Why does TPS “go first”?
Kindly pardon the length of this post. I wanted to be as factual as possible in the hope that others would poke holes in my reasoning and thus help me to more clearly see and understand what’s actually happening, as I’ve got a hell-of-a-lot riding on how this whole matter turns out. All of the following is just my very humble opinion:
Yesterday, I indicated in a posting that the most recent hearing was unimportant in that it was all about procedural matters and contained little, if anything, of substantive value. I was completely wrong. What took place, in the grand scheme of things, was VERY important.
1. “Turned to vapor”
Rosen’s admonition of March 12th has come back to haunt him. You’ll remember that he then warned Walrath that if the TPS claim didn’t go away his “global settlement” would “turn to vapor”. At the time he said that, I remembered wondering how it was that a paltry $1B claim could completely scuttle such a massive conspiracy to hide enormous assets. Why not simply “find” an additional $1B to pay those people off, and move the newly-announced “global settlement” forward to confirmation? I also wondered why it was that he was not ROOTING for them to be SUCCESSFUL with their claim. [After all, they were merely stating that their clients had purchased $1B of Wamu Bank securities that were secured by thousands of 2nd mortgages held by Wamu Bank. Under the terms of their deal with the bank, if something ‘bad’ happened, like bankruptcy (which was inconceivable at the time they purchased the securities), then Wamu Bank could replace the superior security that all those thousands of 2nd mortgages represented, with inferior, preferred stock, which in such an instance would have far less value. But Wamu Bank could only make that switch IF it adhered to the criteria set forth in the deal under which the TPS securities were offered and purchased. TPS was/is simply now saying that the criteria was not properly followed, so the switch never took place, and therefore all those valuable thousands of 2nd mortgages (that were given over to JPM by the receiver) should still be securing our TPS securities, not the value-inferior preferred shares of a bankrupt holding company (WMI). If you agree with the TPS assertions, then you would be immediately free to remove $1B of liabilities from WMI’s balance sheet and send them kicking & screaming over to JPM’s balance sheet. WHY BE OPPOSED TO THAT???] The answer to that question became clear at this week’s hearing when JPM’s attorney (from one of the world’s most prestigious law firms, the mighty Sullivan & Cromwell) admitted that it could not locate the valuation of the assets that secured the TPS securities. Walrath seemed as dumbstruck by the admission as the attorney for JPM was himself embarrassed by it. One can only chuckle at what the examiner must think about such an admission and how it’s likely to add grist to his preliminary report. Here, JPM’s absolutely stuck. If you can’t “locate” it for the TPS attorneys, then you can’t “locate” it for the examiner (when it will be requested, if not already requested).
2. “Find it or face a deposition” on October 1st.
Walrath’s elegant solution to this “problem” was the directive to either “find it, or face a deposition”. This immediately puts JPM in a perilous position. If it suddenly “finds” the valuation of those assets (i.e., the thousands of 2nd mortgages), then that would tend to instantly suggest that it was also capable of “finding” the other valuations for all the other assets it received by virtue of the transaction. In short, it would be very difficult to argue that other such valuations did not ALSO exist. Indeed, WEIL's utter silence on this critical issue speaks volumes about that firm’s representation – or lack thereof – as to the debtor’s estate. To now surrender the TPS valuation would be tantamount to cracking-open the lid to the existence and location of other assets. It would be like stumbling onto the Rosetta Stone. But to now maintain that such valuations cannot be found is equally as perilous, as it flys in the face of common sense (i.e., Walrath’s incredulous “you can’t locate them!?!” outburst) and Walrath’s continued patience.
3. “You’ll go first, and others might wish to ride your coattails”
Posters seemed unimpressed with Walrath’s directive to the TPS attorney that he would “go first” at the November 1st confirmation hearing, and that others (objectors to Rosen’s DS/POR) might “follow on your coattails”. THIS WAS A HUGELY IMPORTANT STATEMENT, as it put the TPS matter on the SAME TRACK as confirmation. Prior to making that statement, they were proceeding along on two different tracks. Now they are one. The statement was also an EXPLICIT SHOT ACROSS ROSEN’S BOW. [In other words, ‘you, Mr. TPS attorney, get the first crack at “vaporizing” the DS/POR that is devoid of valuations. Your actions will make it unnecessary for me to rule on the matter, and I’d feel more comfortable with that scenario. And if YOU don’t prevail, then hopefully, there will be others, “ON YOUR COATTAILS”, that will’.] Folks, listen to that portion of the proceedings again. You can hear the GLEE in her voice.
4. Enormous pressure to settle.
The hearing added immense pressure on JPM to settle the case, in that it gave JPM its first real whiff of the danger that lies ahead for it. It must either “find” the valuations, and thereby provide a distinct trail to other valuations of assets that do not belong to it, or have its senior people face the TERROR of a deposition conducted by some of the brightest legal minds in the country, out to make a name for themselves by cracking this conspiracy wide open. Rosen knew this to be a danger back in March. JPM just recognized it 2 days ago. JPM CANNOT SUBJECT ITSELF TO SUCH A DEPOSITION. IT MUST SETTLE THE MATTER PRIOR TO OCTOBER 1ST. This is in keeping with the date I put forth in my two previous posts. Things got better for us two days ago. Things got MUCH better indeed.
