merkhet

Ms. Morgenson has a new article out on Fannie & Freddie http://www.nytimes.com/2015/12/07/business/a-revolving-door-helps-big-banks-quiet-campaign-to-muscle-out-fannie-and-freddie.html?_r=1

This reminds me a bit of the whole Coke & Pepsi thing from Greenwald's "Competition Demystified."

Seconded. I had to read this for class. Very good book.

Except, isn't that exactly what it's doing when you register your card with Apple Pay? How hard is it going to be for them to execute agreements once they've essentially "mapped" out the vast majority of people's credit cards using Apple Pay registration? There seems to me a big difference between mapping the network and it being yours and operating it. They would still have to build secure data pipes to all the relevant parties, not to mention all the rules needed to operate it (authentication, charge backs etc). I think it would be very difficult to convince them. Wouldn't it require a huge process overhaul for the banks also? And for what? When V/MA (who they already trust) aren't that expensive and the banks make tons of money under the current arrangement. Using P2P gets around those challenges. But that has a whole separate set of challenges. A secure data pipe is less about the physicality and more about the encryption at this point. I'm unclear about the rest (authentication, etc.) -- and if anyone has any insight, please feel free to contribute. I'd love to know more. I'm also not 100% about the process overhaul for banks to get onto the new system, but, again, if someone has insight, then I'd love to hear it. I suspect that because of the fact that Apple/Google would be grafting onto an existing network that they'd be able to charge less than V/MA and still be profitable, so maybe they can incentivize banks by giving them more of pie? i.e. if transactions come to 2% and V/MA's share was 15 bps, Apple/Google can charge 5 bps and give another 5bps to banks while giving 5bps back to merchants? Also, unclear.

Except, isn't that exactly what it's doing when you register your card with Apple Pay? How hard is it going to be for them to execute agreements once they've essentially "mapped" out the vast majority of people's credit cards using Apple Pay registration?

I was discussing this offline with another board member, and my concern is the following: As far as I can tell, the purpose of V/MA is to act as an authenticator and a runner. My view of the way a transaction works is as follows: [*]Customer swipes a card at a merchant [*]Merchant sends message to V/MA about purchase [*]V/MA makes sure this is a valid request [*]V/MA sends message on to the issuing bank [*]Issuing bank checks on whether you are under your credit limit [*]Issuing bank sends message back to V/MA providing answer [*]V/MA makes sure this is a valid response [*]V/MA sends message on to the merchant with response [*]Customer walks away (or not) with the goods At various places in this process, the issuing bank sends money (6) and V/MA is responsible for taking a cut (7) and sending the remainder to the merchant/merchant bank (8 ). This is a process that works really well because the amount that V/MA get versus the amount that issuing and merchant banks take is very minimal, and there's some amount of scale that's required to make things profitable given the fixed costs of building the network. Moreover, there is an installed base of both credit card users and credit card POS devices, which makes it harder to develop something completely different to compete with V/MA. (And to a lesser extent AXP or DFS.) However, certain parts of the moat might be smaller or more fragile now that we have things like Apple Pay and Android Pay. I think of the introduction of this NFC payments stuff as a virus or fungus. There's a fungus called ophiocordyceps unilateralis which is colloquially referred to as the zombie fungus. It lands on an ant's body and basically takes over the ant's brain. Then the fungus forces the ant to find a suitable area to stand while the fungus eats the ant and uses its resources to create a spore on its head that eventually explodes and goes to infect other ants. So AP surfs "on the rails" as they say by using the V/MA system to connect customers and merchants and banks. This requires existing POS systems to undergo an upgrade where they have a NFC reader attached. Over time, this means that existing POS systems will have an installed base of NFCs. Customers, for the most part, already have an installed base of NFCs on their phones. Ergo, eventually this solves the installed base issue of creating a new network. As for the "running" aspect of the network, it seems like all the POS devices can easily connect to the internet and your phone is already connected to the internet, so if you need to send information between players in the payments ecosystem, it should be relatively easy -- provided you have a connection. This seems like it would make it easier/better to make the POS connect to the internet because it shouldn't be incumbent on the phone's relatively shoddier prospects of having a connection. Finally, we come to the authentication aspect. This is where it's a little trickier. V/MA provide actual value add by authenticating the messages from merchants and issuing banks. Is this an area where the tech giants can insert themselves with minimal interruption and/or a greater value add?

Already did. I got my copy in the mail a day or two ago.

That's just his M.O.

Moderately agree with the first point. It functions largely off the idea from Lamberth that actions of the conservator are beyond judicial review. Of course, the issue is whether the conservator can exercise power it doesn't have. Completely agree with the second point. There was no federal preemption of Delaware corporate law.

He actually does speak with ESL. Confirmed by myself and another poster at an event last year. Unclear how often they speak, but I have to think it's pretty often given his concentration in the Sears universe.

+1

A bunch of filings from yesterday: FHFA Motion to Dismiss http://gselinks.com/Court_Filings/Jacobs_Hindes/15-00708-0017.pdf FHFS Opening Brief http://gselinks.com/Court_Filings/Jacobs_Hindes/15-00708-0018.pdf Treasury Motion to Dismiss http://gselinks.com/Court_Filings/Jacobs_Hindes/15-00708-0019.pdf Treasury Opening Brief http://gselinks.com/Court_Filings/Jacobs_Hindes/15-00708-0020.pdf Defendant's Unopposed Motion for a 14-Day Extension http://gselinks.com/Court_Filings/Perry/14-5243-1583262.pdf

It might play in, but I suspect that the bigger culprit might be just being the top dog at a company. You start to think your shit doesn't smell, and, for some, that leads to impropriety.

Defendants should be filing a response by tonight. (Motions to Dismiss and Opening Briefs) Also, we have a new filing in Delaware as of yesterday. http://gselinks.com/Court_Filings/Jacobs_Hindes/15-00708-0015.pdf We should all be thanking Bethany McLean. She's pretty well regarded, and her decision to step into the fray is likely the reason why the broader media is starting to pick up on this.

Denied by Sweeney... Excellent.

Excellent. It never made much sense to exclude Perry anyway. Merkhet, is the verbiage "abundant good cause" ordinary? I wouldn't read too much into it.

Excellent. It never made much sense to exclude Perry anyway.

Not really. Too bad they don't own any preferred (AFAIK). Would be nice to pick up some more on the cheap. The risk to the common is massive dilution, IMHO.

That's around the same time as the Delaware case. Will be an interesting next few months.

It's the supplemental information that Fairholme lodged with the appeals court in the Perry case. Basically all those depositions showing that the trial court was possibly misled by the partial record provided by the government. That's a nice amount of progress. I doubt the bill survives, but we'll see if this kicks anything up.

The Perry filing is a pretty big win for shareholders.

In my opinion, they're fantastic for learning qualitative things that you might not learn otherwise.

Let's say Steele wins and the gov't is ordered to return some money. What if they simply refuse to do so? I wouldn't put it past our gov't to do something like that (heck, not turning over 11,000 documents is one example). There's no executive privilege on money.

It's possible that Steele wins his suit, so the money is returned and the senior preferreds go to 10% again -- but then nothing happens after that. But I think it's unlikely to keep the GSEs in conservatorship after that happens -- they'd have adequate capitalization, etc. The argument for keeping them in conservatorship becomes much harder.

Anything particularly interesting?