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A very similar scenario unraveled with the General Motors bailout and no adverse legal decision questioned the government assuming an equity position in the company. In the AIG case, Judge Wheeler assessed no damages because without the government's assistance, the surviving equity shares would have been worthless.
I fail to see where the GSEs were treated all that much differently than others given bailouts. The banks were given fewer limitations and conditions, not because of favoritism, but because of a higher level of regulation and an existing mechanism under FDIC to dispense with any subsequent insolvency.
The "we were hard done by" lament from GSE shareholders is unjustified and, frankly, very tiresome.
The warrants are a right to acquire 79.9% of common equity for a nominal cost. This was part of the original bailout package given the GSEs. The warrants have absolutely nothing to do with the income sweep imposed under Amendment 3, which can and/or will continue to pay out to UST unless the government voluntarily stops it (via an Amendment 4) or one (or more) of the lawsuits prevails and either ends the sweep or modifies it under court order.
It is very hard to wrap your arms around. Even those of us that have followed this for years sometimes get confused by all the intricacies and vagaries within the Fanniegate saga.
The government dealt with the same issue on warrants with AIG by dumping off all warrant shares on a new, private entity called Maiden Lane, thus shedding its risks to minority shareholders. It's just like when government sold off part of the strategic oil reserves; off the books = off the hook. Just a simple disposal of assets.
The warrants do not expire until 2028 by recollection.
That letter was sent by a Potter, Anderson associate. Even if it were sent by Steele who is listed as a co-signator, there is no grand flurry of activity to justify almost daily posts and "cans of whoop ass" paeans to The Man of Steel. So far, the Jacobs. Hindes case that was supposed to deliver some rapid, accelerated decision favoring shareholders has gained absolutely no traction in like a year.
"Faster than a speeding bullet?" More like slower than Metamucil in triggering any immediate, noteworthy result for constipated people in serious colonic distress.
JMHO.
Ryan Lochte and the fake Tim Howard may have much in common. They appear to have both made up fairy-tale accounts of being robbed to cover up their really scuzzy alternative agendas.
"Oh woe is me. Somebody stole my Fannie."
"Oh woe is me. Somebody robbed me at gunpoint in Rio."
The whole thing makes me want to go pee on a gas station wall somewhere in graffitiland.
JMHO.
There is no filing before any court I could find initiated by Myron T. Steele of Potter, Anderson since March 2, 2016. Maybe your "whoop ass" lawyers is more like a "lazy ass" do nothing dummy?
Man of Steel? More like MoeRon Steal, liberating high value billable hours and getting no where fast for shareholders? But, hey, maybe he's been playing putt-putt golf with Judge Sleet and comparing notes on fine wine paraphernalia, something he has long been recognized for among his legal peers.
http://abovethelaw.com/2009/05/judge-of-the-day-myron-t-steele/
Make sure you view the video feature called "wine opener" in this link. Then you will begin to comprehend why recycling a retired judge into active attorney status in a huge case can really suck for his clients that maybe expected something more! LOL.
JMHO.
After more than 25 years serving on the bench, former Judge Steele has not acted as counsel in any case in two and a half decades. No wonder he seems to be a little rusty at actually moving anything forward.
The judge I am far more interested in is Judge Sleet.
JMHO.
Carney is only stating the same thing that FNMA's CEO said about the company and which was recently reitered in FHFA Director Mel Watts' published commentary on the same subject. Fannie has worked to reduce its risk profile via workouts, refi actions and sale of riskiest assets. It has also increased its guarantee revenues as a percentage of revenue. So it is on a safer footing than its pre-conservatorship status.
It is, however, a victim of shrinking capital reserves as also commented on by both Mayopoulos and Watt.
Carney is just doing his job, and using facts that are available from which to draw his conclusions. John Carney is not the boogieman, just a reporter with longstanding and well researched opinions on both GSEs.
JMHO.
Street cred for Myron Steele? Isn't this his very FIRST case as a lawyer after leaving the bench? To have street credibility you must have amassed a portfolio of legal victories, of which he has NONE.
So far, he seems to have accomplished absolutely nothing in Jacobs, Hindes. Have the Supreme Courts in Delaware and Virginia reacted to his request for decisions on novel matters? The consolidation question was rejected in June. What progress has been made on anything that Steele has accomplished?
It looks to me like so far he has been a total bust! But I would welcome a recap of contributions he has made that I might have missed. I will look forward to you providing this update.
JMHO.
It's very easy (and convenient) to forget that where John Carney began in the Fannie Mae saga was in about the same place as Gretchen Morgenson, Bethany McLean, Anthony Sanders, Joshua Rosner, Charlie Gasperino and so many others... as critics of the GSEs "Wild West" behavior in the period leading up to the Financial Crisis. There was very little separating Carney from all the pundits that have followed this GSE adventure until the divergence that took place with Amendment 3.
The others, plus George Will, Richard Epstein, blah, blah blah mostly moved into attack mode against government over the sweep. Their right to do so, by the way. Carney, on the other hand, has remained steadfast, alongside Joe Light, in demanding a conclusive reform measure be enacted because the broken under-lying system of both GSEs is corrupt and exposes the country to enormous eventual risk. They, too, are entitled to hold their different opinions.
My point is that I doubt Carney has any victory article at the ready to celebrate the loss of plaintiffs in any court of law. His victory comes when Congress either gets off its fat butt and does something to fix a huge, perceived mess... or gets its hand FORCED to do so by some event like another financial or housing crisis. Carney's motives are not as impure as his critics like to opine with vehemence. He is, perhaps, the only,truly principled critic of the GSEs whose position has been consistent and unchanged over the span of the last decade.
JMHO.
Actually, I have been on the record often over the last year, stating that Amendment 3 was an overreach by government and should and likely will get peeled back in some way, shape, form or another. But I disagree with you and Richard Epstein that it is a contractual violation. What contract?
The overreach is a taking by going too far under powers granted by HERA. An overreach is cured by reining in the excessive behavior that oversteps statutory rights granted under law.
JMHO.
Amended Delaware complaint may get aired tomorrow, if it was filed on Friday as expected. This is the "Big One" remaining for hope to shareholders as the rest of the litigation circus slogs on in perpetuity. A review of briefs, today, shows as many filed by pro-plaintiff protagonists as by government attorneys, so please save the garbage about government stonewalling a verdict... this is a totally SHARED process of delay, wait and rack up billable hours.
And, so, Fanniegate trudges along in the Never-neverland of a legal and political quagmire. Meanwhile, the wind down clock ticks on.
The Appeal is dead. Long live the Appeal's ever-diligent deceased. They are just "Dead Man Walking" until the autopsy results are released.
Can Judge Steele step in and save the day? Maybe. Watch for the Amended Complaint. If it is another big "whoop ass" claim that turns out to be an empty can of noxious fart gas, the plaintiff's summary total of claims surely get DISMISSED as totally without merit.
JMHO.
Full release? Like Fannie Mae CEO Tim Mayopoulos maybe got, recently?
I'll have what he's having. No conflict of interest. Just an interest with his clientele in exploring mutually advantageous "spread" possibilities for Fannie Mae and Fifth Third Bank.
LOL.
JMHO.
Let's get back to Gretchen and her early work on the financial crisis. Wasn't she one of the renowned experts that confirmed the absolute desperation in financial markets that required governmental intervention and conservatorship of the GSEs?
Her views could easily be considered pivotal in the argument over whether the takeover by Hank Paulson and the UST was contrived as camouflage for a "taking" and manipulated math to justify some politically or economically motivated seizure of the GSEs to benefit Too Big To Fail Banks. I especially seem to recall her dismissal of forensic accounting rationale as bunk. Of course, it has been awhile since I read her stuff.
Maybe this aspect to the Fannie Mae and Freddie Mac travails would be worth revisiting from Morgenson's obviously esteemed reputation and extensive body of published work?
Want to go there?
JMHO.
Since any "breach of contract" claim in Fanniegate has now been thoroughly dismissed as a "wild goose chase" in DC Appeal's Court, what remaining claims have any merit in the matters before the court? Is there anything left, or is dismissal a certainty?
Judge Royce Lamberth really crafted a comprehensive and well referenced opinion that is just impossible to either dispute or overturn. And the best part is that you can only be an appellant once without an interim verdict against you. Two strikes and you are out.
I love this system. Good almost always wins out. Our founders did a good job in framing our system of laws, checks and balances.
God bless the USA.
JMHO.
Gretchen Morgenson has written extensively about Fannie Mae and the financial crisis since it occurred. I love the review of her treatise with Josh Rosner as exceptionally described in a Forbes article by John Tamney in 2011:
http://www.forbes.com/sites/johntamny/2011/07/09/reckless-endangerment-by-gretchen-morgenson-and-joshua-rosner/#118a8bc0664a
Just click on the box that comes up if you are not a subscriber.
Here's just one gem... By the mid '90s "Fannie Mae had perfected the art of manipulating lawmakers, eviscerating its regulators, and enriching its executives."
What a paean to the greatness of Fannie Mae and its perfection as a GSE that could do no wrong and needed no wind down under Amendment 3.
LOL.
JMHO.
John Carney will release another Fannie Mae article soon. Carney's work is thorough, well researched and spot on in unbiased integrity. Noteworthy is that Carney's efforts on enlightening those with interest in Fannie Mae do not pander to the financial opportunism of hedge funds seeking a fast buck at the expense of taxpayers.
Carney's work was recently described as being "like Diogenes" shining a light of the underbelly of greed and unsavory foundations to the full, frontal assault being launched against government for trying to save Fannie and Freddie. Ridiculously, the U.S. found itself getting sued as thanks for their $187 billion investment in saving America's housing industry and the jeopardy for loss of equity among homeowners. Just so some "investor" PIGS can make even more money by "gaming" the court system into some convoluted ruling, supported by the world's most expensive attorneys, to steal even more money from citizens.
JMHO.
If you read my comments, the content is not voided. But it is NOT part of any contract that was breached. A breach is a violation of terms of purchase, either in writing or verbal. A breach is NOT a violation of some unstipulated right at the time of purchase. It is an entirely different issue in contract law.
This is the reason why people purchase title insurance when buying property. Someone can come forward and introduce a new restriction on any purchase. The remedy is not automatically to blame the seller for the problem, even if an objection is lawful. Such an event is NOT a contract breach.
JMHO.
One more highly relevant point: stock certificates are only (and, frankly, RARELY issued) after a stock purchase has been completed. So contents that are not contained in a prospectus are not part of any purchase contract. I broker through Charles Schwab and there is a huge fee and many restrictions on gaining actual share certificates... like a $500 charge... so dear old Hume is really grasping at the loophole straw with this bizarro-world strategy.
JMHO.
If the contents of the stock certificate were unaware to the purchaser of the shares, then the purchase was not based on those contents. There is no generally accepted norm requiring a 2/3's shareholder vote on everything involving every preferred stock of which I am aware. Please update me if you have legal proof, otherwise, with a valid link. Hume's complaint does not reference any prospectus that I note. Only share certificates. An implied contract must have some factual basis in order to be enforceable. It's like my used car analysis that I often use: if you buy a vehicle offered as is and it develops a problem, then discover there is a lemon law that requires a fix, you can sue for violating the lemon law. But you cannot sue for breach of contract.
The content is not voided because it was not read or comprehended by the purchaser of the property (the stock, in this case). But you cannot sue the seller for breach of contract in such case, only the restoration of rights discovered after purchase which is not part of the Perry complaint and likely cannot be added in any appeal after-the-fact. There's nothing "ignorant" in my post and the comment is quite derogatory since I am delving into a crucial aspect to an appeal that is claimed by many to be the "be all/end all" linchpin to any settlement favorable to shareholders. I actually think differently... that Delaware may be the "last chance" suit remaining... but that view depends on the nature of any amended claim filing that was alleged to be filed on Friday.
JMHO.
I just reread Hamish Hume's supplemental brief on contractual breach. It is largely based on a common law claim that the text on stock certificates provides for a 2/3's shareholder affirming vote on certain matters like changes in liquidation preference. This is really remote stuff, to me. First, how many shareholders ever get or read terms on a share certificate? I have invested for twenty years and have held exactly one share certificate (Walgreens) over that span of time. That said, senior preferred shares being granted a superior liquidation preference than junior preferred shares could be ruled as only requiring a vote in a liquidation scenario which would not be ripe at this time.
http://gselinks.com/Court_Filings/Perry/14-5243-1602880.pdf
I say, again, that the breach argument is a wild goose chase in the appeal. The takings claim may have some legs to it.
JMHO.
I have brought forth an extensive rationale for why I believe the breach of contract complaint will never gain traction in the Court of Appeals. No point in repeating it. It is easy to review if anyone wants a balanced view on this. See post #350334 from yesterday.
While I find it incredulous that breach continues to be offered up in the victory party anticipated by pro-plaintiff support, I am even more confused by the apparent belief that such a decision would actually be good for common shareholders. Any court action delivered that cures a breach of contract for unpaid preferred dividends could only involve one outcome: restoration of preferred dividends. And it would stand to reason that any money returned by UST to the GSEs that was not required to maintain solvency, would have to be stipulated as a contractual obligation to preferred shareholders. Any money used by either FHFA or the GSE's management teams upon any effective release from conservatorship, for other purposes beyond preventing insolvency, would simply be a NEW breach of the same contract if not spent first on PFD.
So... a successful Appeals ruling on breach of contract basis would require preferred dividends to be paid before any recapitalization could be funded as long as no insolvency is created by such payments. No recapitalization = wind down. In a wind down, no common shares are cancelled, so there is no taking. They just dwindle down into nothingness over the next 30 years as the old mortgage contracts get paid off. The lack of capital does not create an insolvency, it only limits the amount of money available to invest in new mortgage inventory to whatever remains AFTER preferred dividends are paid and statutory reserve minimums are kept in check.
I can't see how this outcome would send common share prices to the moon. More like the boneyard for faded glory stocks like Blockbuster. Looks to me like Hamish Hume has delivered a death knell for common stockholders. Poor Ackman just can't seem to buy a break, although I think his Valeant (where I, too, remain hugely invested) strategy will pay off, over time, far better than FNMA commons.
JMHO.
The Perry Appeal if it rests on breach of contract claims is DOA. Judge Lamberth stated his ruling indisputably. The "breach" argument rests on alleged dividend entitlements implicit in the preferred shares at the time they were issued by the GSEs.
No such shares were sold under government conservatorship. Neither FHFA or Treasury created any impression that dividends were an entitlement. So no breach occurred. Seems simple, to me.But Lamberth carries the "no breach" argument to an even higher level.
http://gselinks.com/Court_Filings/Perry/13-cv-01025-0051.pdf
Please see page 39. Judge Lamberth established with clarity that Treasury had the right to approve or disapprove dividend payments and, thus, was lawfully empowered to not pay whatever it determined was inappropriate. So there simply is no contract that assures dividend payments to shareholders. But Lamberth doesn't just stop there, with the following statement which is also from page 39:
"Without a contractual right to dividends, the plaintiffs cannot state a claim for breach of contract specifically based on their alleged dividend entitlements."
I see no reasonable way this conclusion can be reversed. That is why I have stated that the takings claim may have some limited traction in the Perry Appeal, the the rest of it is little more than legal sophistry that sounds impressive but means very, very little in a court of law.
The Delaware case is the shareholders last gasp, plus the possible and late-to-the-party auditor claims that strike me as positioning for fraud claims in a liquidation scenario that ordinarily would leave stockholders on the outside of the in-the-$$$ money "window of doom"... peering in it at the fortunate few with secured debt and/or liquidation preference. Fraud claims could elevate shareholders ranking in a liquidation hierarchy to an in-the-money position. Won't likely be much, but it would be more than ZERO.
All JMHO.
What contract? Please provide a link to it.
There is judicial safety in such "gotcha" technicalities. You can dispense with lengthy discovery, potentially conflicting precedents from earlier cases and all the vagaries of proving things like intent and motive. This was, I believe, an element in the Judge Royce Lamberth decision. I'm not trying to answer the remaining questions on appropriateness of that decision, just saying that a similar escape default option affected the outcome.
This is why I believe that the Delaware Jacobs, Hindes case is the only viable litigation that can lead to any resolution in sufficient time to stave off a liquidation in early 2018. The Perry Appeal is unlikely to deliver any victory dance with an affirmation of complaint. Its best case scenario would be a remand. Does anybody besides government want to go back to Lamberthland?
I find it alarming that the request for state supreme court review in Delaware and Virginia does not seem to have advanced one iota since Steele made his proposal to Judge Sleet, back last Winter. Yes, I know the consolidation matter was a complication, but that was settled in early June and, still, no action? This was the potential "technicality" that could have quickly discharged this litigation, one way or the other.
I am also very disappointed that no details have emerged about the amended filing that was supposedly entered yesterday. Maybe we will see some detail on Monday?
Piszel actually dealt with a written contract in dispute. There is no written contract between Perry Capital and the government. Right? If so, please provide a link because I would love to see such a document. That not being the case, you then fall into the murky ether of implied contracts, rights of preferred shareholders whose stock carries no guaranteed payment stipulation and a sea of assumptions that, of course, could be accepted by the judge's panel... with any such outcome being a longshot at best.
JMHO.
The fact that Piszel was ruled as having no valid takings claim is a precedent for a similar view in other pending cases. I still maintain that this was the best course by which plaintiffs in the Perry proceeding could make inroads in the government's position, and now that appears to be unlikely based on the this and the earlier Lamberth ruling.
Awaiting Delaware amended complaint details. Should be very interesting and could be a gamechanger if my suspicions are validated.
JMHO.
The only part of the Piszel ruling that I see as significant to the various pending shareholder actions is the court's opinion that not getting an expected stock award was not a taking inasmuch as the Freddie hire clearly knew the risks of going there in the midst of a crisis. This hearkens back to Lamberth's earlier observation that investors clearly knew the risks of investing in regulated entities and elected to do so anyway.
So in this sense, I see the Piszel ruling as more aligned with Lamberth than offering some useful breakthrough for Fanniegate plaintiffs, as seems to be suggested by Investors Unite.
JMHO.
Why devote so much time to a case that has nothing to do with shareholder litigation over Fanniegate? This matter is solely about an employment/termination issue at Freddie Mac. It is far-fetched to think it has any relevance to a multi-$billion FNMA shareholder action against FHFA and UST.
For years every small tidbit of news, no matter how small or trivial, has been parlayed into some huge bonanza of pixels, proclaiming some budding windfall for FNMA investors and enormous, imminent wealth for them and their hedge fund protagonists. Most all of this is nothing more than a big load of crap that gets everyone lathered up for a day or two, then dissipates as the high fives evaporate and the reality of "no change" sets back in. Like the court decision that was to be announced last Tuesday or Thursday. Again, nothing but a big load of crap. Nothing happened... as always. Nothing ever happens from these rubbish predictions from the blogosphere.
There WILL be real news, someday, and I believe that day is drawing near. Something meaningful may actually be revealed, tomorrow, with the Amended complaint expected to be filed in Delaware. Wish we could limit the spirited Fannie discussion to matters that do or at least could matter.
JMHO.
New Bloomberg article out by Joe Light this morning with an interesting update on upcoming legislative action. Congressman Royce is planning a new bill in September to level the playing field between the GSEs and mortgage bankers, including private access to the CSP. The article paints a fairly depressing picture of gridlock inside the Beltway and the political war of agendas that keeps FnF in legislative limbo.
Congress sucks.
I believe that the payment of dividends is allowable under conditions of positive net worth, not retained earnings, for both GSEs.
The part I am troubled by is that as long as the conservatorship remains, the government has its hands in everything Fannie. I have long stated that the sweep was an overreach by government. But who knows what else FHFA and government can dream up to constrain the GSEs. The departure of several board members strikes me as problematic and indicative of no release being in the offing, anytime soon. That's a purely "gut" view, not based on anything concrete.
The worst scenario for everyone is a perpetual detente between the affordable housing legislators and the Grover Norquist "wind down" legislators.
I won't claim to predict what a court ruling will be, just what fairness dictates the ruling should be. Plaintiffs are claiming they were illegally denied junior preferred dividends that FHFA alternatively gave to a new and more senior preferred shareholder. They claim that FHFA failed to exercise proper fiduciary responsibility to shareholders and that Amendment 3 was an illegal taking under the U.S. Constitution's Fifth Amendment protection, and an example of illegal self-dealing.
Now a new element may be introduced in a newer litigation claiming that failure to pay dividends to all preferred dividend stockholders, but only to the government holding senior shares, may be a violation of Delaware state law. I find it preposterous that a court would rule in favor of plaintiff's complaints, but remand any improperly paid SPD to the very entity that was a key player in the illegal self-dealing arrangement by which the plaintiffs were harmed. That is rewarding bad behavior.
JMHO.
Correct. The government can only claim common dividends on its 79.9% common stake if JPD gets paid first. This is what Perry asserts in its suit, namely that Amendment 3 was imposed in part in a discriminatory action to seize all dividends for itself via an illegal taking and self-dealing. As such, it was a ploy to cheat junior preferred shareholders from reasonable expectations of dividend payment under the terms presented for investors as contemplated by the preferred share prospectus.
Most all of these consolidated actions specify damages only for plaintiffs and only for specified dates of share ownership. Latecomers to the "party" would not share in any such pool. However, those that purchased shares at greatly devalued acquisition costs would be entitled to any restored dividend, just like any other preferred shareholder.
The math on JPD is actually pretty amazing for investors seeking yield. The all-in dividend, as once was a reasonable expectation before 2008, would carry a $2.06 annual coupon on a $25 par issue. That $2.06 would be paid, whether you bought shares for $25 or at $1 around August 17, 2012. So players like Fairholme are less interested in whatever portion of any surplus gets remanded to the entities than they are interested in restoring capital to get the junior divvies back on track.
I am sitting on a boatload of FNMAS at an average cost of around four bucks. A fully restored JPD would net an annualized yield of over 50%. Even a partial JPD @ $1 would yield about 25%. Per year. So I look at restoration of JPD as substantially more important than just the 5-6-bagger on elevated S/P that I keep hearing is a lousy bet vs. commons going to some ridiculius stratosphere like $379 per share.
The real fly in the ointment is in the warrants dilemma. Common investors are all lathered up that warrants (and subsequent dilution) must be cancelled. But government is much more likely to "play ball" in restoring JPD IF warrants are retained, paving the way for some on-going opportunity for flow-back to UST after having had a taste of flesh and budget relief for all or many of the FHFA years on top of the Twins.
JMHO.
Then, in your analysis, no plaintiffs are likely to see any monetary damages from the alleged overpayment of quarterly distributions to UST above the amounts advanced as so-called bailout funds? More simply stated, the $50 B paid above the $179 B bailout goes only to the GSEs, not shareholders?
Then why are so many suits in progress that seek return of income to shareholders or reinstatement of dividends denied under allegedly illegal circumstances? Is everyone else crazy for spending huge legal fees chasing some unattainable goal?
Sounds like grounds for dismissal of most every suit filed because the remedy sought would not be allowed by the court. Right?
Please explain, knowing all along that with this view you may now actually be more in disfavor by Fannie fans than I am. You are challenging the "Big Payday" that has kept the dream alive for many longs for all the years since 2008.
JMHO.
Did you ever read the Fairholme suit? The plaintiffs ARE the junior preferred shareholders. So if they win, they get nothing? Really?
http://gselinks.com/Court_Filings/Fairholme/13-465-0001.pdf
Please see page 27, items #84 to #87.
Plaintiffs are suing for damages and restoration of their dividends in the Fairholme complaint. So, in your opinion, the court will agree with them and reverse the NWS, but award all the money to the entities? That sure would make Bruce Berkowitz look like an idiot for tying up so much capital in preferred Fannie Mae stock and bankrolling huge legal expenses, all for a relative nothing in return.
Delaware Law clearly states the dividend "gamesmanship" is a bogus discrimination against JPD holders.
Please see Delaware GCL Section 151(c).
There's your reference.
JMHO.
Nope. If the court so orders, it will be restored to JPD. Anything else is contempt of court. You can go to jail for that.
Where does the $$$ in any of these lawsuits come from? Who is getting sued? Seriously...
If Delaware law concludes too much was paid to UST, they return whatever is excess and it goes to JPD. If no violation took place, UST keeps the full boat.It all boils down to a very simple legal decision.
JMHO.