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

[Luke 532]

Kudlow, per his Twitter account, will be discussing FannieGate again this morning on his radio show.

 

I wont be/wasnt able to listen. Please let us know if anything good was said.

 

I didn't get a chance to listen but his podcast should be available at the following link soon: http://www.wabcradio.com/2012/12/09/kudlowpodcasts/

[stevevri]

Kudlow, per his Twitter account, will be discussing FannieGate again this morning on his radio show.

 

I wont be/wasnt able to listen. Please let us know if anything good was said.

 

It was a pretty unsophisticated look. Wallison pretty much paraded the opinion that Fannie and Freddie have only paid interest and not the principal, remain dangerous and continue to grow, and could need another bailout. No mention of the sweep. Kudlow didn't challenge any of it. It focused more on the fact Fannie/Freddie made a ton of donations to Clintons and Obama in the past (yet they are barred from making any political contributions right now).

[merkhet]

I think the most important date right now is August 10th. If the government files a response, they will lose control of the timing in the case (i.e. Sweeney could rule at any time for unsealing depending on whether Fairholme is required to post a rebuttal).

[Luke 532]

I think the most important date right now is August 10th. If the government files a response, they will lose control of the timing in the case (i.e. Sweeney could rule at any time for unsealing depending on whether Fairholme is required to post a rebuttal).

 

Would you go as far to say the government's most logical choices at this point are to either (1) try again to get an extension (delay) beyond the 10th, (2) push to settle or release rather than let Sweeney decide on whether or not to unseal, (3) hope for the best with Sweeney's decision on whether or not to unseal, or (4) other?

 

I would think #1 might not be a possibility since she has already set August 10th as the date after the government asked for August 17th.  It's probably an unanswerable question, but I'd be interested in what you believe are the probabilities of 2, 3, or 4?

[CorpRaider]

Kudlow, per his Twitter account, will be discussing FannieGate again this morning on his radio show.

 

I wont be/wasnt able to listen. Please let us know if anything good was said.

 

It was a pretty unsophisticated look. Wallison pretty much paraded the opinion that Fannie and Freddie have only paid interest and not the principal, remain dangerous and continue to grow, and could need another bailout. No mention of the sweep. Kudlow didn't challenge any of it. It focused more on the fact Fannie/Freddie made a ton of donations to Clintons and Obama in the past (yet they are barred from making any political contributions right now).

 

If you expect anything from him other than worthless idealogical propaganda, you will likely always be disappointed.

[merkhet]

I think the most important date right now is August 10th. If the government files a response, they will lose control of the timing in the case (i.e. Sweeney could rule at any time for unsealing depending on whether Fairholme is required to post a rebuttal).

 

Would you go as far to say the government's most logical choices at this point are to either (1) try again to get an extension (delay) beyond the 10th, (2) push to settle or release rather than let Sweeney decide on whether or not to unseal, (3) hope for the best with Sweeney's decision on whether or not to unseal, or (4) other?

 

I would think #1 might not be a possibility since she has already set August 10th as the date after the government asked for August 17th.  It's probably an unanswerable question, but I'd be interested in what you believe are the probabilities of 2, 3, or 4?

 

I think you have the order of preference right, but I think assigning probabilities would be a difficult thing to do.

[muscleman]

I think the most important date right now is August 10th. If the government files a response, they will lose control of the timing in the case (i.e. Sweeney could rule at any time for unsealing depending on whether Fairholme is required to post a rebuttal).

 

Would you go as far to say the government's most logical choices at this point are to either (1) try again to get an extension (delay) beyond the 10th, (2) push to settle or release rather than let Sweeney decide on whether or not to unseal, (3) hope for the best with Sweeney's decision on whether or not to unseal, or (4) other?

 

I would think #1 might not be a possibility since she has already set August 10th as the date after the government asked for August 17th.  It's probably an unanswerable question, but I'd be interested in what you believe are the probabilities of 2, 3, or 4?

 

I don't have any expectation for government to become realistic and settle. You would have to think they operate as one highly intelligent person good at game theories to come out and start talking about settlement right now.

 

Governments are usually a group of most bureaucratic people who don't have high IQ. These behaviors usually lead things to extremes, if you read and thoroughly understand George Soros' books that mention the interplay between government regulators and financial markets.

 

Don't want to upset any reader here who work for the government, so I wanted to elaborate a bit about my thinking above.

 

1. A psychological study shows that people's brain activity levels are the lowest in group discussion and highest in independent ventures. When highly intelligent people join the government and participate in group discussions all day long, the brain activity levels will drop and these highly intelligent people as a group, will act like an idiot.

 

2. Governments are usually highly bureaucratic. There will always be a lot of finger pointing and blaming against each other, leaving the whole group in a frozen state until a disaster has already happened. Then consensus will be reached again and actions will be taken promptly. Governments are usually backward looking when making decisions instead of forward looking.

 

Therefore, I do not expect any settlement here.

[TheAiGuy]

 

1. A psychological study shows that people's brain activity levels are the lowest in group discussion and highest in independent ventures. When highly intelligent people join the government and participate in group discussions all day long, the brain activity levels will drop and these highly intelligent people as a group, will act like an idiot.

 

 

A couple of points here: 1) this isn't the type of thing you can conclude from fMRI -- showing increasing or decreasing activation does not imply intelligence, it mostly imply that a section of the brain is involved in the specific psychological task the person in the fMRI is doing. 2) The experiment, as you've explained, sounds far fetched.  Typically, in fMRI studies people are completing a specific psychological task (for examples, identifying pictures they have previously seen) and it is very, very difficult to have people act freely (as would be needed to participate in a group discussion) and make inferences about the fMRI signal.

 

[Luke 532]

I think the most important date right now is August 10th. If the government files a response, they will lose control of the timing in the case (i.e. Sweeney could rule at any time for unsealing depending on whether Fairholme is required to post a rebuttal).

 

Would you go as far to say the government's most logical choices at this point are to either (1) try again to get an extension (delay) beyond the 10th, (2) push to settle or release rather than let Sweeney decide on whether or not to unseal, (3) hope for the best with Sweeney's decision on whether or not to unseal, or (4) other?

 

I would think #1 might not be a possibility since she has already set August 10th as the date after the government asked for August 17th.  It's probably an unanswerable question, but I'd be interested in what you believe are the probabilities of 2, 3, or 4?

 

I think you have the order of preference right, but I think assigning probabilities would be a difficult thing to do.

 

Thanks, Merkhet.  I agree that assigning probabilities is difficult. 

 

It is somewhat exciting when one ponders that outside of asking Sweeney to delay (again), the most logical course of action for the government is to seriously consider release or settlement prior to August 10th.

[Mephistopheles]

I think the most important date right now is August 10th. If the government files a response, they will lose control of the timing in the case (i.e. Sweeney could rule at any time for unsealing depending on whether Fairholme is required to post a rebuttal).

 

Would you go as far to say the government's most logical choices at this point are to either (1) try again to get an extension (delay) beyond the 10th, (2) push to settle or release rather than let Sweeney decide on whether or not to unseal, (3) hope for the best with Sweeney's decision on whether or not to unseal, or (4) other?

 

I would think #1 might not be a possibility since she has already set August 10th as the date after the government asked for August 17th.  It's probably an unanswerable question, but I'd be interested in what you believe are the probabilities of 2, 3, or 4?

 

I think you have the order of preference right, but I think assigning probabilities would be a difficult thing to do.

 

Thanks, Merkhet.  I agree that assigning probabilities is difficult. 

 

It is somewhat exciting when one ponders that outside of asking Sweeney to delay (again), the most logical course of action for the government is to seriously consider release or settlement prior to August 10th.

 

And even if she delays, it will be another month or so max. So really, settling is the best option assuming the documents are bad enough to not show to the public.

 

Allow the Court to possibly throw numerous former & present Obama officials under the bus vs. end the sweep and still earn a huge windfall with the warrants. What would you choose?

 

Not holding my breath but it's certainly exciting to think about.

 

 

[Luke 532]

 

And even if she delays, it will be another month or so max. So really, settling is the best option assuming the documents are bad enough to not show to the public.

 

Allow the Court to possibly throw numerous former & present Obama officials under the bus vs. end the sweep and still earn a huge windfall with the warrants. What would you choose?

 

Not holding my breath but it's certainly exciting to think about.

 

+1

[Mephistopheles]

Merkhet, if Greenberg gets damages in appeals court, does that set a precedent for FNMA/FMCC common holders to challenge the bailout? In this case the upside would be $100 assuming it's $20 today, making it 50:1 odds.

 

Do you think this case would be at least as strong as Greenberg's, especially in light of the excessive DTA writedowns? It seems the GSEs were in better shape than AIG in 2008.

 

I wonder if Ackman is planning on challenging the original bailout depending on what happens with Greenberg. I don't see why not to give it a shot.

[TwoCitiesCapital]

Merkhet, if Greenberg gets damages in appeals court, does that set a precedent for FNMA/FMCC common holders to challenge the bailout? In this case the upside would be $100 assuming it's $20 today, making it 50:1 odds.

 

Do you think this case would be at least as strong as Greenberg's, especially in light of the excessive DTA writedowns? It seems the GSEs were in better shape than AIG in 2008.

 

I wonder if Ackman is planning on challenging the original bailout depending on what happens with Greenberg. I don't see why not to give it a shot.

 

It was my understanding that it would not set the precedent. Greenberg had a case because of the particular regulator and their actions taken. Ours was done by the U.S. Treasury so it's not the same.

[merkhet]

Merkhet, if Greenberg gets damages in appeals court, does that set a precedent for FNMA/FMCC common holders to challenge the bailout? In this case the upside would be $100 assuming it's $20 today, making it 50:1 odds.

 

Do you think this case would be at least as strong as Greenberg's, especially in light of the excessive DTA writedowns? It seems the GSEs were in better shape than AIG in 2008.

 

I wonder if Ackman is planning on challenging the original bailout depending on what happens with Greenberg. I don't see why not to give it a shot.

 

No. The AIG case is against the Fed. Our case is against the Treasury. They have different rules and regulations concerning what they can do. The reason the court ruled against The Fed was based on something called Rule 13(3) which has nothing at all to do with HERA.

 

Additionally, the main crux for the 2008 bailout is that the board consented to going into conservatorship. You'd have to prove coercion of some sort to try and unravel that one. The fact that Fannie & Freddie could have survived the 2008 situation is completely irrelevant.

[Mephistopheles]

 

No. The AIG case is against the Fed. Our case is against the Treasury. They have different rules and regulations concerning what they can do. The reason the court ruled against The Fed was based on something called Rule 13(3) which has nothing at all to do with HERA.

 

Additionally, the main crux for the 2008 bailout is that the board consented to going into conservatorship. You'd have to prove coercion of some sort to try and unravel that one. The fact that Fannie & Freddie could have survived the 2008 situation is completely irrelevant.

 

I'd be surprised if there wasn't some sort of pressure by the Paulson Treasury to secure the free warrants from the company. Though, I don't know what must happen to be considered coercion.

 

In addition to a 13(3), Wheeler ruled it as an illegal exaction under the Fifth Amendment. If there was coercion, would this not be the perfect precedent?

[colinwalt]

FAIRX Semi-Annual

 

http://www.fairholmefunds.com/s/FAIRX-Semi-Annual-Report.pdf

 

The guy has balls.... 11.1% in Fannie + Freddie - here's some of what he has to say...

 

Today, shareholders of The Fairholme Fund collectively own $3.4 billion liquidation value of Fannie Mae and Freddie Mac preferred stock. That means each shareholder effectively owns approximately $25,000 (on average) of two of the most profitable franchises in America. Yet for reasons that are not entirely understood, some in government apparently want their friends in the mortgage-industrial complex to

take for free what you, the shareholders of these companies, paid for with cash. So we continue to search for the truth:

 

• Why did federal regulators design a financial support program for Fannie and Freddie on the basis of academic estimates of future performance rather than tried and true statutory accounting and claims-paying ability (which is the standard for all regulated mortgage insurers)?

• Why did federal regulators require Fannie and Freddie, while in conservatorship, to purchase $40 billion per month in underperforming junk bonds from competitors?

• Why did federal regulators force Fannie and Freddie, while in conservatorship, to participate in Treasury’s Home Affordable Modification Program (HAMP) and Home Affordable Refinance Program (HARP), which resulted in more than $46 billion of losses that the companies would not have otherwise incurred?

• Why did mortgage-backed securities issued by Fannie and Freddie perform dramatically better than private label securities issued by big banks throughout the financial crisis?

• Why did federal regulators settle litigation cases initiated by Fannie and Freddie against major financial institutions for significantly less than what other similarly situated plaintiffs recovered?

• Why did federal regulators seize more than $18 billion in litigation proceeds recovered by Fannie and Freddie to date?

• Why did federal regulators order Fannie and Freddie to delist their securities from the New York Stock Exchange in 2010?

• Why did federal regulators prohibit Fannie Mae from selling $3 billion of Low Income Housing Tax Credits to third-party investors?

• Why were Fannie and Freddie, while in conservatorship, forced to divert billions of dollars in guaranty fees to Treasury to offset the cost of a payroll tax cut?

• Why did FHFA, as conservator, force Fannie and Freddie to gift all of their capital and all future earnings to Treasury in perpetuity?

• Why were Fannie and Freddie, while in conservatorship, forced to pay “voluntary” cash dividends to Treasury if funds were not available and the regulated entities were “not in capital compliance?”

• Why did FHFA force Fannie and Freddie, while in conservatorship, to issue debt in order to monetize their deferred tax assets and pay the proceeds to Treasury in 2013, particularly when FHFA had previously stated that deferred tax assets “[could] not be monetized?”

• Why did Fannie Mae CEO Tim Mayapoulos describe the Net Worth Sweep as a “positive change” with “a lot of good in it” in his August 2012 announcement to employees? Was he coerced by federal regulators?

• Why has the Securities and Exchange Commission permitted a single controlling shareholder (i.e., Treasury) and its affiliates to simultaneously act as director, regulator, conservator, supervisor, contingent capital provider, and preferred stock investor of two publicly traded companies?

• Why do some Treasury officials question the sustainability of Fannie and Freddie’s earnings power in the years ahead, when Treasury’s own 2014 Annual Report indicates that the companies will be c onsistently profitable for each of the next 25 years?

• Were certain federal government employees who crafted the Net Worth Sweep acting at the behest of crony capitalists seeking to displace Fannie and Freddie?

[Jurgis]

FAIRX Semi-Annual

 

http://www.fairholmefunds.com/s/FAIRX-Semi-Annual-Report.pdf

 

The guy has balls.... 11.1% in Fannie + Freddie

 

I wonder how many FAIRX holders are aware... and how they are reacting.

[merkhet]

FAIRX Semi-Annual

 

http://www.fairholmefunds.com/s/FAIRX-Semi-Annual-Report.pdf

 

The guy has balls.... 11.1% in Fannie + Freddie

 

I wonder how many FAIRX holders are aware... and how they are reacting.

 

I believe he's down to $5 billion from $8 billion last year pre-Lamberth opinion on GSEs, so my guess is that at least some of the (ex-)holders are aware.

[PLynchJr]

Man...10 years of under-performance now for FAIRX.  :o

[fareastwarriors]

FAIRX Semi-Annual

 

http://www.fairholmefunds.com/s/FAIRX-Semi-Annual-Report.pdf

 

The guy has balls.... 11.1% in Fannie + Freddie

 

I wonder how many FAIRX holders are aware... and how they are reacting.

 

I believe he's down to $5 billion from $8 billion last year pre-Lamberth opinion on GSEs, so my guess is that at least some of the (ex-)holders are aware.

 

I been adding modestly to my FAIRX holdings for past few years but my patience is running out.

[Jurgis]

FAIRX Semi-Annual

 

http://www.fairholmefunds.com/s/FAIRX-Semi-Annual-Report.pdf

 

The guy has balls.... 11.1% in Fannie + Freddie

 

I wonder how many FAIRX holders are aware... and how they are reacting.

 

I believe he's down to $5 billion from $8 billion last year pre-Lamberth opinion on GSEs, so my guess is that at least some of the (ex-)holders are aware.

 

I been adding modestly to my FAIRX holdings for past few years but my patience is running out.

 

If Fannie/Freddie work out, FAIRX would go approximately 70% up (10% 7x) assuming no other losses. So FAIRX is quite a lot Fannie/Freddie bet...

[merkhet]

http://static1.squarespace.com/static/53962eb7e4b053c664d74f3d/t/55b902f1e4b0c41d46927859/1438188273928/FAAFX_PM+Letter.pdf

 

Contrary to popular misconception, neither Fannie nor Freddie ever had a “funding” problem. As one shrewd observer has noted, “Because each GSE’s balance sheet was comprised of highly liquid Mortgage Backed Securities (MBS) that pay off on a monthly basis, it should have been easy for either to pledge securities to raise money or to shrink their balance sheet and meet their financial obligations as they came due.” Indeed, the claims-paying ability of each mortgage insurer has never, ever been in doubt.

 

Oddly enough, Berkowitz is quoting Eddie Lampert in one of his letters. (The Fairholme Allocation Fund.)

[doughishere]

From Bill Maloni's GSE Blog:

 

Did Senate Just Keep F&F Alive For 4 More Years?

 

 

In another swat at the GSEs, the Senate last Wednesday night voted to use 10 basis points of Fannie and Freddie g-fee income to fund part of the Highway Bill.

 

So, the chamber with many GSE haters voted to keep the “golden geese” alive for four more years, because they keep on giving. Yet, the chamber’s actions had little to do with what is the best mortgage finance system for the nation, professionals in the industry, or the American consumer. They just needed a “pay for.”

 

Bottom line, if unchanged, that means the GSEs are there to kick around for at least 48 more months. It also gives F&F supporters the same time to rally around their operational strength and possibly build a majority for recapitalizing the mortgage giants, thus removing the self-imposed GSE “Sword of Damocles” over the systems which the pols in both parties claim they want.

 

But, after all the back and forth, who knows which of these anti-GSE provisions survive or wind up on the congressional cutting room floor, along with how much of F&F?

 

The Washington Post editorialized against the Senate highway bill and its revenue sources—arguing for a gas tax and against cutting Fed bank fees--but could not bring itself to include the GSE fees in their complaint. So, predictable.

 

https://www.washingtonpost.com/opinions/a-better-than-usual-but-still-not-ideal-highway-bill/2015/07/24/2f83defc-3230-11e5-8353-1215475949f4_story.html

[Eye4Valu]

I'm pretty sure FAIRX's Fannie/Freddie exposure was always around 11%. 10% pref, 1% common. I've always found his exposure to the pref to be an interesting contrast to Ackman's exposure to the common. My thinking has always been that the pref is a contract that the gov has breached. I think the courts are going to have to decide this one. While RRR is a win win solution for everybody, everybody is too entrenched in their desire for the money to settle.

[Luke 532]

Al Sharpton in The Washington Post, 8/3/2015:

 

"Ending the conservatorship is a start in the right direction, allowing Fannie and Freddie to rebuild capital and expand access to credit to more low- and moderate-income families, which, in my view, will ensure working-class families have access to owning a home and securing a future for their families."

 

"Yes, we will have to work hard to ensure that past mistakes are not repeated, but this administration has the authority today, and the moral obligation, to take action while there’s a chance to save homes and provide families a pathway to homeownership. Before the disparities among Americans grow even starker. The time to act is now."

https://www.washingtonpost.com/posteverything/wp/2015/08/03/sharpton-lets-act-now-to-give-everyone-a-chance-at-homeownership-and-the-american-dream/