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Mel Watt's Christmas Gift To ACORN And Democrats
Cronyism: The Obama regime has quietly ordered Fannie Mae and Freddie Mac to start donating hundreds of millions of dollars a year to a permanent affordable-housing slush fund for Democratic activist groups.
Earlier this month, while few were paying attention, Federal Housing Finance Agency chief Mel Watt sent letters to the mortgage giants to "set aside in each fiscal year 4.2 basis points of each dollar of unpaid principal balance of new business purchases to be allocated to the Housing Trust Fund and the Capital Magnet Fund."
That's a 0.042% tax to equip the funds. HUD will run the housing fund; the Treasury Department will run the capital fund.
If the funds had been operating in 2010, when Fannie and Freddie together bought $856 billion in new mortgages, Fannie and Freddie would have pumped a whopping $360 million into the funds. Estimates put their total for fiscal 2015 at half a billion dollars.
The money will help build apartments for extremely low-income Americans, says Watt, the former Congressional Black Caucus leader whom President Obama hand-picked to regulate Fannie and Freddie. The funds will also help the poor afford their own homes through down payments and other assistance.
But nonprofit housing activist groups will distribute the funds. So count on money being diverted to ACORN fronts and clones, beholden to the Democratic Party, who in the past have laundered housing grant money to finance political campaigns.
As we've reported previously, ACORN affiliates are still operational in New York and other cities, having renamed themselves after ACORN was busted for fraud and corruption during the 2008 presidential campaign. They're also still receiving HUD housing grants.
In the past, these groups have used HUD grants to pressure banks to make ill-advised home loans that sped the mortgage crisis. Now a permanently funded war chest will aid their shakedown — courtesy of taxpayers still on the hook for Fannie and Freddie.
The last thing the nation needs is another Washington scheme that further politicizes the lending and home-building markets. Yet rest assured that will be the end result of these national housing funds.
Making matters worse, they're unaccountable to congressional appropriators, making them ripe for corruption and cronyism. We're talking about billions of dollars funneling through left-wing nonprofits and floating around in urban reinvestment projects sponsored by the likes of Rahm Emanuel and Al Sharpton and Jesse Jackson.
With this potential $500 million slush fund, moreover, the Obama regime is effectively turning Fannie and Freddie into off-budget welfare agencies — indeed, a self-sustaining shadow government for the left wing that will survive even Republican administrations.
Now we know what the president really had in mind when he promised to "reform" the bankrupt mortgage giants.
http://news.investors.com/ibd-editorials/123014-732671-obama-orders-fannie-freddie-to-set-aside-housing-slush-fund.htm
Expert: Another Housing Bubble is ‘Very Likely If We Don’t Change Our Policies’
By Barbara Hollingsworth December 30, 2014
(CNSNews.com) – Another housing bubble is “very likely if we don’t change our policies,” warns Peter Wallison, a former member of the Financial Crisis Inquiry Commission (FCIC), which investigated the "avoidable" 2008 financial meltdown.
“It’s going to happen again because we’ll have the same kind of housing market again,” explained Wallison, who is currently co-director of financial policy studies at the American Enterprise Institute (AEI).
Just six years after the overheated housing market bubble burst, triggering the Great Recession, Fannie Mae and Freddie Mac, which are still under government conservatorship, have been told to accept 3 percent down mortgages and to turn over a percentage of every loan they process to a government trust fund for affordable housing.
Didn't you write that Fannie and Freddie’s lowering of underwriting standards to help people buy houses they couldn’t afford was “the root cause” of the financial crisis? CNSNews.com asked Wallison.
“Yes, unfortunately, they have been more or less directed by their government regulator to accept these 3 percent down payment mortgages, and that is very much along the lines of what they were doing before,” Wallison replied.
“In fact, by the year 2000, they were beginning to accept zero down payment mortgages. So they’re not yet at the point where they are doing the things that were as bad as they were doing before, but a 3 percent down payment mortgage is a pretty weak mortgage,” he pointed out
How can Fannie and Freddie, which were established to stabilize the nation’s housing market, justify doing the same things that triggered a market collapse just six years ago? CNSNews.com asked him.
“Well, one of the reasons this is possible today is that the American people really do not understand what caused the financial crisis and the role of Fannie and Freddie in that,” he replied.
“As long as the idea is around that it was the banks on Wall Street and the financial institutions in general that caused the financial crisis, the American people will not understand that it was government housing policy – just the kind of thing that we’re talking about now - which caused the crisis.
“So we wait until we have another crisis, because the government is doing the same thing that it was doing before.”
But repeating the same mistake is not likely to end well, he added.
“So I think if we continue along these lines, [another housing market crash] is certainly a possibility,” Wallison told CNSNews.com. “You cannot have a housing system where people are getting mortgages that they can't afford to sustain.
“And in fact, it’s very bad for families to be lured into a situation where they are given a mortgage that over time they are unable to pay. Eventually it results in eviction. And when that happens, it’s not only bad for that family, it’s bad for everyone in the neighborhood where that family lived because it drives down the values of all the homes and all the mortgages in that area.
“So this is a very bad government policy, but one that the government will continue to pursue because it adds to what the government thinks of as the prosperity in the country because it increases home sales.
“And it is true that initially, it increases home sales, but over time it results in too many people owning homes that they can’t afford to keep up, they can’t afford to pay for, and we have another financial crisis.”
Wallison’s new book, “Hidden in Plain Sight: What Really Caused the World’s Worst Financial Crisis and Why It Could Happen Again,” which will be released in mid-January, “attempts to show that beginning in 1992, the government adopted policies, at least for Fannie Mae and Freddie Mac, that caused them over time to reduce their underwriting standards so substantially that the result was a very large number of very weak mortgages,” he told CNSNews.com.
In the book, Wallison cites a 2006 memo from a Fannie Mae staffer who wrote: “Everybody understood that we were now buying loans that we would have previously rejected but our mandate was to serve low-income borrowers. So that’s what we did.”
The sub-prime loans bought by Fannie and Freddie, which at the time “were the most highly leveraged financial institutions on the planet,” were subsequently the first to default, triggering the collapse of the housing market.
“By the year 2008, more than half of all mortgages in the United States were sub-prime or otherwise very weak mortgages. And of that half, three quarters were on the books of government agencies, principally Fannie Mae and Freddie Mac,” Wallison told CNSNews.com.
“So what we see from just that one fact is that the demand for these very poor-quality mortgages, the ones that failed and caused the financial crisis, was the responsibility of the government. The government had created a demand for those mortgages. That’s what it’s doing again with these 3 percent rules,” he said.
Wallison also refuted the oft-repeated claim that Fannie and Freddie have paid back all of the $187 billion in bailout money they received from the government.
“No, they haven’t. They haven’t paid anything back to the Treasury,” he told CNSNews.com. “They have paid back more in interest than they were lent, but when you pay back a loan, you also have to pay back the principal. That they haven’t paid back. So they still owe the federal government about $187 billion.”
Does this mean that Fannie and Freddie are in no shape to take on more risky, low-down-payment loans? CNSNews.com asked Wallison.
“That’s exactly right, and the taxpayers ought to be thinking about this, because it’s the taxpayers that have paid for the rescue of Fannie and Freddie. And if Fannie and Freddie again fail because they have bought so many of these poor-quality mortgages, who do you think is going to have to make up the difference?” he responded. “It’s going to be the taxpayers again.”
“But as long as the taxpayers are not complaining, the government will go ahead and do this. And one of the reasons the taxpayers are not complaining is they don’t really understand the connection between what Fannie and Freddie were doing through the 1990s and into the 2000s, in terms of buying very poor-quality mortgages. They don’t understand the connection between those poor-quality mortgages and the financial crisis that caused them to fail.”
FCIC’s final majority report, which was released in 2011, “blames the conditions in the financial system; I blame 27 million subprime and Alt-A mortgages – half of all mortgages outstanding in the U.S. in 2008… No financial system, in my view, could have survived the failure of such large numbers of high-risk mortgages once the bubble began to deflate,” Wallison wrote in his minority dissent.
“If you look at what entity created the demand for these very weak sub-prime and other poor-quality mortgages, 76 percent were on the books of government agencies, which is clear proof to my mind and to anyone who thinks about it that the government created the demand for those mortgages,” he told CNSNews.com.
“So that’s the reason I dissented from the final report of the FCIC, because they were blaming the private financial system for the crisis, when it fact it was the government’s action that created the weakness in the mortgage system.”
Federal Housing Finance Agency [FHFA] director Melvin Watt, who oversees the two mortgage giants, recently ordered Fannie and Freddie to make annual contributions to a low income housing fund for the first time since the 2008 crisis. The annual contribution from the two giant government-sponsored entities (GSEs), which together guarantee about 90 percent of all mortgages in the U.S., is estimated to be between $300 and $700 million.
“On November 13, 2008, the Director of the FHFA temporarily suspended the allocation of funds…and the temporary suspension has remained in effect since that date,” Watt wrote in a December 11 letter to Timothy Mayopoulos, CEO of Fannie Mae and Donald Layton, CEO of Freddie Mac.
However, beginning in 2015, both will be required to set aside “an amount equal to 4.2 basis points of each dollar of unpaid principal balance of its total new business purchases” for single and multi-family mortgages administered by the Housing Trust Fund (HTF) and the Capital Magnet Fund (CMF) “until further notice.”
“The decision by the FHFA to fund the National Housing Trust Fund and the Capital Magnet Fund will bring millions of dollars to New York for rental housing and is a step in the right direction to help ensure that hardworking New York families have safe and affordable places to live,” Sen. Charles Schumer (D-NY) said in a Dec. 11 press release.
But former HUD undersecretary Ken Blackwell, now the director of the Coalition for Mortgage Security (CMS), says FHFA “is the last agency that should be entrusted with a slush fund.”
Wallison noted that the same government policies intended to help lower-income Americans purchase homes were actually making it harder for them to do so.
“These very low-quality mortgages do cause housing prices to rise, and we had a huge bubble in housing prices that began in 1997 and continued through 2007. And one of the reasons for that is that mortgages were given away with very low down payments.
“Let’s take an example: If you have $10,000 to buy a house, you can buy a $100,000 house if the down payment requirement is 10 percent. But if they lower the down payment requirement to 5 percent, then you can buy a $200,000 house. So what is happening is that when you lower underwriting standards, more people can bid for more expensive houses. And a result of that is that housing prices go up, and they become much more expensive to low-income people.”
The solution is not more of the same, he pointed out.
“We have to go back to sound underwriting principles, the kinds of principles that were in place before the government changed its policies in 1992. And that would mean a 10 to 20 percent down payment, a good credit score, and a very good debt-to-income ratio. If that’s about 38 percent, and your credit score is 660 or above, and you put down 10 percent on a house, that is a solid mortgage. And in normal times, the default rate on such a mortgage is less than 1 percent.
“But during the financial crisis, we had default rates on some of the best mortgages that Fannie and Freddie were making up at 13 to 17 percent. Once we loosen these underwriting standards, so that anyone who wants a home is able to buy one despite a past record of defaulting on obligations, or despite the fact that the buyer does not have a substantial down payment, we end up with a very unstable system.
“That’s what happened to us in 2008 and that’s what we should try to prevent in the future.”
http://m.cnsnews.com/news/article/barbara-hollingsworth/expert-another-housing-bubble-very-likely-if-we-don-t-change-our
Court Filing Illuminates Morgan Stanley Role in Lending
Morgan Stanley's headquarters in New York.
Shannon Stapleton / Reuters
By NATHANIEL POPPER
December 29, 2014
Since the financial crisis, Wall Street firms have argued that they were victims, just like everybody else, of the bad mortgages that were churned out by subprime lenders like Countrywide and New Century.
Now, though, a trove of emails and confidential documents, filed in court, reveal the extent to which one of Wall Street’s leading banks, Morgan Stanley, actively influenced New Century’s push into riskier and more onerous mortgages, and brushed aside questions about the ability of homeowners to make the payments.
“Morgan Stanley is involved in almost every strategic decision that New Century makes in securitized products,” a Morgan Stanley internal report from late 2004 said, referring to the loans the bank packaged into mortgage bonds.
The Justice Department is currently examining the relationship between New Century and Morgan Stanley, and the bank’s sale of mortgage securities in the run-up to the financial crisis, according to a person briefed on the matter. After winning tens of billions of dollars from other banks, the Justice Department has turned its focus to Morgan Stanley, and is aiming to reach a settlement early next year, according to the person.
The new documents and emails, from 2004 to 2007, were recently filed in connection with a lawsuit and are not related to the Justice Department case. But they provide an inside picture of the process through which Morgan Stanley pushed New Century to issue more mortgages with burdensome conditions that would be lucrative for Morgan Stanley — including loans with balloon payments, adjustable interest rates and prepayment penalties that made them harder to refinance.
The bank appears to have gained its influence, in part, because it was regularly the largest single buyer of subprime loans from New Century.
The documents indicate that Morgan Stanley employees were aware of the low credit quality — and occasionally joked about it — even as they continued to snap up loans from New Century. A top due diligence executive at Morgan Stanley, Pamela Barrow, wrote to a colleague in 2006 sarcastically describing the “first payment defaulting straw buyin’ house-swappin first time wanna be home buyers.”
“We should call all their mommas,” Ms. Barrow added in the email. “Betcha that would get some of them good old boys to pay that house bill.”
Morgan Stanley would not comment on the Justice Department negotiations. But in court filings, the company said that “there is no evidence — not a single document or testimony by any witness” that Morgan Stanley” orchestrated, dictated or otherwise controlled New Century’s lending or underwriting practices.
The bank has said that it was competing for New Century loans with several other banks and did not have any special leverage with the lender. Some of the documents filed in the case suggest that Morgan Stanley was stricter than other Wall Street banks in determining which loans it would accept, causing tension with New Century at times.
A lawyer for Ms. Barrow, who no longer works at Morgan Stanley, did not respond to requests for comment.
It is no secret that Morgan Stanley and other Wall Street banks helped encourage the growth of the subprime mortgage market by buying loans to bundle into securities. But the banks have said they were generally passive buyers in this process, and got hurt when the quality of the loans became clear. Morgan Stanley was almost brought down by its bad mortgage bets.
Still, the newly released documents suggest that Morgan Stanley’s trading desk in New York played an active role in guiding the types of loans that were being made in places like Florida and Detroit.
After a meeting in 2004 with the New Century’s management team, a top executive on Morgan Stanley’s trading desk, Craig S. Phillips, wrote that New Century was “extremely pleased with the ‘partnership’ with Morgan Stanley.”
Mr. Phillips noted that the lender wanted to “collaborate on ways Morgan Stanley/NEW can work together in diversifying their originations in terms of channel and credit quality.”
The documents were submitted as part of a class-action lawsuit against Morgan Stanley that was filed in Federal District Court in Manhattan in 2012 by the American Civil Liberties Union on behalf of several borrowers. The suit accuses Morgan Stanley of dictating New Century’s lending policies, which the A.C.L.U. has argued were discriminatory and led to harsher loan terms for minorities.
Morgan Stanley tried to stop the suit from going forward, and denied that it had controlled New Century’s policies and that New Century’s policies had been discriminatory. But a New York federal judge ruled last year that the case could go forward, and said that “these high-risk loans, as opposed to better loans or even no loan at all, caused plaintiffs a concrete injury.”
The documents show that Morgan Stanley’s relationship with New Century developed over many years. By 2005, 10 years after New Century was founded, Morgan Stanley reported internally that it had bought half of the loans the lender had originated since 2001 — about $42 billion.
The documents suggest that the primary way Morgan Stanley guided New Century was in contracts that spelled out the kinds of loans the bank was willing to buy in pools of mortgages. A 2006 term sheet said that the bank wanted a $1 billion pool to be at least 85 percent adjustable-rate mortgages, with at least 75 percent of the pool to include a prepayment penalty. And it dictated how many loans the bank wanted from various geographic regions.
An internal Morgan Stanley report also said that the bank got a “ ‘first and last’ look each month at any whole loan sales by New Century and in exchange Morgan Stanley provides balance sheet liquidity for New Century.”
Morgan Stanley’s purchases from New Century stopped for a period in 2005, but picked up again later in the year.
In October 2005, a lower-ranking due diligence officer at Morgan Stanley, Robert Travis, emailed the head of the trading desk in New York about the quality of the loans the bank’s trading desk was buying. In one case, Mr. Travis said he discovered that a borrower who claimed to make $12,000 a month at an unknown company actually worked at a “tarot reading house.”
“There is not a lot of ‘common sense’ being used when approving these types of loans,” he wrote.
Rather than showing any concern about the problem loans, Steven J. Shapiro, head of the trading desk, responded with a narrow focus on how to get the loans purchased and packaged into securities, increasing what was referred to as “pull through.”
The most urgent warnings came from another lower-ranking due diligence officer, Bernard Zahn, who wrote detailed emails to both Ms. Barrow and Mr. Shapiro explaining, in increasingly urgent terms, problems with the loans they had bought.
“It isn’t ‘just a couple of typos or ‘mistakes’ as it was suggested,” Mr. Zahn wrote. “The more we dig, the more we find.”
Ms. Barrow congratulated Mr. Zahn: “good find on the fraud :).” But rather than pursuing his findings, she immediately went on: “Unfortunately, I don’t think we will be able to utilize you or any other third party individual in the valuation department any longer.”
An expert report filed by the A.C.L.U., written by Patricia A. McCoy, a law professor at Boston College and former official at the Consumer Financial Protection Bureau, said that “all of this should have caused Morgan Stanley to ramp up due diligence or scale back purchases — but it did neither.”
Morgan Stanley has said in court documents that it did, in fact, reject more New Century loans over time.
But the bank remained an important backer of New Century to the bitter end. In March 2007, after other banks had withdrawn their credit lines from New Century, Morgan Stanley gave it $265 million in financing. Soon after that, Morgan Stanley withdrew the money. New Century filed for bankruptcy a few weeks later.
http://mobile.nytimes.com/blogs/dealbook/2014/12/29/court-filing-illuminates-morgan-role-in-lending/?partner=rss&emc=rss&_r=0&referrer=
Ben Bernanke, Mervyn King BBC Interview On 2008 Crisis
Posted By: VW StaffPosted date: December 30, 2014 12:22:44 AMIn: Economics, VideosNo Comments
BBC guest editor Mervyn King was governor of the Bank of England when the global economic crisis hit in 2008. Across the Atlantic his opposite number was Ben Bernanke, chairman of the Federal Reserve when Lehman Brothers Holdings Inc Plan Trust (OTCMKTS:LEHMQ) went down in September of that year.
He stood down this year after 8 years and Mervyn King sat down with him in Washington to reflect.
On remaining calm during the midst of the crisis, Ben told Today: ‘if you’re ever in a car accident you’re solely focused on regaining control of the wheel and it’s only when the car stops spinning that you say oh my god that was really scary.’
First broadcast on the Today programme 29th December 2014
Audio of Ben Bernanke, Mervyn King is embedded below (good stuff)
http://www.valuewalk.com/2014/12/ben-bernanke-mervyn-king-bbc-interview-2008-crisis/
Haha yea I guess that's how it looks. Anyhow I did just buy some. It took 10 minutes to fill. Not used to that with fnma.
Well that is what I just did
Our Top 10 Posts Readers Will Admit Reading, And One They Won’t
4. Live Blogging the Sohn Investment Conference, May 5
What we said then: ”The Sohn Investment Conference, one of the most highly anticipated annual gatherings of hedge-fund managers, delivered plenty o
f news on Monday. Market-moving short positions and massive new bullish bets were again revealed at the gathering at Lincoln Center in New York City. This year’s roster included Bill Ackman, David Einhorn, Paul Tudor Jones and several more.”
What’s happened since: Mr. Einhorn’s short on athenahealth Inc. imagined the shares going to $7, but
instead they climbed above $150 for the first time last week. Mr. Ackman’s bet that U.S. courts would justify his bet on Fannie Mae and Freddie Mac has yet to come to pass.
http://blogs.wsj.com/moneybeat/2014/12/30/our-top-10-posts-readers-will-admit-reading-and-one-they-wont/
How a Court Case in Des Moines May Affect Your Retirement Savings
retirementOriginally published on InsideSources
All eyes are on Iowa. Investors nationwide will be watching a court case in Des Moines to learn whether the federal government has the right to seize the profits of mortgage giants Fannie Mae and Freddie Mac. Investors large and small could be affected.
Continental Western Insurance Co., a Des Moines-based regional insurer that owns shares in Fannie Mae and Freddie Mac, recently sued the US Government in federal court because the US Treasury has claimed all of Fannie Mae and Freddie Mac’s profits, denying shareholders their share of dividends. U.S. District Judge Robert Pratt for the Southern District of Iowa will be ruling on Continental Western’s legal standing.
Many investors across the country are tied to the fate of these companies. This includes those saving for retirement with mutual funds, which remain some of the largest investors in Fannie and Freddie stock. Judge Pratt’s decision could have a direct impact.
Some pension funds may also be affected. Des Moines-based radio host Jan Mickelson discussed the case in a segment last week (see 75:30 mark), noting that the Iowa Public Employee Retirement System (IPERS) is “heavily invested” in Fannie Mae and Freddie Mac.
According its most recent financial report, published last week but covering only up until June 30, 2014, the Iowa Public Employee Retirement System (IPERS) has over $1 billion invested in both Fannie Mae and Freddie Mac. InsideSources reached out to IPERS to confirm the size of their holdings in the mortgage giants. The equity holdings identified as being with Fannie and Freddie are “predominantly” mortgage-backed securities, according to a spokesperson for IPERS. These are unlikely to be directly affected by Judge Pratt’s ruling, notes IPERS. But many other investors will feel the impact of the ruling.
The lawsuit stems from the federal government’s decision to place Fannie Mae and Freddie Mac under conservatorship of the Federal Housing Finance Agency (FHFA). As the FHFA’s own website explains this role: “?A Conservator is the person or entity appointed to oversee the affairs of a Company for the purpose of bringing the Company back to financial health.”
How the government has run the enterprises as conservator is precisely what has precipitated the legal action by the plaintiffs, who represent investors in both Fannie and Freddie.
Michael H. Krimminger, a former top official with the Federal Deposit Insurance Corporation (FDIC) and who advised Congress on writing the law that established FHFA’s role with Fannie and Freddie, wrote for American Banker last week that “FHFA is ignoring the basic duty of a trustee: to protect the interests of all creditors.” Instead, he explains, FHFA is violating that responsibility by favoring the Treasury. “While Treasury provided critical up-front funding to the GSEs [Government-Sponsored Enterprises], it has now been well-compensated under the original agreements. It cannot simply strip the companies of cash in perpetuity. … The continuation of the sweeps through the conservatorships is a violation of every principle established in bankruptcy and in the more than 80 years of FDIC bank resolutions,” writes Krimminger. And it violates the law under which Fannie and Freddie fell under FHFA control.
When the housing bust hit in 2008, the FHFA took control of the companies. Fannie and Freddie were given what was essentially a $188 billion loan for which they would pay 10 percent interest. As it turned out, the two companies were in better financial shape than many had feared, and so they paid back the full amount of the loan plus interest.
At this point, it was expected that shareholders would begin receiving the dividends from these two profitable companies. But instead, in August 2012, the US Treasury decided that all the dividends would instead be paid to Treasury in perpetuity. Now, Fannie and Freddie have paid about $30 billion more than they owed to the Treasury.
This served two key functions: First, it essentially made all the shares of these companies worthless because any profits would go to the Treasury instead of shareholders. Second, it has allowed the Obama Administration to disguise what would otherwise be a higher federal deficit because it is pumping money from two private companies into the federal coffers.
Critics believe this was an unlawful seizure of the companies without due process, and they also note that unless Fannie and Freddie can retain some of their profits as a cushion, taxpayers will be on the hook for a bailout in another crisis.
As one of the shareholders of Fannie Mae and Freddie Mac, Continental Western is challenging the Treasury for enacting the so-called “Sweep Amendment,” which seized the profits and violated the FHFA’s fiduciary responsibilities to the shareholders.
If your pension fund or mutual funds are invested in Fannie or Freddie, Judge Pratt’s decision could have a large upside or downside.
Until recently, Fannie and Freddie had been making gains, surging more than 1,000% in 2013 as investors speculated the profit sweep may end. But shares tanked after a Washington, DC court case challenging the sweep was dismissed in September.
InsideSources spoke with Dr. Clifford Rossi, a professor at the University of Maryland’s Robert H. Smith School of Business and an expert on housing finance. He notes that the key pre-financial crisis problems with Fannie and Freddie have now been addressed. The mortgage giants are subject to closer oversight, better underwriting standards, and tighter capital requirements. Rossi argues that an escrow fund should be created under Treasury’s control that would give Fannie and Freddie the capital they need to end the conservatorship within the next five years. The government could gradually sell its holdings in preferred shares at a sizable profit. Once this happens, says Rossi, we may see share prices “approaching pre-crisis levels.”
Currently, the Treasury has not acted to create this escrow pool, as Dr. Rossi suggests. Instead, it is using the money to disguise actual deficit levels. Judge Pratt’s decision in this case could ultimately force the Treasury to unwind the conservatorship.
If so, share prices may rise to 20-30 times their current levels.
But how likely is this? The decision to pursue a legal battle came because the federal government has failed to act even though other options exist outside the courts.
The first is for Congress to act. Both sides of the aisle mostly agree on the need to reform housing finance, but there are many different opinions on how to accomplish this. Congress is unlikely to do anything soon. It will be more likely to pass legislation once the conservatorship ends.
InsideSources reached out to Sen. Chuck Grassley’s office, which declined to comment.
The second option would be for the FHFA to end its conservatorship of two companies that are now stable and profitable. If the FHFA wanted to, it could begin implementing a plan like Dr. Rossi described any time. And many believe it has an obligation to do so.
But the FHFA and the Obama Administration seem to enjoy using the companies’ profits to distort actual deficit figures. This makes legal action the only recourse for investors, like Continental Western, to have Fannie and Freddie’s profits returned to the companies and their shareholders.
If Judge Pratt rules against Continental Western, there are other court cases that could still resolve the issue. The aforementioned DC court case is under appeal.
But for now, investors on Wall Street and Main Street alike should be looking to Des Moines for market cues.
http://theiowarepublican.com/2014/how-a-court-case-in-des-moines-may-affect-your-retirement-savings/
Thank you Navy.
The GSEs Under Siege. Author: Sandra Lane in Daily Dose, Print Features December 25, 2014 0
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The following is a print feature that appeared in MReport's November 2014 issue.
It has never been more en vogue to be a critic of the GSEs. From politicians to private citizens to watchdogs within the federal government, if you want to score political points or push an agenda, calling for an end to Fannie Mae and Freddie Mac or just castigating the conservatorship itself as somehow unfair is a popular way to get there.
And it’s not just talk. There have been approximately 20 lawsuits filed in federal courts by investors to recover some of the millions in profits generated by the GSEs that have been funneled to the U.S. Treasury. As if that wasn't enough, members of Congress are lining up to determine how to reorganize the GSEs, while others conspire to eliminate them entirely. Even the FHFA Office of the Inspector General got into the game recently. But are the criticisms fair? And what (if anything) should be done about them?
The Threat From Private Investors
In a recent lawsuit filed by Perry Capital and Fairholme Funds, investors sued for breach of contract regarding promised dividends and what they termed to be an illegal "taking" under the U.S. Constitution. U.S. District Judge Royce Lamberth ruled against the plaintiffs. This outcome pleased those who believe that profits generated by the GSEs should to go to the U.S. Treasury.
In support of Judge Lamberth's decision, Wall Street Journal published an editorial, lauding the judge for "dismissing claims against the federal government brought by private investors." They congratulated the judge for "seeing through plaintiffs' argument that combined dubious legal reasoning with junk economics."
In the decision, Judge Lamberth maintained that he was just interpreting the details of the conservatorship, and that if investors have a gripe, it's with Congress for writing the law.
The editorial continued, quoting an official from the Federal Reserve Bank, who said that "the profits being used to pay dividends did not arise from the contributions of private shareholders, but entirely reflect risks borne by the Treasury and taxpayers."
The opinion of the WSJ editorial agrees with that of Edward Pinto, co-director and chief risk officer at the American Enterprise Institute. He said that without the support of the government in 2008, and the continuing support of the taxpayers, Fannie Mae and Freddie Mac would not exist as ongoing entities.
"Many saw this as an opportunity for speculation, but they may have chosen poorly," Pinto said. "They knew that Freddie and Fannie were subject to a charter established by Congress that could be revoked at any time." Pinto said that anyone who bought stock had to know that this was a political entity with a unique charter that could be amended at will by Congress.
The advice is confirmed by Jim Vogel, Executive Vice President at FTN Financial Capital Markets. "Private capital invested in a government-sponsored enterprise always runs the chance of disappearing with a change in government policy," Vogel said. The situation with the GSEs is a good example.
Judge Lamberth's decision, denying any compensation to shareholders, was met with vehement response by some. "No way," screamed numerous investors, including consumer advocate and multiple-time presidential candidate Ralph Nader. They contend that giving the money to the Treasury is a violation of their Fifth Amendment rights against the seizure of private property for public use without just compensation.
Nader has been a high-profile spokesman for Fannie Mae and Freddie Mac shareholders for several years. Nader owns about 100,000 shares cumulatively between Fannie and Freddie, which he has held since before the 2008 conservatorship, according to a report in The Washington Post in May.
"This issue's not going to go away with one district court decision by any means," Nader said during a recent conference call hosted by Fannie and Freddie shareholder advocacy group Investors Unite. "This was deception of the first order. If any corporate executives engaged in something like this, even the slumbering SEC would have moved to action."
The group that Nader spoke to, Investors Unite, is a coalition of approximately 1,000 private investors committed to the "preservation of shareholder rights" in the GSEs and to obtaining full restitution on investments.
The organizer and leader of this group is Tim Pagliara, a 32-year veteran of the investment business. He is also the chairman and CEO of CapWealth Advisors based in Franklin, Tennessee. He believes there was never any determination of insolvency about the GSEs. "Everyone needs to have the facts straight on this issue," he said.
He said that back in 2008, Fannie and Freddie still had the ability to raise additional capital and had other options that were taken away in September of that year when the GSEs were put into conservatorship. He maintains that there was a choice of whether to put the GSEs into a conservatorship, liquidate them, or put them into receivership. Conservatorship was not the only option.
But in August 2012, FHFA and the U.S. Treasury agreed to revise the terms of their agreement. Instead of a 10-percent dividend, the Treasury would receive all net income earned by Fannie Mae and Freddie Mac paid in a quarterly "sweep." Now 100 percent of the profits from Fannie and Freddie go into the U.S. Treasury. "What this means is that the government has nationalized the housing industry and is using it as a tool for budget reduction," he explained.
According to a New York University Law School professor, the ruling handed down by Judge Royce Lamberth is flawed. Richard A. Epstein, the Laurence A. Tisch professor of Law at NYU, says that the mistakes in the judgment are so serious and one-sided that the judge should withdraw his decision and reconsider the facts.
"First, the judge's opinion seriously misstates the rights and duties of the Federal Housing Finance Agency (FHFA) as a conservator," Epstein explained. "Second, it seriously misstates the authority of Treasury under HERA." Epstein pointed out that the amendment to the conservatorship was not negotiated by an independent board of directors.
According to Epstein, the amendment was not intended to return Fannie and Freddie to the private market, but was designed to ensure they would never be able to return to the market, no matter how profitable their operations had become.
"What this means is that no private company is ever safe," he explained. "No private party will ever rely on government assurances or guarantees if the amendment is allowed to stand. The rule of law, which is critical to the proper functioning of free markets, has no meaning if it can be suspended whenever deemed convenient."
But despite their protestations and with full knowledge of the uphill battle in the courts that lays ahead, investors are still buying into the GSEs. For example, in recent weeks reports have surfaced that Bill Ackman, leader of Pershing Square Capital Management, a New York-based hedge fund that is itself involved in a lawsuit against the federal government related to GSE profits, has added to the fund's GSE stock portfolio.
http://themreport.com/print-features/12-25-2014/gses-siege
Fannie Mae’s & Freddie Mac’s Shareholders Take the Offensive Approach
posted on: Wednesday, December 24, 2014
We have written a lot about the U.S. mortgage finance giants Fannie Mae and Freddie Mac. These GSEs frequently find themselves in the news (and on our blog), typically for their involvement in obtaining settlements from banks and other aggregators in what we view to be an ongoing effort to revise the history of the meltdown of the mortgage markets.
However, there are occasions where Freddie and Fannie have found themselves on the other side of the lawsuit. For example, in June, Perry Capital LLC and Fairholme Funds Inc. filed a suit against these GSEs, maintaining that there was unfair treatment of the Fannie Mae and Freddie Mac’s shareholders following their 2008 bailout. Specifically, the investors alleged that the GSEs seized almost all of the profits generated after the bailout and that, for a period of time, the government had been only entitled to receive a 10% dividend on a class of Fannie and Freddie’s preferred shares. On September 30, these suits were dismissed.
Nevertheless, Fannie and Freddie apparently were not unscathed. Their share prices plunged dramatically; Fannie’s prices fell 36.8% and Freddie’s prices fell 37.5%. Each of these declines occurred in a single day. Moreover, it appears that the litigation will continue. Perry Capital and Fairholme Funds announced last month that they would contest the case dismissed in September.
In another lawsuit settled on October 24, shareholders accused Fannie Mae of issuing false and misleading statements about its accounting, internal controls and other matters. Fannie settled this case for $170 million.
Neither have the GSEs escaped government scrutiny at this time. They have been a part of the federal regulators’ efforts to revive the U.S. housing market. Specifically, they will be expanding credit and guaranteeing loans with down payments that could be as low as 3%. Over the past several months, share prices of Fannie and Freddie have lost about 44% and 39% of their value, respectively. Even though in the last month their share prices have regained about 20% and 18.8% of their value, respectively, clearly, it’s been a busy and an expensive time for them.
http://www.natlawreview.com/article/fannie-mae-s-freddie-mac-s-shareholders-take-offensive-approach
And a happy winter solstice to you. Oh that just doesn't sound right.
4 Reasons It Will Be Easier to Buy a Home in 2015
By Chris Birk
Published December 24, 2014
Credit.com
Apartment Building Blueprint (Housing | Starts | Existing Home Sales | Construction)
Reuters
Housing economists and would-be homebuyers are finding reasons for optimism as 2015 nears. To be fair, the bar’s set pretty low after a tough year for housing.
However, there are some genuinely encouraging signs that next year will be better for prospective buyers. Economic recovery and an improving job market will go a long way to boosting affordability for buyers in many markets.
Here’s a look at four reasons why the upcoming year might be a difference-maker for would-be homebuyers.
1. Looser Mortgage Credit
After years of hyper-cautious lending, more mortgage lenders are starting to relax credit and underwriting requirements, which are also known as “overlays.”
A big push in that direction came earlier this month when new guidelines from Fannie Mae and Freddie Mac took effect. These government-sponsored mortgage giants purchase about two-thirds of all new home loans.
The new policies were aimed at clearing up confusion about when lenders must buy back loans that go sour. Economists and industry insiders expect the newfound clarity will lead to broader access to mortgage credit.
“I’ve been told with absolute confidence that some lenders are lifting almost all of their overlays,” David Stevens, president of the Mortgage Bankers Association, told the Wall Street Journal.
The Urban Institute estimates more “normal” lending requirements could mean an additional 1.2 million home loans every year.
2. Lower Down Payments
Prospective buyers have another reason to high-five Fannie and Freddie: They’ve recently agreed to get behind loans with just 3% down. That lower benchmark, coupled with loosening credit standards, will likely help more first-time buyers enter the market.
Buyers will need at least a 620 FICO score and be on the hook for private mortgage insurance. Requirements for the 3% option vary between the two agencies. Depending on their path, buyers may need to complete a homebuying education program or show they haven’t recently owned a home.
“Our goal is to help additional qualified borrowers gain access to mortgages,” Andrew Bon Salle, a Fannie Mae executive vice president, said in a statement. “We are confident that these loans can be good business for lenders, safe and sound for Fannie Mae and an affordable, responsible option for qualified borrowers.”
FHA loans currently feature a 3.5% down payment requirement, but the accompanying mortgage insurance premiums have become increasingly expensive for many low- and middle-income borrowers. On a typical $200,000 loan, an FHA buyer might pay an extra $200 per month in mortgage insurance costs.
3. Cooling Home Prices
Some housing markets are still hotter than others. But the overall pace of housing price growth has slowed considerably. Freddie Mac’s housing price index soared 10% from September 2012 through September 2013.
Over the last year, the index is up just 5%, and Freddie Mac economists expect only a 3% increase for 2015.
Increases in housing inventory may also help to push down prices in some places.
4. Rates Still Low
Heading into 2014, most economists and housing wonks expected mortgage rates to top 5% by year’s end.
Last week, the average rate on a 30-year fixed mortgage didn’t even top 4%, according to Freddie Mac’s weekly lender survey. The 3.89% average rate marked an 18-month low.
A host of economic and geopolitical factors combined to keep rates lower than anticipated this year. They’re almost certainly going to rise in 2015, maybe even into that long-predicted 5% range, but they’ll still remain far below historical averages.
Before you buy a home, it’s important to check your credit to get an idea of whether you’ll meet lenders’ requirements. You can check your credit reports — you can get them once a year for free, and you can also get a free credit report summary on Credit.com — to see where you stand. You can also use this calculator to see how much home you can afford, which can help you target your search to a price range that is right for you.
More from Credit.com
http://www.foxbusiness.com/personal-finance/2014/12/24/4-reasons-it-will-be-easier-to-buy-home-in-2015/
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
LOUISE RAFTER
,
et al
.,
Plaintiffs,
v.
THE DEPARTMENT OF THE
TREASURY
,
et al.
,
Defendants.
Civil Action No. 1:14-cv-01404-RCL
PLAINTIFFS’ OPPOSITION TO DEFENDANTS’ MOTION TO STRIKE
PLAINTIFFS’ NOTICE OF VOLUNTARY DISMISSAL
Defendants ask this Court to rule retr
oactively that Plaintiffs were drafted
into a set of different cases several mont
hs ago without anyone—the parties or the
Court—realizing it, and then to hold, again
retroactively, that Plaintiffs are bound
by the Court’s dismissal of those other ca
ses. Defendants seek such a result
notwithstanding that Plaintiffs never receiv
ed notice of or an opportunity even to
contest this secret consolidation, let alone to file a merits brief in
any
of the various
cases. The basis for this argument is a
Consolidation Order that, by its own terms,
could not have been applied to Plaintiffs’
case without following a set of specific
procedures and providing Plaintiffs an
opportunity to respond, none of which
occurred here. Defendants thus attempt to
revive Plaintiffs’ case—which Plaintiffs
voluntarily dismissed more than a month
ago—so that it can be reinterred on
Defendants’ preferred terms. Moreover, as
Defendants imply (Mot. to Strike at 2–3),
they seek this relief solely so that they
can try to use the resulting order to their
advantage in proceedings before
other
courts.
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 1 of 12
- 2 -
Defendants’ position is entirely me
ritless. Few Federal Rules are as
straightforward as that governing voluntar
y dismissals: “before the opposing party
serves either an answer or a motion
for summary judgment,” a plaintiff “may
dismiss an action without a court order” and “without prejudice.” Fed. R. Civ. P.
41(a)(1). Here, it is undisputed that Defendants
never
served an answer or
summary-judgment motion on Plaintiffs. Thus
, as a result of Rule 41(a)’s “simple,
self-executing mechanism,”
Randall v. Merrill Lynch
, 820 F.2d 1317, 1320 (D.C. Cir.
1987), this case is closed, as the docket reflects.
See Rafter v. Dep’t of Treasury
, No.
14-1404 (D.D.C.) (“Date Terminated: 11/03/2014”);
see also
Carter v. U.S. Dep’t of
Navy
, 258 F. App’x 342, 343 (D.C. Cir. 2007) (per
curiam) (“[N]o fu
rther action is
required when a plaintiff voluntarily dismi
sses his case before the defendant serves
an answer or motions for summary judgment.”).
1
Defendants attempt to evade the unequivoc
al effect of Rule 41(a) by insisting
that Plaintiffs’ case was silently consolid
ated with other Net
Worth Sweep actions,
such that Defendants’ summary-judgment motions in those
other
cases applied
here
.
In other words, Defendants claim that Pl
aintiffs’ right to take a non-suit was
extinguished by summary-judgment motions
never served
on Plaintiffs, by virtue of
a Consolidation Order that itself was
never served
on Plaintiffs, and that as a result
Plaintiffs’ claims were disp
osed of by an order that
also
was
never served
on
Plaintiffs. This position contradicts the ex
plicit terms of the Consolidation Order on
which Defendants purport to rely and black-letter law regarding voluntary
1
Plaintiffs are filing this brief solely to respond to Defendants’ motion, and
do not in so doing reopen this case.
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 2 of 12
- 3 -
dismissals. If adopted, it would also constitute a manifest violation of Plaintiffs’
due-process rights. The Court should reject Defendants’ absurd theory of
retroactive,
sub silentio
consolidation followed by retroactive,
sub silentio
dismissal.
First
, Plaintiffs’ case indisputably was not consolidated with any
other Net Worth Sweep cases.
Under the plain terms of the Consolidation Order
this Court entered in other Net Worth
Sweep cases—but not here—consolidation
was by no means automatic. To the co
ntrary, even if Plaintiffs had pleaded
derivative claims, which they did not, consolidation still could not be imposed
without following several crucial procedures. First, the Court would have had to
actually implement the consolidation: th
e Clerk of the Court would have had to
“file a copy of th[e Consolidation] Order in
the separate file for
[Plaintiffs’] action,”
“mail a copy of th[e] Order to” Plaintiffs
’ counsel, and “make the appropriate entry
in the docket for th[e consolidated] action.” Order for Consolidation and
Appointment of Interim Co-Lead Class Counsel at ¶ 6,
In re Fannie Mae/Freddie
Mac
, No. 13-mc-1288 (D.D.C. Nov. 18, 2013), ECF
No. 1 (“Consolidation Order”).
None of those things occurred.
Moreover, even if they had, Plaint
iffs would then have received an
opportunity to seek “relief from
th[e Consolidation] Order.”
Id.
¶ 7. But because
the Court rightly did not take any of the required steps to consolidate Plaintiffs’
case, Plaintiffs obviously received no such opportunity. It is thus impossible to
square the plain terms of the Consolidation Order with Defendants’ claim that
“Plaintiffs’ action was immediately upon filin
g consolidated.” Mot. to Strike at 5.
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 3 of 12
- 4 -
Furthermore, the Consolidation Order also
calls for “the assistance of counsel
in calling to the attention of the Clerk of th
is Court the filing or transfer of any case
which might properly be consolidated as pa
rt of this Consolidated Class Action.”
Consolidation Order at ¶ 3.
So far as Plaintiffs are aw
are, despite the involvement
of literally dozens of attorneys in the co
nsolidated cases, at no point did anyone—
whether representing a plaintiff or
Defendants—do any such thing.
Defendants’ present position also contradicts their own prior treatment of
Plaintiffs’ claims. Until now, Defendan
ts appropriately treated this case as
separate from the other Net Worth Sw
eep matters on the Court’s docket.
2
For
example, even after the Court dismissed
the consolidated actions, Defendants
sought an extension of time “to respond to
the complaint in this action,” explaining
that they “intend[ed] to prepare a disposit
ive motion.” Motion for Enlargement of
Time at 1 (Oct. 14, 2014), ECF No. 8. This
request (and the envisioned dispositive
motion) would have been wholly unnecessary if the Consolidation Order applied,
because that Order states that “defendant
s shall not be required to answer, move,
or otherwise respond to any
complaints filed in ... any action subsequently filed and
2
Nearly two weeks after Plaintiffs
filed their complaint—and were
supposedly “immediately ... consolidated,”
as Defendants now contend—Defendants
FHFA and its director Melvin L. Watt subm
itted a notice of supplemental authority
pertaining to the consolidated actions. Notice,
In re Fannie Mae/Freddie Mac
, No.
13-1288 (D.D.C. Aug. 26, 2014), ECF
No. 44. That filing was entered on the dockets
of each of the individual actions subject to the Consolidation Order (
see, e.g.
,
Liao v.
Lew
, No. 13-1094, ECF No. 36), but not on
this
docket, in proper recognition of the
fact that this case was never consolidated. Nor did Defendants
serve
Plaintiffs with
this notice, thus further confirming that
Defendants never thought Plaintiffs had
been consolidated into these cases.
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 4 of 12
- 5 -
consolidated.”
3
Consolidation Order at ¶ 8. Although Defendants now claim that
the Court’s order disposing of the consolidated cases “also dismissed this action”
(Mot. to Strike at 1), they
previously—and rightly—recognized that order as nothing
more than “a decision in relate
d litigation.” ECF No. 8 at 1.
In the separate Net Worth Sweep litigation pending before the Court of
Federal Claims, Defendants similarly indicated that Plaintiffs’ case had not been
consolidated with others before this Cour
t. Specifically, when Defendants filed
their motion to stay one of the Net Wort
h Sweep cases pending before that court,
they distinguished Plaintiffs’ case here fr
om the consolidated actions, and explained
that they “ha[d] not yet responded to” Plaint
iffs’ complaint. Defs.’ Motion to Stay
Proceedings at 4 n.3,
Fairholme Funds, Inc. v. United States
, No. 13-465 (Fed. Cl.
Oct. 28, 2014), ECF No. 103. This, of co
urse, directly cont
radicts Defendants’
present representation that their summary
-judgment motions in the consolidated
actions “applied to this action” (Mot. to Strike at 2)—a contradiction Defendants
have not even attempted to explain. Nor could they do so coherently, because
Plaintiffs’ case was never consolidated, and so Defendants would have been
obligated to respond to Plaintiffs’ complaint
had Plaintiffs not voluntarily dismissed
it. Because Plaintiffs properly filed their
notice of dismissal before any such filing
by Defendants, that notice was
valid and this case is closed.
Second
, Plaintiffs’ case cannot now be consolidated retroactively
because this Court lacks jurisdiction over both it and the consolidated
3
Indeed,
this
is
precisely
the
position
Defendants
now
take.
Mot.
to
Strike
at
2.
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 5 of 12
- 6 -
cases.
Conceding that the Court had not previously “formally consolidated
Plaintiffs’ action,” Defendants now as
k the Court to declare a retroactive
consolidation. Mot. to Strike at 1, 5.
But there is nothing for this Court to
consolidate, as Plaintiffs are no longer befo
re the Court. It is black-letter law that a
voluntary dismissal under Rule 41(a)(1) “tak
es effect automatically: the trial judge
has no role to play at all.”
Randall
, 820 F.2d at 1320. Here, Defendants concede
that this case was never consolidated before
Plaintiffs filed their notice of dismissal.
Mot. to Strike at 5. Thus, the plain te
rms of Rule 41(a) govern, and the Court’s
docket is correct in declaring this case “CLOSED.”
What Defendants really seek is to r
eopen this closed matter, which would
require them to seek relief under Rule 60. Defendants have made no such
argument, but even if they had, Rule 60
relief is categorically unavailable to them
here. “[N]otices of dismissal filed in conf
ormance with the explicit requirements of
Rule 41(a)(1)(i) are not subject to vacatur” on a defense motion.
Thorp v. Scarne
,
599 F.2d 1169, 1176 (2d Cir. 1979);
see also, e.g.
,
Netwig v. Georgia Pac. Corp.
, 375
F.3d 1009, 1011 (10th Cir. 2004) (holding that
district court “lacked jurisdiction to
reinstate” a case “over plaintiff’s objection” where plaintiff had voluntarily
dismissed without prejudice).
4
4
Cf.
Marex Titanic, Inc. v. The Wrecked & Abandoned Vessel
, 2 F.3d 544,
547–48 (4th Cir. 1993) (“[T]he di
strict court had no disc
retion to allow Titanic
Ventures to intervene in the defunct
action filed by Marex.”). Notably,
Randall
distinguished
Thorp
and permitted vacatur because Rule 60 relief was sought “on
the original
plaintiff’s
motion.” 820 F.2d at 1320 (empha
sis added). That, of course,
is not the case here. Furthermore,
Randall
permitted Rule 60 relief explicitly
because the second voluntary dismissal in th
at case “operated as an adjudication on
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 6 of 12
- 7 -
Moreover, even if Rule 60
could
somehow override Plaintiffs’ unilateral right
to dismiss, Defendants still could not succeed. Vacatur under Rule 60 is improper
where it would be “an empty exe
rcise or a futile gesture.”
Murray v. District of
Columbia
, 52 F.3d 353, 355 (D.C. Cir. 1995). Here
, the plaintiffs in the other Net
Worth Sweep cases have all filed notices of appeal.
See, e.g.
, Notice of Appeal,
In re
Fannie Mae/Freddie Mac
, No. 13-1288 (D.D.C. Oct. 15, 2014) (ECF No. 49). “The
filing of a notice of appeal ... ‘confers juri
sdiction on the court of appeals and divests
the district court of control over those aspe
cts of the case involved in the appeal.’”
United States v. DeFries
, 129 F.3d 1293, 1302 (D.C. Cir.
1997) (per curiam) (citation
omitted). Thus, even if the Court acce
pted Defendants’ argument, there is simply
nothing to consolidate Plaintiffs’ case
into
, since the Court no longer has jurisdiction
over the consolidated cases. Exhuming Plai
ntiffs’ suit would be entirely pointless,
and could not possibly accomplish
Defendants’ desired result.
Third
, adopting Defendants’ position would plainly violate due
process.
For the reasons above,
the outcome Defendants seek is factually
unsupported and legally impossible. Mor
eover, retroactive consolidation—to say
nothing of retroactive dismissal—would depr
ive Plaintiffs of their fundamental due-
process right to “notice and opportunity to be heard.”
Hansberry v. Lee
, 311 U.S. 32,
40 (1940).
(continued...)
the merits” or a “final judgment” for purposes of Rule 60.
Id.
; Fed. R. Civ. P.
41(a)(1)(B);
see also, e.g.
,
Warfield v. AlliedSign
al TBS Holdings, Inc.
, 267 F.3d 538,
541–42 (6th Cir. 2001).
Defendants
cannot use Rule 60 to vacate a voluntary
dismissal over Plaintiffs’ objection, much
less a first voluntary dismissal without
prejudice. And in any event, Defe
ndants have never invoked Rule 60.
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 7 of 12
- 8 -
Both
Hansberry
and its descendant,
Martin v. Wilks
, 490 U.S. 755 (1989),
demonstrate why the Consolidation Order re
quired a copy of that Order to be
served on future plaintiffs, and such plainti
ffs to be given an opportunity to object to
its application: such service was necessary
to bind any future plaintiff as a party to
the rulings in the consolidated actions.
See Hansberry
, 311 U.S. at 40 (“It is a
principle of general application in Anglo-
American jurisprudence that one is not
bound by a judgment
in personam
in a litigation in which he is not designated as a
party or to which he has not been made a party
by service of process
.” (emphasis
added));
Martin
, 490 U.S. at 765 (“Joinder as a part
y, rather than knowledge of a
lawsuit and an opportunity to intervene, is the method by which potential parties
are subjected to the jurisdiction of the court and bound by a judgment or decree.”).
5
Having received neither notice nor an opportunity to be heard in the consolidated
matter, Plaintiffs cannot, consistent with
due process, be bound by the decision in
that matter. Indeed, this is precisely wh
y the rule governing consolidation requires
cases to be actively pending “before the co
urt” in order to be consolidated (Fed. R.
Civ. P. 42(a)): consolidating yet-to-be-
filed cases, without any opportunity for
parties to those cases to seek
relief from consolidation,
would fly in the face of the
due-process principles outlined in
Hansberry
and
Martin
.
See also, e.g.
,
Jaars v.
Gonzales
, 148 F. App’x 310, 319–20 (6th Cir.
2005) (rejecting “retroactive
5
See also Old Wayne Mut.
Life Ass’n v. McDonough
, 204 U.S. 8, 17 (1907)
(“‘[N]o one shall be personally bound until he
has had his day in court, by which is
meant, until he has been duly cited to appear,
and has been afforded an opportunity
to be heard
.’”) (quoting
Galpin v. Page
, 85 U.S. 350, 368-69 (1873)).
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 8 of 12
- 9 -
consolidation” and explaining that “when a person has no hearing or opportunity to
be heard whatsoever, the process
is automatically inadequate”).
Here, retroactively consolidating Plaintiffs’ case would leave Plaintiffs
without any opportunity to be heard on a num
ber of issues. As an initial matter, it
would deprive Plaintiffs of their right, set
forth in the Consolidation Order, to make
“an application for relief from [that] Order.”
6
Consolidation Order ¶ 7. Moreover, if
the Court had rejected their application,
Plaintiffs would have had the option,
under Rule 15(a), to amend their complai
nt so as to dismiss the supposedly
derivative claims, at which point there obviously would have been no basis for
consolidating Plaintiffs’ case. Likewise, even
if Plaintiffs had proceeded as part of
the consolidated action, the Consolidation Order would have given them the right to
seek “permi[ssion] by the Court” to proceed on their own complaint (
id.
¶ 8), and at
the very least they could have submitted briefing on the merits of their unique
6
Plaintiffs would have had several bases
for seeking relief from consolidation.
Plaintiffs specifically pleaded direct—not
derivative—claims based on the “unique
harm” they suffered as a result of the expr
opriation of the economic value of their
common shares by the companies’ controlling shareholder (Treasury) and their
conservator (FHFA and its director).
Complaint at ¶¶ 137, 153 (Aug. 15, 2014),
ECF No. 1. Under well-established state-law principles, Defendants’ conduct can
give rise to direct or derivative claims.
See
Gentile v. Rossette
, 906 A.2d 91, 99–100
(Del. 2006);
Carsanaro v. Bloodhound Techs., Inc.
, 65 A.3d 618, 655–61 (Del. Ch.
2013);
In re Nine Sys. Corp. S’holders Litig.
, 2014 WL 4383127, at *21–32 (Del. Ch.
Sept. 4, 2014). Plaintiffs pleaded only di
rect claims. Under such circumstances,
consolidating Plaintiffs’ claims with purely
derivative claims would not have been
justified. In any event, the nature of shareholder claims challenging the Net Worth
Sweeps is, at minimum, a debatable poin
t of law that was addressed in a
different
case. Plaintiffs’ complaint included cl
aims—for example,
a books-and-records
claim—that were unique and unquestionably not derivative. There is no basis for
simply assuming, as Defendants apparently
do, that Plaintiffs could not have been
entitled to relief from consolidation.
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 9 of 12
- 10 -
claims (challenging, for example, the conver
sion of Defendants’ preferred stock into
a novel form of super-common stock).
7
Defendants, however, would have the Court
deprive Plaintiffs of an opportunity to be heard on
any
of these issues, instead
treating dismissal as a foregone conclusion.
8
Defendants’ argument would also deprive Plaintiffs of due process with
respect to their appellate rights. If Plaint
iffs’ claims truly had been adjudicated by
the Court’s order in the consolidated cases,
Plaintiffs would have had 60 days to file
a notice of appeal from that order. Fed.
R. App. P. 4(a)(1)(B).
Defendants, however,
waited until
65
days after that order to file a br
ief for the first time suggesting that
the order also disposed of Plaintiffs’ claims, which would thus leave Plaintiffs
without any avenue to secure relief from that binding judgment. Alternatively,
7
Furthermore, the Consolidation Orde
r specifically states that it was
“entered without prejudice to the rights of any party to apply for severance of any
claim or action, for good
cause shown”—yet another o
pportunity that Defendants
would deny Plaintiffs.
Id.
¶ 8.
8
In a footnote at the end of their brief, Defendants attempt to draw a
similarity between this case and the “Freddie Derivative Action,” which asserted
derivative claims. Mot. to Strike at 12 n.6. But the cases could not be more
different, and indeed illustrate why Defend
ants’ current motion is without factual
or legal basis. Plaintiffs in the Freddie Derivative Action had already filed a
complaint that had been consolidated—in
fact, those plaintiffs had joined in
requesting the Consolidation Order.
See, e.g.
, Joint Status Report,
Cacciapelle v.
Fed. Nat’l Mortgage Ass’n
(D.D.C. Nov. 6,
2013), ECF No. 33. Moreover, those
plaintiffs filed the Freddie Derivative
Action in the Master Docket for the
consolidated action—
i.e.
, as a part of the consolidated
case. The procedures spelled
out in the Consolidation Order were thus
neither necessary nor warranted. Indeed,
they were moot, since the plaintiffs file
d the Freddie Derivative Action in the
consolidated case. The Freddie Derivative Action thus implicates none of the issues
here. That case was in fact consolidated
at the time, and the parties and the Court
treated it as such. The Court had jurisdic
tion over it at the time. Neither its
consolidation at the time nor its subseq
uent dismissal violated due process.
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 10 of 12
- 11 -
because the Court’s order did not dispose of Plaintiffs’ books-and-records claim
(which is unsurprising, since the Court neve
r consolidated Plaintiffs’ case), treating
Plaintiffs as consolidated would mean that
there is not yet a final judgment not only
in Plaintiffs’ case, but in
any
of the consolidated cases.
9
This would have significant
implications, as it would mean that the D.C.
Circuit lacks jurisdiction over all of the
appeals in the other cases, and that Defend
ants have defaulted on Plaintiffs’ books-
and-records claim (since they never filed
a responsive pleading in this case).
If Defendants respond to this last point by contending that Plaintiffs could
appeal this Court’s order on their motion, they will have revealed that their
consolidation argument is just a fig leaf, and that their true objective is to alchemize
a dismissal without prejudice into a dismissal with prejudice.
10
While such a result
would have no effect on the situation before
this Court, given that Plaintiffs have
already dismissed their claims, it would be
worth its weight in gold to Defendants,
who would then advise the Court of Federal Claims to ignore Plaintiffs’ recent
amicus brief opposing a stay of a differe
nt Net Worth Sweep case pending in that
court. In this way, what Defendants real
ly seek is an advisory opinion from this
Court that they can then rely on for
res judicata
effect on Plaintiffs’ claims in an
entirely different court.
The Court should deny Defendants’ motion.
9
Indeed, Defendants concede that the Court did not rule on Plaintiffs’ books-
and-records claim. Mot.
to Strike at 10 n.3.
10
This is obviously improper.
See, e.g., In re Wolf
, 842 F.2d 464, 466 (D.C.
Cir. 1988) (granting petition for writ of
mandamus where district court converted
voluntary dismissal without prejudice
into a dismissal with prejudice).
Case 1:14-cv-01404-RCL Document 18 Filed 12/22/14 Page 11 of 12
- 12 -
December 22, 2014
Respectfully submitted,
/s/ James E. Gauch
Thomas F. Cullen (D.C. Bar No. 224733)
Michael A. Carvin (D.C. Bar No. 366784)
James E. Gauch (D.C. Bar No. 447839)
Paul V. Lettow (D.C. Bar No. 502440)
JONES DAY
51 Louisiana Avenue, N.W.
Washington, D.C. 20001
http://www.valuewalk.com/wp-content/plugins/pdfjs-viewer-shortcode/web/viewer.php?file=http://www.valuewalk.com/wp-content/uploads/2014/12/Pershing-Response.pdf&download=true&print=true&openfile=false
Fannie Mae, Freddie Mac: Pershing Response Filed
Posted By: valueplaysPosted date: December 23, 2014 08:41:31 PMIn: StocksNo Comments
Fannie Mae, Freddie Mac: Here is Pershings response to the government’s motions referenced in this post
Pershing Response
I see no chance the government prevails….as I said before, it was a hail mary from their own 40 and 99 out of 100 times they do not work……this will be one of those times
…………………
Defendants ask this Court to rule retroactively that Plaintiffs were drafted into a set of different cases several months ago without anyone—the parties or the Court—realizing it, and then to hold, again retroactively, that Plaintiffs are bound by the Court’s dismissal of those other cases. Defendants seek such a result notwithstanding that Plaintiffs never received notice of or an opportunity even to contest this secret consolidation, let alone to file a merits brief in any of the various cases. The basis for this argument is a Consolidation Order that, by its own terms, could not have been applied to Plaintiffs’ case without following a set of specific procedures and providing Plaintiffs an opportunity to respond, none of which occurred here. Defendants thus attempt to revive Plaintiffs’ case—which Plaintiffs voluntarily dismissed more than a month ago—so that it can be reinterred on Defendants’ preferred terms. Moreover, as Defendants imply (Mot. to Strike at 2–3), they seek this relief solely so that they can try to use the resulting order to their advantage in proceedings before other courts.
…………………
ere, the plaintiffs in the other Net Worth Sweep cases have all filed notices of appeal.See, e.g., Notice of Appeal, In re Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA)/Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), No. 13-1288 (D.D.C. Oct. 15, 2014) (ECF No. 49). “The filing of a notice of appeal … ‘confers jurisdiction on the court of appeals and divests the district court of control over those aspects of the case involved in the appeal.’”
United States v. DeFries, 129 F.3d 1293, 1302 (D.C. Cir. 1997) (per curiam) (citation omitted). Thus, even if the Court accepted Defendants’ argument, there is simply nothing to consolidate Plaintiffs’ case into, since the Court no longer has jurisdiction over the consolidated cases. Exhuming Plaintiffs’ suit would be entirely pointless, and could not possibly accomplish Defendants’ desired result.
http://www.valuewalk.com/2014/12/fannie-mae-freddie-mac-pershing-response-filed/
FHFA Vows to Protect First-Lien Status of GSE-Backed Mortgages Author: Brian Honea December 23, 2014 0
FHFA Fannie Mae Freddie Mac First-Lien StatusThe Federal Housing Finance Agency (FHFA) has released a statement warning organizations that label mortgage loans with "super-priority lien" status that such loans will not push mortgages backed by Fannie Mae and Freddie Mac into the secondary position.
The warning was aimed mainly at energy retrofit financing programs and homeowners associations that attach super-priority status to mortgages because of the risk they pose to taxpayers while Fannie Mae and Freddie Mac are under conservatorship.
"One of the bedrock principles in this process is that the mortgages supported by Fannie Mae and Freddie Mac must remain in first-lien position, meaning that they have first priority in receiving the proceeds from selling a house in foreclosure," the statement reads. "As a result, any lien from a loan added after origination should not be able to jump in line ahead of a Fannie Mae or Freddie Mac mortgage to collect the proceeds of the sale of a foreclosed property."
Energy efficiency programs such as the Property Assessed Clean Energy (PACE) program, offered in California and other states. This program and others like it provide loans made through the homeowners' property tax assessment and repaid as part of the property tax bill, and gives those loans first-lien status. FHFA states that the GSEs' policies prohibit them from purchasing a mortgage with a first-lien PACE loan attached for two reasons.
"First, a homeowner with a first-lien PACE loan cannot refinance their existing mortgage with a Fannie Mae or Freddie Mac mortgage," the statement reads. "Second, anyone wanting to buy a home that already has a first-lien PACE loan cannot use a Fannie Mae or Freddie Mac loan for the purchase. These restrictions may reduce the marketability of the house or require the homeowner to pay off the PACE loan before selling the house."
FHFA said it will aggressively enforce the existing policies prohibiting the purchase of mortgages that include PACE loans and will continue to pursue legal and other actions that will protect the first-lien status of GSE loans.
Where homeowners associations are concerned, FHFA announced that the Agency and Fannie Mae filed an action in a Nevada federal court on December 5 seeking to declare sales made by HOAs invalid. The Nevada Supreme Court made a controversial ruling in September that gave HOAs the power to foreclose on a home and extinguish a mortgage non-judicially, a ruling that was subsequently appealed by lenders. In order to protect Fannie Mae's and Freddie Mac's property rights, FHFA intervened in two Nevada cases in which an HOA extinguished a mortgage.
"These FHFA actions are based on federal law which precludes involuntary extinguishment of liens held by Fannie Mae or Freddie Mac while they are operating in conservatorships and bars holders of other liens, including HOAs, from taking any action that would extinguish a Fannie Mae or Freddie Mac lien, security interest or other property interest," the statement reads. ". . . FHFA is authorized, as conservator, to bring this suit because Enterprise lien interests in collateral constitute property protected by this provision."
FHFA said it would aggressively protect the rights of the GSEs by bringing actions to prevent foreclosures or threaten the first-lien status of Fannie Mae- or Freddie Mac-guaranteed mortgages.
http://dsnews.com/news/12-23-2014/fhfa-vows-protect-first-lien-status-gse-backed-mortgages
Sorry, that last post did not copy/paste properly from my phone. Use the link for proper order and any info accidentally left out. I am not trying to edit it.
How Goldman and D.C. Hosed AIG – and the Taxpayers
Politics / Banksters Dec 23, 2014 - 02:55 PM GMT
By: Money_Morning
Politics
Shah Gilani writes: The truth about crony capitalism, at the highest level, is being laid bare right before our eyes.
I’m talking here about Goldman Sachs Group Inc. (NYSE: GS) as the husband of global investment banking prowess with the U.S. government as its mistress puppet.
in Congress and at the highest levels of the U.S. government plot their profiteering and pilfering schemes.
Remember Starr International suing the United States for essentially ripping off American International Group Inc. (NYSE: AIG) and its shareholders? Starr is an insurance company controlled by Maurice “Hank” Greenberg, the former CEO of AIG, not long ago the largest insurance company in the world.
I told you about it back in September.
Apparently, this closely watched 37-day trial that was supposed to have ended in November, is far from over.
Greenberg’s lawyers just got more than 30,000 new documents they were denied before.
And, oh boy, are they a powder keg!
What was covered up when the U.S. government and the Federal Reserve Bank of New York bailed out AIG (as the Fed and the government called it) was how Goldman Sachs inserted one of its directors, Edward Liddy, into the top position at AIG when the government saved it from itself.
Only no one knew how deep the Goldman connection went. No one knew how Liddy, the former CEO of Allstate Corp. (NYSE: ALL), helped push through the bailout with the AIG board – without giving shareholders a chance to vote on it.
The problem for the New York Fed, the U.S. government and Goldman Sachs was that Greenberg’s stock position was enough to kill the bailout if he had a chance to vote his shares. He never got the chance.
It wasn’t enough that Goldman’s former CEO was Hank Paulson, the then-Secretary of the U.S. Treasury, and that Goldman got bailed out itself when the Fed and the U.S. government gave it a windfall of profits right out of AIG’s pocketbook for some credit-default swaps that weren’t even worth anywhere near what the government paid Goldman for them. That was theft, plain and simple.
But, hey, it’s not theft if its government sanctioned.
So, we’re finding out now how deep the rabbit hole is.
The best report I’ve read so far is the New York Times account of it.
For the most part, the trial was a sleeper. Not anymore. These new revelations change everything.
At least, we hope they do.
Source : http://www.wallstreetinsightsandindictments.com/2014/12/goldman-d-c-hosed-aig-taxpayers/
Money Morning/The Money Map Report
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http://www.marketoracle.co.uk/Article48752.html
The 24 Most Impressive People Of 2014
24 December 2014 mukeshbalani
narendra modi
For some, 2014 was a good year; for others, it was a great year. It was the year of the big-screen iPhone, the fight against Ebola, powerful political protests, and revolutionary breakthroughs in health and technology.
We named the 24 most impressive people of the year starting with the overall winner, India’s new prime minister, Narendra Modi.
From finance and tech to politics and entertainment, these are the people who amazed us the most this year.
MOST IMPRESSIVE: Narendra Modi is poised to reignite India’s economy.
Prime Minister Modi is turning over a new leaf for India. The country’s stock index is at record highs.
Since he entered office in May, Modi has reworked the government’s budget, made bank accounts more accessible to everyone, made advances in reforming labor laws, transformed the government into a more transparent and open place, and formed positive relationships with China, Japan, and the US.
He’s a political figure who’s putting people’s faith back in India, and he’s utterly beloved by the people of India. He won the May 2014 election by a landslide, and since then he’s kept people’s faith in him through his initiatives both home and abroad.
Modi is undoubtedly India’s newest and biggest rockstar.
Bill Ackman is soaring during a rough patch on Wall Street.
It was a tough year for most hedge-fund managers, but Ackman still ended up on top, most notably making $2.2 billion when Actavis bought pharmaceutical company Allergan in November.
Additionally, the net returns for Pershing Square, Ackman’s hedge fund, are over 30% for the year. Ackman is famous for a big short of Herbalife, a multilevel marketing company that sells weight-loss shakes. But he’s had most success with his stakes in Allergan and Fannie Mae and Freddie Mac.
https://mukeshbalani.wordpress.com/2014/12/24/the-24-most-impressive-people-of-2014/
Merry christmas. A little bit of fun. The Politics of It’s a Wonderful Life: A Dialogue with Chris Schaefer
posted in Film Reviews/Hollywood, Politics on December 22, 2014 by Keith Miller
An old high school friend tweeted: “It’s a Wonderful Life has be the most anti-Tea Party movie ever.” I rakishly tweeted back: “False.” Rather than attempting to hash out this disagreement within the confines of 140 characters, we resolved to do a Gladwell vs. Simmons sort of thing, exchanging long-winded emails to see if we could hash it out.
My friend, Chris Schaefer, has led a peripatetic life ranging from Oklahoma to Morocco. As of late, he seems to have settled in Paris. We agreed to let him have the first word:
Chris: I was being a good American and doing my annual Christmas-time viewing of It’s A Wonderful Life when I had this moment. It was one of those eyebrow-scrunching, lip-twisting, just-wait-a-second-there moments: Conservative Americans cherish Frank Capra’s classic, and yet important parts of the film don’t seem terribly conservative. I wondered if conservatives’ appreciation for family, faith, and community in the movie doesn’t cause them to miss echoes that the original audience would have picked up on immediately.
It's a Wonderful Life It’s a Wonderful Life came out in 1946 right as the United States was exiting an extremely difficult decade and a half. There’s a reason why Tom Brokaw coined the term “The Greatest Generation” to describe those who came of age during the Great Depression and World War II. Two of the greatest challenges that animate the film are bank runs and lack of affordable home ownership–the difficulties of The Greatest Generation in Bedford Falls as it were. These two issues play out in significant ways. George Bailey doesn’t go on his own honeymoon because he has to use his own personal savings to pay his clients who are caught up in the uncertainty of a bank run. And the entire business concept of the Bailey Building and Loan was based on providing home ownership for the poor of Bedford Falls, which was not so much a business as a non-profit social organization if we can take Potter’s critique and the bank-examiner’s presence as any indication.
So what happened between the Stock Market Crash of 1929 and the end of World War II in 1945? The New Deal. And in the New Deal, Democratic President Franklin D. Roosevelt pushed through the creation of two organizations that addressed both of these issues. The Banking Act of 1933 created the FDIC (whose sticker you will inevitably find on your bank’s window), guaranteeing deposits up to a certain amount. The bank run in It’s a Wonderful Life happened just before its creation, and so for viewers in 1946 it served as a scary reminder of how things used to be before the Democrats pushed through the New Deal.
In 1938, Fannie Mae was also created at Roosevelt’s behest in order to increase home ownership and make housing more affordable. Both of these programs were pushed through against Republican opposition, and both would have benefited the residents of Bedford Falls–those who did “most of the working and paying and living and dying” in the community, as George so passionately put it. George’s support for the poor on these issues would have recalled the Democratic rhetoric, while Potter’s heartless commentary on the plight of Bedford Falls’ poor would have echoed the anti-New Deal Republicans.
Don’t take my word for it, though: these leftist echoes scared the FBI. A 1947 FBI memo (pdf, pg. 14) indicated concern that the screenwriters were closet Communists and that the portrayal of bankers and rich people was highly suspect. Now, J. Edgar Hoover’s FBI wasn’t always the most level-headed of organizations, but the fact that they were concerned about the leftist tones of It’s a Wonderful Life means that some aspects of the film resonate in different ways today.
So what’s your call, Keith? Am I missing something? Or, in their deep appreciation for the film, do conservatives today ignore the historical and political context of It’s a Wonderful Life?
Keith: I am one of those conservatives who loves It’s a Wonderful Life and actually believe that the film encapsulates a lot of my small government, pro-family political philosophy. While I’m glad to have my presumptions challenged, I think that you’re wrong to say that this movie is anti-capitalist.
I will grant your presumption that we should consider the historical situation at the time of this movie’s release to help us understand how certain scenes would be understood. Like Scalia at the movies, we should consider the original public meaning, right? But we’re not merely asking a purely historical question, right? I’m not particularly interested if some FBI agents struggled to separate the idea of a bad banker from the idea that all bankers are bad. I’m similarly nonplussed by the question of whether Republican identifiers would have been torqued by watching the film in 1946.
Political coalitions have shifted quite a bit in the last two-thirds of a century. Back then, it was not unusual to be for both higher government spending and traditional family values. Indeed, as both parties were rather conservative on social issues, the economic divergences played a larger role in determining voting behavior. Today’s political fault lines obscure these differences. Now, if one is for traditional family values, that identity tends to dominate and make differences of economic regulation seem comparatively minute. All that is to say, that it could be that the folks who wrote this film were both “conservative on social issues” in some sense that we can recognize, while still advocating for leftist solutions to some of the economic issues of the day.
However, I don’t actually see how the movie supports left-leaning economic policy. The movie exults in the way the Bailey Building & Loan helps Mr. Martini escape Potter’s rental slums. You suggest that scene would be a comeuppance to those dastardly anti-New Deal Republicans who opposed the enactment of Fannie Mae. Actually, I bet those Republicans supported the end of the policy–getting folks into their own homes–and merely objected to the efficiency or constitutionality of the means. To see it your way is like maintaining that today’s GOP is against children eating lunch and that a movie showing a non-governmental actor providing lunch to hungry kids would be a real dig against conservatives.
On the contrary, when I see the Bailey Building & Loan helping folks escape the slums, I see a for-profit company improving the lives of its customers. When I see George foregoing his honeymoon and keeping the Building & Loan afloat through the bank run, I see the entrepreneurial genius benefiting everyone around him. When I see George providing private charity to Violet (or even the otherwise unemployable Uncle Billy), I see a demonstration of how a freer market with less of a public safety net would actually work.
Who needs Fannie Mae, the FDIC, or even Social Security when you’ve got George Bailey?
But beyond these incidental plot twists, don’t you see how the actual thrust of the movie is conservative? George Bailey denies himself and his desire for freedom and travel, and ties himself again and again to the small town and community. He was derogatory of his “not much a businessman” father, but eventually became his father and, in doing so, blessed everyone in Bedford Falls. Isn’t that conservative?
Chris: Thanks for this response. You have one very good point, which I concede but have a response for, and several that I must quibble with.
We can return to where you are right in all due time. First, let’s talk about your unfair summary of my argument. At no point did I say that It’s a Wonderful Life was “anti-capitalist.” My point was much more nuanced. There is a wide, wide spectrum from anarchism to communism, with significant distance between New Deal Keynesianism and Communism. The first accepts capitalism while attempting to improve its outcomes; the second dispatches with it altogether. What I was trying to get at was that a viewer in 1946 would have noticed parallels between Potter’s rhetoric and Republican opposition to the New Deal and between George’s actions and the Democratic New Deal (which was Keynesian, not Communist).
There can be no doubt that George cares very deeply about his community, seeking to improve the lives of those around him. We readily agree on that. But you are saying that George improves the lives of his customers AND that he has a successful business full of entrepreneurial spirit. Is that really what is happening? As far as we know, his for-profit company never makes a profit, and his community spirit interferes with his entrepreneurial spirit at every turn. Think of his comment to the bank-examiner that “between us, we’re broke” or when the real estate agent points out to Potter that the Baileys “don’t make a dime” off of the houses they build. The Bailey Building and Loan isn’t a successful business full of entrepreneurial vim; it’s a community service center subsidizing people trying to live above their means.
Take this scene for instance:
Potter: Peter Bailey was not a business man. That’s what killed him. Oh, I don’t mean any disrespect to him, God rest his soul. He was a man of high ideals, so called, but ideals without common sense can ruin this town. Now, you take this loan here to Ernie Bishop…You know, that fellow that sits around all day on his brains in his taxi. You know…I happen to know the bank turned down this loan, but he comes here and we’re building him a house worth five thousand dollars. Why?
George: Well, I handled that, Mr. Potter. You have all the papers there. His salary, insurance. I can personally vouch for his character.
Potter: A friend of yours?
George: Yes, sir.
Potter: You see, if you shoot pool with some employee here, you can come and borrow money. What does that get us? A discontented, lazy rabble instead of a thrifty, working class…
Republicans often vaunt themselves as the party of financial astuteness, good stewardship of resources, personal responsibility, and the rule of law. Tell me, in It’s a Wonderful Life, which character represents all of those things?
Keith: First, as an aside, your insistence that the New Deal was not anti-capitalist, but merely attempting to improve capitalism’s outcomes reminds me of how Richard John Neuhaus’ characterized the leftist intellectual project: the “earnest search for a ‘third way’ between socialism and capitalism, namely, socialism.”
But returning to Capra’s classic and modern conservatives, I still think you’re operating under a misconception of what small government types actually want. Just because we don’t want government to increase spending to try to meet needs, doesn’t mean that we are against voluntary action which tries to do so. In the private sphere, conservatives like me want Baileys not Potters.
I don’t deny that there are some addled brains on the right who allow their objection to government benevolence to color their philosophy of private action. Thus we get Ayn Rand and the rest of the “greed is good” crowd. But they are a small fraction of the right, and they are most definitely wrong.
A great example of how my conservatism sees the world is found in Bailey’s loan to the cabbie, Ernie Bishop. Potter reports that the bank had turned down Ernie for a loan, but that George had given it to him. You see benevolence and proof that the Baileys are not businessmen, but I see something else. I believe that George is shooting straight when he says, “I can personally vouch for his character.” He gave Ernie the loan despite Ernie’s less than sterling FICO score not as charity, but because he knew Ernie’s character and he believed that Ernie wouldn’t let him down.
Conservatives imagine the freedom of decision making that allows Baileys to make loans to Bishops. Folks on the other side imagine that outcomes can be improved with more regulation. So we get laws like the Dodd-Frank Act: a bill with nearly uniform Democratic support, and barely a token of Republican complicity. Dodd-Frank increased scrutiny on so-called predatory lending which basically means that the George Baileys of the world are legally suspect when they try to assist Ernie. Regulation and central planning is the enemy of character-based credit assessment. The Tea Party’s vision for America is about increasing the scope of freedom George Bailey to make those kind of judgment calls.
Ultimately, the villainous Potter is a morality play about how not to use your freedom. A soul need not ruined by the access to wealth and free enterprise, but by choices made.
George had many opportunities to “shake the dust of this crummy little town.” He wanted to leave for travel and education. He wanted to build skyscrapers. He could have gotten the job his brother got, or taken Sam up on his offer to get in “on the ground floor” in plastics. He could have taken Potter’s offer and got the big salary. But he didn’t.
Potter did not consider the good of his neighbors. He acquired things for the sake of getting wealthier. And he had no one to share it with. That’s how Pop Bailey explains him:
Oh, he’s a sick man. Frustrated and sick. Sick in his mind, sick in his soul, if he has one. Hates everybody that has anything that he can’t have.
George confirms this diagnosis:
People were human beings to him, but to you, a warped, frustrated old man, they’re cattle. Well, in my book he died a much richer man than you’ll ever be!
This is the message of the movie. By being humane in his economic ventures George Bailey lives a wonderful life in the free market and, at his hour of need discovers that has followed his father’s path to prosperity. His brother delivers the happy verdict:
Good idea, Ernie. A toast… to my big brother, George. The richest man in town!
Chris: I think this wonderful character study is spot on. I’m not sure I could have put it much better myself. It’s a Wonderful Life is a morality story about two different bankers, their opposing values, and how those values work themselves out. George Bailey loans money to benefit his community–to help his friends escape Potter’s slums and live better lives. Henry Potter loans money to amass even more wealth and to extend the ambit of his power. As you point out, it is Bailey’s values of family and community that ultimately win out over Potter’s accumulation of power and financial wealth.
I’d like to push your character study a little further, though. What happens when George Bailey gets his wish and sees how Bedford Falls would have been had he never been born? Bedford Falls ceases to be Bedford Falls; instead, it becomes Pottersville. Absent one virtuous banker, Bedford Falls descends into a den of vice, harsh and hostile, where one man’s monopolistic control of the town is so complete that the town takes on the monopoly holder’s name.
If anything, It’s a Wonderful Life is a story of how easy it is for the conservative ideal of Bedford Falls to slip away into nothingness. When one virtuous man disappears, none of the other characters-not Ma Bailey or Martini or Bert or Ernie or Mary–has enough power or smarts or community spirit to impede Potter’s relentless march to control the town. You praise the film as an exemplary story of liberty, but how many George Baileys do you see in positions of power exercising their liberty with wisdom and virtue. You tell me: are most American bankers these days, like Henry Potter, intent on maximizing profits and extending their control regardless of the outcomes on individuals and communities, or are they, like George Bailey, exercising their liberty virtuously in love for their community even to their own financial detriment? Perhaps some of the bankers themselves are fairly virtuous, but their range of action is limited by the system they are currently working within. There are always exceptions, but I think it’s pretty safe to say that, sinful humans being what it is and current corporate culture being what it is, the Potters of this world vastly outnumber the Baileys. And even if the non-George Bailey bankers don’t resemble the heartless caricature that is Potter–their primary motivation in banking certainly is not to benefit the community. The caricature is strong enough, though, that it crops up in parodies of the right-wing political positions–Potter’s comments could easily be used in a sketch on The Daily Show or The Colbert Report making fun of conservative positions on sound financial management.
Beyond the average banker’s motivating values, though, there’s another wrinkle that needs to be addressed: over the past several decades, the inexorable push for economies of scale and maximized margins–supported by conservatives in the name of economic liberty–has centralized control of firms and eroded local and regional control of companies. As a result, today local and regional managers of national chains do not have the same flexibility to make community-improving decisions that Bailey had in the 1940’s. If George Bailey were running the Bank of America branch in Bedford Falls today, would he even have the authority to loan money to Ernie or Violet? Or would rules handed down from national headquarters restrict his virtuous action? And here we’re not talking about government regulation, but private corporate culture.
In short, it’s highly questionable that the mythic community of Bedford Falls is even a possibility in 21st century America. While we may learn a lot from George Bailey about how to live on a personal level, once we begin looking at the economic and political context necessary to imitate the community of It’s a Wonderful Life, more leftist readings suggest themselves. It wasn’t for no reason that the FBI suspected the movie had strong potential to influence people in anti-capitalist ways. Sometimes the stories that influence our lives turn out to be not quite what we think, including some of our most cherished myths. And to turn a blind eye to relevant facts and important context is to do an injustice to both the past and the present. On the other hand, It’s a Wonderful Life is just a movie. It’s not a political or even historical documentary. As fun as this back-and-forth has been, I’ll be the first to admit that the nature of the story severely restricts what kind of firm conclusions about politics we can draw from it. Still, though, given its political and economic context, it’s hard to not conclude that It’s a Wonderful Life lends itself to an interpretation further to the left than most conservative fans are willing to admit.
Keith: This has been fun, though it is unclear if any persuasion has taken place.
We still disagree deeply on the motivation behind the movie. You believe that only a leftist (i.e., pro-New Deal) would make a movie with a heartless banking character like Potter. You’re right to note that Stewart and Colbert would feature a similar caricature to make their case that the GOP policy of the day is heartless and cruel. But just because the Left makes great use of the greedy, money-grubbing trope doesn’t mean that Conservatives don’t make similar objections. Indeed, it is precisely because our culture sits in near universal condemnation of Potter’s lifestyle that the Democrats tend to wrap their agenda in the anti-Potter flag. The inverse of this point would be the endless bureaucracy of many government agencies. Everyone agrees that red tape can also be obscene, and that is why the GOP is always trying to focus attention on it. But “Vote for Me, I’ll Stick it to Potter” and “Vote for Me, I’ll End Regulation” are sugar-high slogans with very little substance.
Despite those FBI suspicions, I believe that a conservative could have easily made a movie with a power and soulless banker as the bad guy. Such a conservative filmmaker would probably avoid showing regulation as the solution to Potter’s avarice, but instead show that ultimately those who act virtuously will end up richer than Potter ever could imagine. That’s the movie I see when I watch It’s a Wonderful Life.
http://blog.acton.org/archives/74806-politics-wonderful-life.html
Changing Winds in the GSEs' Rep and Warrant Framework: Part 1
by Deborah Hoffman
DEC 23, 2014 12:25pm ET
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Changing Winds in the GSEs' Rep and Warrant Framework: Part 1
A relaxing in the implementation of mortgage regulations by Fannie Mae, Freddie Mac and their regulator is getting accolades from the housing finance industry.
However, critics argue that it also may have an unintended implication for taxpayers.
In late November, Fannie and Freddie announced changes to the representations and warranties regulations under which lenders and these government-sponsored enterprises operate with respect to the purchasing and selling of mortgages. The changes occurred approximately one month after the chairman of the GSEs' regulator, the Federal Housing Finance Agency, Melvin Watt, gave a speech at the 2014 Mortgage Bankers Association Annual Conference highlighting them. In essence, the changes are intended to change tight credit conditions and allow for increased lending, but critics argue that such loosening could alternatively cause losses by the GSEs related to the purchases of bad loans; such losses would eventually be passed on to taxpayers.
Effective January 2013, as part of the FHFA’s "seller-servicer contract harmonization initiative," the first of many ongoing changes to the representations and warranties framework was unveiled. Such regulatory changes to the framework have undergone ongoing review and interpretation by those subject to it. Industry leaders and organizations, including the MBA, have argued that the regulations are too restrictive. During his opening remarks at the MBA annual conference, MBA chairman Bill Cosgrove challenged the FHFA and other regulatory agencies to change this, saying that "the future of housing in America is on the line" as a result. "Regulators must be our partners to solve the overlapping regulations that are holding back the mortgage and housing markets. If they are going to regulate us, they must work to better understand the unintended consequences on consumers," he said. The GSEs implemented the aforementioned changes approximately one month later.
Ongoing Review of Representations and Warranties
Other industry leaders also have been vocal about their concern over the framework and the negative effect it has on providing credit to borrowers. David Lowman, executive vice president of Freddie Mac, has stated that the concern is that, under the current structure, there was a “back door for the GSE to put loans back to [the lender] after granting relief.” In his speech in October 2014 at the MBA conference, Watt highlighted several ongoing issues related to FHFA's statutory obligations, focusing on the representation and warranty framework. He acknowledged that the framework currently in place did not provide enough clarity to enable lenders to understand when Freddie or Fannie would repurchase loans. In turn, he stated, this drove lenders to impose credit overlays, driving up lending costs.
Initial changes to the representations and warranties framework effective as of January 2013, “relieved lenders of representation and warranties obligations related to the underwriting of the borrower, the property or project for loans that have clean payment histories for 36 months,” according to Watt. In May 2014, the FHFA and GSEs provided additional clarity regarding the 36 month benchmark, including: (1) confirmation to lenders when mortgages sold to the GSEs meet the 36-month performance benchmark or pass a quality control review; (2) revising the payment history requirement by borrowers to allow, within the first 36 months after acquisition, up to two 30-day delinquencies; and (3) eliminating automatic repurchases by lenders when a loan’s primary mortgage insurance is rescinded. Nonetheless, lenders did not loosen their credit standards as a result of continued fear of buybacks.
One of the major changes implemented in November by the GSEs is to provide clarity around life-of-loan exclusions to better define how they can trigger a repurchase. (Life-of-loan exclusions are intended to allow Fannie Mae and Freddie Mac to require lenders to repurchase loans at any point during the term of the loan, thus to prevent fraud or non-compliance, and can increase liability for lenders.) Exclusions fall into six categories: (1) misrepresentations, misstatements, and omissions (2) data inaccuracies, (3) charter compliance issues, (4) first lien priority and title matters, (5) legal compliance violations; and (6) unacceptable mortgage products.
With respect to category (1) above, the misrepresentation or data inaccuracy must meet a “significance” requirement for post-relief date repurchases and the definition of fraud makes a distinction between fraud and misstatement. The threshold for misrepresentations is now three loans or more, rather than two, by the same lender; the threshold for data inaccuracies has increased to five loans. GSEs will have to conclude that, had the information been accurately reported, the loan would initially have been ineligible for purchase. The purpose, it appears, is to limit buybacks caused by errors to situations in which there is a routine pattern of a repeated mistake by a lender despite the fact that there is no timeline indicated in the guidelines around error.
The recent revisions by the GSEs to the life-of-loan exclusion will be applied retroactively to loans that were purchased or pooled on or after Jan. 1, 2013. The November changes by the GSEs also make modifications to the compensatory fee structure with respect to jurisdictions and de minimis exceptions. In implementing these changes, the GSEs amended the “Compliance-with-Law” definition in their selling guides, effective for mortgages with settlement dates on our subsequent to Nov. 20, 2014, to limit the instances of triggering buybacks in scenarios in which there is a violation of law by a lender.
GSE leaders make it clear that these changes are intended to provide clarity and have tighter definitions, allowing increased availability to credit to a wider variety of qualified borrowers.
http://www.nationalmortgagenews.com/news/commentary/changing-winds-gses-rep-warrant-framework-part1-1043441-1.html
Hey Arnold, did Along4 take kings4 back to the homeland to meet the parents?
Well I just tweeted. I don't know when it shows up on her twitter.I really don't tweet.
Signed
As TARP era winds down, U.S.’s financial-crisis bailout scorecard nears completion
Published: Dec 20, 2014 12:56 p.m. EST Bloomberg
The collapse of Lehman Brothers Holdings Inc. in September 2008 was one of the most jarring financial-crisis-era events.
By Ryan Tracy & Julie Steinberg & Telis Demos
WASHINGTON — The U.S. government closed a chapter in financial-crisis history Friday when it sold its remaining shares of Ally Financial Inc. ALLY, +2.24% and shuttered its auto-bailout program, ending the last major pieces of a $426 billion rescue package that saved a swath of U.S. companies but never won public support.
The Treasury Department says 2008’s Troubled Asset Relief Program has returned $441.7 billion on the $426.4 billion invested.
The Treasury Department said the 2008 Troubled Asset Relief Program has netted a small profit, returning $441.7 billion on the $426.4 billion invested in firms including Citigroup Inc. C, -0.17% Bank of America BAC, +0.51% General Motors GM, +3.34% Chrysler and American International Group AIG, +1.40%
That profit, unexpected at the time of the bailout’s inception, has been nonetheless overshadowed by criticism that the rescue program put Wall Street’s interests ahead of Main Street’s, a view that prompted Congress to outlaw future taxpayer bailouts as part of the 2010 Dodd-Frank law. About 35 smaller banks remain in the program, down from about 700 financial firms at the height of the program. Critics have also pointed to the possible costs of having such a large amount of government funds tied up for so long and to the risks assumed by the government with its bailouts.
While the U.S. is largely exiting from its ownership of TARP companies, it still controls mortgage giants Fannie Mae FNMA, -2.80% and Freddie Mac FMCC, -1.77% . Those firms, which were rescued by the Treasury Department before Congress created TARP, have returned to profitability, but lawmakers and the White House have yet to agree on what role the companies should continue to play and how to unwind the government’s control.
An expanded version of this report appears at WSJ.com.
http://www.marketwatch.com/story/as-tarp-era-winds-down-uss-crisis-era-bailout-scorecard-nears-completion-2014-12-20
Rossi: New changes may jump-start mortgage approval process
Kurt Rossi/For The Times of Trenton By Kurt Rossi/For The Times of Trenton
on December 20, 2014 at 7:00 AM, updated December 20, 2014 at 7:15 AM
Kurt Rossi on investing. Since the end of the financial crisis and subprime mortgage meltdown, obtaining a mortgage has been difficult – to say the least. From increased scrutiny during the underwriting process to higher down payment requirements, many have found themselves unable to qualify. In fact, even Federal Reserve chairman Ben Bernanke recently stated that he was turned down while trying to refinance his own mortgage. While it is certainly understandable that the lax lending standards that helped lead to the housing bubble should be tightened, many, including Bernanke, felt that it is possible they’ve become too stringent. As a result, changes are being implemented that may make getting a mortgage a bit easier.
Mortgage behemoths Freddie Mac and Fannie Mae will now back mortgages with as little as 3 percent down while also simplifying the documentation process. The changes are designed to jump-start lending to qualified lower and middle income borrowers who can’t come up with a larger down payment but can afford the monthly mortgage payments. While programs from Freddie Mac and Fannie Mae differ slightly, the primary goal remains the same: encouraging homeownership. "The Home Possible Advantage program gives qualified borrowers with limited down payment savings a responsible path to homeownership and lenders a new tool for reaching eligible working families ready to own a home of their own.,” said Dave Lowman, executive vice president, single-family business, at Freddie Mac. “Home Possible Advantage is Freddie Mac's newest effort to foster a strong and stable mortgage market."
Lower down payments
The new program from Freddie Mac is available to both existing and first-time homebuyers to purchase a single unit property or for a no cash-out refinance of an existing loan. (Existing homeowners cannot take equity out as part of the refinance process.) In an effort to educate inexperienced purchasers, first-time homebuyers are required to participate in an approved buyer education program.
In contrast, Fannie Mae’s 3 percent down payment option is available only if at least one co-borrower is a first-time buyer. However, existing homeowners who wish to refinance their Fannie Mae-owned mortgage but do not qualify under the Home Affordable Refinance Program can refinance their loan up to the 97 percent loan-to-value level under a limited cash-out option. Keep in mind that these loans will require private mortgage insurance since the down payment is less than 20 percent.
Boost to the real estate market
Many analysts have noted that the rebound in home prices has begun to slow and the hope is that less restrictive lending programs may lead to increased demand, pushing the housing market up, which, in turn, may help improve economic activity. An Urban Institute study from earlier this year suggested that if credit requirements were relaxed to "normal levels," about 1.2 million additional home loans per year could have been made. Lower standards coupled with low rates may certainly have the potential to move the housing market. Remember, interest rates remain low with 30-year and 15-year rates around 3.93 and 3.20 percent, respectively (Freddie Mac Primary Mortgage Market Survey).
Making homeownership accessible to more Americans is certainly a good thing. However, the concern is that easy lending standards contributed to the housing crisis in the first place. While the lending standards of the new programs are nowhere near as loose as standards during the wild, wild west days of the mortgage market before the crisis, these loans may still be a concern. In fact, Nobel Prize-winning economist Robert Shiller told CNBC, "It sounds a little risky. Risky for the lender, and for the mortgage insurer who is going to insure the mortgage obligations.” The risk associated with lower down payments should be weighed carefully.
Remember – just because credit is accessible, it doesn’t mean it makes good financial sense to take advantage of it. Homeownership has always been an important part of the American dream but financial missteps coupled with bad market timing and tough personal circumstances can easily turn it into a nightmare. There are many factors to consider before jumping into a home. First, carefully review your budget to ensure that you have excess cash flow available for all financial goals – not just your mortgage payment. You should be able to fully fund retirement and other goals while still making your mortgage payments. If not, you may be buying more home than you can afford. It is also critical to maintain at least 6 to 12 months of cash reserves so funds are available in the event of a financial emergency – such as the loss of a job or health issues. In an effort to address other unforeseen challenges, be sure to maintain proper insurance coverage for both you (life insurance and disability insurance) and your home (property and casualty). Careful planning can help protect against the unexpected.
Availability of credit is an important part of a healthy, functioning economy. The hope is that the new standards may promote lending and refinancing to those that need it. Since everyone’s situation is unique, be sure to carefully review your personal circumstances with your financial, tax and mortgage advisers to determine the appropriate approach for you.
http://www.nj.com/times-opinion/index.ssf/2014/12/rossi_new_changes_may_jump-sta.html
This stock is all about patience. Fannie Mae - '4 Documents, Produced In Discovery' Dec. 19, 2014 11:14 AM ET | 4 comments | About: Fannie Mae (FNMA), Includes: FMCC
Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in FNMA, FMCC over the next 72 hours.Summary
•Documents produced in discovery by the Defendant are now being used by the Plaintiff against the defendant. This suggests that discovery is unearthing valuable documents for the Plaintiff.
•If 100% of the profits of Fannie and Freddie continue go to the US Treasury in perpetuity, bankruptcies and receiverships can be less lucrative for creditors than conservatorships.
•Although the Iowa case isn't looking good and Judge Royce Lamberth set a precedent, the end-game and over half of my portfolio is to be long Fannie and Freddie.
•The government's proposed defense is more logical and understandable than the Plaintiff and this perpetuates an untenable situation, namely conservatorship.
(click to enlarge)
Sweeney's Court of Claims Redacted Filings
As expected, Fairholme's discovery is producing documents that are now being used against the government in a court of law.
“
On November 17, 2014, Plaintiffs Fairholme Funds, Inc., et al. filed their opposition to Defendant's recent motion to stay all proceedings.1 Because Plaintiffs' Stay Opposition referenced,attached, and briefly discussed four documents, produced in discovery by Defendant, Fannie Mae, and Freddie Mac, that had been designated by those entities as Protected Information
Specifically, check the bottom of page 16 and you'll see that discovery has already produced documents showing that the government indeed was cooking the books to justify the sweep.
“
For example, analyses that were prepared in July 2012 on the basis of the Treasury "scenarios" projected, inexplicably and suspiciously, much lower net income for Fannie in subsequent years-approximately a 50% reduction for most years-than had internal Treasury analyses that had been prepared only a month earlier, in June 2012. Compare T3847 (June analysis) (attached as Ex. C) with T3889 (July 2012 Treasury analysis) (attached as Ex. B). Again, documents produced thus far by the Government do not purport to explain or justify all of the differences between the scenarios. The production of such critically important documents will cause little if any burden to the Government."
"The Government's failure thus far to produce many of the financial projection documents discussed above is especially curious in light of the fact that many documents produced in third party discovery (by Fannie, Freddie, and their auditors)
Note that this filing is in response to the government's motion to stay all proceedings. In my opinion, it's been too late for the government to get away with staying the proceedings with the discovery well underway. My disclosure here is that I have firsthand experience modeling data flows across hundreds of electronic discoveries. The government's battleship is sunk, not to mention that Sweeney has herself proclaimed that the government's defense is "schizophrenic" and that the Plaintiff will have their day in court.
Iowa court case gets rolling
After watching the courtroom videos in the case of Continental Western vs. FHFA that you can watch here, I think that the government is making a better case, even though the law is on the Plaintiff's side according to someone who wrote the law. See what they say for yourself.
(click to enlarge)
"Treasury cannot simply strip the companies of cash in perpetuity"
Michael H. Krimminger is a partner at Cleary Gottlieb and a former general counsel to the FDIC. He says that "the continuation of the sweeps through the conservatorships is a violation of every principle established in bankruptcy and in the more than 80 years of FDIC bank resolutions. And it has no support in HERA." He goes on.
“
The perpetual conservatorships and Treasury sweeps are a violation of every principle of insolvency law. I do not make this statement lightly. After more than twenty years at the Federal Deposit Insurance Corp., and frequent participation in domestic and international efforts to improve insolvency laws, I provided technical advice to Congress on HERA.
If you feel like the conservatorship is less advantageous for equity owners than receivership or liquidation, well, so far it looks like that's the case
Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) are two government sponsored entities, not government owned entities unless the Third Amendment net worth sweep is used to set a precedent. This precedent, if set, undermines faith in one's ability to own any American business. Michael H. Krimminger puts it in more specific language.
“
The continued diversion of Freddie and Fannie's profits to Treasury misuses HERA as well as ignores the international standards underpinning all insolvency frameworks. This is important because one foundation of corporate finance, and our system of commercial laws, is that insolvency law assures creditors that the remaining value of the company will be paid out under defined priorities. If this standard is ignored, as it has been through the Treasury sweeps, it will undoubtedly affect future investment in housing finance and the financing costs for businesses.
(click to enlarge)
Not to worry! Mr. Krimminger says that HERA imposes duties on the FHFA as conservator. In this role, the FHFA is instructed to return Freddie and Fannie to "a sound and solvent condition" and to "preserve and conserve the assets and property" of the companies.
It's a long bumpy road ahead, but worth it nonetheless
If you follow headlines, the two enterprises borrowed $187.5B and either has paid back nothing or $225B. According to the Third Amendment, they have paid back nothing because, unlike a liquidation or wind up situation, in this conservatorship the government is not limited to merely getting paid back what was loaned but gets all future profits to infinity and beyond. I'm surprised that senior creditors around America haven't figured this out and pushed for conservatorship instead of Chapter 11. It's the wolf in sheep's clothing.
In the Iowa court room, from what I've seen, Charles Cooper for the plaintiffs centers his dialog on points of weakness like he is defending against a government attack, namely that the conservatorship is supposed to conserve and preserve instead in planned response to the government's focus on the words "wind up." This is, in my opinion, not a critical perspective. He also spends too much time talking about the history of the GSE's, also irrelevant to the legal decision from my perspective. Below is the list of things that are relevant to the case that matter if you ask me. I will be referencing HERA, the body of law that governs FHFA.
1. The title conservator is not a misnomer.
“
12 U.S. Code § 4617
(B) (D) Powers as conservator
The Agency may, as conservator, take such action as may be-
(I) necessary to put the regulated entity in a sound and solvent condition; and
(ii) appropriate to carry on the business of the regulated entity and preserve and conserve the assets and property of the regulated entity.
2. Whether or not the FHFA can enter into legal contracts, wind up, or end conservatorship is not in question, it can, but Third Amendment is an agreement outside of the powers of conservator as defined in HERA, directly above.
3. Conservatorships run this way are better for creditors than receiverships as infinite cash sweeps that don't impact liquidation preference are preferable to merely getting paid back what you put in. If the Third Amendment is not declared illegal and reversed or amended, winding up operations through receivership is what will happen as the net worth of the enterprises reaches zero in 2018 per the terms of the amendment, at which point the US Treasury would still have $187.5B of liquidation preference.
Iowa Judge Robert W. Pratt Shows Promise
I'm not confident in the Iowa case. As a shareholder, this is disheartening, but that's because I would prefer to have at least a million dollars now rather than in a few years in conjunction with a multi-year, multi-court appeals process. I'm no lawyer, but I don't think you have to be to understand what is happening here. Fortunately, the judge seems to understand that both the Plaintiffs and the defendants agree that for the most part the case should be decided upon a reading of the statute.
The Government's position is "Read the statute." The judge paraphrased the plaintiff's position on behalf of the plaintiff and I concur, "I have read the statute and they've violated it," to which the Plaintiff's attorney Charles Cooper says, "That's music to my ears." Meanwhile, here I am wondering why exactly the judge is the one that has to state the obvious when it would seem that Charles Cooper is in a position to make this beyond self-evident in short order but from what I've seen has failed to do so.
The bad news is that Judge Lamberth has already done the dirty work of creating the legal reasoning that gets around what the law was designed to do according to Mr. Krimminger so if Judge Pratt wants to run with that line of reasoning, it's doable. The good news is that the plaintiff's attorney Charles Cooper made all of the remarks necessary including but not limited to demonstrating that at this point in the process what he says must be taken as fact by law.
Ackman continues to build position, $20+ valuation
As I've previously discussed and Ackman has publicly demonstrated, absent the net worth sweep, Fannie and Freddie are both worth over $20. More recently, he has disclosed that he continues to build his position saying that, "people realize that Fannie and Freddie are more essential today than they were even 5 years ago" and that "of all of the companies that have emerged from the crisis the only ones that are a risk to the taxpayer today are Fannie and Freddie ... cause the government every quarter takes the money and it helps the government meet the budget deficit and it's a false profit because there's no capital cushion left at Fannie and Freddie. The only way for this business to protect the taxpayer is for it to recapitalize. The only way for that to happen is for it to be returned to the private sector." So there you have it. Take it how you want to take it.
Editor's Note: This article discusses one or more securities that do not trade on a major exchange. Please be aware of the risks associated with these stocks.
http://seekingalpha.com/article/2768895-fannie-mae-4-documents-produced-in-discovery
see my last post
I did not know that fnma has a facebook page. Check this out.
https://www.facebook.com/fanniemae?sk=wall&rf=104161122952296
I signed the.petition and when I did the email verification I was notified that I am being audited. Just kidding. Don't freak! It's a joke!
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All of that math makes my head hurt but all of the projected stock prices are GREAT for FnF common stock holders.
Audacity of growth link here. I cant copy and paste it from my phone.
http://www.glenbradford.com/2014/12/fnma-worth-27-36-by-i-didnt-read-into-this/
Oh I see. If along4/kings4 starts posting comments on th717 then I will pay more attention to those comments. Hahahahaha