Mephistopheles

Except, thus far, no one has indicated that this is an acceptable goal -- I can't recall anyone in either party who wants there to be a giant nationalized mortgage insurance arm. Remember, this would mean that the government is explicitly the backstop for all mortgages in the country. That's true, but they have every incentive to keep them nationalized - a) guarantees a reasonable 30 year mortgage for their constituents and b) brings big money into Government coffers for earmarks. Right now, given the crisis is still fresh on peoples mind, any Congressman or Senator that talks about shutting Fannie and Freddie down scores political points, since getting rid of these "big bad financial companies that caused the housing bubble" appeals to people. But in a few years people will forget, and then Congress will see this big money producing duopoly. IMO the sensible thing (for them) would be to keep the status quo.

They would go to zero. They're not paying any dividends and there is no guarantee for them or the common.

Just quoting you here to make it easier: "(1) Can Fannie & Freddie continue to provide their services as a nationalized entity? Well, sure, but that means that there's no probably no shot of private capital coming in to fill the hole. Think about it this way, if I'm a bank, do I want to own F&F securitized loans with the, at this point, explicit backing of the federal government? Or do I want to own Private JoeCo securitized loans? I'm probably going to want to own the F&F securitized loans -- and the only way that JoeCo can compete is by doing what insurance companies do -- under-reserving and/or pricing incorrectly." This is what I'm afraid of. Shareholders lose all cases. And yes, private capital won't come in, but does it need to? F+F would be effectively nationalized, Govt will secure massive profits for the rest of eternity, it'll help their budget issues, and they'll technically only own 79.9% so no need to place the debt on the balance sheet. So in this case perpetual nationalized mortgage insurance would work, right?

The fact still remains that if the government wants the whole company how do they deal with holding the liabilities on the government balance sheet without triggering their debt ceilings. They need the zombie shareholders to continue this schizophrenic charade this is unsustainable.... So what happens if shareholders lose all the cases? Someone would still have to own the 20.1% stake at the end, and it doesn't have to be the Government. Can't they simply not do anything and continue collecting the profits ad infinitum?

I think it was implemented partially for political reasons, as you say to screw "hedge funds and wall street", you know, those people who destroyed our economy. But I also think it was to help pay the bills in Washington which has some serious budget issues. I think everyone has an incentive to keep F+F alive, so I don't think they will be killed. But in terms of the Government's incentive, they'd much rather own 100% (which they do now) vs. 79.9% minus whatever goes to junior prefs (if they lose the case). And hence they'd end up in a worse position if they lose, and that's why it's taking so long.

Ladies, a/l??

I think she's good to look at, so I watch her either way. Here's a gift for you: Haha thanks, have already seen that though :D

Lol, it must be because Bill Gates helped start the pledge

I think she's good to look at, so I watch her either way.

Wow, that's some amazing analysis, Merkhet. I have no legal background, but when I read Judge Lamberth's opinion, a lot of what he said simply didn't make sense to me, one of them being the no liquidation argument as you pointed out. He also countered the Plaintiff's claims that FHFA is depriving the FNMA/FMCC of capital by saying something to the effect of "well the 10% dividend also deprived them of capital": "The individual plaintiffs specifically argue that the net worth sweep exceeds FHFA’s authority as a conservator because it (1) depletes available capital; (2) “eliminates the possibility of normal business operations”; and (3) carries an ultimate intent to wind down the GSEs. Individual Pls.’s Opp’n at 56-58. First, the original dividend distribution scheme under the PSPAs also depleted the GSEs’ capital. Dividends distributed to security holders, by nature, constitute a depletion of available capital. ..." To me that argument is ridiculous. ____________________________________________ So the preferred are now closing in on at 10% of par value. Curious to know if anyone is adding to their position? I feel like the odds of shareholders winning in Federal Court of Claims are better than 1 in 10. Though I haven't added just yet.

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/fnma-and-fmcc-preferreds-in-search-of-the-elusive-10-bagger/

Did Fairholme purchase a 15% position or did it rise to 15%? I thought it was the latter (in which case it would be 7-8% now).

I think I may have been misinterpreted. I think Buffett is just as greedy as Winters or Icahn or Ackman. I think his abstaining from voting wasn't because he's a man of peace, but rather for self serving reasons. He's got enough of name, reputation and respect that just showing simple distaste or approaching the matter in a less confrontational way can do wonders for him where it doesn't with most other people. Don't forget that he did have private conversations with the CEO where he elucidated his views. I'm sure this had a significant impact. I think it's the same logic as to why Berkshire's culture of trust works as well as it does. When you trust and praise people, rather than criticize, it can work in your favor. But again, only he can pull that off at the magnitude that he does. And I think the Carl Icahns of the world do a fantastic job at keeping corporate America at check with their style too. I was referring to the executives and thousands of managers who would have received more options under the original plan. Probably wouldn't have been good for their morale if Buffett took a more critical and activist stance like Winters.

Well most people (myself included) wronged him in the very beginning for not taking charge and we thought it was just plain old Buffett being non-confrontational, but I think he had a very deliberate strategy here. Genius because most people didn't see it that way yet so simple.

Abstaining by Buffett was a genius move. Had he gone the Wintergreen route, it would have damaged morale at KO, ultimately costing shareholders more than the plan. Instead, he leveraged his reputation and the business world's enormous respect for him by only minimally verbalizing his disappointment without creating enemies by voting against or being overly critical. In this case, less is certainly more.

Why are the preferreds getting killed so much more than the common? I'm thinking of taking the tax loss on the common and switching over to preferred.

The Government is probably going to use Lamberth's brief to throw a wrench in the Federal Claims Court case I feel like. He basically said that HERA allows the FHFA and Treasury to do whatever the hell they want to do. "It was Congress, after all, that parted the legal seas so that FHFA and Treasury could effectively do whatever they thought was needed to stabilize and, if necessary, liquidate, the GSEs. Recognizing its role in the constitutional system, this Court does not seek to evaluate the merits of whether the Third Amendment is sound financial--or even moral-policy. The Court does, however, find that HERA's unambiguous statutory provisions, coupled with the unequivocal language of the plaintiffs' original GSE stock certificates, compels the dismissal of all of the plaintiffs' claims. "

Well, looks like Lamberth ruled in favor of the Government... http://timhoward717.com/2014/09/30/memorandum-opinion-and-orders-perry-injunction/ What sort of precedent does this set for the other Fairholme case?

John Carney strikes again. This time he linked a case of a foreclosed borrower suing FNMA on the basis that they deserved Fifth Amendment Due Process prior to eviction because FNMA is a state actor. The court threw out the case. I am not a lawyer but I don't see how this relates to the shareholder suits, maybe Merkhet you can chime in? The shares are down 10% today, and it might be because of this. https://twitter.com/carney/status/516950179728343040

I found IB's platform extremely confusing, and not user friendly. I also don't like the login process, involving the security code and matching it with your card.

Thanks Merkhet. This also doesn't apply to the Ackman case, given that he is also suing the FHFA directly, and not on the behalf of FNMA/FMCC, correct?

Investing in real estate also takes work, and has its own set of risks.

You have to pay taxes on dividends, whether or not they are reinvested.

+1

Just playing devil's advocate here, but don't the shareholders lose all non-financial rights in a conservatorship? So does he really have the right to review the books?