doughishere Posted August 20, 2015 Share Posted August 20, 2015 Are there any prominent lawyers who believe the shareholders will lose this one? I'd like to read their stuff as a bear thesis. I used to rely on Carney's articles for it but he's been disappointing. What the governments lawyers say in their argument is about the only decent things ive found. Link to comment Share on other sites More sharing options...
orthopa Posted August 20, 2015 Share Posted August 20, 2015 Are there any prominent lawyers who believe the shareholders will lose this one? I'd like to read their stuff as a bear thesis. I used to rely on Carney's articles for it but he's been disappointing. I agree, I feel like I am biased bc of my long position but where are the counter points and arguments? Either there really are none or no one wants to stick their neck out and look like a fool. I have'nt read much from Carney lately. Is he still publishing stuff? Link to comment Share on other sites More sharing options...
Jurgis Posted August 20, 2015 Share Posted August 20, 2015 Are there any prominent lawyers who believe the shareholders will lose this one? I'd like to read their stuff as a bear thesis. I used to rely on Carney's articles for it but he's been disappointing. I agree, I feel like I am biased bc of my long position but where are the counter points and arguments? Who do you expect to provide counterpoints and arguments? Who has motivation and time to do that? There is no motivation on investment side: shorting these guys does not work/scale even if you could make a >60% argument that government will win. On the journalist side - who wants to claim that government did the right thing? Where's the story in that? In any case, you don't want a journalist story, you want a legal argument. So that leaves lawyers with a lot of time on their hands, preferably who frequent CoBF to write a bear story. How many do you think there are? The legal arguments on the long side are made pretty much by interested parties with agenda. The government side legal arguments are made in court like doughishere said. Merkhet might be closest you can get to somewhat neutral and legally trained person to provide legal argument here. But I guess he's not into writing bear case. ;) Link to comment Share on other sites More sharing options...
merkhet Posted August 20, 2015 Share Posted August 20, 2015 I'm definitely biased at this point given how often I've presented on the bull side. :) The best I can come up with on a bear case is the following: (1) The government can continue to delay this for longer than I anticipate (2) There's really no incentive for either side to move to solve this issue sans legal rulings or fear of legal rulings (3) Matt Levine has a pithy comment about the lack of political motivation, again, sans legal rulings or fear of legal rulings (http://www.bloombergview.com/articles/2015-08-20/endowment-spending-and-bank-earnings) Legally, if it comes to that, I think the Steele case filed in the District Court of Delaware is pretty hard to argue with on a legal basis. Link to comment Share on other sites More sharing options...
Luke 532 Posted August 21, 2015 Share Posted August 21, 2015 Legally, if it comes to that, I think the Steele case filed in the District Court of Delaware is pretty hard to argue with on a legal basis. Assuming merkhet's assessment is correct (and I know he'd likely insert his disclaimer here) and it comes to a legal decision (no settlement), I have a couple questions. (1) How in the world will Steele lose the Delaware case? As the former Chief Justice he would likely have to grossly misinterpret law in his own state, a state in which he was arguably the most knowledgeable and experienced of the judge and attorney profession given his position. It's similar to a university mathematics professor making mistakes while helping his grade school child with his addition and subtraction homework. And using more than 50 pages to show his ignorance of basic addition and subtraction (reference to Steele's 50+ page case filing). Not impossible, but doesn't seem likely much at all. So... (2) If Steele wins the case, what actions can the government take that would prevent FNMAS from returning to par? They would obviously appeal the decision which would extend the process, but can the Delaware courts demand that dividends be reinstated for FNMAS while the case is going through the appeals process? Other than appealing, can the government just ignore the Delaware court decision? I'm trying to guesstimate how shareholders of FNMAS could get hurt even if Steele wins the Delaware case. It is becoming increasingly difficult to resist the urge to have an out-sized position in FNMAS. Many thanks for input! Link to comment Share on other sites More sharing options...
morningstar Posted August 21, 2015 Share Posted August 21, 2015 Legally, if it comes to that, I think the Steele case filed in the District Court of Delaware is pretty hard to argue with on a legal basis. Assuming merkhet's assessment is correct (and I know he'd likely insert his disclaimer here) and it comes to a legal decision (no settlement), I have a couple questions. (1) How in the world will Steele lose the Delaware case? As the former Chief Justice he would likely have to grossly misinterpret law in his own state, a state in which he was arguably the most knowledgeable and experienced of the judge and attorney profession given his position. It's similar to a university mathematics professor making mistakes while helping his grade school child with his addition and subtraction homework. And using more than 50 pages to show his ignorance of basic addition and subtraction (reference to Steele's 50+ page case filing). Not impossible, but doesn't seem likely much at all. So... (2) If Steele wins the case, what actions can the government take that would prevent FNMAS from returning to par? They would obviously appeal the decision which would extend the process, but can the Delaware courts demand that dividends be reinstated for FNMAS while the case is going through the appeals process? Other than appealing, can the government just ignore the Delaware court decision? I'm trying to guesstimate how shareholders of FNMAS could get hurt even if Steele wins the Delaware case. It is becoming increasingly difficult to resist the urge to have an out-sized position in FNMAS. Many thanks for input! I think there's a lot they can do to keep the preferreds functionally worthless if they want to; the GSEs will still have no capital, so if they set out to target building up capital through earnings alone, the government would have plenty of justification to continue omitting the dividend for years. Furthermore, the government would still have plenty of capacity to drain earnings away - e.g. they provide a mammoth credit facility to the GSEs which the private sector would probably find impossible to replicate (current availability: $258bn combined!); in any case this commitment is what affirms the government's support of the entities, without which they likely cannot do business. If the third amendment were voided, especially retroactively, I don't see why the commitment fee would not be re-imposed, perhaps also retroactively. This could easily consume the entirety of available profits for the GSEs - the fee is effectively at the discretion of the Treasury (again, unless you believe the GSEs could and would replicate it in the marketplace). Big picture, these companies require the government's continued support to function. So the answer to what can the government do to impair their equity securities will likely always be "a great deal". The real question is how much does the government care about continuing to grind away here rather than potentially working out a deal with partners who, although relatively small, might be able to help get private money back into the mortgage market place. Link to comment Share on other sites More sharing options...
Luke 532 Posted August 21, 2015 Share Posted August 21, 2015 Thanks, morningstar. Anybody else have thoughts on my questions? Link to comment Share on other sites More sharing options...
Luke 532 Posted August 21, 2015 Share Posted August 21, 2015 When you factor in recent developments it sure looks like Obama is taking this situation very seriously. White House Counsel asking for access to info (I don't have access to PACER so I can't upload the actual document)... Case 1:13-cv-00465-MMS Document 233 Filed 08/21/15 Page 1 of 5 IN THE UNITED STATES COURT OF FEDERAL CLAIMS FAIRHOLME FUNDS, INC., et al., ) ) Plaintiffs, ) ) ) THE UNITED STATES, ) ) Defendant. ) (Judge Sweeney) APPLICATION FOR ACCESS TO PROTECTED INFORMATION Pursuant to paragraph 7 of this Court’s Amended Protective Order dated July 29, 2015 (ECF No. 217), defendant, the United States, respectfully requests that Jennifer O’Connor, James Walsh, and Allison Murphy be permitted access to information protected by the Protective Order. All of the applicants are attorneys representing the United States within the meaning of Paragraph 4 of the Protective Order, and work in the Office of the White House Counsel. Counsel for the United States has consulted with counsel for plaintiffs, Fairholme Funds, Inc., et al. (Fairholme), who has indicated that Fairholme does not oppose these applications for access to protected information. Respectfully submitted, BENJAMIN C. MIZER Principal Deputy Assistant Attorney General s/ Robert E. Kirschman, Jr. ROBERT E. KIRSCHMAN, JR. Director s/ Kenneth M. Dintzer KENNETH M. DINTZER Deputy Director Commercial Litigation Branch Civil Division U.S. Department of Justice P.O. Box 480 August 21, 2015 Ben Franklin Station Washington, D.C. 20044 Telephone: (202) 616-0385 Facsimile: (202) 307-0973 Email: Kenneth.Dintzer@usdoj.gov Attorneys for Defendant One of his most trusted advisors (Sharpton) giving advice... Really? So this guy is Obama's go-to black leader? Maybe his voice will become important to Obama then. ::) Yes, really. Sharpton is a quack and it makes me cringe each time I see him in the news with the title "Reverend" attached (gives Americans a grossly misguided view of Christ), but Obama does seem to give him his ear from time to time. If Sharpton and Obama are as close as some believe then Sharpton might be a helpful ally of ours (until Sharpton changes his tune). Take a look at this WP article from this past December... http://www.washingtonpost.com/blogs/fact-checker/wp/2014/12/30/giulianis-claim-the-white-house-invited-al-sharpton-up-to-85-times/ Giuliani: "I think you missed one very important point. He has had Al Sharpton to the White House 80, 85 times. … You make Al Sharpton a close adviser, you are going to turn the police in America against you." There were a handful of meetings scheduled with Valerie Jarrett, a White House senior adviser who is a main point of contact between Sharpton and the White House. Of those 72 visits, five were one-on-one meetings. One of those meetings was marked as scheduled with the president. It's not out of the realm of possibility that Obama was aware of Sharpton's remarks before he made them. Obama could very well be greasing the wheels for release. Golf with Perry's attorney... Obama's golf foursome today included Bill Clinton, Vernon Jordan, and Ron Kirk. Kirk just so happens to be Senior of Counsel at Gibson, Dunn & Crutcher... Perry's law firm. I'm sure that's just a coincidence and a deal isn't in the works. :) Link to comment Share on other sites More sharing options...
Luke 532 Posted August 21, 2015 Share Posted August 21, 2015 Government's next filing: "See! The market was down 500 points today. We told you that would happen... and all we did was ask the very same attorney that worked with us on the IRS scandal to be allowed to see the Fannie Mae documents. Markets roiled! Let us continue to steal property or the market might drop even more!" :) Link to comment Share on other sites More sharing options...
intothebreach Posted August 21, 2015 Share Posted August 21, 2015 When you factor in recent developments it sure looks like Obama is taking this situation very seriously. No additional information, but I suspect the New York Times involvement has ratcheted this up a few notches at the White House due to the PR risk. Link to comment Share on other sites More sharing options...
merkhet Posted August 21, 2015 Share Posted August 21, 2015 The White House counsel request is rather interesting. Not that it matters, but here's a link to the PDF. (https://www.dropbox.com/s/zhusvfa1esqexf2/2015-08-21%20White%20House%20Counsel%20Application%20for%20Access%20to%20Protected%20Information.pdf?dl=0) Link to comment Share on other sites More sharing options...
orthopa Posted August 22, 2015 Share Posted August 22, 2015 The White House counsel request is rather interesting. Not that it matters, but here's a link to the PDF. (https://www.dropbox.com/s/zhusvfa1esqexf2/2015-08-21%20White%20House%20Counsel%20Application%20for%20Access%20to%20Protected%20Information.pdf?dl=0) Interesting, so now the White House wants to see if there is an obvious smoking gun now? Link to comment Share on other sites More sharing options...
merkhet Posted August 22, 2015 Share Posted August 22, 2015 Status conference set for September. Full docket text for document 235: STATUS CONFERENCE ORDER: A status conference shall be held on Friday, September 4, 2015 at 10 a.m. before Judge Margaret M. Sweeney. Because protected information will be discussed, the status conference shall be closed to the public. Only those counsel admitted to the protective order may participate. The parties' sealed joint status report is due by Wednesday, September 2, 2015 at 5 p.m. Signed by Judge Margaret M. Sweeney. (ta) Copy to parties. Link to comment Share on other sites More sharing options...
Luke 532 Posted August 23, 2015 Share Posted August 23, 2015 David Stevens Why I Support Reforming the GSEs, Not Eliminating Them https://davidhstevensblog.wordpress.com/2015/08/21/why-i-support-reforming-the-gses-not-eliminating-them/ Link to comment Share on other sites More sharing options...
Luke 532 Posted August 23, 2015 Share Posted August 23, 2015 Government's next filing: "See! The market was down 500 points today. We told you that would happen... and all we did was ask the very same attorney that worked with us on the IRS scandal to be allowed to see the Fannie Mae documents. Markets roiled! Let us continue to steal property or the market might drop even more!" :) Interesting video of Jennifer O'Connor during testimony on the IRS scandal. https://www.youtube.com/watch?v=Dyk1P-p56cE Link to comment Share on other sites More sharing options...
merkhet Posted August 23, 2015 Share Posted August 23, 2015 Government's next filing: "See! The market was down 500 points today. We told you that would happen... and all we did was ask the very same attorney that worked with us on the IRS scandal to be allowed to see the Fannie Mae documents. Markets roiled! Let us continue to steal property or the market might drop even more!" :) Interesting video of Jennifer O'Connor during testimony on the IRS scandal. https://www.youtube.com/watch?v=Dyk1P-p56cE Chaffetz seems like a bit of an asshole. Link to comment Share on other sites More sharing options...
Luke 532 Posted August 24, 2015 Share Posted August 24, 2015 First two paragraphs nail it... Imagine this. The owner of a small business facing a financially challenging period is forced to take out a loan from her local bank. She makes her monthly repayments on time and with interest in accordance with the loan agreement. But when the borrower’s business becomes profitable, the bank is no longer content with the original terms of the loan. Instead, it wants a larger piece of the business’s profits. So the bank decides unilaterally that it is going to undertake a “profit sweep.” Now, instead of making monthly payments at an agreed-upon rate of interest, the lender will have to give every dollar of profit she earns to the bank. She is not allowed to retain any of her profits or discharge her debt to the bank. If this sounds outrageous to you, that’s because it is. And it is essentially what the federal government has done to Fannie Mae and Freddie Mac’s investors. http://finance.townhall.com/columnists/tarahelfman/2015/08/24/property-rights-under-fire-why-the-government-must-compensate-fannie-mae-and-freddie-macs-shareholders-n2042119 Link to comment Share on other sites More sharing options...
CorpRaider Posted August 24, 2015 Share Posted August 24, 2015 Government's next filing: "See! The market was down 500 points today. We told you that would happen... and all we did was ask the very same attorney that worked with us on the IRS scandal to be allowed to see the Fannie Mae documents. Markets roiled! Let us continue to steal property or the market might drop even more!" :) Interesting video of Jennifer O'Connor during testimony on the IRS scandal. https://www.youtube.com/watch?v=Dyk1P-p56cE Chaffetz seems like a bit of an asshole. What does that make Issa? Link to comment Share on other sites More sharing options...
merkhet Posted August 24, 2015 Share Posted August 24, 2015 Government's next filing: "See! The market was down 500 points today. We told you that would happen... and all we did was ask the very same attorney that worked with us on the IRS scandal to be allowed to see the Fannie Mae documents. Markets roiled! Let us continue to steal property or the market might drop even more!" :) Interesting video of Jennifer O'Connor during testimony on the IRS scandal. https://www.youtube.com/watch?v=Dyk1P-p56cE Chaffetz seems like a bit of an asshole. What does that make Issa? A different kind of asshole? They are, after all, Congressmen. Link to comment Share on other sites More sharing options...
tede02 Posted August 25, 2015 Share Posted August 25, 2015 Did anyone see this over the weekend? Looks like nothing really new but it is a negative viewpoint: http://www.wsj.com/articles/fannie-and-freddie-shares-still-look-unappealing-1440189097 This paragraph in particular struck me: "The district court’s dismissal assumed that Fairholme’s allegations about the government’s motivation were true. Yet it ruled that even so, Fairholme’s lawsuit had to be dismissed because the law authorizing Fannie’s and Freddie’s rescue barred courts from second-guessing the decisions of the conservator, the Federal Housing Finance Agency. The government’s reasons were irrelevant, the court said." It still seems like quite a stretch to argue that the net worth sweep was necessary to "rescue" the companies. Link to comment Share on other sites More sharing options...
Luke 532 Posted August 25, 2015 Share Posted August 25, 2015 David Stevens Why I Support Reforming the GSEs, Not Eliminating Them https://davidhstevensblog.wordpress.com/2015/08/21/why-i-support-reforming-the-gses-not-eliminating-them/ Interesting quote from this article: "The most important element here is to recognize that conservatorship is not a long term solution, and in the current state may be the riskiest position of all." Link to comment Share on other sites More sharing options...
doughishere Posted August 25, 2015 Share Posted August 25, 2015 Put Fannie and Freddie Out of Taxpayers’ Misery Seven years after the crash, why is the American public still on the hook for three out of every four new mortgages? By EDWARD DEMARCO http://www.wsj.com/articles/put-fannie-and-freddie-out-of-taxpayers-misery-1440112853 I'm sure this has been seen before. Link to comment Share on other sites More sharing options...
doughishere Posted August 26, 2015 Share Posted August 26, 2015 Just read that piece by TimHoward tonight. Wow. Someone needs to do a book deal when this is all over. i'm serious this is just some good drama. Link to comment Share on other sites More sharing options...
doughishere Posted August 26, 2015 Share Posted August 26, 2015 Pershing Square on F&F. Nothing new. Newbies, good summary of what is currently happening. Fannie Mae (FNMA) / Freddie Mac (FMCC) Fannie and Freddie reported another strong quarter. These results further corroborate our thesis that both entities could recapitalize and safely exit conservatorship if the Net Worth Sweep (the U.S. Government’s expropriation of each quarter’s net worth by extraordinary dividends) is eliminated. During the quarter, there were a number of positive legal developments in the shareholder litigation against the U.S. Government expropriation. In the D.C. Court of Appeals, the plaintiffs filed a strong appeal brief against the decision last September dismissing their claims that the Net Worth Sweep violated applicable statutory restrictions. Numerous amici (friends of the court) briefs were filed in support of the plaintiffs, two of which are worth highlighting. One came from several parties including the Independent Community Bankers of America and William Isaacs, the former FDIC Chairman, who during his career personally oversaw the conservatorship or receivership of hundreds of banks during the S&L crisis. The brief argues that Fannie and Freddie’s conservatorships were modeled word-for-word on FDIC conservatorships, and that the Net Worth Sweep Interim Financial Statements June 30, 2015 10PERSHING SQUARE HOLDINGS, LTD. is both unprecedented and inconsistent with the goals of conservatorship as understood and implemented for over 80 years. If allowed to stand, the brief argues, the Net Worth Sweep will cause providers of capital to financial institutions to question whether the rule of law and the established hierarchy of corporate claims can be preserved in conservatorship. Banks rely on low-cost debt and preferred stock financing in order to provide low-cost loans to consumers. If the courts allow assets of a private financial institution to be expropriated during conservatorship, there will be few if any lenders willing to provide financing to financial institutions, particularly during a time of stress. In his amicus brief, former Fannie Mae CFO Tim Howard offered an accounting-based analysis that questioned the necessity and motives behind the Net Worth Sweep. During conservatorship, the FHFA changed the GSEs accounting policies, accelerating non-cash charges, generating paper losses, and leading to a substantial majority of the Treasury’s $190 billion preferred stock investment. From 2008 to 2011, Mr. Howard shows, the GSEs’ actual credit losses were exceeded by their cash profits, while the non-cash charges that necessitated the capital injections have largely been reversed, leading the Treasury to “sweep” away almost all of the GSEs’ capital since 2012. In the Court of Federal Claims, plaintiffs have filed redacted documents that suggest that their discovery process has uncovered evidence that contradicts the government’s defense of the Net Worth Sweep and calls into question both its necessity and true purpose. Although these documents are filed under seal, Judge Sweeney has allowed them to be used in related cases in the District Court and Court of Appeals. Link to comment Share on other sites More sharing options...
Luke 532 Posted August 28, 2015 Share Posted August 28, 2015 Is a Fannie and Freddie settlement near in #FannieGate? by Dick Bove http://www.housingwire.com/articles/34918-bove-is-a-fannie-and-freddie-settlement-near-in-fanniegate Link to comment Share on other sites More sharing options...
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