FNMA and FMCC preferreds. In search of the elusive 10 bagger.

[Guest cherzeca]

another way to think about these questions, following on merkhet's response, is to put yourself in DOJ/FHFA's lawyers (Arnold & Porter) shoes, when perry brought suit.  they had to take the NWS, fit it into something that was permitted by HERA, and mount a defense.

 

initially, i would think doj/A&P asked for the legal memos that were prepared in connection with the adoption of the NWS.  they probably heard back, "what memos?"

 

so as good lawyers, they thought, what do we have to do to get the NWS upheld.  they looked at the surrounding facts, and following merkhet here, they probably discovered that the facts were not their friend.  so they had to argue that the courts had no jurisdiction, or power to hear the case, under the anti-injunction provision.  they took a very strong position on the anti-injunction provision, that if fhfa did anything permitted, such as amend a contract, then the court had no jurisdiction to consider whether the substance of that amendment (ie NWS) was permitted by statute.

 

such a strong-armed legal argument betrays a weakness on the facts.

 

but, litigation is hard ball, and DOJ/A&P can be expected to continue playing hard ball to the extent they can...which is why i think the court of appeals "instructions" upon remand will be so important

[Steve_Berk]

The only thing I'll add to this, which isn't really a disagreement but just something to consider: I have seen knock-down, drag-out fights over the privilege of documents that are pretty much meaningless and not legally harmful to the party asserting the privilege. I don't read too much into the fact that the FHFA is fighting tooth and nail to prevent the documents from being disclosed. I presume that there are pieces of information and documents that could be embarrassing, but I don't presume that there's a smoking gun hidden within.

 

another way to think about these questions, following on merkhet's response, is to put yourself in DOJ/FHFA's lawyers (Arnold & Porter) shoes, when perry brought suit.  they had to take the NWS, fit it into something that was permitted by HERA, and mount a defense.

 

initially, i would think doj/A&P asked for the legal memos that were prepared in connection with the adoption of the NWS.  they probably heard back, "what memos?"

 

so as good lawyers, they thought, what do we have to do to get the NWS upheld.  they looked at the surrounding facts, and following merkhet here, they probably discovered that the facts were not their friend.  so they had to argue that the courts had no jurisdiction, or power to hear the case, under the anti-injunction provision.  they took a very strong position on the anti-injunction provision, that if fhfa did anything permitted, such as amend a contract, then the court had no jurisdiction to consider whether the substance of that amendment (ie NWS) was permitted by statute.

 

such a strong-armed legal argument betrays a weakness on the facts.

 

but, litigation is hard ball, and DOJ/A&P can be expected to continue playing hard ball to the extent they can...which is why i think the court of appeals "instructions" upon remand will be so important

[Mephistopheles]

Maybe the pro bono team can chime in. I suspect that a significant factor is the incentives of the Govt lawyers. It is in their best interest to drag this out, regardless of how much sense it makes to do so. And it's the taxpayer who is footing their bill, so there isn't a sense of waste FHFA or DoJ, so they continue to do what the lawyers recommend.

[Guest cherzeca]

"The only thing I'll add to this, which isn't really a disagreement but just something to consider: I have seen knock-down, drag-out fights over the privilege of documents that are pretty much meaningless and not legally harmful to the party asserting the privilege. I don't read too much into the fact that the FHFA is fighting tooth and nail to prevent the documents from being disclosed. I presume that there are pieces of information and documents that could be embarrassing, but I don't presume that there's a smoking gun hidden within."

 

@steve_b

 

i agree that sometimes when the kimono opens, you wonder why the hell they were putting up such a fight to keep it closed.

 

but there is that pesky HERA provision that fhfa shall not be subject to the direction of any other agency.  i happen to think that there might be some very interesting emails etc pertaining to this provision currently hidden from view

[merkhet]

Looks like Sequoia picked up some common shares. Would be curious to know if they have some preferred shares as well.

[doughishere]

Looks like Sequoia picked up some common shares. Would be curious to know if they have some preferred shares as well.

 

welcome...whens buffett gonna buy?

[hardincap]

Looks like Sequoia picked up some common shares. Would be curious to know if they have some preferred shares as well.

 

its pretty much a tracker position for them. $4m total market value in a $14-15+bn portfolio

[doughishere]

Looks like Sequoia picked up some common shares. Would be curious to know if they have some preferred shares as well.

 

its pretty much a tracker position for them. $4m total market value in a $14-15+bn portfolio

 

Yeah that's the beauty of this trade though...when those prefs start paying 8% interest on face value...lol there's some yield for you...when you buy a stock at 25c and suddenly it's paying 100% of that investment every quarter via dividend...that's what I call a coupon payment...it may be small but that share price(sorry if the intrinsic value post legalities) goes to 20$...well I don't need to explain.....as they say in the bible there are many ways to light Europe. 

 

Why would you sell the goose that lays a golden egg?.....that's what the fight is over.

 

 

 

Shit if I was the Govt' I'd be jealous of someone else making those returns.....pikers. I actually support govt...just not in this case. Pikers. I wish Obama would executive order the third amendment int legality. Do it I dare you.

[merkhet]

Looks like Sequoia picked up some common shares. Would be curious to know if they have some preferred shares as well.

 

its pretty much a tracker position for them. $4m total market value in a $14-15+bn portfolio

 

Yes, it's very small. I'd like to hear their reasoning/analysis anyway though.

[hardincap]

You asked how Ginsburg can both believe that the NWS prevents things from getting to a "safe and sound" situation, and yet also believe that there could be a lawful explanation for the NWS -- the answer is that he is testing the outer bounds of what it would mean to either reverse or affirm.

 

dont mean to beat on a dead horse, but it could go back to the word "may" that steve_berk pointed out, i.e. its permissive not mandatory that the conservator take action necessary to put the agency in sound and solvent. so, if fhfa thought theres no way to liquidate this huge portfolio, they could still lawfully do a slow wind down as conservator. motivation matters here, and g's salting the earth comment tells me he has plenty of reservation about giving the fhfa a free pass by not requiring a full admin record

[Guest cherzeca]

You asked how Ginsburg can both believe that the NWS prevents things from getting to a "safe and sound" situation, and yet also believe that there could be a lawful explanation for the NWS -- the answer is that he is testing the outer bounds of what it would mean to either reverse or affirm.

 

dont mean to beat on a dead horse, but it could go back to the word "may" that steve_berk pointed out, i.e. its permissive not mandatory that the conservator take action necessary to put the agency in sound and solvent. so, if fhfa thought theres no way to liquidate this huge portfolio, they could still lawfully do a slow wind down as conservator. motivation matters here, and g's salting the earth comment tells me he has plenty of reservation about giving the fhfa a free pass by not requiring a full admin record

 

"may" as permissive is certainly how fhfa spun it.  there is the counterargument, contained in perry briefs, that it is orthodox statutory costruction that when a statute grants powers to an agency, it uses the word "may" as an instance of what the agency is empowered to do, and powers that the agency aren't granted with "may" are powers that agency can't do.

 

this gets right at the fhfa/doj argument that a conservator may wind down.  you saw ginsburg's resistance to that construction, saying in effect that the listing of powers of receiver and conservator in one section doesnt imply that each has all such powers, because the rest of the statute makes clear that the powers are separate for C and R, and so the word respectively is implicit.

 

in effect ginsburg will have to do a 180 if he concludes that a C can wind down, and need not conserve.  while not impossible, i just dont see that as likely

[Steve_Berk]

This goes to the heart of what's puzzling about where Ginsburg stands. Here are things that it seems like he may believe based on the oral argument:

 

1) that a full record may reveal some kind of lawful intent that justifies the conservator's actions (he seems quite sure of this)

2) that the actions of the conservator constituted or appeared to be a winding down of the entities (he seems somewhat sure of this--I wouldn't say that he's certain of it though, because even though he uses strong language--the salt of the earth comments--in his questioning of Olson he seems more flexible on his interpretation of the facts)

3) that the statute seems to indicate that a conservator and receiver have different powers--that respectively can be read implicitly in the statute (he seems somewhat sure of this--doesn't really press the issue when the FHFA says he's wrong), and that essentially a conservator can't act as a receiver and wind down an entity.

 

OK, if I'm right about these things, are they consistent? Well if he believes 2&3, then game over, and inconsistent with #1. If he believes in 1&3, then maybe he's open to the possibility that the conservator wasn't winding down the entities, but they were doing something else that wasn't what a receiver would do (but maybe still doesn't aim towards sound and solvent)--e.g. just pressing pause and waiting for congressional action. If he believes 1&2, maybe he's open to reading the statute in a way that would allow a conservator to do certain things a receiver would normally do.

 

I am most certain that he believes in 1, but am not sure whether he'd believe in 1&2 or 1&3. If I had to guess, I would say he probably believes in 1&3, based on his dialogue with Olson.

 

You asked how Ginsburg can both believe that the NWS prevents things from getting to a "safe and sound" situation, and yet also believe that there could be a lawful explanation for the NWS -- the answer is that he is testing the outer bounds of what it would mean to either reverse or affirm.

 

dont mean to beat on a dead horse, but it could go back to the word "may" that steve_berk pointed out, i.e. its permissive not mandatory that the conservator take action necessary to put the agency in sound and solvent. so, if fhfa thought theres no way to liquidate this huge portfolio, they could still lawfully do a slow wind down as conservator. motivation matters here, and g's salting the earth comment tells me he has plenty of reservation about giving the fhfa a free pass by not requiring a full admin record

 

"may" as permissive is certainly how fhfa spun it.  there is the counterargument, contained in perry briefs, that it is orthodox statutory costruction that when a statute grants powers to an agency, it uses the word "may" as an instance of what the agency is empowered to do, and powers that the agency aren't granted with "may" are powers that agency can't do.

 

this gets right at the fhfa/doj argument that a conservator may wind down.  you saw ginsburg's resistance to that construction, saying in effect that the listing of powers of receiver and conservator in one section doesnt imply that each has all such powers, because the rest of the statute makes clear that the powers are separate for C and R, and so the word respectively is implicit.

 

in effect ginsburg will have to do a 180 if he concludes that a C can wind down, and need not conserve.  while not impossible, i just dont see that as likely

[Steve_Berk]

BTW, not to monday morning quarter back this, but I agree with that college kid who called into the investor call run featuring Hume. The regs are the best evidence we have that the statute intended for a conservator always to perform actions intended to bring the entity to a sound a solvent state. This was raised in the briefs but should have been hammered home in the oral arguments.

[doughishere]

 

 

The Latest Fannie and Freddie Reform Bill Offers A Bonanza For Hedge Funds

By JOHN CARNEY May 17, 2016 3:06 pm ET

http://blogs.wsj.com/moneybeat/2016/05/17/the-latest-fannie-and-freddie-reform-bill-offers-a-bonanza-for-hedge-funds/

 

 

 

John Carney ‏@carney  34m34 minutes ago

By my estimate, the Mulvaney bill transfer about $405 billion of value from taxpayers to $FNMA investors

[hardincap]

BTW, not to monday morning quarter back this, but I agree with that college kid who called into the investor call run featuring Hume. The regs are the best evidence we have that the statute intended for a conservator always to perform actions intended to bring the entity to a sound a solvent state. This was raised in the briefs but should have been hammered home in the oral arguments.

 

He was quoting this:

 

As one of the primary objectives of conservatorship of a regulated entity would be restoring that regulated entity to a sound and solvent condition, allowing capital distributions to deplete the entity's conservatorship assets would be inconsistent with the agency's statutory goals, as they would result in removing capital at a time when the Conservator is charged with rehabilitating the regulated entity. Under the Safety and Soundness Act and HERA, FHFA has a statutory charge to work to restore a regulated entity in conservatorship to a sound and solvent condition, and to take any action authorized by this section, which FHFA determines to be in the best interests of the regulated entity or FHFA.

 

https://www.federalregister.gov/articles/2011/06/20/2011-15098/conservatorship-and-receivership

 

[Guest cherzeca]

This goes to the heart of what's puzzling about where Ginsburg stands. Here are things that it seems like he may believe based on the oral argument:

 

1) that a full record may reveal some kind of lawful intent that justifies the conservator's actions (he seems quite sure of this)

2) that the actions of the conservator constituted or appeared to be a winding down of the entities (he seems somewhat sure of this--I wouldn't say that he's certain of it though, because even though he uses strong language--the salt of the earth comments--in his questioning of Olson he seems more flexible on his interpretation of the facts)

3) that the statute seems to indicate that a conservator and receiver have different powers--that respectively can be read implicitly in the statute (he seems somewhat sure of this--doesn't really press the issue when the FHFA says he's wrong), and that essentially a conservator can't act as a receiver and wind down an entity.

 

OK, if I'm right about these things, are they consistent? Well if he believes 2&3, then game over, and inconsistent with #1. If he believes in 1&3, then maybe he's open to the possibility that the conservator wasn't winding down the entities, but they were doing something else that wasn't what a receiver would do (but maybe still doesn't aim towards sound and solvent)--e.g. just pressing pause and waiting for congressional action. If he believes 1&2, maybe he's open to reading the statute in a way that would allow a conservator to do certain things a receiver would normally do.

 

I am most certain that he believes in 1, but am not sure whether he'd believe in 1&2 or 1&3. If I had to guess, I would say he probably believes in 1&3, based on his dialogue with Olson.

 

You asked how Ginsburg can both believe that the NWS prevents things from getting to a "safe and sound" situation, and yet also believe that there could be a lawful explanation for the NWS -- the answer is that he is testing the outer bounds of what it would mean to either reverse or affirm.

 

dont mean to beat on a dead horse, but it could go back to the word "may" that steve_berk pointed out, i.e. its permissive not mandatory that the conservator take action necessary to put the agency in sound and solvent. so, if fhfa thought theres no way to liquidate this huge portfolio, they could still lawfully do a slow wind down as conservator. motivation matters here, and g's salting the earth comment tells me he has plenty of reservation about giving the fhfa a free pass by not requiring a full admin record

 

"may" as permissive is certainly how fhfa spun it.  there is the counterargument, contained in perry briefs, that it is orthodox statutory costruction that when a statute grants powers to an agency, it uses the word "may" as an instance of what the agency is empowered to do, and powers that the agency aren't granted with "may" are powers that agency can't do.

 

this gets right at the fhfa/doj argument that a conservator may wind down.  you saw ginsburg's resistance to that construction, saying in effect that the listing of powers of receiver and conservator in one section doesnt imply that each has all such powers, because the rest of the statute makes clear that the powers are separate for C and R, and so the word respectively is implicit.

 

in effect ginsburg will have to do a 180 if he concludes that a C can wind down, and need not conserve.  while not impossible, i just dont see that as likely

 

@steve_berk

 

this is a good analysis, and i wont quibble with it.  but i want to give you some perspective that may affect how you see #1. you can take it or leave it.

 

there are various "liberal" legal commentators who have decried that the DC circuit court of appeals is too conservative, and that too many senior judges are members of this conservative wing.  some have called this wing the "constitution in exile" wing, after an innocuous reference in a book review done many years ago by ginsburg.  part of the reason the DC circuit is considered "too conservative" is that the senate has been slow walking obama judicial appointments to vacancies.  ginsburg of course is a senior judge.

 

now, i think ginsburg is aware of this criticism, and i think he would like to have any decision that he makes or participates in that calls for remand and further fact finding to be viewed as"neutral", insofar as the facts discovered on remand could swing one way or the other, and getting his "friend" olson to agree to that is the best way to evidence that this was a judicial decision (ie more facts needed to do justice) rather than an ideological decision.  when olson says that it is possible, but this is what happens when one has to speculate about the record, ginsburg jumps in to agree, meaning the harm by lamberth was in not requiring the record, a judicial error, not an ideological error.

 

fwiw, i believe olson is quite willing to start digging for facts w/o too much fear of P regret

[Steve_Berk]

really great information--much appreciated

 

This goes to the heart of what's puzzling about where Ginsburg stands. Here are things that it seems like he may believe based on the oral argument:

 

1) that a full record may reveal some kind of lawful intent that justifies the conservator's actions (he seems quite sure of this)

2) that the actions of the conservator constituted or appeared to be a winding down of the entities (he seems somewhat sure of this--I wouldn't say that he's certain of it though, because even though he uses strong language--the salt of the earth comments--in his questioning of Olson he seems more flexible on his interpretation of the facts)

3) that the statute seems to indicate that a conservator and receiver have different powers--that respectively can be read implicitly in the statute (he seems somewhat sure of this--doesn't really press the issue when the FHFA says he's wrong), and that essentially a conservator can't act as a receiver and wind down an entity.

 

OK, if I'm right about these things, are they consistent? Well if he believes 2&3, then game over, and inconsistent with #1. If he believes in 1&3, then maybe he's open to the possibility that the conservator wasn't winding down the entities, but they were doing something else that wasn't what a receiver would do (but maybe still doesn't aim towards sound and solvent)--e.g. just pressing pause and waiting for congressional action. If he believes 1&2, maybe he's open to reading the statute in a way that would allow a conservator to do certain things a receiver would normally do.

 

I am most certain that he believes in 1, but am not sure whether he'd believe in 1&2 or 1&3. If I had to guess, I would say he probably believes in 1&3, based on his dialogue with Olson.

 

You asked how Ginsburg can both believe that the NWS prevents things from getting to a "safe and sound" situation, and yet also believe that there could be a lawful explanation for the NWS -- the answer is that he is testing the outer bounds of what it would mean to either reverse or affirm.

 

dont mean to beat on a dead horse, but it could go back to the word "may" that steve_berk pointed out, i.e. its permissive not mandatory that the conservator take action necessary to put the agency in sound and solvent. so, if fhfa thought theres no way to liquidate this huge portfolio, they could still lawfully do a slow wind down as conservator. motivation matters here, and g's salting the earth comment tells me he has plenty of reservation about giving the fhfa a free pass by not requiring a full admin record

 

"may" as permissive is certainly how fhfa spun it.  there is the counterargument, contained in perry briefs, that it is orthodox statutory costruction that when a statute grants powers to an agency, it uses the word "may" as an instance of what the agency is empowered to do, and powers that the agency aren't granted with "may" are powers that agency can't do.

 

this gets right at the fhfa/doj argument that a conservator may wind down.  you saw ginsburg's resistance to that construction, saying in effect that the listing of powers of receiver and conservator in one section doesnt imply that each has all such powers, because the rest of the statute makes clear that the powers are separate for C and R, and so the word respectively is implicit.

 

in effect ginsburg will have to do a 180 if he concludes that a C can wind down, and need not conserve.  while not impossible, i just dont see that as likely

 

@steve_berk

 

this is a good analysis, and i wont quibble with it.  but i want to give you some perspective that may affect how you see #1. you can take it or leave it.

 

there are various "liberal" legal commentators who have decried that the DC circuit court of appeals is too conservative, and that too many senior judges are members of this conservative wing.  some have called this wing the "constitution in exile" wing, after an innocuous reference in a book review done many years ago by ginsburg.  part of the reason the DC circuit is considered "too conservative" is that the senate has been slow walking obama judicial appointments to vacancies.  ginsburg of course is a senior judge.

 

now, i think ginsburg is aware of this criticism, and i think he would like to have any decision that he makes or participates in that calls for remand and further fact finding to be viewed as"neutral", insofar as the facts discovered on remand could swing one way or the other, and getting his "friend" olson to agree to that is the best way to evidence that this was a judicial decision (ie more facts needed to do justice) rather than an ideological decision.  when olson says that it is possible, but this is what happens when one has to speculate about the record, ginsburg jumps in to agree, meaning the harm by lamberth was in not requiring the record, a judicial error, not an ideological error.

 

fwiw, i believe olson is quite willing to start digging for facts w/o too much fear of P regret

[Eye4Valu]

A conservatorship is a conservatorship. It's not whatever the U.S. wants it to be. I think many are skeptical because they know the U.S. is an 800 pound gorilla. I respect your prudence. What I admire more is your willingness to back what is right. I look forward to celebrating with this board when this wrong is made right. I don't think this is a speculation. I think this is a bet on America. I'm going short John Carney. I'm going long the USA. Nothing but respect to our Canadian friends and friends from other countries. Like Buffett says, don't bet against America!

[hardincap]

do you guys have any strong opinions on hume's breach of k argument? lamberth recognized that hera does not bar breach of k claims, but dismissed it nonetheless on grounds that 1) the claim is not ripe and 2) shareholders can only receive dividends at the sole discretion of the board. hume essentially argues that when viewed in substance over form, the nws prevents shareholder dividends under any circumstances.

 

seems pretty straightforward, but again, im discouraged by the lack of engagement by the judges

 

 

[Guest cherzeca]

do you guys have any strong opinions on hume's breach of k argument? lamberth recognized that hera does not bar breach of k claims, but dismissed it nonetheless on grounds that 1) the claim is not ripe and 2) shareholders can only receive dividends at the sole discretion of the board. hume essentially argues that when viewed in substance over form, the nws prevents shareholder dividends under any circumstances.

 

seems pretty straightforward, but again, im discouraged by the lack of engagement by the judges

 

i think lamberth is going to be reversed on both direct and derivative claims for breach.  hume did not have to say a word for me to believe that.

[merkhet]

As to why they weren't as engaged on the issue, remember, the DC Circuit is essentially the administrative law court, so it's hardly a surprise that they spent a ton of time on the claim covering the Administrative Procedures Act.

[Steve_Berk]

we should take bets on when the opinion comes out. I'll go with late September

[Luke 532]

we should take bets on when the opinion comes out. I'll go with late September

 

I'll take September, too... circa 2025.  ;)

[Steve_Berk]

i have heard of appellate judges who let opinions sit for years... I don't really know the personalities of these three. Ginsburg seems like he would want to turn it around in a reasonable amount of time--just a hunch.

 

we should take bets on when the opinion comes out. I'll go with late September

 

I'll take September, too... circa 2025.  ;)

[Guest cherzeca]

i have heard of appellate judges who let opinions sit for years... I don't really know the personalities of these three. Ginsburg seems like he would want to turn it around in a reasonable amount of time--just a hunch.

 

we should take bets on when the opinion comes out. I'll go with late September

 

I'll take September, too... circa 2025.  ;)

 

fwiw, the amtrak case took a little over five months:  https://www.cadc.uscourts.gov/internet/opinions.nsf/7DB0A5319D2F70D385257FA4004FAB2B/$file/12-5204-1611061.pdf

 

i choose that as an example because brown wrote opinion, and it was an "important" case, invalidating a statute

 

of course, it also spanned the year end holiday season