Rodney5, Barron4664, Ace Trader and Iron Man

I am waiting for the remaining COFC cases to move forward and see how they develop. I think I can understand why Hume does challenge the fees required under the Conservatorship which are prohibited under the Charter Act but I dont understand why Bryndon Fisher and Mike Kelly do not make the Charter Act case in their complaints.

Rodney - you are exactly right but I dont have the time right now to get involved but perhaps in a couple months. I would like to see how the Collins case progresses and how the COFC cases with Judge Sweeney and Judge Davis progress - Kelly could be dismissed which would be a major bummer.

God bless you all and thank you for your patriotism. Lets keep this alive and do something by the end of 2023 depending on how things progress.

Exceptional forward thing as always Robert. This is going to be one of the primary policy differences between the JB Admin and the GOP House in 2024. Our case fits squarely in this Constitutional policy debate and it will be adjudicated by SCOTUS

I have got to believe SCOTUS will accept CERT in ROP also which will also bring the Appointments Clause into the mix.

Hi Familymang,

The operative word is "disproportionately" - not to hedge because the common is going be near worthless. Ackman makes sense and it really depends on what risk return investors have. Personally I think investors should own both and root for both like Ackman does.

By the way - next month should be a big month for USG replies. Do you think we should know by next week if Collins is going to be stayed or not?

You are right Kthomp - Ackman wants the UST to exercise the warrants which will most likely mean that common will own 20 pct of the GSE equity before any dilution. This is a good scenario for common and Ackman because he can maximize his profits on BOTH his JPS and common shares.

The question is whether the FHFA/UST will try to entice JPS to convert before dilution from the IPOS. This is a good reason to own JPS because this would have be authorized by a consensual vote of JPS and would need some conversion sweetner like a 25 pct discount to the IPO price?

If the SPS gets set aside the Common will benefit pari-passu with the UST on an 80/20 basis as net worth organically increases. Time is on the side of Common if the SPS is set aside or frozen.

Ackman position is really what we all should be talking about - owning and wishing for the best for all shareholders - JPS and Common

Here is what he said in Ace Traders Post:

We still prefer our investment in the common shares
because the government and taxpayers’ interests, as owners of 79.9% of the common stock of both companies, are
aligned with the interests of common shareholders. If housing reform is successful, we believe that both FNMA and
FMCC common and preferred stock will likely be worth multiples of their current share prices.

Familymang - I dont see the 5th facilitating a seperation of powers remedy that only favors JPS and screws common. I have listened to Judge Jones and others and believe that they are sophisicated and fair. Hopefully we will see soon!

Familymang - I dont see the 5th facilitating a seperation of powers remedy that only favors JPS. I have listened to Judge Jones and others and believe that they are sophisicated and fair. Hopefully we will see soon!

The biggest risk to the MV of the GSE stake is interest rate risk. The higher the rates go the higher the required rate of returns on new equity will be and the lower the market value of GSE equity will be. You can see this sensitivity in the CBO GSE Restructuring Paper Scenarios.

Thanks for the reply. Not to mention that we have to get out of Conservatorship also. We will see if you are right and Collins is not stayed - that would be great because we will hear the wisdom of Judge Jones again.

Hi Familymang,

I think your points are fair if the SPS is not set aside by the 5th Circuit and/or SCOTUS in Collins and/or Rop. Bhatti could also play out but will probably turn on what the 5th and/or SCOTUS does with the separation of powers remedies? Is that right - perhaps you may say this is low probability which probably is true but would be a major win for shareholders - commons in particular.

If the SPS Liquidation preference is set aside then 20 pct of the MV of the GSE Equity will accrue and increase for the benefit of Common. Kind of like that old song - Time is on my side.

More of an outlier would be a win on a derivative claim which would transfer some or all of the SPS Liquidation Preference back to the GSEs to accrue to the UST and Common on an 80/20 basis. Definitely low probability but Wazee and Brydon Fisher are going to spend the time and money to file for Cert. Waiting on what happens in Kelly. Thoughts?

"Who controls the past controls the future. Who controls the present controls the past."

Thanks Familymang - Calabria is not saying the Compromise of the SPSA Liquidation preference is illegal - he reported that the UST "claimed" it was illegal to do so. Same guys at UST that are claiming that the FHFA and UST actions alleged in Rop and Collins are Constitutional. It is just posturing during a period of outstanding litigation. There is no basis to state that the UST does not has the legal right to write down part or all of the SPSA Liquidation preference under CFR 902.2 - it is clear that the UST does based on several possible conditions. This is just a position claimed by some at UST which is consistent with the stance currently being taken in related outstanding current litigation by the UST legal team.

Makes sense now.

Thanks Familymang - I agree with you regarding politics and my opinions may be foolish but that is not to say that they are not based on historical facts that have been twisted by politics and USG misconduct.

Regarding the issue of legality regarding the compromise of debt instruments with the UST - what is clear is that it is legal to compromise debts owed to an Agency based off the conditions set forth in CFR 902.2. The SPSA are contracts between two USG Agencies and it is clearly legal that one Agency could compromise the debt owed to another Agency. I have not read Calabria book but I have ordered it - do you know for certain if he used the term illegal?

Yes - we wait for Collins. Big win for Common if the SPS is set aside and SCOTUS does not overturn. We also wait for the Cert decision on Rop.

As long as litigation is outstanding there will be grounds for the compromise of the SPS Liquidation pref. A new DJT admin will compromise the SPS Liquidation pref based on the Rand Paul Letter.

Thanks Familymang.

In which way can it be irrelevant about something being illegal if there is not a relevant law?

You might be right that UST will do what it wants regardless of the legality of a law but it seems like you are saying UST will more likely be doing something that is unconstitutional ( as in Collins) or illegal ( as in omitting to disclose the material fact that they proposed the Nationalization of the GSEs prior to the sale of billions of JPS to the public in the Spring of 2008) , unethical ( as in violating UST Ethics guidelines in leaking the Nationalization memo to Barrons) or unjust as in the unjust enrichment claim in the Wazee lawsuit?

There is nothing illegal about compromising a debt owed to the UST there just has to be grounds for it and there are plenty in CFR 902.2 -

"Agencies may compromise a debt if the Government cannot collect the full amount because: ....

(d) If there is significant doubt concerning the Government's ability to prove its case in court for the full amount claimed, either because of the legal issues involved or because of a bona fide dispute as to the facts, then the amount accepted in compromise of such cases should fairly reflect the probabilities of successful prosecution to judgment, with due regard given to the availability of witnesses and other evidentiary support for the Government's claim..."

Thanks Familymang,

What "law" do you think applies? What is different with the GM bailout or some of the TARP warrant deals?

Lots of discretion in CFR 902.2 including litigation and some references to preferences and equitable fact patterns.

https://www.ecfr.gov/current/title-31/subtitle-B/chapter-IX/part-902/section-902.2

Jason Thomas thinks your EM portfolio will suck wind due to USD Strength.

https://www.bloomberg.com/news/videos/2022-09-21/dollar-could-move-up-considerably-from-here-thomas

Who is more prescient now? Jason Thomas made one of the best market calls in history predicting the Conservatorship of the GSEs six months before it happened.

Jason Thomas thinks your EM portfolio will suck wind due to USD Strength.

https://www.bloomberg.com/news/videos/2022-09-21/dollar-could-move-up-considerably-from-here-thomas

Who is more prescient now? Jason Thomas made one of the best market calls in history predicting the Conservatorship of the GSEs six months before it happened.

It was written 6 months before the Conservatorship and one week before Bear Stearns failed by Jason Thomas who part of the GWB NEC.

"Bush Administration economist Jason Thomas sends Steel an
email in which he attaches areport identified as the source forthe March 10, 2008 Barron’sarticle accusing Fannie Mae ofoverstating its financial results
through accounting improprieties"

Check out the emails and documents that were part of the FCIC Commission Investigation -

https://fcic-static.law.stanford.edu/cdn_media/fcic-testimony/2007-2008_Fannie_Mae_Timeline_and_Supporting_Documents.pdf

He is now a Managing Director and Head of Research

https://www.bloomberg.com/news/videos/2022-09-21/dollar-could-move-up-considerably-from-here-thomas

Thanks Familymang

I am not sure if Calabria is saying that it is illegal to write down the SPS. The CBO GSE Paper envisions several scenarios and handles the requirements for a writedown in Footnote No. 30:

Section 902.2 of title 31 of the Code of Federal Regulations sets forth standards for the “compromise of debts” by the Administration. On the basis of its review of those standards, CBO believes that a reduction in the value of the Treasury’s preferred shares could be undertaken as part of the recapitalization of the GSEs.

https://www.cbo.gov/publication/56511

The GSE paper states that "The CBO believes that a reduction in value of the Treasury's SPS could be undertaken in compliance with Section 902.2." It doesnt seem that there is a legal requirement but rather the requirement that a compromise of debts follows regulatory requirements which of course is subject to the vagaries of an administrative process.

The Fifth Circuit may have the chance to make a ruling on the potential violation of the separation of powers and appropriate remedy before SCOTUS if the Collins case is not stayed. This would mean we could have a ruling before SCOTUS and a new Congress. Of course SCOTUS and Congress could overrule the 5th but it would seem that we should hope that the Collins case is not stayed. Should know by early April but Familymang may have a better insight.

Great Points Rodney5 - keep up raising the issues around the Charter. It wont matter until it matters so you need to keep raising the issues.

Mike Kelly did God's Work and Capital Structure - the reason he was in JPS. All the public investors who bought JPS in the Spring of 2008 knew about Capital Structure.

Look at the 8-K Fililng in May 2008 where $ 2bn of public capital was raised as part of a multi-billion capital raise by the GSEs.

https://fanniemae.gcs-web.com/node/15271/html

Jason Thomas seems like a really good market analyst.

Based on this timeline and the backup emails it is clear that both he and Robert Steel who was the UST Undersecretary knew that this Memo was written by the NEC. It does not seem like Jame Lockhart at OFHEO, Senators Shelby and Dodd and Barney Frank knew that this was the opinion of the NEC under GWB. Ironically Keith Hennesey who was the Chair of the NEC at this time also was one of the FCIC Commissioners.

https://fcic-static.law.stanford.edu/cdn_media/fcic-testimony/2007-2008_Fannie_Mae_Timeline_and_Supporting_Documents.pdf

This is the crux of the Mike Kelly suit - he and other GSE investors had no idea that the NEC was predicting the Nationalization of the GSEs as early as 6 months before the Conservatorship - one week before the failure of Bear Stearns, 2 months before public investors invested billions in recapitalizing the GSEs and 4 months before the GWB pushed for the enactment of HERA which gave the GWB Admin the authority to put the GSEs into Conservatorship as they had predicted in March.

The email trail is really interesting with a lot of interesting cc's on the email trail. Lockhart seems to be have set up and Mudd and Syron had no idea what the UST and the NEC really thought or what they were doing behind the scenes.

Another interesting fact is that Calabria was a senior advisor to Senator Shelby and the US Banking Committee at the time. Wonder what Calabria knew at the time especially since he claims to have drafted many of the components of the HERA legislation.

Hey No Name - what do you think about Jason Thomas from Carlyle?

https://www.bloomberg.com/news/videos/2021-12-16/carlyle-managing-director-on-inflation-video

He has a knack for being right. Here is what he said about the GSEs when he was part of the GWB Admin at the NEC. This was in March of 2008 a full 6 months before the Conservatorship - 2 months before the GSEs raised billions of dollars from public investors and 5 months before Congress passed HERA.

Who is more prescient - you or Jason Thomas?

Government Bailout Is Necessary, Likely, And Potentially Helpful

Fannie Mae is demonstrably a failed social experiment. A realistic assessment of its balance sheet shows
its net worth to be overstated by tens of billions of dollars and the company to be already insolvent.
Even with all its accounting legerdemain, Fannie's losses are an accelerating horror show, with
shareholders losing $1.5 billion in 07Q3 and $3.7 billion in 07Q4. Those losses are just the beginning.
As shareholder capital gets wiped, the government will have no choice but to seize the company and
place it in conservatorship or receivership. Importantly, mortgage-backed security holders guaranteed
by Fannie Mae will see no losses. The government will likely allow debt holders to fare okay, with either
no or token losses, perhaps 1%.
Shareholders, both common and preferred, are likely to be left with nothing. However, these
shareholder losses have already been locked in by the company's credit decisions over the past few
years and cannot be helped. It must be remembered that Fannie is the biggest mortgage risk holder in
the biggest mortgage crisis.
A fully government-owned guarantor of mortgage debt might be exactly what is called for given the
current housing crisis. While various proposals have been floated to expand the FHA to meet this role, it
has neither the infrastructure nor the expertise to address the broader mortgage market. A nationalized
Fannie Mae would be refocused to directly address the various problems of illiquidity, affordability, and
sustainability in the mortgage market. Without the need to satisfy a fiduciary duty to shareholders,
Fannie might finally be able to perform its affordable housing mission in a helpful and proactive manner.

https://ypfsresourcelibrary.blob.core.windows.net/fcic/fcic-docs/2008-03-08_Treasury_Email_from_Hason_Thomas_to_Robert_Steel_Re_Source_document_for_Barrons_article_on_FNM.pdf

Excerpt from GWB Admin NEC Memo to UST on March 8, 2008 :

Government Bailout Is Necessary, Likely, And Potentially Helpful
Fannie Mae is demonstrably a failed social experiment. A realistic assessment of its balance sheet shows
its net worth to be overstated by tens of billions of dollars and the company to be already insolvent.
Even with all its accounting legerdemain, Fannie's losses are an accelerating horror show, with
shareholders losing $1.5 billion in 07Q3 and $3.7 billion in 07Q4. Those losses are just the beginning.
As shareholder capital gets wiped, the government will have no choice but to seize the company and
place it in conservatorship or receivership. Importantly, mortgage-backed security holders guaranteed
by Fannie Mae will see no losses. The government will likely allow debt holders to fare okay, with either
no or token losses, perhaps 1%.
Shareholders, both common and preferred, are likely to be left with nothing. However, these
shareholder losses have already been locked in by the company's credit decisions over the past few
years and cannot be helped. It must be remembered that Fannie is the biggest mortgage risk holder in
the biggest mortgage crisis.
A fully government-owned guarantor of mortgage debt might be exactly what is called for given the
current housing crisis. While various proposals have been floated to expand the FHA to meet this role, it
has neither the infrastructure nor the expertise to address the broader mortgage market. A nationalized
Fannie Mae would be refocused to directly address the various problems of illiquidity, affordability, and
sustainability in the mortgage market. Without the need to satisfy a fiduciary duty to shareholders,
Fannie might finally be able to perform its affordable housing mission in a helpful and proactive manner.

https://ypfsresourcelibrary.blob.core.windows.net/fcic/fcic-docs/2008-03-08_Treasury_Email_from_Hason_Thomas_to_Robert_Steel_Re_Source_document_for_Barrons_article_on_FNM.pdf

Wazee Amended Complaint Excerpt:

Notwithstanding that they were created by federal statute, until September
2008, Fannie Mae and Freddie Mac were financed by private investment. The Companies
actively marketed their securities to a wide variety of investors – including through 2008. For
instance, they had a variety of programs to encourage their midlevel employees to buy Company
stock. See Worker Assets Shrink at Fannie and Freddie, N.Y. TIMES (Aug. 28, 2008). In May
2008, Fannie Mae produced a “Capital Raise Roadshow” presentation in which the company
touted its “[l]ong-term growth and profitability prospects” and the “[c]ompelling investment
opportunities in current environment.” The “rationale” was to “[e]nhance long-term shareholder
value” and the presentation noted that the “[m]ix of the offering maintains an appropriate ratio of
preferred to common equity in our capital structure....... ”
26. Prior to 2007, Fannie and Freddie were consistently profitable. In fact,
Fannie had not reported a full-year loss since 1985 and Freddie had not reported a full-year loss
since becoming owned by private shareholders in 1989.
27. The Companies’ federal regulators also actively promoted investment in
the companies – including through 2008. The Office of Federal Housing Enterprise Oversight
(the “OFHEO”) continued to assure the marketplace of the Companies’ soundness through 2008.
On June 9, 2008, OFHEO published a news release stating that it classified Fannie Mae and
Freddie Mac as “adequately capitalized as of March 31, 2008.” And, in a March 19, 2008
statement, OFHEO director James Lockhart said “both companies have prudent cushions above
the OFHEO-directed capital requirements and have increased their reserves” and “We believe
they can play an even more positive role in providing the stability and liquidity the markets need
Case 1:18-cv-01124-MMS Document 28-1 Filed 03/24/23 Page 13 of 69
13
right now.” Lockhart also said that the idea of a bailout is “nonsense in my mind” because “The
companies are safe and sound, and they will continue to be safe and sound.” As Crisis Grew, A
Few Options Shrank To One, N.Y. TIMES (Sept. 7, 2008).
28. Between 1996 and 2008, private preferred shareholders invested
approximately $32.9 billion into Fannie Mae and Freddie Mac, of which $19.1 billion was
invested into Fannie Mae and $13.8 billion was invested into Freddie Mac. During that same
time period, Fannie Mae and Freddie Mac paid out a total of $5 billion in dividends on the
preferred shares issued in exchange for that $32.9 billion in investment.
29. During 2007 and 2008, the regulator for the GSEs, OFHEO (the FHFA’s
predecessor), encouraged the GSEs to raise more capital from private investors to ensure that the
GSEs could withstand the increasing instability in the housing market. As a result, private
preferred shareholders invested over $19.7 billion into Fannie Mae and Freddie Mac, of which
$11.13 billion was invested into Fannie Mae and $8.6 billion was invested into Freddie Mac.
Thus, of the total $32.9 billion invested by private preferred shareholders into Fannie Mae and
Freddie Mac between 1996 and 2008, $19.7 billion was invested during the years 2007 and
2008. The GSEs paid a total of $1.1 billion in dividends on the preferred shares issued in
exchange for the $19.7 billion invested into the GSEs in 2007 and 2008

https://www.glenbradford.com/2023/03/fnma-fanniegate-1279/

I made a mistake reading a post today also.

You would think - right - $ 200 bn for the UST and $ 50 bn for common. Redeem JPS at Par - consenual conversion to common or turn on the low coupon JPS.

Just re-read your post - I misunderstood the main point - seems like a fair one - my apologies. If the next 8 years are GOP then I think we have a good shot at exit but understand your skepticism. I think we need the 5th Circuit to weigh in on the Constitutional issues and hope Lamberth gives us a small victory.

Fair Point - Maybe too much money on the table and too many Constitutional inconsistencies for the politicians not to do anything. Also what has happened is not right or fair and is a very bad precedent for the future of US Capital Markets and the US Financial System.

Fair points Eternal Patience

At some point it will become a matter of what kind of financial system do I politicians want.

One where an Admin can create or aggravate a crisis like the GWB did in the Spring of 2008 as a pretext for regulatory provisions of HERA. Just read this page from the NEC March 2008 memo and think it about it in terms of SVB and other future FDIC insured regulatory actions:

https://ypfsresourcelibrary.blob.core.windows.net/fcic/fcic-docs/2008-03-08_Treasury_Email_from_Hason_Thomas_to_Robert_Steel_Re_Source_document_for_Barrons_article_on_FNM.pdf

One where a crisis can be used to essentially nationalize financial institutions like the GWB Admin did with the GSEs with the Conservatorship.

One where previous nationalizations can be used to justify future nationalizations like the SCOTUS Collins decision being used for the CFPB and potential FDIC insured institutions going forward.

Is this what the GOP and some freer market Dems really want? It seems like DJT does not and we dont know about DeSantis.

FHFA will respond to Rop Cert Petition by April 7th

https://www.scotusblog.com/case-files/cases/rop-v-federal-housing-finance-agency/

Hi Robert - it seems like Ackman is raising his profile. It is hard to imagine that Ackman would just stand by and let common shareholders get screwed by a SPS cramdown especially since there was absolutely no consideration given for the SPS Liquidation Preference. Some on the Board stress how the UST would want to maximize profits since they own the SPS and warrants. I would think Ackman would want to maximize his profits and fight for that - he should get PAR on his JPS and get his share of the 20 pct of the market value of the equity of the GSEs. Kind of crazy to think otherwise - or as Skeptic would say super hilarious. Ackman has skin in the game while we got some posters with no names and no shares and some here just for comic relief apparently

Good point Fannie Heyyyy - perhaps timing is important for a political push. In the next month we shall know if the 5th will hear the Appropriations Clause separations of powers case - if it is not stayed there should be a lot of good fodder regarding the rise of the Administrative State and a good ruling should align the GSE issues with the CFPB issues. I am thinking that this would be a good time to push - also the biggest push should probably be with DeSantis because it would seem that Trump and Rand Paul care about shareholder concerns.

Thanks Robert - She was set aside and voided just like Judge Duncan will vote regarding the NWS and SPS Liquidation Pref when it comes to the Collins case on remand.

Thats right ewtrader - we should wish that all shareholders both JPS and Common get treated fairly. It is really out of our hands and most importantly we are waiting on an hearing date in the 5th Circuit for Collins. If the Collins proceeding is not stayed that decision will be very important to the future value of common because the 5th Circuit could or direct that the SPS Liquidation preference be set aside. We could know this in 2023 if the 5th is not stayed. Lamberth is small but could also be a positive event in 2023.

Good points Robert.

Collins on remand is important along with Rop and Bhatti are important because the SPS Liquidation Preference can be set aside for a separation of powers violation.

Calabria probably made the reference to legality of forgiving the SPS because there is a CFR reg regarding the compromising of USG assets which needs some rational basis like the threat of litigation or the probability of success. This is mentioned in the CBO report

Really interesting tweet by Calabria. Shows the risk of keeping the GSEs in Conservatorship. The GSEs in Conservatorship will be the playground for woke policy experimentation

Are you referring to your googlings skills or about something you have no expertise in?
How many CoCo bonds have been issued in the US? I dont know if they even qualify for capital in the US - please do tell us?

Are you now an expert on how Coco bondholder claims are resolved in Switzerland?

This is going to unravel the CoCo bond market in Europe. It was suppose to be gradual rather than just one regulatory action.

https://www.euromoney.com/article/b12kqjlwvsz26k/at1-capital-coco-bonds-what-you-should-know