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You are wrong.
The capital has to make sense.
Its not just going to appear and its not going to be punitive as suggested.
Sorry,
But just writing...
4) What incentive do FHFA and Treasury have to implement these ideas?
Is not relevant. Looking for a kickback? Or looking to do it right? The incentive to do it right is to have a capital structure that is supported, simple. These are smart people they just don't go for the easy out of let's raise $100B by using $1 coupons. They'll want smart people as investors. Smart people as investors don't chase golden gooses. They invest.
Again, you are not correct.
The recap will involve the company's and management. FHFA will guide them to allowing it; but ultimately, these are still SEC reporting entities and the CEO/CFO have responsibilities, they just can't punt those.
Sound and solvent... SOUND .... not just solvent. So, yes very consistent with SM and MC. Public entities released from go'vt control... SOUND. Sound entails proper management.
I can't explain it any clearer than that, but you aren't correct.
Thank you,
Its hard to not reply to posts like that which are full of something and remain sullen. Which is why I've normally just ignored them, but sometimes have to try and put a little reason into play.
Why issue shares at $5 valuation when the company's metrics should support $125? If the goal is to issue a million billion shares, why not two million billion. But that's not finance or capital allocation its something entirely different.
No one would do it.
Fact is Fannie's metrics support a valuation north of $100ea common share so issuing new shares at $1, $5, or $20 is difficult to believe since its not necessary.
Your discussion points lack serious merit.
Of course it makes total sense to raise $50B into a company that makes $15Billion a year. The capital problem stems from the fact the government has SUCKED out ALL of the equity.
No reasonable CFO would put 80% dilution on its ownership base when 15% does the same at proper valuations. I'd be laughed out of the board room for even suggesting that at my company.
Interesting thing here is a responder to your post wrote
"Assuming the warrants are not exercised:
1) $100B raised at $20 per share (5B shares), new buyers end up with 5B / (5B + 1.8B) = 73.5% of the companies.
2) $100B raised at $5 per share (20B shares), new buyers end up with 20B / (20B + 1.8B) = 91.7% of the companies.
3) $100B raised at $1 per share (100B shares), new buyers end up with 100B / (100B + 1.8B) = 98.2% of the companies."
Yet, why did they write and propose $20 a share? $20? You'd mean what Fannie made per share in a year or and a quarter? That is a little low, most would agree.
Why not a raise of $100B at say $100 a share? or 1B shares so new players end up with 1B + 1.8B = to around 35%?
or
Why not a raise of $60B at say $100 a share or 600M and let the eps of the companies stay at the companies for the other $40B only take two year?
The interesting thing here is assuming the worst; sure at $.001 a share they only issue 400B shares... but really, that's a little incoherent to justify.
So, lets be fair.
if not, why not $100B at $150 a share... see it can go the other way as well.
But be real and people will respect your thoughts.
Otherwise most will just move on.
The thing people don't seem to realize is that anyone with a smidge of smarts would never put new money in a security at what should be "value" with the incredibily dilututive warrants sitting on the sidelines ready to take 80% of whatever value is at the time.
Sorry, its a non starter.
At the present time common holders are contemplating warrants being dead and thus at these levels its worth a risk.
The warrants will have to be resolved prior to any fresh capital. Its 100% illogical otherwise.
Your conclusion is likely wrong.
The warrants are what is holding the companies down (that and the NWS).
Akman likely is indifferent about the warrants because at his level all he is after is a marginal multiple of 4 or 5x his investment and at that amount he's pocketed a lot of money.
Whereas, for the normal investor while a 4 or 5x would be nice its not life changing. And thus, he while he is indifferent it matters to the small guy.
Akman's process is - if the gov't makes money on this theft so will he and he's okay with that.
He's just likely coming at it from a different point of view than i am; which is theft is theft no matter how small or large.
Cheers.
Well today was a let down
Can't these people figure out the right thing to do and just do already?
Really $16 B a year in net income and in conservatorship. What a farce really!
Hey apple your $8B is good but come in here we'll put you in a safe and sound condition... trust me...
What a Con
I'd like to hear them announce tomorrow a suspension of the NWS pending the outcome of the en banc; with a line all but admitting defeat is expected, etc.
at a minimum
Crapo in his latest salvo is really playing from behind as a me tooer.
He's not wanting to be left out and to be relevant in some way, fact is right now like Maxi; neither really have a say, they gave that power away to the FHFA 11 years ago.
Thank you Chess.
This is exactly 1 big reason the warrants are dead.
Way to much $$$$ at stake to allow the Gov't to take more.
True the taking hasn't occurred until exercised. Its like the potential bank robber casing the joint. Until she takes action, its really nothing more than a nuisance or noise.
Remember... if the share price gets to $20 and someone has 500,000 shares... that's 10M. You don't think for 1 skinny minute that person won't light a fire to recover the other 40M? Really....
Problem is once these recover some there will be a lot of people / funds / groups with house money ready to put in for what was taken.
So, thanks Chess for adding the narrative.
Honestly, would like to consider those estimates to be old and newer updated ones would be higher. But who is really kidding, after 11 years mired in this mud $30 would be appealing.
For some it would be transformational for others it would be a good kick in the right direction.
At this juncture, while I do believe fair value is considerably more; all i really want to see is some positive movement that results in share price validation of what most on here have long held or believed to be the truth.
Validation, would be movement into the $6-8 range along with some positive announcements of actually doing something to be on the path to release.
Only time will tell; hope we don't individually run out of it before this turtle moves forward.
Likely, this assumes the warrants are used and share count is 5x what it really is.
57c is really near $2.85 a share.
Don't be fooled.
What if the canceled the preferred?
Why not only a couple billion in value and the gov't doesn't support those. Would be a simple stroke of the pen. I mean according to some those are the only shareholders putting up a fight. Eliminate them and they can steal the whole cash cow.
Poof... done.
See that was easy.
on different merits. Not the same issue
round figures that is correct.
remember the warrants are just that... warrants. Right now they are not issued shares and not outstanding.
Further, there is likely a 40% chance they will be canceled outright and if not another 25-40% chance that they'll be redeemed in whole or in part for very little.
Only a 1-5 chance they;ll get issued in full.
Remains to be seen; but stated reason they were created originally, has long since been removed (except for the purpose of decimating the company / shareholder value).
Do your own research and think for yourself.
So, I listened to the Inv. U. podcast. Very interesting, they seem to think (i hope rightly this time) that the judges will come down on the side of the taxpayer / shareholders and against greedy government.
They'll vacate the NWS as not sound, etc. and with a stroke of the pen and couple of JE's whammo, right the wrong.
That would be great.
Problem is this... while their looking at fhfa / treasury self dealing and such like this nws.... and the fact that fhfa is unconstitutionally structured.... what keeps them from saying... you know, the taxpaying shareholder kinda got a raw deal by the unconstitutional greedy government. So, here is what we do...
Reset the lending at prevailing fed funds rates, delete the warrants since those were not "sound and solvent" (afterall no well managed company gives away 80% of itself for $0); and says, okay, and btw fhfa is still unconstitutioanally structured and until congress acts to make it so... the companies are set FREE.
Boom
Thus greedy government has overstepped its bounds and is hand smacked.
Here is how I've got it roughly figured.
Had the 10% interest rate been in effect this whole time...
Freddie would be owed $9.12Billion and Fannie would be owed $5.23Billion
Had the government used a more appropriate 5% interest rate (a rate that would have been conventional at the time and more in line with fed funds rate - don't buy into the concept of higher risk higher rate - after all the US government backed them with the full faith of the government - risk was actually very low)...
At 5% rates,
Freddie would be owed $32Billion from Treasury and Fannie would be owed $37Billion from Treasury.
In both scenarios 100% of the money lent F and F have been fully repaid at 10% interest and at 5% interest they are owed a combined $70Billion.
yeah, you are right.
Not to make you feel bad. But the Original poster is accurate.
If the government were to exercise the warrants the warrant proceeds would in fact go to the companies. It would be about $40,000 and wouldn't mean much to the two companies but the OP is 100% accurate.
What would not go to the companies is the proceeds from the government "selling" the shares to third parties.
Sorry. But yes the OP is actually correct.
JM
Treasury won't issue even 1 share.
The company issues the shares.
And yes very over simplified. And yes the absolute best thing for everyone is (after canceling the NWS) is to cancel the warrants.
If they don't they raise $0 capital until after that issue is resolved.
Otherwise, yes your analysis is very general and understandable.
If the warrants don't go away, this thing stays in conservatorship another 10 years as the lawsuits play out.
Only two ways to manage that.
1. Chapter 11 filing
2. Settle the lawsuits
Chapter 11 would not be the path government really wants to go as it would put a bankruptcy judge in charge and it might cause all those "dividends" to be clawed back. So, other option is Class action settlement and some humility for treasury / government.
Oversimplified... plus in your numbers you'd not account for the value to entities of the raise, ie. what do they do with the $$ they raised in the analysis.
Further, as to why the government will cancel the warrants, its in their best interest to tuck tail and run. The warrants are a poison pill and meant to destroy share value; it worked. But now its time to let it go. Take the warrants out of your equation, and everyone is happy, the government ultimately ends up with taxes equal to the $$ they didn't take. Sure it may take a while and an economist would have to explain it to most people, but yes, it happens that way.
The warrants are and remain fruit from a poison tree. They are garbage.
Well done.
Dude,
So what.
I don't want the government to have 1 iota of care what the "share" price is; I want the markets to decide.
Cancel the warrants, they are fruit of a poison tree.
The government, should not give one rats behind what the common share price is i want them to care about fairly regulating, fairly, doing their job as government and not in my business or FandF business.
Sorry, But my interest and gov't interest do not have to align!
Who is going to sign it? ...
the new jumpstart legislation?
into "law".
It would go no where.
Thus maxy is stuck with the law they've written. And that says fhfa director has near genie powers...
too bad for her...
Protecting "low income housing" thru fandf is really at odds with shareholder pursuits, for which fandf should charge a fee to the government. This committment fee that is assessed the government should help reduce its costs and make it cost neutral.
We can't have government wins on the backs of shareholders. Afterall the shareholders are taxpayers.
Intersting catch-22 here.
Maxine is a hipocrat.
The law they wrote and put in place give fhfa director near dictatorial powers and not second to anyone. So, now they want to know what the fhfa is doing? Like it matters, probably, after its done will they have a need to know. Like sign it and then read it... lol..
Maxine you had your chance. If you don't like what fhfa director is doing then pass a law. Good luck getting it signed.
Listened to the en Banc today.
Its really nuts that all of this craziness boiled down to just an hour of discussion.
Here is my take.
First off; its no lie that i am 100% for fannie and freddie and what is right and just. That the government all the government congress, exec. branch, treas and fhfa (which is government) have 101% screwed fannie and freddie and ultimately the shareholders and of course the taxpayers by creating and acting upon the big lie; they've covered it up they've made a mockery of it all. They've stolen and have been horrible to America.
So, how is this going to play out at the enBanc?
Unless the toss all actions of FHFA as bogus becuase they are unconstitutionaly structured. (( I wish this is going to happen)) Otherwise,
The judges will find for the defendants.
Yep. Here is why, the law allows for it. The law HERA - allows for treasury, fhfa, executive, etc. to collude. They allow them to say one thing, write one thing and do whatever they want.
You talk about "sound and solvent" (S&S) - well here is where things get dicey and "we lose".
What actions do fhfa / treasury take that "might" put them in S&S; well selling cookies for 50c a piece might? so that's okay. So, givning away all of its intellectual knowlwedge called the single platform, well that might, we don't really know what that's gonna do. So, buying loans, selling servicing, etc. all of this might be S&S. Etc.
So, what the judges are going to find is that giving away 100% of the equity, while although it doesn't appear a sound move to lead to S&S; they can't pre-determine that it won't; because just maybe aliens come down from Plutomaximus and inject akajilion dollars... so, it might lead to S&S; and we judges can't argue business decisions; even when in extreme situations, it may "appear" it doesn't lead to S&S, but it "Might" and we can't undue what has been done, just on the 99.999999% chance it won't or we'd be arguing over every other decision.
Thus, we lose.
Or....
The might say, well the evidence shows that at the time the decision was made, they knew it wasn't the case, they knew it was a lie, they knew the choice was so draconian and antithetical to the premise of conservatorship that doing so, was not "good faith" and thus while, we can't argue every business decision, this one we can and find for the plaintiff.
Folks, my problem on this one case is... the judges are lax in undoing what congress wrote. And while most typical people would never give away everything in order to be S&S; HERA allows for it no matter what its called and did so by giving them powers to act as the worst possible conservator ever and on purpose, 180 degrees from anything remotely possible, but that was the way it was written. If you don't like it; your fight is with HERA not the way its carried out.
Also,
I do think a recap and release is underway, but its really going to put the screws to everyone.
When the warrants are (if they are) attempted to be used another case (an injunction) will be filed because that will be a ripe cause of action of "takings".
How i do not like dishonest people. Say one thing and do another. The federal government with a change in power has a chance to do the right thing. Will they?
Chess,
I've written for years here and elsewhere that eventually, the only way out of the room for the government on this is a class action settlement of all claims for common and preferred. This would encompass the period upon conservatorship up until recently, with some $$ going per share then divisible by time held.
why?
Because otherwise the claims never get resolved.
You can opt out and sue separately, or take the settlement.
Why?
There is simply too much hair on these beast to choke it down and swallow.
I think the litigation goes on and on and on.
The warrants will have to be canceled and money returned to Fannie and Freddie.
Make this happen and there is a path out of the woods.
The only other alternative to resolving all the law suits is really not palatable nor do I really believe the government wants to go that route.
Interestingly,
Those very same senators and congress people, vested in the fhfa absolute authority to do what is in its best interest as it decides.
And now, they vacate that ??
LOL
No.
Oops....
That brief should be denounced by fhfa rendering it moot.
lol!!!
In it to win it. $5 is not a win.
$5 common price per share would be a consolation.
Fair value here is considerably higher. Will we see it? I don't know. That would be triple digits.
Anything north of $20 would change my outlook. Analysis tells me that something around $42 happens and after 3 or so years (after some share repurchases) and clean living the share value gets to $65.
So,
Four or Five years ago $65 was a magic number. Today, because of aging process that number is now $40 or so. My expectation is it will happen. It just couldn't happen soon enough for me.
KT
I think you are overly optimistic for what ever reason.
People buy shares because of the value. They don't buy shares to punish predecessors.
Next.
Unless forced upon them; no one would accept a conversion willingly w/ the government holding a 4-1 wild card. That is not reasonable. Any warrants will have to be dealt with prior to any raise and any conversion. (I continue to maintain that the warrants are dead).
They'll also have to resolve all the shareholder lawsuits.
The only way out of the room is to really settle all the lawsuits in a class action manner, pay out some $$ and be done. Or continue litigating for 10 years and staying in conservatorship, because they way it is now there is too much risk to come out with the lawsuits pending. Once out of conservatorship all the rights are restored and so does the right to sue / unless they've settled.
The only other option is the one that is not palatable.
So, back to your post...
Why not issue 500B shares at $1 and really get a low stock price? or say 1 trillion shares. Why not stuff one in every box of cracker jack? That's how beneficial the argument is, why not, cause you can.
In the financial markets, that makes no sense.
Peace.
Thank you.
$8 is simply an astonishingly low number here. It implies all the bad things on the common share holders and all the good on the preferreds. I don't think that will happen. The reasoning behind an $8 number is a bridge too far.
Moreover, there is this little problem Fannie is going to have year after year after year...
What in earth should they do with $17Billion a year in net income.
More than likely instead of raising $50Billion in equity from the market they'll strike a deal with the government for more preferred stock that is redeemable. That way after 4 or 5 years they have built up equity thru operations.
The other thing is as to the preferreds. What if they force a conversion to commons not at some rubbish 5-1 like others guess but, say, hey, JPS should suffer just like commons. So, they bought in at $25 and $50 par... well, we'll convert them at even money for the 50's and 1/2 for the $25's. Since all the rights of ownership xfered to fhfa anyway, why not put everyone in the same boat. Makes for easier math.
As for the warrants, I still think they are dead. Again, not 1 single reason for why they aren't other than because has been postulated. Whereas, the reason they were put in place to start with has been debunked and fully repaid.
I'd surmise that on a released fannie that they'll use earnings in years 2, 3, 4, 5, etc... to buy back stock just like the banks are doing.
Price appreciation will happen... and it will be good.
Peace and glta.
Thanks J's
I just care not for people writing what they know little about, relative to the potential. And just screaming it or writing it over and over doesn't make it true. Even if the writing looks proper, the thought processes show horrible lax.
Fact is lots are still unsettled.
The commons have the greatest upside potential. Preferred holders gain is capped at par and that's it.
Both share in downside risk (equally).
Sure, it would be good for the government to settle all of the lawsuits by cutting a big check back to the pool of shareholders and put it to them based upon holding period, etc. Like any class action lawsuit settlement, but that would mean the G'vmt would come clean. Not likely going to happen.
The one thing that is no longer talked about is, that its been proven that as to mortgage finance, government wins, and shareholders / taxpayers lose. We can't have Government wins; they should be neutral. Government should not win at the expense of the taxpayers (shareholders).
Peace..
KT, glad you've joined the discussion.
Lets review your miss hits...
Not true for two reasons: the lawsuit plaintiffs will start their negotiation at par plus back dividends (meaning the settlement could come in above par), and a conversion allows the prefs to share in the commons' upside.
+++++++++++++
Yes true. Read it again. Prefs, will not share in upside unless prefs, sell and join the team. There will be no back divi's that's crazy speak. Good luck with that.
++++++++++++
But the current market ratio is around 5:1
++++++++++++
LOL! This is ludicrous. There is no "current" market. ... Unless you sell your prefs and buy common.
+++++++++++++
This won't happen because the conversion would happen either before or alongside the recap.
+++++++++++++++++
Dreaming, it will happen after a true "fmv" is determined. To say any different is perhaps to be ignorant of financial markets. There isn't a win, win at all cost for Pref's. Sure they'll likely get Par value but no more in the market. Unless the opt to sell and join the team. A conversion, if decided upon will occur simultaneously with an economic raise, and it will be at or compared to FMV. Remember there is no "conversion" ratio set in stone.... its whatever the market will bring when it brings it. Don't kid yourself.
++++++++++++++++++++
If FHFA was willing to do that, they would have done it a long time ago.
++++++++++++++++++++
Blah ha ha....Nothing would surprise me relative to what fhfa could or would do, remember there are no constraints on them at this time, as long as its good for fhfa its - okay according to the current courts.... So, if they opt to swish the preferreds... they can do it. Its really up to them and no one currently has the right to say diddly do. Would it be a fair move, no, but then neither is cashing in on the warrants, if you believe one, the other is not without question.
+++++++
Wrong on both counts. I addressed the cap above, and as to the other, the commons have no say at all right now. How could the prefs possibly have less?
++++++
More silly speak... face facts comrade, preferreds have a PAR value its state right smack on there... lol ... $25 or $50 or whatever. If you buy in for $10 on a $25 par... the MAX is $25. The rest hyperbole is wet dreaming.
+++++++++
More wishful thinking. The juniors have to agree to any conversion, that has been made clear from the contract language
++++++
You do realize that all the rights of the shareholders are now controled by fhfa. ALL rights including that contractual language you reference. Meaning simply enough if FHFA says it, its gospel. Yes, its clear they can do what they want. Is it fair?? Obviously, fair is meaningless to the FHFA. Accept it.
++++++++
I'll have to stop laughing before I continue.
++++++++
This silliness of double speak, of its great to be a pref holder is absurd. Sure, at this point the thought of prefs realizing par is very good on any release. But par is the magnum opus of true possibilities. No damages will be awarded, since FHFA had the right to "suspended JPS" dividends, or at the very least... decline them on behalf of the jps holders.
+++++++++++
You severely underestimate the potential size of the share offering. Remember, the new buyers will push for the lowest share price they can get in order to get as much of the companies as they can for their money. The minimum value for commons is actually well below the current market price.
++++++++++
What you've failed to comprehend is nothing is yet set in stone and that things are still very fluid. There is a mathematical limit to the upside potential of a Preferred share holder that is well known, established and unarguable. However, all of this really depends on the fair dealings of fhfa, treasury, and the exec. branch of the government, provided the courts say its okay. However, that very same logic of assuming fair dealing when put to the common shareholder, IF and i do mean IF, puts the greatest upside potential at the common.
Meanwhile the minimum value for both the preferreds and the commons is far below where they both trade at today. The FHFA could convert the $25 Par's to 1 share common or 1/2 a share if they'd like to; its really up to them. I don't expect it; but to assume something larger or grandeur is counting chickens before they hatch. Remember, what you said, "the new buyers will push for the lowest share price they can get" - it cuts both ways, and not decided upon just yet.
One thing is certain Preffs have a stated Par ... Commons do not.
++++++++++++++++++++
All of this aside, I realize you've joined this discussion midway and are trying to comprehend what has transpired for want of a decade. I don't know why you want to be a wet blanket, maybe you've got an ax to grind, but being blind isn't savant. What will ultimately happen is a guess. Sure, as it is now the preferreds have the greater likelihood of obtaining par value. Whereas commons have the greater opportunity for upside. If preferreds get par then commons get anywhere from 10x to 20x their current market value, but IF the government does deal fairly, which its not done thus far, then yes, the oversized returns are possible.
Also, for a capital raise to occur, it will have to happen outside of government control, which means, it will have to happen lawfully at the SEC standard not some cram-down you propose, because it will have to be defensible; not likely new money puts in while in conservator ship and not likely new money puts in with those "warrants" unresolved. The only way to resolve them is to cancel them. Exercising them will bring 10 more years of litigation (because it would be an unlawful taking and the claim would be ripe). Not even preferreds would want that to happen, now would they? Are you advocating for another 10 year delay?
At this point, Preferred shares have a upward limit.
Its par value.
More than likely, under a fully functional corporate financial analysis the preferred will either be redeemed or converted to common. If the restated dividend does not measure appropriately to the then current economics.
When will this decision occur? Who knows, but the thought that $25 dollar PFS will get converted to common at 12 to 1 or something stupid like that is moronic to consider. More than likely, this would occur after the share value of common has "reset" to fair market value. Thus, if Fair Value for Common is north of $25 or $50 then you could see an exchange offer of 1/2 to 1 or less. Or, they'll simply go on the open market and repurchase them. Being mindful, that while in conservatorship, the fhfa can force redemption at what price and when it decides, if it decides. Jr. Preferreds are at the whim and will of the FHFA...
In an effective capital pricing model, that meets the litmus test, the warrants are never exercised. There still, has been NO reasonable argument for them to be utilized other than, why not and the government is greedy so that is why. But from a true business perspective of the goals of stated goals of the conservatorship and HERA itself, the warrants are dead.
Its the preferred holders that should be concerned. Their upside is truly capped and they have even less say than the commons. Because they can get squeezed into a play at an exchange rate they don't care for and then get diluted equally with other commoners.
Preferred's upside is limited and they don't like it. Whereas, common share holders have the potential of 50x multiple preferred's have now realized they've got 3-4x at most; and it concerns them. But it shouldn't because they'll likely receive full par value; but no more. In an efficient capital model that limits them. To bad... be happy. If you'd bought in at $1.50 for a $25 par value you ought to be very happy. I'd expect many will be. If you buy in at $12 on a $25 par... then the multiple is 2x and i'd recommend running it up do par and selling and then jumping on the common band wagon. Before it shoves off, and it will. The question is where will it end. Patswil has proffered some calculations, probably 75-80% of that would be not unreasonable (the PE used is a little aggressive from my view).
At this juncture, if the cards align, and they are still getting put together, the minimum value for commons is very attractive. It really depends if the government is going at in good faith or not and if it doesn't the lawsuits will fire up again. That is a certainty.
Exactly,
People who are for the warrants, are for theft.
The warrants are legalized theft. Not one legitimate reason, out of honesty and decency has been postulated for the government to utilize / keep them has been proposed on this or any forum by anyone, yet talking heads / puppets without thinking still advocate for them. Some folks call them lemmings... but, i digress.
The entire script for the warrants has been invalidated and proven inaccurate. Yet, we are still debating the insanity of it all.
Peace.
As much as i want them released.
Its not going to happen immediately. There will have to be a structured plan for it to occur.
There will be announcements as to intentions of government.
The first thing would be an amendment; my hope is they'll recognize the money repaid in full and announce some amount going back to fannie and freddie for excesses.
And cancel the warrants that were used to "secure" the companies cooperation.
Sure they'll take a 5-7% interest rate but give back the rest.
From there its any ones guess.
LOL!!!!
Once the fireworks start... commons will be much in favor.
Sure, we can anticipate preferred to be made whole at par... but commons will be were the action is.
You can expect many preferred holders to exit their positions and swap to commons.
Stay in your lane,
Peace
Thank you.
When i prove right everyone wins.
No one has put together a cohesive argument refuting this.
But that's okay,
Good luck.
The warrants are still dead.