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Friday, June 03, 2016 2:09:12 PM
https://www.frbatlanta.org/cenfis/publications/notesfromthevault/1405
That leaves the third amendment's income sweep or the payment periodic commitment fees as the only options that would be fair for taxpayers. Periodic commitment fees certainly have had the appearance of being fairer to the remaining shareholders, as these were a part of the original senior preferred contract. Whether a profit sweep versus fair commitment fees (fees fair to taxpayers) would have resulted in significantly lower payments from the GSEs to the Treasury is less clear. One way of estimating fair fees would have been to price the commitment using sophisticated financial methods along the lines discussed in my earlier post. A simpler alternative for calculating the value of the Treasury's commitment would be to compare the relative contributions of the private shareholders and Treasury to the financial strength of Fannie and Freddie. This latter method would suggest that the periodic commitment fee should have been equal to (virtually) all of the GSEs' profits as the taxpayers were bearing (virtually) all of the risks in August 2012.4
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