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

[Guest cherzeca]

@merk/allnat

 

thanks for replies.

 

@merk

 

I would hope stras was the one who thought Ps best claim was fhfa direction, since it is my sense that stras is close to willett in thinking generally, and so if there is any judge who can benefit from reading willett's dissent, let that be stras rather than benson

[stevevri]

I would also caution, there was a Judge that RE: Saxton, that helped out the government lawyers and said "Was a zero before, is a zero now" or something to that effect, it was the same Judge that thought Cedarminn was their best argument and not the other guy that kept asking about nationalization.

 

[Guest cherzeca]

I would also caution, there was a Judge that RE: Saxton, that helped out the government lawyers and said "Was a zero before, is a zero now" or something to that effect, it was the same Judge that thought Cedarminn was their best argument and not the other guy that kept asking about nationalization.

 

I couldn't get where this was coming from (and I think neither did counsel), but my guess was that it was a cynical criticism of the D's position.  may be wishful thinking

[rros]

I would also caution, there was a Judge that RE: Saxton, that helped out the government lawyers and said "Was a zero before, is a zero now" or something to that effect, it was the same Judge that thought Cedarminn was their best argument and not the other guy that kept asking about nationalization.

 

I couldn't get where this was coming from (and I think neither did counsel), but my guess was that it was a cynical criticism of the D's position.  may be wishful thinking

I do not think you are thinking wishfully. It all sounded like being cynical. In the same context he added why Treasury would invest their money in something that was assessed worthless from the start. The "zero now" may be his own personal conclusion after deciding Treasury engaged in mass robbery.

 

Can't add anything, Chris. I agree with everyone. Tough not to hold a bit of hope. Judges in Saxton sounded like they did their homework (I want to listen to it again haha). Anybody remembers Iowa? the judge asking what was Fannie Mae about (or something like that)? Like others, I am hoping the well-reasoned dissent by J. Willet adds some wind from the back.

[allnatural]

I understood it as cynical criticism as well... i wouldnt read much into this comment but maybe i'm wrong. Even so, I dont see how expectations of value can effect the Cedarminn precedent.

 

I would also caution, there was a Judge that RE: Saxton, that helped out the government lawyers and said "Was a zero before, is a zero now" or something to that effect, it was the same Judge that thought Cedarminn was their best argument and not the other guy that kept asking about nationalization.

 

I couldn't get where this was coming from (and I think neither did counsel), but my guess was that it was a cynical criticism of the D's position.  may be wishful thinking

 

Strass was the one that made that claim on FHFA direction.. he is also a Trump appointee (same as Willet).

 

@merk/allnat

 

thanks for replies.

 

@merk

 

I would hope stras was the one who thought Ps best claim was fhfa direction, since it is my sense that stras is close to willett in thinking generally, and so if there is any judge who can benefit from reading willett's dissent, let that be stras rather than benson

[Guest cherzeca]

Can’t forget that idiot Iowa judge mainly because the argument was video streamed. Asked what a GSE was. Cooper didn’t have a chance

[rros]

Can’t forget that idiot Iowa judge mainly because the argument was video streamed. Asked what a GSE was. Cooper didn’t have a chance

We all had high hopes back then. Wayne took a plane to see this in person. We got a few below the belt since. Dementia, not nice. Perhaps, that explains it.

[allnatural]

Typically takes 4-6 months from oral argument which was in May. So we are looking at a September to November window. Saxton case was alerted of the Collins verdict.

[rros]

After hearing Saxton for a second time I am less enthusiastic. Still optimistic but I now think Judge Kelly had a hard time accepting any notion of ultra vires and it is hard to assess whether Cooper's antithetical argument made any impact. Although she seems to think the conservatorship did not attain its mission.

 

It was not brought up in court but DeMarco actually went against Geithner when DeMarco raised the guarantee fees. This weakens any notion of direction. Nationalization seems indisputable from any angle. And I do not know enough about the legal implications of the Cedarminn ruling. Not sure where this leaves us but at least two judges appeared sympathetic. 

[allnatural]

The implications of the Cedarminn ruling is pretty straight forward. As highlighted by Judge Willet in his dissent, he cited the Cedarminn ruling as precedent when drawing his conclusion that FHFA violated its statutory obligations as conservator. The 8th circuit in Cedarminn already ruled that there are clear distinctions between a receivers and conservators duties in which you cannot blur the line, and its a conservators MANDATE to conserve and preserve. None of this "may" non-sense.

 

Let's see if that's enough to convince 2 of the 3 judges in the 8th circuit. If they rule to dismiss, it will be interesting to see what rationale they come up with to justify going AGAINST their own circuits previous judgement on the matter. I think its our best shot in the case but time will tell. Wouldn't be surprised if we lose 0-3 at this point ::)

[Midas79]

The implications of the Cedarminn ruling is pretty straight forward. As highlighted by Judge Willet in his dissent, he cited the Cedarminn ruling as precedent when drawing his conclusion that FHFA violated its statutory obligations as conservator. The 8th circuit in Cedarminn already ruled that there are clear distinctions between a receivers and conservators duties in which you cannot blur the line, and its a conservators MANDATE to conserve and preserve. None of this "may" non-sense.

 

Let's see if that's enough to convince 2 of the 3 judges in the 8th circuit. If they rule to dismiss, it will be interesting to see what rationale they come up with to justify going AGAINST their own circuits previous judgement on the matter. I think its our best shot in the case but time will tell. Wouldn't be surprised if we lose 0-3 at this point ::)

 

The logic goes like this:

 

a) CedarMinn holds that conservators MUST preserve and conserve assets

b) The NWS does exactly the opposite

c) Thus the NWS is not the act of a conservator

d) Therefore the 4617(f) bar does not apply

 

Disagreeing with the first line is how Lamberth and others circumvented this line of reasoning (because they are not bound by the 8th Circuit's previous decisions), and the CedarMinn precedent in this court doesn't allow that dodge.

 

The Saxton lower court opinion actually disagreed with the third line, along with other courts, saying that conservators can do whatever they damn well please. But I don't see how that holds up if the first line is taken to be true.

 

Still, you're right that almost nothing has made sense so far. Lamberth, Ginsburg, and Sleet would get a round of appluase from Rold Gold the way they have contorted law and logic to arrive at their conclusions. Why should another round of it surprise us at this point?

 

 

Perhaps we are misunderstanding exactly what the CedarMinn precedent is? The Saxton lower court opinion (http://gselinks.com/Court_Filings/Saxton/17-1727-0018.pdf) only refers to CedarMinn as mandating that a conservator maintain the company's status as a going concern, while not mentioning having to preserve and conserve assets. I am having a devil of a time finding the actual CedarMinn 8th Circuit opinion from 1992, perhaps because I don't have access to PACER. The 8th Circuit's website only goes back to 1995. FindLaw (https://caselaw.findlaw.com/court/us-8th-circuit) doesn't go back that far either; it shows no results for calendar 1992.

 

 

Edit: a footnote from Willett's dissent in the Collins appeal has the quote

 

CedarMinn, 956 F.2d at 1453 (noting that a conservator’s “mission[]” is “to take action necessary to restore the failed [financial institution] to a solvent position and  to  carry  on  the  business  of  the institution  and  preserve  and  conserve  the  assets  and  property of the institution” (quoting 12 U.S.C. § 1821(d)(2)(D))

 

The "and" between "institution" and "preserve" seems to leave no wiggle room.

[allnatural]

TY for the clarity.

 

I found the case here https://casetext.com/case/resolution-trust-v-cedarminn-bldg-ltd

[Guest cherzeca]

All American filed its brief in 5th circuit re cfpb.  same principle different agency.  I am thinking collins my ask for rehearing en banc to not only fix the remedy granted, but also pave the way for All American.

 

https://www.dropbox.com/s/nf9y1i6c0cuhc72/all%20american%20th%20cir%20P%20brief.pdf?dl=0

all_american_th_cir_P_brief.pdf

[Midas79]

TY for the clarity.

 

I found the case here https://casetext.com/case/resolution-trust-v-cedarminn-bldg-ltd

 

Thanks. That what I get for just using Google!

[Midas79]

All American filed its brief in 5th circuit re cfpb.  same principle different agency.  I am thinking collins my ask for rehearing en banc to not only fix the remedy granted, but also pave the way for All American.

 

https://www.dropbox.com/s/nf9y1i6c0cuhc72/all%20american%20th%20cir%20P%20brief.pdf?dl=0

 

I am not seeing the similarities here. The Collins Ps just want the NWS struck down, but All American wants the entirety of CFPA gone. The Ps can't, at this point, up the ante and ask for all of HERA (relating to the creation and function of FHFA) to be struck down too, can they? Or perhaps a new case would be filed against FHFA if the All American Ps actually get what they want?

[allnatural]

https://www.jdsupra.com/legalnews/does-the-fifth-circuit-s-decision-71898/

[rros]

It is not in our best interest for any lawsuit to try to have HERA struck down. Cayne mentioned the mandate of 'protecting taxpayers' from the law itself. But down that same list at the bottom of that section of the law there's the 'companies must remain shareholders owned'. HERA protects us.

 

The way courts are getting around your #1  is by Cayne convincing judges the companies are operational, therefore going concern. So the conservator *must be conserving*. And since markets are functioning fine this reinforces the notion of conserving. The conclusion of 'nothing to see here' helps courts get to the promised land: "Conservator authority has not been exceeded so we are barred from review" .

 

The going concern issue can fool the untrained eye.

 

What courts don't see is that the trick used to keep the companies as going concern has been nationalization. Just when both were about to achieve that same status on their own. Replacing own capital for government capital is key to understanding where the confusion lies.

 

Nowhere the word nationalization shows up because HERA mandates the GSEs to remain private and because nowhere any law says a conservator is allowed to nationalize a company. The government is getting away with this because it has left the shares intact and can always go back to the reasoning the Treasury lady offered: that the shares continue to trade and may have residual value, thus no nationalization. Or, more correctly, no expropriation.

 

Growing up in a country where everything has been nationalized by Peron I am more than familiar with how this works.

 

Unfortunately, living in America, citizens cannot recognize what they have never seen before and remain confused. Ted Olson got it right when he told the judges on Perry's appeal: the government is running an empty shell. That's what we have. Treasury knows it and is doing an outstanding job in fooling the judges.

 

Nationalization in our saga is the most important invisible actor. Nobody can see it. It is a threat to nobody. Except to us who have suffered its devastating consequences. It seems to me all 3 judges of the Saxton appeal panel are sensing that something is not right.

[DRValue]

It is not in our best interest for any lawsuit to try to have HERA struck down. Cayne mentioned the mandate of 'protecting taxpayers' from the law itself. But down that same list at the bottom of that section of the law there's the 'companies must remain shareholders owned'. HERA protects us.

 

The way courts are getting around your #1  is by Cayne convincing judges the companies are operational, therefore going concern. So the conservator *must be conserving*. And since markets are functioning fine this reinforces the notion of conserving. The conclusion of 'nothing to see here' helps courts get to the promised land: "Conservator authority has not been exceeded so we are barred from review" .

 

The going concern issue can fool the untrained eye.

 

What courts don't see is that the trick used to keep the companies as going concern has been nationalization. Just when both were about to achieve that same status on their own. Replacing own capital for government capital is key to understanding where the confusion lies.

 

Nowhere the word nationalization shows up because HERA mandates the GSEs to remain private and because nowhere any law says a conservator is allowed to nationalize a company. The government is getting away with this because it has left the shares intact and can always go back to the reasoning the Treasury lady offered: that the shares continue to trade and may have residual value, thus no nationalization. Or, more correctly, no expropriation.

 

Growing up in a country where everything has been nationalized by Peron I am more than familiar with how this works.

 

Unfortunately, living in America, citizens cannot recognize what they have never seen before and remain confused. Ted Olson got it right when he told the judges on Perry's appeal: the government is running an empty shell. That's what we have. Treasury knows it and is doing an outstanding job in fooling the judges.

 

Nationalization in our saga is the most important invisible actor. Nobody can see it. It is a threat to nobody. Except to us who have suffered its devastating consequences. It seems to me all 3 judges of the Saxton appeal panel are sensing that something is not right.

 

Good post.

[Guest cherzeca]

@rros

 

I appreciate your take on this.  seen in this light, the nationalization questions in saxton are more interesting.

[locutusoftexas]

It is not in our best interest for any lawsuit to try to have HERA struck down. Cayne mentioned the mandate of 'protecting taxpayers' from the law itself. But down that same list at the bottom of that section of the law there's the 'companies must remain shareholders owned'. HERA protects us.

 

The way courts are getting around your #1  is by Cayne convincing judges the companies are operational, therefore going concern. So the conservator *must be conserving*. And since markets are functioning fine this reinforces the notion of conserving. The conclusion of 'nothing to see here' helps courts get to the promised land: "Conservator authority has not been exceeded so we are barred from review" .

 

 

As you know, my few posts have focused on nationalization as the key to shareholders being remunerated properly.

 

Although probably obvious to everyone on the board, the courts/judges have shown a distressing ignorance of simple rules of logic - hence your use of the word "convincing" in the quote. I thought that lawyers were supposed to understand high-school logic. Being a going concern is a necessary condition that the conservator is doing its job, i.e., "If a conservator is doing its job, then the company is a 'going concern.' " However, this is not a sufficient condition, i.e., it is not necessarily true that, "If a company is a going concern, then the conservator is doing its job." In the case of FnF, we have going concerns almost in spite of the conservator and certainly not because of the conservator.

 

Rather, since the courts have ruled that the NWS is "legal," all of the elements of a nationalization are in place. Here I define nationalization to be the legal (i.e., via the use of laws, even certified by courts, if necessary) seizure of private property (i.e., a company) by government. In this case the owners (shareholders) have not been properly remunerated for this seizure (i.e., nationalization) in violation of the Constitution.

 

Note that contrary to the reasoning highlighted by (but not attributed to) rros, if the conservator is taking entirely legal actions, this does not negate the fact the government has taken the property - legally (by definition) - as far as government is concerned. It is the failure to remunerate the owners for this property that violates the Constitution, which equates such ostensibly legal action with robbery. In this regard, the nationalization or property seizure is defined by the Constitution (Amendment 5) as a type of government purchase of property, which involves not only delivery of the property to the government but proper payment of the owners.

 

So the missing link in court action so far is the connection between nationalization, a legal action that is an element of a type of government purchase (legal, since the government and the Constitution defines this type of legal purchase) and a category of theft, in which a legal purchase has resulted in delivery of private property (i.e., the nationalization), but has not been completed by proper payment of the owners.

 

We can always hope that the courts will eventually see the logical error that has been overlooked by judges thus far and declare the NWS to be evidence that the conservator has usurped its duties and most importantly has purposefully failed to fulfill its duties. However, allowing the NWS to stand strengthens the argument that the companies have been nationalized without proper remuneration in violation of the definition by the Constitution of this type of "government purchase."

[Guest cherzeca]

"So the missing link in court action so far is the connection between nationalization, a legal action that is an element of a type of government purchase (legal, since the government and the Constitution defines this type of legal purchase) and a category of theft, in which a legal purchase has resulted in delivery of private property (i.e., the nationalization), but has not been completed by proper payment of the owners."

 

this is the case in the court of claims.  govt says it didn't do a taking; it was just busy being a conservator. all of the other cases argue that govt didn't have authority that it claims it had to do the action taken, or was unconstitutionally acting as an agency.

[rros]

Locus, yes, I remember you brought up nationalization... my question to you: say, Congress comes up with a NWS bill that does what the nws does but also offers remedy/compensation to the injured, would you as an American be fine with this because it complies with the takings clause of the 5th? While compensation may remedy a taking, should a taking have its scope enlarged so much as to validate nationalization? Or should a taking be only an exceptional measure, narrow in its scope, so as to validate property rights?

 

Here, the government has carefully extracted the inside of an egg for itself leaving the outter shell intact and eggshell is what is left (for us). The difference between a takings and a nationalization lies in the magnitude of the action and the size of the damage inflicted. While in a taking the remedy may simply be the $2 the preferreds were valued at, at the time of the nws, a full nationalization removes the whole property and any upside from you forever. Future value is gone and the Judge in Saxton who asked several times "what about future value?" understood the damage has been enormous. Not takings size, but nationalization size. Please note, Treasury used the words "all future earnings" and "sweeping going forward". And while the Treasury lady can say the conservatorship is indefinite (no timing), the structure of the nws (not the original PSPAs) has made the conservatorship eternal (timing expressed as forever). The nws not only altered compensation, it altered time from "some day" to "never". From possibly retaining earnings one day to never be allowed to do so.

 

FHFA was not a receiver but neither it was a conservator. It acted as a nationalizer disguised as conserving. Judges trying to understand FHFA's actions in terms of the law equates to trying to fit a round peg in a square hole. Which may magically lead to concluding FHFA did something it was not allowed to. 

 

And a question to the board (and I am humbled by the great minds here reading).

 

Did Cayne get this one wrong? He said Firrea did not even apply to Cedarminn. However, the history is this:

Congress passed the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) in August of 1989. Under FIRREA, RTC statutorily succeeded FSLIC as conservator of Midwest Savings. After negotiations aimed at selling Midwest Savings in its entirety failed, the conservator sold Midwest Savings' deposits to other institutions in October of 1990. On October 5, 1990, RTC was appointed receiver of Midwest Savings. Shortly thereafter, on October 29, 1990, RTC repudiated the CedarMinn leases.

 

Why does he disregard FIRREA? It's been in effect for more than 1 year when the lawsuit hit.

 

 

[allnatural]

Im not sure why he said that. But Judge Benton I believe stopped him in his tracks and said, “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.”

[Guest cherzeca]

Im not sure why he said that. But Judge Benton I believe stopped him in his tracks and said, “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.”

 

cayne blew that.  while he is right that the holding of CedarMinn is not directly on point, the analysis as to the difference between C and R is on point and cayne did not look good saying that CedarMinn didn't apply to saxton.  just like when cayne contradicted judge by saying fhfa direction was not a particularly strong P claim right after the judge just said it was.  not how to win friends and influence people.  CedarMinn goes against the fhfa argument that HERA allows a conservator to operate the company without second guessing.  there must be second guessing allowed if there are things a C can do that a R doesn't do and vice versa, and that is what CedarMinn is all about

[locutusoftexas]

Locus, yes, I remember you brought up nationalization... my question to you: say, Congress comes up with a NWS bill that does what the nws does but also offers remedy/compensation to the injured, would you as an American be fine with this because it complies with the takings clause of the 5th? While compensation may remedy a taking, should a taking have its scope enlarged so much as to validate nationalization? Or should a taking be only an exceptional measure, narrow in its scope, so as to validate property rights?

 

Here, the government has carefully extracted the inside of an egg for itself leaving the outter shell intact and eggshell is what is left (for us). The difference between a takings and a nationalization lies in the magnitude of the action and the size of the damage inflicted. While in a taking the remedy may simply be the $2 the preferreds were valued at, at the time of the nws, a full nationalization removes the whole property and any upside from you forever. Future value is gone and the Judge in Saxton who asked several times "what about future value?" understood the damage has been enormous. Not takings size, but nationalization size. Please note, Treasury used the words "all future earnings" and "sweeping going forward". And while the Treasury lady can say the conservatorship is indefinite (no timing), the structure of the nws (not the original PSPAs) has made the conservatorship eternal (timing expressed as forever). The nws not only altered compensation, it altered time from "some day" to "never". From possibly retaining earnings one day to never be allowed to do so.

 

FHFA was not a receiver but neither it was a conservator. It acted as a nationalizer disguised as conserving. Judges trying to understand FHFA's actions in terms of the law equates to trying to fit a round peg in a square hole. Which may magically lead to concluding FHFA did something it was not allowed to. 

 

 

rros: As an American, I am offended (more disgusted) at the NWS and its use by FHFA (as a pseudo-agent of Treasury) in conjunction with fraudulent accounting to rob the shareholders of their company. I would feel the same about a similar direct action by Congress.

 

I am not sophisticated enough to distinguish, in a legal sense, nationalization of a company from a taking (e.g., see https://www.law.cornell.edu/wex/takings). However, I get your point about the size and temporal extent of the actions taken with regard to GSEs. My point was to make a strong case for nationalization (e.g., NWS operates in perpetuity) and to understand the odds of winning the case in Claims court, which appears to be our best opportunity.

 

Even if, as you suggest, the compensation in Claims court were to fall predictably short of fair and appropriate, my idea here is that a win in a court is likely necessary to induce action on the part of FHFA/Treasury (or Congress) to deliver the GSEs from conservatorship, thereby returning them to their rightful owners, the shareholders. So in such a longer view, the win (and the attendant publicity) would be more important than the compensation in Claims court. Given this view, I don't particularly care in which court or case the shareholders achieve a win.

 

So I agree with everything that you said and appreciate your polite response to my more simple-minded approach to this.