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Because the SPS equity was (and is) the property of the government. Formally, FnF were well capitalized with the SPS, but without them they would have been broke (until today, because CET1 is still negative by a triple-digit billion amount). That the shortfalls in FnF's balance sheet that required the draws of the SPS were due to account shenanigans is NOT in doubt. It was all part of Hank Paulson's "prudent" HERA master plan.
If SPS = EQUITY why were they in conservatorship? They were always capitalized.
Not "idiots". HappyAlways is by and large right in his statements, but the SPS were not a "loan" (which would have been repayable), but equity (more precisely: Senior Preferred Shares, where the payment of the lavish 10% dividend does not represent a repayment of a debt). This "trap" was devised with all cunning by ex-Goldman CEO Hank Paulson, Bush and Co. in form of the HERA Act.
HappyAlways:
AIG repaid a portion of the loan and was released soon (and substantially diluted). Fannie and Freddie had repaid in excess of $110B according to the court oral argument. Total repayments was $310B in 2020 (from CBO) and the Liquidity Preference is increased to $220B. What a highway robbery !
I believe the government is waiting until the total of all outstanding damage claims is reduced to below $5 billion. This figure is stated in the 4th Letter Agreement of Jan. 2020.
So, the plan has been ready for a long time. They are waiting for someone to pull the trigger.
A new layer of 1st loss capital which comes in through the capital raise actually REDUCES the risk for the taxpayer. The fact that the government will get up to $100 billion for itself (approx. up to $80 billion by warrant execution or approx. $100 billion by SPS to common conversion) does not change this. JPS will probably be converted into new commons.
Sooo, they're going to make massive amounts and pay off jps by putting the companies, home buyers and taxpayers at greater risk?
A large capital raise (up to $140 billion) takes a long time to prepare. If Biden wants to collect the $50 billion to $100 billion from the release before the end of his term, he needs to take action pretty soon.
Don Layton writes:
"In conclusion, an exit from government control for the two GSEs is probably in the rough range of 2030, and potentially even later."
It is an old article by FnF basher Don Layton, published in July 2022
https://furmancenter.org/thestoop/entry/when-will-government-control-of-fannie-mae-and-freddie-mac-end-part-2
Old lies are unabashedly continued
https://furmancenter.org/thestoop/entry/will-the-gses-repeat-2007-2009s-large-losses
...Core to the housing industry is, of course, Freddie Mac and Fannie Mae, the two government sponsored enterprises (GSEs), which today finance just over half of the $12T-plus of first-lien home mortgages outstanding. During the last major downcycle, i.e., when the mortgage bubble burst 15 years ago, the two companies lost the confidence of the markets as they began to suffer massive losses. This resulted in the government taking them over in September 2008 and injecting $187B of taxpayer money to keep them solvent...
Only idiots believe that the solution for theft is to encourage more theft.
This also applies to those recommending exercise of warrants and UNLAWFUL SPS conversion.
The Supreme Court is not "stupid", but biased. That's a huge difference.
The official narrative is that Fannie and Freddie were saved from "otherwise inevitable bankruptcy" with the government's $191 billion. In this light, the recovery from 2012 appears to be a consequence of this "selfless" aid. Despite the recovery and profits running again, the government can (and probably will) take the position that FnF would be broke without the aid, and derive from that the justification for a warrant exercise (positive variant for common shareholders) or, even more likely, an SPS to common stock conversion (highly dilutive for common shareholders). Since the SPS swap makes the government more money, and grabbing money is its primary motive for action, it will probably opt for it. The courts are on the government's side, so existing shareholders are effectively powerless.
If you want to invest, you should proceed like this: First do research, then invest money. If you have held common stocks for a long time and are now looking for reasons to justify this investment retrospectively (and looking ahead), you are making a mistake.
The legal reality has changed. The increasingly politicized judiciary, dominated by "members of the Federalist Society" (Tim Howard) and the interests of the financial establishment, has gained the upper hand. The violations of law committed against shareholders can no longer be eliminated by legal means, realistically speaking. Moreover, the government seems to have no interest in this at all (if it ever had).
That's why Tim Howard is going on the defense and taking advantage of the fact that the Biden admin needs a financial incentive to initiate the release. He has recently been advocating the exercise of warrants. That's a concession he wouldn't have made in the past. Unfortunately, it's more likely thats the government converts its SPS into commons because it can then get at least $100 billion out of its "investment." Common stocks below 50 cents show that this risk is real.
The HERA Act was similar to Adolf Hitler's seizure of power in Germany. The German parliament had installed Hitler's dictatorship in January 1933 with the Enabling Act - formally flawless with a majority vote. After that, however, dictator Hitler - as should have been expected - gradually abrogated all democratic rules and rights, and ramped up for World War II. With the Enabling Act, the genie was let out of the bottle. The rest took place without democratic control. HERA, too, can be considered an Enabling Act in that sense.
..How the hell did Obama admin get the NWS as part of HERA. aka the law? All this added bullshit was under various non law making people, otherwise none of that was part of the original law and thereby not passed by Congress, so how the heck is it law and how can the courts defend it? All those amendments/letters were not instituted by those elected to pass laws (Congress and Senate), and as far as I am aware, were never sent back through both houses to be voted on.
Jury retrial still alive:
Katie, this is rather sloppy journalism. The takings case that was denied writ is an entirely different case in a different Court. Different claims entirely. The parties in Lamberth's Court are likely working on submitting new briefs. P's will seek updated damage model.
— Jeremy Cain (@jeremycain_usc) January 10, 2023
To my knowledge, this is the first time in U.S. history that the Supreme Court has placed itself above the Constitution.
It’s been happening throughout history.
You have a very pragmatic view, which is appropriate if one wants to profit from (political) developments as an investor.
A big problem, however, is that the Supreme Court, with its recent decisions on Fannie and Freddie ("NWS was not a taking"), is putting itself above the U.S. Constitution, which provides that the state must pay damages to the expropriated in the event of nationalization. If politics and the courts increasingly allow arbitrary decisions and this becomes the new maxim of the state, the political system may drift toward dictatorship, and at worst even toward fascism.
As an individual, one may benefit from these developments. For society as a whole, this tendency is alarming and ultimately not desirable.
As bizarre, incomprehensible, and stupid as I think those rulings are (and I know I am not alone in that opinion), that's the reality we have to deal with.
But Stein's law wasn't wrong.
Gary Hindes quoted Stein's law:
"If something cannot go on forever, it will stop."
But Biden probably needs to monetize the SPS or execute the warrants to fund his affordable housing plans. Congress will not give him a dime.
Hopefully, it will at least expedite an administrative solution.
Bloomberg: "The rejection is a victory for the Biden administration, which urged the Supreme Court to turn down the appeals without granting a hearing."
https://finance.yahoo.com/news/supreme-court-rejects-fannie-freddie-143342800.html
Fannie commons are are not included in the Fairholme lawsuit anyway.
Fairholmes: Cert denied
https://www.supremecourt.gov/orders/courtorders/010923zor_p860.pdf
When I give reasons that this will be the most likely development, it does not mean that I promote this course of action.
I was just frustrated with those promoting exercise of warrants and conversion of SPS without any regard to legal and/or moral justification
You probably won't deny either that his suggestions are a somewhat legal surrender to the Powers that be - with "theft" being accepted within certain limits. Howard's goal is apparently to allow Fannie and Freddie to return to full activity outside of c'ship asap (not in 18 years) - at the expense of the big banks ("financial establishment"), whose share of the mortgage market will then decline again. He knows that the GSEs make an important social contribution by providing affordable housing - and seems to allow limited "theft" in exchange for their release. He thus puts the common good above the good of the shareholders.
Howard apparently wants to expedite recap/release and not wait another 20 years. It is, as you correctly point out, a concession to forces in the government ("federalist society" types) that he is unlikely to be able to positively influence in his lifetime. Warrant exercise al least spares common shareholders - compared to a highly dilutive SPS conversion. Even Bill Ackman, who holds 10% of all Fannie and Freddie commons, advocates warrant exercise. Seems to think: Better a fifth now than the whole thing never. The timing is promising, as Biden's BBB program has not passed the Senate, the Republicans won the midterms, and the concessions in McCarthy's election (another $75 billion in cuts, including affordable housing) are forcing Biden to find money elsewhere.
The package of concessions McCarthy made to get votes for Speaker includes $75B in cuts to federal budget in FY24, likely proposed through cuts to non defense discretionary (NDD) programs - affordable housing, human services & more.
— Diane Yentel (@dianeyentel) January 7, 2023
Get ready. https://t.co/58hGZ3t8bb
I don't think anyone (not even a hedge fund) would buy the government's warrants, and probably wouldn't be legally entitled to do so before recap/release.
Moreover, if the government converts its SPS into commons, the warrants would become almost worthless. Who would buy such a thing (voluntarily), and at what price?
If, on the other hand, the government cancels its SPS, the warrants would be worth up to $80 billion. That's a sum so high that not even a consortium of Warren Buffett, Jeff Bezos and Bill Gates could easily raise it.
That's why I think the theory that Tim Howard personally benefits from a warrant execution is a pipe dream. He benefits only indirectly because he still owns commons from his time as Fannie CFO. He sold half of them around 2010 and switched them into JPS.
Isn’t recommending exercise of warrants and converting the Overpaid SPS endorsing the Swindle?
Through exercising the warrants, bringing Fannie and Freddie out of conservatorship with a capital standard that allows them to price their business on an economic basis, and then selling the shares from its warrant conversion, the Biden administration could capture a very large portion of that $220 billion potential value for itself for whatever purposes it wishes, including an affordable housing fund.
Yes, that would be just and fair and in the spirit of the fathers of the Constitution. With FnF, however, it's a power play. Due to HERA, FHFA and Treasury hold all the trump cards. They would love to destroy the commons and the JPS, but they can only do it with the commons for legal reasons. That's the reality.
I want my jps rights restored, but not at the expense of my commons. I want them restored at the expense of the guilty parties: Treasury & FHFA.
I do not endorse or deny the fraud. However, my goal is to make money with my investment. Is that "greed" or sheer common sense?
Endorsement of a swindle corresponds with greed.
The government would love to screw both commons and JPS. But it's much harder with the JPS because they have explicit contractual rights. There is no way to dilute JPS by offering more preferred shares. So the government grabs what it can, which is the commons. Commons can easily be diluted down to single cents (by SPS to common conversion). The more the commons are diluted, the more the government "earns" on its "investment" on recap/release.
None of these guys trashing commons ever explains why government would screw one shareholder, yet reward the other?...It's not much harder at all for the government to screw the whole lot of us...
Winston Churchill's last statement before the end of British world power:
"We shall never surrender."
Hindes has a tendency of being overly optimistic.
Yes, and also John Paulson. Paulson bought JPS, though.
On the 2nd and 3rd page of his newsletter (that I've read on Twitter) Hindes writes that FHFA recently hired people known to be committed to early recap/release.
Hindes also cites "$100 billion to $150 billion" that the government could get monetizing its "investment". A bit high, I believe, because he only mentions warrant execution, and warrant execution alone could yield a maximum of $80 billion. $100 billion (or more) probably requires a SPS-to-common-conversion, which Hindes may not have mentioned out of political consideration.
Hindes expects recap/release to take place before the end of Biden's term, and that Biden will spend the money on affordable housing. That, he wrote, is the only chance Biden has to get something big done in his lame duck period. HERA helps, because recap/release could be initiated by a mere letter agreement between FHFA and Treasury.
Anyone who assumed that the government would act strictly in accordance with the law - instead of just ruthlessly seeking its own advantage - has been wrong for the last 10 years. The mistake was to believe in justice.
If you believe, as I do, that there is no alternative to (re)privatizing the twins, there has to be a recap/release, and for a recap/release to occur, settling of all remaining litigation is a sine qua non.
That is why, after all, there is a clause in the 4th Letter Agreement that recap/release cannot take place until the amount in dispute of all remaining litigation has been reduced to below $5 billion.
The government will not settle. The lawyers will milk this until the bitter end.
Government wants to settle for the lowest amount possible. There is no benefit in raising the limit or "ceiling".