WithCatz –
The answer to your question is I do not know.
However, the FDIC is in place to protect the depositors, and it would seem logical to me that returning the depositor’s money to their bank accounts would be at the top of any list of priorities. As you know, depositing money into an FDIC protected bank account is “risk free” to the depositor up to $250K; the key phrase here being “risk free”. Contrarily, the word “invest” implies “risk”, and that is what all investors, including the MBS purchasers, know and accept before investing. I mentally include the purchasers of the MBSs as members of claimants. In the past, I have seen a small hierarchy of how FDIC-R assigns priorities in a receivership, but it has lost its way in the myriad of research documents I have read. If I were one of our self-serving, criminal politicians and had a lot of money invested by a large hedge fund into WMB MBSs, I know who would be next on the list after the depositor if I could wield the power to make it so. If the FDIC-R recovered a value of $100M, the bank (depositors) would get any part of it needed to make the deposits whole, and then claimants would be satisfied in order of the FDIC-R priority list. I feel certain the WMI estate will be at the very bottom of the list.
FDIC-R does not recognize “safe harbor” or “exempt assets” as they relate to bankruptcy. This maneuver protects no one and no asset in a receivership, including the MBS purchasers, because it is relevant only in bankruptcy court. As assets “hidden in plain sight” do not exist to the court, the protection of those assets does not exist to FDIC-R. This very topic is probably what FDIC and the court had a small spat about. The court probably stepped out of bounds on the subject of “safe harbor” and “exempt assets”, and the FDIC forcefully reminded the court of the power of the FDIC on their side of the line in the sand. The court had no power over FDIC except in bankruptcy matters (remember, the protected assets were not a part of the bankruptcy), and agreed with FDIC. FDIC-R could and would do whatever was legal with the protected assets. Additionally, this subject was probably the topic of many of the “behind doors sessions” of the court, and the redacted documents. The debtors did not want others (equity) to know this information. However, it was impossible to suppress the topic during negotiations, and equity did know after the Trustee authorized the Equity Committee. Even then, the EC could not use the value of the protected assets as an argument to prevent cancellation (enter Nate Thoma, insider trading, equitable disallowance, etc.).
WMI/WMB hid the assets “in plain sight” before OTS seized WMB, and the maneuver is useful in a bankruptcy only by the debtor to justify cancelling equity, showing there is not enough value in allowable assets to pay creditors and equity. You can bet the creditors knew about the “hidden in plain sight” value of the mortgages, and knew that FDIC-R would return “value-in-kind” during the receivership.
We have absolutely no control over the outcome of the receivership. Whatever the final tally, we will have to accept it and move on.
We are the ones who did not know how it worked. We still do not know.
Mostly opinion.
Best regards,
David West
