is announced they will be starting at at least a slightly higher level than they were just recently. The "boiling frog" paper from the Milken institute was amazing in that it called for an end to the NWS. That is truly remarkable. Does anyone doubt at this point that the plan is to end the NWS? It's possible that the NWS is ended and the entities still sit in conservatorship with no other concrete plan for a year while Mnuchin dickers around with Congress on legislation, and meanwhile the CSP is made available to competitors, etc. I think that's the biggest negative thesis at this point.

Ah... that was the spark at 3:15pm on all shares. The timbre of Bloomberg seems to have changed a bit. The NWS is an "Obama administration" decision to "hoard" profits. And the prices of the common stock were mentioned. Usually these articles don't even mention that there is stock trading out there. The movement of prices is not rational, down the last few weeks and then up today. They remain woefully depressed given what's coming.

"The strongest argument for curtailing deference is that the judiciary’s hands-off approach under Chevron and Auer has enabled the agencies of the executive branch to assert power Congress never gave them." https://www.wsj.com/articles/the-supreme-court-may-begin-to-tame-the-administrative-state-11544744606 This article seems as if it could have been written by Plaintiffs with their FHFA constitutional arguments in mind. Of course, I'm biased as the GSEs are forefront in my mind. It's surreal that it's written by Wallison. Perhaps it's his signal that he's on board with Calabria's thinking: that the only thing worse than a GSE is an overreaching Government stealing a GSE.

Love this comment. I'm excited; I feel like something is happening soon. Thanks. While in Congress, he wrote a bill specifically declaring the Srs. paid off. If someone had told me 2 years ago that Mulvaney would become the closest guy to the President of the US and that Calabria might become the head of FHFA I would have instantly peed on myself.

I'm thoroughly enjoying cherzeca's and everyone's comments. "pre-conservatorship" shareholders as used by Calabria may be intended to mean any shares other than Treasury's senior preferred stock, which are clearly post-conservatorship shares. And since he's talking about the NWS, this makes sense...the NWS benefited only that one class of shares (Treasury's). Fortunately, Lamberth clearly stated that shareholders' rights transfer when sold. It's inconceivable to me that Calabria could come down on the other side on this issue.

In my view, writing a paper from the bench and having godlike powers as the head of the FHFA can radically alter one's perspective. Calabria may be in a position, as Director of the FHFA, to play in a sandbox and follow his dreams responding to nobody once confirmed. So it may be a mistake to nail him down on his paper. Deep down, Calabria believes there is no reason for Fannie and Freddie to exist. Less than deep down there is the market reality which, as Locus has just mentioned, is becoming less orderly. And the housing market in particular has been subject to many headwinds that any head of the FHFA will not be able to ignore. We should also not speculate on a warrants gift to the government. Trump just said on TV that 5 billion will do wonders for the wall. He doesn't need Treasury's warrants. Further, he wants that money to come from Democrats, in a way. Finally, I agree with investorG. For any resolution, which implies unloading vasts amounts of money on Fannie and Freddie's fire (lack of capital), money men will absolutely want to have some kind of legislation as assurance and insurance. Even though HERA, as comprehensive as it was, became useless both as assurance and insurance when one person -just one- decided there was a better way. The 2015 academic CATO paper written by Calabria is a masterwork that took tons and tons of time, and one which will remain a cornerstone of his career. I do not buy the notion that for the trappings of power Calabria will cast this history aside when and if he is installed as the FHFA director, a post that has been ruled unconstitutional, by process of nomination by a president likely to be impeached (but not convicted by the senate, of course). This is a highly visible position that may effect the entire US economy and be judged for years into the future. My bet would be that he would ascend (descend?) to the post of FHFA director to effect change and try and put his stamp on the process, not to harness the trappings of that post. I could be wrong, but I know what it takes to write an academic paper and the paper he wrote for CATO is no joke. It is a thing of beauty. I think the point about what plaintiffs' attorneys would do with this material is a good one and I stand by it. If it goes that far along we will see; perhaps on January 23rd. One cannot unwrite those words. I'm sorry but I'm kind of focused on the court cases. I think they are fascinating, they will set precedent that is important in the US, and forgive me but I don't trust any of these jackalopes without the rule of law standing firmly behind them keeping them in line. Politics plays its part, but the law is supreme. Thank you, Wiggins. Are you referring to this paper https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2539197? Because I was only referring to the Amicus Curiae he wrote together with Krimminger where he sides with shareholders. rros I was referring to the Krimminger Calabria paper from 2015 which is 50 pages long with 123 references. Here is another paper providing food for thought, and in some ways hits harder than the paper with Krimminger: https://object.cato.org/sites/cato.org/files/pubs/pdf/working-paper-25_1.pdf In this paper, he dings "prudential regulators" for not following the law. Boom. He is consistent and it's crystal clear what he believes. He says a lot more, such as dinging the "transparency" of decisions by FHFA and Treasury if you go through this paper. The paper/link YOU posted is consistent with a number of his op/ed pieces on why he does not like the GSE business model. He has a nuanced view. Here is a summation of his nuanced views followed by my own simplified distillation of what that means for shareholders at this current time: 1) Pro-shareholder views: HERA was violated and laws were broken. As a result the GSEs have dangerously low capital, and taxpayers are more at risk now than ever. Shareholders were screwed. 2) Anti-shareholder views: the GSEs are bad business models because they create more leverage in the system, and we need to deleverage. This should be accomplished by getting rid of the mortgage-interest deduction entirely and by increasing required equity (down payments) in loans. The GSEs subsidize leverage in the housing sector which is their main failing. 3) Distillation: #1 is fairly easy to do as we all know, and will not risk the economy. #2 if enacted quickly would clearly throw the economy into a recession/depression. Calabria and others obviously know this point about #2, thus it needs to be done very gradually. Thus, #1 wins and will be the dominant Calabrian view that we see in immediate policy going forward. He will certainly work on #2, but these will be gradual. As an aside I would just make a couple of observations: his point that housing prices would fall under his policies is correct, but his implication that housing would be more affordable is not (actually he doesn't make this point so much, more that there will be less risk, which likely IS correct); because prospective buyers would have less incentives/subsidies to buy a home..so they would be able to AFFORD less. So really this just moves prices; it doesn't necessarily make housing more affordable. And the other observation about Calabria's views (#2) is that since they will take a lot of time, they become subjected to the vagaries of political winds and changing administrations over time, which softens their impact. Thus, in my view the recap is coming, and there's no guarantee the GSEs WON'T remain dominant in housing for years to come. Commons could do quite well.

In my view, writing a paper from the bench and having godlike powers as the head of the FHFA can radically alter one's perspective. Calabria may be in a position, as Director of the FHFA, to play in a sandbox and follow his dreams responding to nobody once confirmed. So it may be a mistake to nail him down on his paper. Deep down, Calabria believes there is no reason for Fannie and Freddie to exist. Less than deep down there is the market reality which, as Locus has just mentioned, is becoming less orderly. And the housing market in particular has been subject to many headwinds that any head of the FHFA will not be able to ignore. We should also not speculate on a warrants gift to the government. Trump just said on TV that 5 billion will do wonders for the wall. He doesn't need Treasury's warrants. Further, he wants that money to come from Democrats, in a way. Finally, I agree with investorG. For any resolution, which implies unloading vasts amounts of money on Fannie and Freddie's fire (lack of capital), money men will absolutely want to have some kind of legislation as assurance and insurance. Even though HERA, as comprehensive as it was, became useless both as assurance and insurance when one person -just one- decided there was a better way. The 2015 academic CATO paper written by Calabria is a masterwork that took tons and tons of time, and one which will remain a cornerstone of his career. I do not buy the notion that for the trappings of power Calabria will cast this history aside when and if he is installed as the FHFA director, a post that has been ruled unconstitutional, by process of nomination by a president likely to be impeached (but not convicted by the senate, of course). This is a highly visible position that may effect the entire US economy and be judged for years into the future. My bet would be that he would ascend (descend?) to the post of FHFA director to effect change and try and put his stamp on the process, not to harness the trappings of that post. I could be wrong, but I know what it takes to write an academic paper and the paper he wrote for CATO is no joke. It is a thing of beauty. I think the point about what plaintiffs' attorneys would do with this material is a good one and I stand by it. If it goes that far along we will see; perhaps on January 23rd. One cannot unwrite those words. I'm sorry but I'm kind of focused on the court cases. I think they are fascinating, they will set precedent that is important in the US, and forgive me but I don't trust any of these jackalopes without the rule of law standing firmly behind them keeping them in line. Politics plays its part, but the law is supreme.

Just another thought... what of the bizarre possibility of Calabria who has penned the best repudiation of the NWS in an academic paper becoming the head of an agency that is defending the NWS in court? Wouldn't the plaintiffs reference the Calabria/Krimminger paper heavily in court? It would not only be the words of the FHFA director but it's an elegant work in its own right. What would the defense attorneys say?: that the prior, academic, explicit, expert policy views of the director are not the views of the agency? That just seems bizarre and stupid. So maybe the Calabria possibility should provide some solace to shareholders. At the very least one would expect the NWS to stop. Further, it may also suggest the warrants are in play. Based on Calabria's prior comments he absolutely would not support the warrants being executed. He stated plainly that the Government was not meant to make money, only to recoup its original investment. Of course, he won't be in charge of Treasury which will be making the decisions. And while he wouldn't support the warrants, he would support a massive restructuring of the agencies which could make commons worthless. But with this theory, since the Government is paid back the JPS are first up for any residual value on the table. Just a theory though.

https://www.cato.org/multimedia/media-highlights-tv/mark-calabria-discusses-fannie-mae-freddie-mac-fbns-countdown-closing I think this video was posted before; sorry for the duplication but I thought it relevant now that he's the likely FHFA nominee.

Specifically, I'm curious about FMCCL, FNMAH, and FNMAS. I know it depends on dividend rate, when the dividend might be re-instated, etc. but (1) what are your thoughts on where these three securities would trade if NOT converted? (2) Would yield even matter for conversion terms, settlement terms, etc.? Thanks in advance for your input! one additional data point is when issuer can call these prefs. if there is a near term call date and rates stay low to moderate, issuer can simply call and refinance at lower rate. if no near term call date, then issuer might contemplate richer conversion offer The contracts of the JPS securities each specify different terms for callability. Last time I checked they are all callable either continuously or quarterly except FNMAS (callable 12/31/2020) and FMCKJ (callable 12/31/2022). Another reason Moelis may have raised the share price is the lowering of corporate tax rates from 35% to 21%, which makes the companies more profitable. When would the sweep for Q4 occur? I ask because if Moelis is enacted they will have to make an announcement before that date.

re: blackcoffee's statement: "Now to be fair, the reason those losses didn't materialize is mostly because of the massive intervention by the FED" You cited Adam Spittler's forensic accounting. Well I wonder if you and others listened to his interview on Quoth the Raven's podcast recently? He doesn't just say that FnF didn't need the bailout; he takes it one step further that conservatorship actually hurt the companies because after conservatorship they were used as a vehicle to by toxic mortgages from the failing banks. It's tantamount to administering poison to cure the patient. And then, he goes even further than that. According to him, once the value of securities in FnF plummeted, the small banks holding preferred stock as tier 1 capital went under, largely because of the write-downs of this capital. When those banks failed they were taken over by the government and their assets -including the now virtually worthless FnF preferred shares- were auctioned off. And one of the major auction buyers was J. Paulson. So, it makes you wonder if this was all planned since if anyone was hooked into the economic and political chicanery it would be JP. I suspect that it was, and that the plan is to implement an MBA-type plan while paying off investors such as Paulson who bought preferred shares. The whole thing is disgusting, but it all seems to be playing out. Howard speaks to what should happen if we had an honest dialogue, but I suspect the darker view of his politically savvy friend Maloni describes the future more accurately. Probably the only thing that could prevent this ultimate theft is proper discovery in the courts and subsequent media attention. And that fact would explain the bare-knuckle court tactics of Treasury. But the plaintiffs are likely more focused on getting paid rather than saving FnF, so ultimately when offered a deal they'll break off before trying to save the GSEs. It makes me wonder why they haven't just paid the preferred shareholders off and get on with the plan. I think that's where we are now, and that's what Mnuchin and Phillips have in store after the elections. As far as the details of the MBA-type plan for FnF being economically unsound, as discussed here and by Howard in his blog and book, my dark view is that this is more of a long-term problem to be addressed when the next recession occurs. And these engineers will cross that bridge when they come to it with their new "tool kit."

I've brought this up multiple times and am always immediately dismissed. Not a lawyer - but its one of the few things that keeps this from being a ridiculous sized position for me. You shouldn't be dismissed. I'm not a lawyer but I read Lamberth's ruling today very carefully and here is my take on what he said in his opinion: the contractual obligations, rights, and expectations of the securities do change as new laws, corporate actions, and regulations (such as HERA) are passed, BUT, when you buy a security you obtain all the rights from the previous owner. So the securities change over time, but they all change together and associated claims stand or fall together. To me, this allays your fear pretty clearly. Also, one of the plaintiffs' attorneys (can't remember I think Hamish Hume) asked, if contract rights or claims are lost when the security is sold to a new investor, then where do those rights go? Do they just vanish? I think in light of all this there should be little worry of securities being segregated into different classes based on when they were bought or sold. I don't think anyone in corporate America wants this precedent. But Lamberth's opinion is the most powerful statement so far. My take on the Lamberth ruling is that it's pretty huge. Lamberth clearly demonstrates that he knows the "death spiral" story about the NWS told by the government is BS. Meanwhile he allows the surviving claim to be that of the "implied covenant of good faith and fair dealing" as pertains to the NWS. The implication seems to spell trouble for Treasury. Since Lamberth spelled out pretty clearly just how much more money Treasury has taken out than they put in (i.e. ~80 billion), then it seems reasonable that he could just order Treasury to pay the liquidation preference to junior preferreds, or alternatively, order the payment of 5 1/2 years of dividends on the junior preferreds. Other thoughts on this last point?

Thanks.

with all due respect to both Brian Brooks (who probably is an excellent lawyer) and Coinbase, if FNMA is to raise many tens of billions of dollars to recapitalize, there needs to be a black belt Ceo in place with material expertise in real estate and capital raising. The compensation caps would need to be adjusted by congress, which is another reason why mnuchin and phillips are likely trying for the legislative route in 1h19 before any comprehensive administrative action. Looking at it from Trump's angle, I think it's best for him if it goes legislatively and the warrants pay for the wall and/or infrastructure. In the mean time, if our leaders want to do the right thing, please replace the sweep with a commitment fee over the holidays!! We were not blindsided and I doubt the payment cap was an issue here. Most likely, Mnuchin -and the Treasury Dpt. in general- see Coinbase as a backdoor entrance into the cryptocurrency world and want to have the inside scoop through a long time trusted advisor. It makes sense for exchanges to hire these government linked counselors. But when it comes to Coinbase, it is not a coincidence that the chosen name has been a close associate to Mnuchin. Now, Treasury can have a bird's-eye view at the underworld and their venues of operation. Nothing like bitcoin or monero to laundry money or finance rouge industries, including terrorism. Besides this, this move gives absolute credibility to cryptocurrencies and the implied message is they are here to stay. Invest! The big money to be made in cryptocurrencies are the fees. And Coinbase is the most established. Have you seen their fees and volume? Brooks is going from a low 6-figure salary to a 7-figure salary in his equity stake alone, and Coinbase gets Treasury legitimacy. This is in the no-brainer pile. Brooks will be using some of this cash to invest in Fannie and Freddie. The only question is will it be preferred or common shares? I started this thread to minimize pollution here. If you can post the link with the hiring agreement over there I will appreciate it. Sorry you thought my comment was pollution. You opined in several comments over the reason that Brooks would go to Coinbase. And I was just trying to be helpful in answering that. I don't think it's controversial to say the compensation of Chief Legal Officer of a growth company with more than a billion in revenue and 500 employees would be quite high. I think it unlikely that Mnuchin has much to do with it, and I think it's unlikely that this bodes poorly for the Fannie and Freddie situation. Coinbase is the best exchange there is, and this would seem a spectacular opportunity for Brooks. Again, the fees are where the money is and Coinbase gets the lion's share and is poised to continue that into the future. In a sense Fannie and Freddie strike a nice contrast to Coinbase. Fannie and Freddie are anything but new, and probably wouldn't be the most exciting place for a talent such as Brooks to work. Also, they almost certainly will have a strong regulator going forward that will keep compensation in check, unlike Coinbase.

with all due respect to both Brian Brooks (who probably is an excellent lawyer) and Coinbase, if FNMA is to raise many tens of billions of dollars to recapitalize, there needs to be a black belt Ceo in place with material expertise in real estate and capital raising. The compensation caps would need to be adjusted by congress, which is another reason why mnuchin and phillips are likely trying for the legislative route in 1h19 before any comprehensive administrative action. Looking at it from Trump's angle, I think it's best for him if it goes legislatively and the warrants pay for the wall and/or infrastructure. In the mean time, if our leaders want to do the right thing, please replace the sweep with a commitment fee over the holidays!! We were not blindsided and I doubt the payment cap was an issue here. Most likely, Mnuchin -and the Treasury Dpt. in general- see Coinbase as a backdoor entrance into the cryptocurrency world and want to have the inside scoop through a long time trusted advisor. It makes sense for exchanges to hire these government linked counselors. But when it comes to Coinbase, it is not a coincidence that the chosen name has been a close associate to Mnuchin. Now, Treasury can have a bird's-eye view at the underworld and their venues of operation. Nothing like bitcoin or monero to laundry money or finance rouge industries, including terrorism. Besides this, this move gives absolute credibility to cryptocurrencies and the implied message is they are here to stay. Invest! The big money to be made in cryptocurrencies are the fees. And Coinbase is the most established. Have you seen their fees and volume? Brooks is going from a low 6-figure salary to a 7-figure salary in his equity stake alone, and Coinbase gets Treasury legitimacy. This is in the no-brainer pile. Brooks will be using some of this cash to invest in Fannie and Freddie. The only question is will it be preferred or common shares?

Yes the taking took place with the NWS, that's where the confiscation began. But the thought being that given the NWS has been deemed legal, Sweeney rules it was the original bailout/HERA authorization where the taking took place since that was the legislation responsible for creating the power to enact the NWS and the taking. And the statute of limitations has run out on challenging HERA. Just wondering if anyone else considered that possibility. I'm just trying to figure out a way a judge could (again) royally screw something up that is so f-ing obvious. If everyone believes that the taking is a slam-dunk and the preferreds are the way to go then why not back up the truck? I guess the only question then is how much is awarded?

I'd be interested to hear thoughts on how Sweeney could be lost. AIG was ruled as a taking but with no restitution to shareholders since the shares were deemed worthless at the time of taking. However, it is pretty clear that AIG had a liquidity crisis at the time of the taking; it's pretty clear that Fannie and Freddie did not. The 5th circuit court of appeals majority has stated this. And of course we have all seen the independent forensic accounting. At no time during the takings, which still continue, did Fannie and Freddie face a liquidity crisis. The capital infusion from Treasury was based on balance sheet manipulation, not a liquidity problem. So I do not see how shareholders lose this case. Could it be statute of limitations? Or judicial corruption? I just don't see the loss, thus would like to hear any disconfirming thesis.

allnatural and rros, then the way we are interpreting this would truly put FHFA outside the law, because of course any settlement could be construed to restrain their powers, either monetarily or to use rros' point via a constraining judgment. And if so, whether this court meant it or not this ridiculous legal Catch-22 could be another avenue toward declaring the agency unconstitutional. And while I do not think that was the court's intention here, I think some other savvy judges like Willet (or SCOTUS) would be able to run with the bizarre nature of this type of logic. I'm really hoping that Collins was the inflection point and that Saxton is the first that goes our way. With the CedarMinn precedent they should be poised to rule correctly. Or, if that doesn't go our way then Saxton is at least split with another robust dissent and is another chink in the government armor which results in victory for us down the road. In addition to either compensatory damages or preferably RRR, methinks SCOTUS and/or other courts will have to eventually rule to fix the damaging precedents set here. But what do I know...

re: http://www.glenbradford.com/wp-content/uploads/2018/08/17-3794-0026.pdf Isn't asking whether an award of compensatory damages could restrain the agency's powers as conservator and thus be barred under 12 U.S.C. § 4617(f) like asking whether putting a man in jail for robbing a liquor store deprives him of "life, liberty, and the pursuit of happiness" and is thus barred under the U.S. Constitution? I think if the agencies are liable for compensatory damages then it was their prior (illegal) behavior that restrained their powers as conservator, not the subsequent compensatory damages. Unless I am misunderstanding this then the court is really off here. Of course, that would not be a great surprise.

Hello fine folks! I've been lurking here for a while reading the many fine thoughts of the posters here. Thought I'd say hi and also add to rros' post above that Judge Stras is also on the Trump short-list for SCOTUS and he is one of the 3 judges in the Saxton 8th circuit court. Like many I have been following the court cases with rapt attention and hope that the rule of law prevails in the end. Best to all!