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

[SnarkyPuppy]

Maybe I'm being dense but as a layman I don't fully understand how an agency can be deemed unconstitutional, but the decisions made by such agency not reversible.  Is the former not a corallary to the latter?

 

To the extent SCOTUS now picks this up, is it knowable whether they would have the ability to review both the question of constitutionality but also make a decision on reversal of NWS?  Or would the review necessarily be focused on the constitutionality claim? 

 

Is it simply a matter of applying a retrospective remedy versus a forward looking remedy?

 

I'm not in this for the legal thesis at all but am trying to understand.

[DRValue]

I don't know why the Collins court seems to have shifted from other courts opinion of fannie and Freddie. This court is very positive from what I've seen I.e. they remained solvent, they supported the mortgage market when other banks failed.

Normally it's a contest of who can hate the gse's more.

 

Gov got to the judges and the tide is turning?

[Guest cherzeca]

"To the extent SCOTUS now picks this up, is it knowable whether they would have the ability to review both the question of constitutionality but also make a decision on reversal of NWS?  Or would the review necessarily be focused on the constitutionality claim? "

 

scotus can review both

[blackcoffee]

Maybe I'm being dense but as a layman I don't fully understand how an agency can be deemed unconstitutional, but the decisions made by such agency not reversible.  Is the former not a corallary to the latter?

 

To the extent SCOTUS now picks this up, is it knowable whether they would have the ability to review both the question of constitutionality but also make a decision on reversal of NWS?  Or would the review necessarily be focused on the constitutionality claim? 

 

Is it simply a matter of applying a retrospective remedy versus a forward looking remedy?

 

I'm not in this for the legal thesis at all but am trying to understand.

 

haven't you figured it out yet? Lawyers and judges literally making $hit up as they go along.

[Midas79]

Maybe I'm being dense but as a layman I don't fully understand how an agency can be deemed unconstitutional, but the decisions made by such agency not reversible.  Is the former not a corallary to the latter?

 

To the extent SCOTUS now picks this up, is it knowable whether they would have the ability to review both the question of constitutionality but also make a decision on reversal of NWS?  Or would the review necessarily be focused on the constitutionality claim? 

 

Is it simply a matter of applying a retrospective remedy versus a forward looking remedy?

 

I'm not in this for the legal thesis at all but am trying to understand.

 

Trying to unwind all of FHFA's decisions since its inception is an extremely complicated process, one I cannot blame the judges for not wanting to touch.

 

Unwinding the NWS, though, is mostly just an exercise in accounting. Given that it is what the Ps wanted, that SCOTUS has said that Ps deserve to get some sort of remedy if their seperation of powers challenge is successful (thanks to cherzeca from last page), and that unwinding the NWS and declaring the seniors repaid is a pretty easy fix, I find it very disappointing that the majority didn't do so.

[rros]

Unwinding the NWS, though, is mostly just an exercise in accounting.

Maybe that's the answer. Judges aren't accountants (or finance people). So perhaps they really, really don't get it.

 

On Judge Willet's own words: "Admittedly, judges are not experts at Byzantine financial dealings or long-term market strategy".

[Guest cherzeca]

Maybe I'm being dense but as a layman I don't fully understand how an agency can be deemed unconstitutional, but the decisions made by such agency not reversible.  Is the former not a corallary to the latter?

 

To the extent SCOTUS now picks this up, is it knowable whether they would have the ability to review both the question of constitutionality but also make a decision on reversal of NWS?  Or would the review necessarily be focused on the constitutionality claim? 

 

Is it simply a matter of applying a retrospective remedy versus a forward looking remedy?

 

I'm not in this for the legal thesis at all but am trying to understand.

 

Trying to unwind all of FHFA's decisions since its inception is an extremely complicated process, one I cannot blame the judges for not wanting to touch.

 

Unwinding the NWS, though, is mostly just an exercise in accounting. Given that it is what the Ps wanted, that SCOTUS has said that Ps deserve to get some sort of remedy if their seperation of powers challenge is successful (thanks to cherzeca from last page), and that unwinding the NWS and declaring the seniors repaid is a pretty easy fix, I find it very disappointing that the majority didn't do so.

 

 

if the NWS is invalidated as a remedy for an unconstitutionally structured fhfa, that doesn't mean all fhfa decisions are ipso facto invalidated.  you need another aggrieved party to become another P and bring another case seeking such invalidation with respect to some other action taken. 

[Luke 532]

At the FSOC meeting last month, Treasury’s Craig Phillips (Mnuchin's #2) approves of FHFA’s risk-based capital requirements.  Seems to align FHFA/Moelis as agreeable to the Treasury.

 

Edit: meeting minutes attached

June152018_minutes.pdf

[Luke 532]

Nowhere in minutes it gives an impression that the requirements were agreeable.

 

Moelis: 3.25%

FHFA: 3.24%

Treasury: "Mr. Phillips noted the importance of the FHFA’s action and stated that the proposal, which would establish a risk-based capital requirement and a leverage capital requirement, helped create a public, regulatory framework for the two enterprises."

 

I don't know how else to explain the above.  One either sees it or they don't.

 

Minutes also say:

“He stated that the proposal was not related to proposals to recapitalize and release the enterprises from conservatorship.”

 

This has been discussed on this message board before.  Search for it to see possible reasons why this would be stated.

[allnatural]

If you read the dissenting opinion on the APA statutory claim closely, Judge Willet cites the Cedarminn case from the 8th circuit as precedent for why the FHFA as a conservator MUST conserve and perserve. 

 

If you recall, plaintiffs are trying to persuade the 8th circuit by highlighting the Cedarminn case which should set the precedent in that circuit.

 

From the Saxton oral argument:

Judge: "Counsel, but now you gotta confront Cedarminn. What do you do with page 1454 of the Cedarminn opinion where we go to great lengths to distinguish a conservators job from a receiverships job, and it’s under the precedent statue (FIRREA) that congress copied ... This court says this distinction was specifically recognized in FIRREA, they were talking about FIRREA and congress says in this law (HERA) they copied FIRREA ... You want to comment on Cedarminn? That’s one of their best arguments.”

[Guest cherzeca]

If you read the dissenting opinion on the APA statutory claim closely, Judge Willet cites the Cedarminn case from the 8th circuit as precedent for why the FHFA as a conservator MUST conserve and perserve.

 

If you recall, plaintiffs are trying to persuade the 8th circuit by highlighting the Cedarminn case which should set the precedent in that circuit.

 

From the Saxton oral argument:

Judge: "Counsel, but now you gotta confront Cedarminn. What do you do with page 1454 of the Cedarminn opinion where we go to great lengths to distinguish a conservators job from a receiverships job, and it’s under the precedent statue (FIRREA) that congress copied ... This court says this distinction was specifically recognized in FIRREA, they were talking about FIRREA and congress says in this law (HERA) they copied FIRREA ... You want to comment on Cedarminn? That’s one of their best arguments.”

 

+1

 

and you anticipated what saxton (and collins) counsel had to say to saxton court by way of supplementary authority:

https://www.dropbox.com/s/oe38a58a4pef1yu/saxton%20supp%20auth%20from%20collins.pdf?dl=0

[rros]

I read Judge Willet's dissent more carefully this time. Although it is refreshing to read from a judge -even as dissenting in a ruling- the same interpretation of HERA most of us reached back 8 to 10 years ago, we should not forget government succeeded in convincing courts that the FHFA can move seamlessly from Conservator to Receiver, as a chameleon. I was particularly impressed at how the Judge approached the incidental powers matter as a way to debunk this belief. Yet, I am not sure if the strength of his arguments can prevent further blurring and confusion by the government. Both Krimminger and Calabria, writers/ contributors to HERA/FIRREA, already added this same interpretation to some of the litigations to no avail. If the authors of the law could not convince judges, who will? Will judges be more open to listen to this truth from a peer?

 

On this note, how many here believe Paulson's machiavelic true plan was temporary support (Willet's reference to optimistic start of the Conservatorship) to later dissolving the entities (carried on by Geithner via the nws strategy, Willet's reference to the darker turn of events)?

 

Was Paulson referring exactly to this situation in today's bloomberg article?

Paulson basically agreed, with one big proviso. In the midst of a crisis, policy makers may have to provide temporary support so that a collapsing institution can be liquidated over time -- even if that proves politically difficult to do. “It’s nice to have this authority but somebody has got to be prepared to use it and use it in controversial ways,” he said.

 

https://www.bloomberg.com/news/articles/2018-07-18/bernanke-geithner-paulson-voice-some-concern-about-next-crisis

[merkhet]

If you read the dissenting opinion on the APA statutory claim closely, Judge Willet cites the Cedarminn case from the 8th circuit as precedent for why the FHFA as a conservator MUST conserve and perserve.

 

If you recall, plaintiffs are trying to persuade the 8th circuit by highlighting the Cedarminn case which should set the precedent in that circuit.

 

From the Saxton oral argument:

Judge: "Counsel, but now you gotta confront Cedarminn. What do you do with page 1454 of the Cedarminn opinion where we go to great lengths to distinguish a conservators job from a receiverships job, and it’s under the precedent statue (FIRREA) that congress copied ... This court says this distinction was specifically recognized in FIRREA, they were talking about FIRREA and congress says in this law (HERA) they copied FIRREA ... You want to comment on Cedarminn? That’s one of their best arguments.”

 

+1

 

and you anticipated what saxton (and collins) counsel had to say to saxton court by way of supplementary authority:

https://www.dropbox.com/s/oe38a58a4pef1yu/saxton%20supp%20auth%20from%20collins.pdf?dl=0

 

From re-listening to the Saxton oral argument, it seems like Judge Benton & Judge Kelly both seem convinced by CedarMinn, and Judge Kelly's line of questioning was directed at the question of "well, even if we agree that conservators must 'preserve and conserve' the assets," are we allowed to review the actions they take? Like, what if they're intending to preserve and conserve, but they're just real incompetent. (Suspend disbelief for a second and assume that the government approached this "innocently" -- which most of us don't believe.)

 

Judge Kelly seems to be suggesting that even though she might be sympathetic to the argument following from CedarMinn (that conservators must "preserve and conserve" and that this action is not doing either) she is worried about how to go about providing guidance on when it's okay to second guess the FHFA's "business judgment" on various decisions.

 

I also found it to be interesting that Judge Stras continually harped on whether this was a de facto nationalization -- not so much for the nationalization itself -- as Judge Stras might just as well agree with the Treasury counsel that nationalization requires monetary relief best addressed through the Takings Clause, but that Judge Stras might be convinced by Judge Benton & Judge Kelly that CedarMinn should be followed and that regardless of how Judge Kelly might feel about providing guidance, a de facto nationalization cannot be squared with the idea that FHFA must "preserve and conserve."

 

Cooper did a good job in his rebuttal.

 

Of course, take that for what you will because most of the courts have disagreed with the legal analysis that I've listed out in this thread.

 

EDIT: As a side note, I'd say we also lucked out to have two judges on this panel that have MBAs in addition to their JDs (Benton & Stras).

[rros]

When Ted Olson argued the Perry case Judge Brown also had the same doubts as Judge Kelly and questioned Olson along those same lines... "what if it was just a bad economic decision (to adopt the nws)? Then, she wrote the dissent.

 

I believe Olson's response at the time was that parties were "sophisticated investors" (as in no room for errors or incompetence). Not sure how this was handled in Saxton.

[Midas79]

From re-listening to the Saxton oral argument, it seems like Judge Benton & Judge Kelly both seem convinced by CedarMinn, and Judge Kelly's line of questioning was directed at the question of "well, even if we agree that conservators must 'preserve and conserve' the assets," are we allowed to review the actions they take? Like, what if they're intending to preserve and conserve, but they're just real incompetent. (Suspend disbelief for a second and assume that the government approached this "innocently" -- which most of us don't believe.)

 

Judge Kelly seems to be suggesting that even though she might be sympathetic to the argument following from CedarMinn (that conservators must "preserve and conserve" and that this action is not doing either) she is worried about how to go about providing guidance on when it's okay to second guess the FHFA's "business judgment" on various decisions.

 

I would hope that the judges rule that unintentional ultra vires actions are still ultra vires, removing the need to think about intent or competence.

 

When Ted Olson argued the Perry case Judge Brown also had the same doubts as Judge Kelly and questioned Olson along those same lines... "what if it was just a bad economic decision (to adopt the nws)? Then, she wrote the dissent.

 

I believe Olson's response at the time was that parties were "sophisticated investors" (as in no room for errors or incompetence). Not sure how this was handled in Saxton.

 

The Ps shouldn't have to argue that there is no room for incompetence, just that there isn't nearly enough to justify an antithetical action like the NWS.

[rros]

I just heard the Saxton oral argument from May for the 1st time. I kind of gave up on litigations but Willet's dissent was a bit of fresh air and thanks to Merkhet I found Saxton. Judge Kelley really sounded like painfully aware of the dilemma looking for some way out of the inevitable. Hopefully, Willet's dissent gives the three judges some food for thought and feel encouraged to take a stand. I am glad I listened to Saxton's. In case someone missed it http://media-oa.ca8.uscourts.gov/OAaudio/2018/5/171727.MP3

 

But then, we have been disappointed before.

[Guest cherzeca]

which is why Cooper referred to the NWS as "antithetical" to a conservator's duty, understood in the 8th circuit by reference to CedarMinn.  the claim is that ex ante there is no way a conservator could think it was conserving/preserving with the NWS, so this isn't ex post 20/20 hindsight of a business judgment. 

 

there was talk early on about may/shall, but it didn't seem to have much legs.  and I loved the judge who wondered about HERA's provision re fhfa not being subject to another agency...a triable fact conveniently ignored by every other circuit.

[undervalued]

I read Judge Willet's dissent more carefully this time. Although it is refreshing to read from a judge -even as dissenting in a ruling- the same interpretation of HERA most of us reached back 8 to 10 years ago, we should not forget government succeeded in convincing courts that the FHFA can move seamlessly from Conservator to Receiver, as a chameleon. I was particularly impressed at how the Judge approached the incidental powers matter as a way to debunk this belief. Yet, I am not sure if the strength of his arguments can prevent further blurring and confusion by the government. Both Krimminger and Calabria, writers/ contributors to HERA/FIRREA, already added this same interpretation to some of the litigations to no avail. If the authors of the law could not convince judges, who will? Will judges be more open to listen to this truth from a peer?

 

On this note, how many here believe Paulson's machiavelic true plan was temporary support (Willet's reference to optimistic start of the Conservatorship) to later dissolving the entities (carried on by Geithner via the nws strategy, Willet's reference to the darker turn of events)?

 

Was Paulson referring exactly to this situation in today's bloomberg article?

Paulson basically agreed, with one big proviso. In the midst of a crisis, policy makers may have to provide temporary support so that a collapsing institution can be liquidated over time -- even if that proves politically difficult to do. “It’s nice to have this authority but somebody has got to be prepared to use it and use it in controversial ways,” he said.

 

https://www.bloomberg.com/news/articles/2018-07-18/bernanke-geithner-paulson-voice-some-concern-about-next-crisis

 

Did you mean John Paulson above or Henry Paulson?

[Luke 532]

Did you mean John Paulson above or Henry Paulson?

 

Hank/Henry

[rros]

I read Judge Willet's dissent more carefully this time. Although it is refreshing to read from a judge -even as dissenting in a ruling- the same interpretation of HERA most of us reached back 8 to 10 years ago, we should not forget government succeeded in convincing courts that the FHFA can move seamlessly from Conservator to Receiver, as a chameleon. I was particularly impressed at how the Judge approached the incidental powers matter as a way to debunk this belief. Yet, I am not sure if the strength of his arguments can prevent further blurring and confusion by the government. Both Krimminger and Calabria, writers/ contributors to HERA/FIRREA, already added this same interpretation to some of the litigations to no avail. If the authors of the law could not convince judges, who will? Will judges be more open to listen to this truth from a peer?

 

On this note, how many here believe Paulson's machiavelic true plan was temporary support (Willet's reference to optimistic start of the Conservatorship) to later dissolving the entities (carried on by Geithner via the nws strategy, Willet's reference to the darker turn of events)?

 

Was Paulson referring exactly to this situation in today's bloomberg article?

Paulson basically agreed, with one big proviso. In the midst of a crisis, policy makers may have to provide temporary support so that a collapsing institution can be liquidated over time -- even if that proves politically difficult to do. “It’s nice to have this authority but somebody has got to be prepared to use it and use it in controversial ways,” he said.

 

https://www.bloomberg.com/news/articles/2018-07-18/bernanke-geithner-paulson-voice-some-concern-about-next-crisis

 

Did you mean John Paulson above or Henry Paulson?

Aha! I see you are not a long timer.

[Midas79]

On this note, how many here believe Paulson's machiavelic true plan was temporary support (Willet's reference to optimistic start of the Conservatorship) to later dissolving the entities (carried on by Geithner via the nws strategy, Willet's reference to the darker turn of events)?

 

Was Paulson referring exactly to this situation in today's bloomberg article?

 

A very high chance if you ask me. I have read On the Brink. Tim Howard is exactly right: the companies were not bailed out, they were seized and decapitalized for ideological and policy reasons.

[Eye4Valu]

On this note, how many here believe Paulson's machiavelic true plan was temporary support (Willet's reference to optimistic start of the Conservatorship) to later dissolving the entities (carried on by Geithner via the nws strategy, Willet's reference to the darker turn of events)?

 

Was Paulson referring exactly to this situation in today's bloomberg article?

 

A very high chance if you ask me. I have read On the Brink. Tim Howard is exactly right: the companies were not bailed out, they were seized and decapitalized for ideological and policy reasons.

 

Emily, what say you?

[Guest cherzeca]

If you read the dissenting opinion on the APA statutory claim closely, Judge Willet cites the Cedarminn case from the 8th circuit as precedent for why the FHFA as a conservator MUST conserve and perserve.

 

If you recall, plaintiffs are trying to persuade the 8th circuit by highlighting the Cedarminn case which should set the precedent in that circuit.

 

From the Saxton oral argument:

Judge: "Counsel, but now you gotta confront Cedarminn. What do you do with page 1454 of the Cedarminn opinion where we go to great lengths to distinguish a conservators job from a receiverships job, and it’s under the precedent statue (FIRREA) that congress copied ... This court says this distinction was specifically recognized in FIRREA, they were talking about FIRREA and congress says in this law (HERA) they copied FIRREA ... You want to comment on Cedarminn? That’s one of their best arguments.”

 

+1

 

and you anticipated what saxton (and collins) counsel had to say to saxton court by way of supplementary authority:

https://www.dropbox.com/s/oe38a58a4pef1yu/saxton%20supp%20auth%20from%20collins.pdf?dl=0

 

From re-listening to the Saxton oral argument, it seems like Judge Benton & Judge Kelly both seem convinced by CedarMinn, and Judge Kelly's line of questioning was directed at the question of "well, even if we agree that conservators must 'preserve and conserve' the assets," are we allowed to review the actions they take? Like, what if they're intending to preserve and conserve, but they're just real incompetent. (Suspend disbelief for a second and assume that the government approached this "innocently" -- which most of us don't believe.)

 

Judge Kelly seems to be suggesting that even though she might be sympathetic to the argument following from CedarMinn (that conservators must "preserve and conserve" and that this action is not doing either) she is worried about how to go about providing guidance on when it's okay to second guess the FHFA's "business judgment" on various decisions.

 

I also found it to be interesting that Judge Stras continually harped on whether this was a de facto nationalization -- not so much for the nationalization itself -- as Judge Stras might just as well agree with the Treasury counsel that nationalization requires monetary relief best addressed through the Takings Clause, but that Judge Stras might be convinced by Judge Benton & Judge Kelly that CedarMinn should be followed and that regardless of how Judge Kelly might feel about providing guidance, a de facto nationalization cannot be squared with the idea that FHFA must "preserve and conserve."

 

Cooper did a good job in his rebuttal.

 

Of course, take that for what you will because most of the courts have disagreed with the legal analysis that I've listed out in this thread.

 

EDIT: As a side note, I'd say we also lucked out to have two judges on this panel that have MBAs in addition to their JDs (Benton & Stras).

 

@merkhet rros

 

as I recall the collins oral arg had only willett clearly indicating sympathy for Ps claims; the other male judge said nothing other than thanks at the end and the female judge was mostly silent too.

 

also as I recall I thought that in saxton while stras was expressing sympathy for Ps claim (the "willett equivalent"), the other male judge (benson) also showed some sympathy...I thought he was the one at the end who suggested that Ps strongest claim was that the fhfa shall not be subject to direction.

 

based upon your recent hearings, am I right that even if the female judge waffles, there was not just one (as in collins) but two male judges who seemed to get Ps claims?

[merkhet]

The Collins argument was a few months ago, so I no longer recall.

 

As for Saxton, my thoughts are simlar to yours. Benton thought CedarMinn was Ps best argument. Stras thought FHFA acting under direction from Treasury was Ps best argument.

 

But, my former disclaimer remains — I have been (repeatedly) wrong before.

[allnatural]

Correct re: Collins, Willet was the only engaged judge asking 90% of the questions, the female judge asked 1 or 2 questions, and the other male judge stayed silent (he dissented from the majority on separation of powers)

 

Re: Saxton-

 

We had 3 engaged judges all expressing some degree of sympathy to plaintiffs, whether this is enough TBD.

 

- One male judge thought the Cedarminn case was plaintiffs best argument.

- Another male judge thought the NWS was a nationalization and that plaintiffs best argument was that FHFA was at the will of the Treasury.

- The female judge kept trying to figure out what the outer-limits of the FHFA's powers was, and is there no situation where courts may question the business judgment of the FHFA? To which Treasury said no.