merkhet

I don't think the warrants & the common are necessarily pari passu. Let's just assume that we're @ 1/1/2018, and there's $0 of capital. Also assume that to safely run a $3 trillion asset book, you'd need something on the level of 2.5% capital or $75 billion. If the government just exercises the warrants for a nominal amount (call it zero), then the government would own 80% and the common would own 20%, and they'd call it a day except there's $0 in capital, so at some point both would have to get diluted during an equity raise. However, I think you could also easily see a structure where the government raises the strike such that they put in $60 billion of cash and the junior preferred put in $15 billion of cash such that the government owns ~80% of the company and the junior preferred owns ~20% of the company and the common owns the residual -- which would be very little. You might also see other, more fair, structures where everyone gets converted to common at the same time, and then you do a rights offering where everyone gets to participate. But I wouldn't necessarily just assume the warrants are pari passu w/ the common. And I don't think that the junior preferreds are looking at a poor % par recovery based on the breach of K case. Starr vs. AIG revolved around the fact that (A) but for the actions of the Fed at that time, the shares would be worthless and (B) the shares were common shares. Here, but for the NWS, the preferreds would not be worthless, and they have a contract w/ the companies for their liquidation preference. Very different situation, IMHO.

In general, it's what you would have expected to receive but for the breach.

I think preferreds have better negotiating leverage than common post-Perry. But the preferreds now have less leverage than before. None of that has any bearing on the likelihood to win the breach of contract case though. It seems pretty clear there was an anticipatory breach of the liquidation preference given the structure of the NWS. No opinion on the dividends.

The two breach issues that I referenced both pertain to the preferred. The common does not have a case based on Perry. I haven't a clue why there is divergence between the security prices of the two.

No position but in agreement with this. It starts getting speculative when you have to read between the lines and analyze tones. If Trump had not won (a seemingly improbable event), I can't imagine these securities would be trading anywhere near current market prices. I think a lot of the parsing is based on the narrative post-Mnuchin comments in November of last year. That's just what people choose to focus on. And, surprisingly, people (including on this board) seem to be ignoring the fact that the breach of implied covenant (dividends) and the breach of contract & implied covenant (liquidation preference) case gets to move on in district court -- something all three judges agreed on -- though that may be a function of ownership considerations (common vs. preferred).

That's a helluva endorsement for Costco!

Busy guy.

I've thought about both the Greece and GM comparisons, but IMO it seems different because when you're insolvent, then sure it makes sense that you can find new people to take the risk of a recapitalized entity while shafting the previous holders. (Even though I think GM holders were shafted unnecessarily due to political considerations.) It seems different when you are shafting the owners of a company that is neither insolvent nor facing a liquidity issue. Cool. Thanks for the response. I'm traveling at the moment so I'm not plugged in.

And apparently Trump is meeting with Mnuchin, Cohn, and Mulvaney today. Where are you guys getting this information? Jennifer Jacobs twitter feed. She's a White House reporter for Bloomberg. Who's Trump discussing federal budget with at lunch? Priebus, Bannon, Kushner, Cohn, Mnuchin, Mulvaney, Russ Vought, Emma Doyle. Thanks. And the CNBC appearance?

And apparently Trump is meeting with Mnuchin, Cohn, and Mulvaney today. Where are you guys getting this information?

I think the scary issue for the preferred shareholders is that the judges are giving specific direction to Lamberth to consider shareholders who purchased shares BEFORE 2008 and those claims as perhaps having more Merritt than those purchased after the conservatorship was announced - thats likely why the price dropped in the preferred -- this flies in the face of all legal precedence on transfer of full rights with shares but we are in a whole new world here Except if you read the opinion carefully, the application of reasonable expectations (and therefore the possible subdivision of classes) applies only to the idea of a breach of implied covenant regarding dividends. It has no application to the breach of implied covenant and breach of contract regarding liquidation preference.

I think the allowed Perry claims largely only benefit the preferred. @cherzeca, correct me if I'm wrong. The Takings claims, however, benefit both preferred and common. Considering that Ginsburg flipped a way I wasn't expecting, though, I think Bayes Theorem indicates that my analysis of the likelihood of success in the Takings case is probably worth bupkis. I really don't 100% understand the reaction in the preferreds. Perhaps it's because many news articles indicate that the legal avenue is foreclosed, but that oddly leaves out the fact that the Perry case said both the breach of implied covenant & breach of contract cases can go forward.

Just landed. Not much to add that wasn't already discussed. This weakens the Ps bargaining leverage to the extent that matters w/ Mnuchin. Common is considerably worse off than preferred in this scenario as well. Check the footnote to the liquidation preference discussion. Hard to imagine a situation where a court sees anticipatory repudiation but that the preferred shares weren't harmed in some way.

About to board a flight. Will read on the plane.

The contract claims survive and are remanded to the district court for further proceedings. http://bit.ly/2l3P8k4

I had the same sad thought. It feels like a farewell tour.

Now it's just a matter of playing the GOP Congress against Mel Watt & vice versa. Fat lady hasn't sung yet, but she's warming up. i think GOP congress is plenty distracted with everything on its plate as it is, and watt reminds me of the kid with a glove at the park who asks if anyone wants to play ball with him lol Well, I think Mnuchin needs Watt or Congress or both (but that may be unlikely). In this situation, he can push for what he wants by basically going to each and saying "look, give me X or I'm just going to go to Watt/Congress and get what I want without you."

Now it's just a matter of playing the GOP Congress against Mel Watt & vice versa. Fat lady hasn't sung yet, but she's warming up.

I don't believe that's the one. :/ Shoulda asked for reference. The one you mention is also interesting. 8) Pointers to it? http://time.com/2950919/alone-with-thoughts/

Are you talking about the experiment where students were willing to shock themselves rather than sit quietly with their own thoughts and do nothing?

Devos getting confirmed indicates that Mnuchin will likely get confirmed as well. The opposition for Devos was significantly stronger IMO than the opposition to Mnuchin. That being said, I'd still feel safer if the new administration releases the documents held under privilege, in case something happens to derail the current administration before they finish their objectives re Fannie & Freddie.

I don't think outright reversal was much of a possibility to begin with due to the fact the court would want such a significant ruling against the US Gov't to be made in the most prudent manner possible. But with the writ ruling and impending document release, isn't remand almost 100%? Hard to say there was a complete administrative record when there is buried evidence that just got uncovered floating around the system. + 1 A remand with full admin record put's P's in a terrific position regarding settlement discussions as a reversal has the possibility of simply being appealed IMHO. Also, he did not specifically ask for remand. He said "If this case is remanded..."

Read an interview with him recently -- he sounds Munger-esque in the way that he approaches second and third order consequences.

It also fits perfectly with the truth. +1

I'm not 100% sure that either of them actually offers "insurance." I spoke w/ Chanos once, and he was aware of the "big short" trades that a lot of people made, but he thought that there was a high counterparty risk on the other side. I merely mean that convincing other people that you're selling insurance is a good gig. Whether it's insurance or not is an entirely different question. :)