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Yes - its in the book. Calabria then says " So I guess I will be in your next movie" which Mcnuchin retorted " Yes, sure, we'll need a villain." Calabria then wrote " Perhaps that was just Treasury once again speaking for Wall Street asset managers."
Kind of awkward that Calabria even included this in his book - not sure which is more awkward - " not a bad-looking guy" or "Treasury once again speaking for Wall Street asset managers".
Page 149 2nd full paragraph from the top.
I do ALL the time. Except when some other point of view make more sense in my subjective opinion.
Hi NeoSunTzu -
Futile is a strong word - what is different for the GSEs than say a large publicly owned utility?
What do you think the ROA is for the GSEs. How much does each GSE own on retained cash? How much will the GSEs earn on net interest from $ 150 bn in cash retained on their balance sheets?
Do you think the GSEs would be included in the S&P 500? If so how much of the GSEs would be owned by institutions that track or benchmark against the S&P 500 especially if the GSE equity has a 3- 4% dividend?
I dont know about your futile characterization - especially if they are well capitalized and operate under their existing charters.
Yes - you are probably going to be right but I cant understand how SCOTUS would agree with the premise that serial acting heads of Senate confirmed agencies could be Constitutional. Rop will be a big one. Ultimately,I have faith in Judge Jones on the 5th Circuit to do the right thing and SCOTUS not messing it up.
I am thinking that Kavanaugh will see Thapar as himself when he dissented in Seila and that he will get consensus for Cert in Rop. Rop could put Thapar higher on the map for a future SCOTUS appointment if the GOP takes back the White House.
Wow - 1 pct chance that the separation of powers cases will be successful? We know what Mr. Market is thinking.
The Constitution was fought for by guys who took the 1 pct odds against the British Royal Army. It is the right outcome for the future of the USA otherwise more systemic important financial institutions could be nationalized.
We will see soon enough.
Ok - that is your interpretation of these pages in a book.
You are saying that "all" is not always - every one of, or the complete amount of or the whole of in the case of GSE equity.
There are three classes of common in the GSE capital stack, common, JPS and SPS - all includes all three but you believe all is qualified by the other discussion in the book - correct? The assumption is that all is not all in this case and that is why you think there will be a cramdown.
Personally, I am more convinced that UST will write down the SPS if it is not voided by the separation of powers suits and that all legacy common will share parri-passu after JPS are incentivized to convert and new shares dilute the combined UST and public common equity interest on a parri-passu basis.
Hi Kthomp - I do not see any reference to a JPS haircut in Calabria's book based on the sections Familymang cited. Is the haircut somewhere else - I cant find it?
Hi Familymang - did you see that quote on page 149 where Calabria quoted Mcnuchin saying " You're really not a bad-looking guy" and somehow assumed that UST was just advocating for Wall Street asset managers? Seems kind of awkward doesn't it ?
Thanks Familymang. You are referring to pages 147-149.
So its clear that McNuchin and Calabria felt that UST would have to write down at least part of their SPS position - correct?
Page 147 as you have quoted: " Treasury could be heavily diluted, and almost certainly would have to be, but it did not want to see that accomplished by losing its standing."
Calabria mentions on Page 148 mentions a conversation with Mark Warner that it "..was not economically possible for Treasury to recoup par value for its preferred shares."
So you are assuming that when Calabria wrote .."Mnuchin was open to placing all the equity holders, in a similar spot." - Mcnuching did not really mean ALL just the JPS and the UST SPS? Why do you assume that ? Common is equity and all is every class of equity.?
What page Kthomp? Why should JPS take any haircut? The only way the JB Admin will be able to fund a politically inspired woke piggy bank from GSE equity this Term is to settle with JPS and Common. No reason any public security holder gives the UST any concession especially since they wanted to nationalize the GSEs as early as March 2008.
Kind of got to be kidding to settle for less than the public paid for the JPS after waiting 15 years. I paid $ 25 for FNMAT in May of 2008 - I want my money back plus some.
Agree with you : FMCKJ is probably the best risk/reward in the GSE stack right now and that common will probably be diluted. I would think that the UST would be diluted along with legacy common and that JPS would be given a sweetener to voluntarily convert.
Also would agree that there is low expectation for Scenario No. 4 in the market.
We will know a lot more as the separation of powers cases move forward this year.
On what page Kthomp?
OK - Glenn or Familymang - do you guys know where the cramdown was discussed in Calabria's book ? I purchased a hard cover copy and can share a direct quote for everyone to consider.
Scenario No. 4 - The NWS and Liquidation Preference is voided by the 5th Circuit and/or SCOTUS as a remedy for the separation of powers Constitutional violation. JPS liquidation preference is preserved and common pro-rata interest in the future market value of the GSE equity increases or decreases as future market value of the GSEs is impacted by market forces offset or enhanced by increases in retained earnings of the GSEs.
Hi Rodney5, I just looked for the cramdown reference that Ktomph mentioned in Calabria's book. He does mention this on page 169:
" The FHFA does not have a statutory duty to expand homeownership or lower mortgage rates. The statutory charters of Fannie and Freddie apply to them, not to the FHFA. The FHFA's mission is to see that Fannie and Freddie stay within their charters, not to abandon its prudential duties in furtherance of the GSE's charters."
Thought you may be interested. Personally, I am waiting to see how the statute of limitations defense will play out in the Kelly suit regarding the charter act issues.
Hi Kthomp, I just skimmed through Chapter 10 of Calabria's book - are you sure the cramdown proposal is in Chapter 10? - I cant find the reference.
No Name is confused with the Mootness doctrine and the Major Question Doctrine. I was discussing a potential suit under the Major Question Doctrine. I would expect a MQD suit regarding the LLPA fees once SCOTUS rules on the student loan cases. If the JB Admin tries to use GSE equity garnered through a SPS cramdown as a woke affordability politically motivated piggy bank some major shareholder would have standing and incentive to bring a MQD suit regarding the cramdown. Just a thought but it is as viable as your unabashed cramdown scenario - we are talking at least 20 pct of the SPS Liquidation Pref which will be between 10 to 20 billion at issue.
Who said anything about a restraining order? I am suggesting a MQD type of suit by a large common shareholder - pure speculation - just like your opinions.
The common cramdown scenario will only be possible if the NWS and SPS Liquidation preference is not voided or a derivative action is not successful. At this point the market expectation is that the separation of powers suits and the derivative suits will not be successful. Makes sense for a 44 cents stock that could be worth 20 to 30 times more if shareholders prevail and the conversion remedy is not selected in the separation of powers suits.
Perhaps Glenn is right about the common cramdown but you can make your own judgement on his track record to date.
Next up is the Rop Cert decision as familymang has highlighted in his calendar. We should know a lot more by the end of the year.
JPS seems to have a much better risk/return at current prices but it is not to say that both common and JPS will eventually be treated fairly. I got to believe that Ackman will step back in on behalf of common at some point with new litigation on a MQD type of lawsuit if the JB Admin tries to execute a cramdown via Admin Action
Here is a Reuter Article about the Growth Fund of Americal losses during 2008 including a sizeable investment in GSE JPS shares:
https://www.reuters.com/article/idINL1E8CHBIG20120119
Advisers were caught off-guard in 2008, when they say American Funds did not do enough to shore up performance after the market crash of 2008. The firm's Growth Fund of America was down 39 percent that year; the S&P 500 was down 37 percent. The fund was heavily invested in financial services companies and the debt of Fannie Mae FNMA.OB and Freddie Mac FMCC.OB.
FNMAT was offered to the public on May 13, 2008 by a underwriting syndicate led by Merrill Lynch. 80,000,000 shares were issued at $25 per share raising $ 2 billion of new capital for FNMA.
https://fanniemae.gcs-web.com/static-files/d2ff8e7f-ff59-479f-ad54-fe135914569c
Remember the Jason Thomas Memo regarding the Barron's article where he stated that GSE shareholders would get wiped was on March 8, 2008 nearly two months before the FNMAT offering. Did Merril Lynch know about the Jason Thomas Memo? Jason Thomas was the Special Advisor to GWB as part of the NEC and the Memo was written to the Under Secretary of the UST.
Maybe Mike Kelly also purchased some FNMAT from Merrill Lynch?
I also purchased FNMAT on the new issue in an IRA - the GSEs were not penny stocks - the JPS was issued at $25 per share and was a multi-billion dollar offering with a large underwriting syndicate
Growth Fund of America is a 529 investment option under the Commonwealth of Virginia 529 plans. It not only was one of the largest investors in GSE common it had a sizeable position in GSE JPS. Remember that the GSES sold billions of JPS between April and September of 2008 including FNMAT. Like many institutional investors and retail investors there was an expectation that the JPS capital raise would provide enough capital for the developing MBS market dislocation and that is why they acting as fiduciaries purchased the JPS on the new issue. All together between common and JPS the GSEs were a sizable position in a diversified portfolio.
Thank you for your service Commander - and all others who served our Country!! Lets not forget the over 1 million Americans who have given their lives for our enduring freedom. God Bless all who continue to suffer from physical and mental injury due to their bravery and duty on behalf of America!!
Hi Robert Seems like the chickens are coming back to roost - big deficits and higher interest rates used to be a real concern back in the day. Dont know about a full guarantee but it may just become an necessity to get the GSEs properly capitalized in the next couple of years and generate 100 to 300 bn in revenues for the UST? Isnt 100 to 300 bn in revenue still a material revenue generator in a budget cycle?
Thanks Navy! Thanks Robert! Really interesting dialogue between Ackman and his PM. Ackman also talked about a new SPAC and more to come. I would say that anyone who does not think Ackman cares about how common shareholders are being treated is probably wrong based off his conversation. He really gets it and is big enough to be a catalyst at the right time.
Maybe we should be just resigned to buying GSE JPS and common for our children and grandchildren. The inevitable end of our personal investment terms may be less than the inevitable exit from Conservatorship.
Really Interesting Commander - Thanks! Need to think this through but another reason to get the GSEs capitalized as soon as possible before interest rates rise so much that having the GSEs on the de facto balance sheet of the UST becomes a credit rating issue.
We need the Mike Kelly lawsuit to get Cert. Probably wont but it has the most compelling facts to challenge the Conservatorship
Thanks Familymang - Calcutt had about 5 Amicus for Cert which was interesting.
Is there a possibility of Amicus Briefs being filed now?
Hi Clark6290 - what did you hear today that indicates Glenn is right about anything? ST said there had been no discussions at all - no grand plan to cramdown common or any discussions on exit. Glenn - did you hear anything to confirm your impending common cramdown extravagancy? According to ST - there have been no discussions?
Glenn - you may be right or you may be wrong and common will be entitled to 20% of the fully diluted market value in the end. It is possible that the SPS and Liquidation Preference will be voided as a separation of powers remedy and you need to acknowledge that possibility. You can assess a low probability to the voiding of the Liquidation Preference but you are being disingenuous if you dont - especially because you seem to want to impress everyone with your apparent good intentions in letting common shareholders know the risk of extreme dilution.
Thanks Robert - seems like a lot of wasted Amicus interest for a relatively narrow SCOTUS Opinion. Looking forward to Amici input on the Rop Cert petition.
Thanks Familymang
SCOTUS ruled for Mr. Calcutt saying that the 6th Circuit erred in not remanding the case but SCOTUS did not rule on seperation of powers issues. Probably a negative? or was it the wrong case and wrong time? It is a "per curriam" opinion of SCOTUS where Cert was granted and a short per curriam Opinion was rendered in today's Orders only on the FDIC issue.
https://www.supremecourt.gov/orders/courtorders/052223zor_k5fm.pdf
Waiting for Rop Cert decision - maybe this summer?
See Pace of Grants for possible Cert decision
https://www.scotusblog.com/statistics/
Definitely not a chicken in our pot - this is why to stock prices are so low - everyone is cynical, skeptical ect and for many good reasons!!
GOP may be waiting for a proposed JB Admin Action to respond to? Probably nothing will happen but it does seem clear that the GOP will use the proposed mortgage subsidy as a campaign issue. It is hard not to be cynical so perhaps we need SCOTUS to invalidate these Agencies and require Congress to fix the separation of powers issues. Maybe the new legislation is going to front run the separation of powers fix?
May 24th Hearing to Markup new Legislation on Financial Regulatory Oversight
https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=408805
Markup of the Increasing Financial Regulatory Accountability and Transparency Act, the Middle Class Borrower Protection Act of 2023, H.R. 2622, H.R. 1553, H.R. 3063, H.R. 2627
Wednesday, May 24, 2023 10:00 AM in 2128 RHOB
Full Committee
Director Thompson to testify on FHFA oversight before the House Financial Services Committee on Tuesday - here is the Committee Memo - no discussion about Exit in Memo:
https://docs.house.gov/meetings/BA/BA00/20230523/116003/HHRG-118-BA00-20230523-SD001.pdf