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Its a laughable assertion that the fed is ever ultimately beholding to anyone but themselves. Therefore, how could they possibly have entered into an arms length transaction with themselves. The flaw here is they over thought it and it will blow up.
Had they engaged Morgan Stanley or obtained third party valuations, etc. or done something that was priced reasonably or acted in good faith, sure there would be little argument.
Problem is the fed agencies have yet to act.... in a private capacity... had they done that the fhfa would have released fannie and freddie 18 months ago.
The silliness continues.
You know.. we are in trouble as a society when they "name a bill" meant to destroy something a {protection act)... like a wild life protection act that allows hunting. Or an Envrironmental protection act that permits something bad to happen or an "affordable" care act that raises premiums, deductibles, cancels insurances, and otherwise causes problems.
And now a "tax payer protection act" - I should be holding my knees, under a table with a book over my head.... watting for the tornado to hit.
Why can't they just call it the fannie and freddie destructon act of 2014.
Can't wait to see the 2015 housing affordability protection act that reforms fannie and freddie, provides for capitlaization by voiding the "warrants" and forces government to over see them from a distance... or by some task force of evenly heeled folks.
Taxpayer protection act my bloomin arse.
Exactly my point.
They can exercise the warrant but not purchase new securities. Shares, if issued pursuant to the warrant would be "new" minted shares and therefore is in contrast; however they can do a cash less exercise. Lest you be reminded of the miniscule - price of $.000001 cent a share (ie. its a non-event).
As for transferring the unexercised warrant... this can not be done. Per the Warrant only trearsury can exercise them. So. Heck yes... transfer them / sell them and they are worthless to any purchaser.
As for the conditions and terms underwhich the warrants were Taken - it has been well publicized that it was by means similar to how the Mafia works. Or what you'd see out of a criminal enterprise. Whether its being contested I haven't read all 19 complaints, however, it is a taking and is counter to what civil societies should allow.
No... Hera prohibits Treasury from buying new securities after a stated date. Except for the Warrants which a cashless exercise is allowed.
However they are not transferable, per the fannie warrant only treasury can exercise them.
Again, personally they are loot. And were taken under duress. They weren't bargained for and never approved by the shareholders.
Normally an offering of 80% of equity would require shareholder approval - in most cases.
The warrants are trash and anyone taking them should be held accountable for their actions.
They don't call it Grand Theft Treasury for nothing.
You'd want to believe that... clear skies...
But... I'd expect lots of grumbling along the way over the next year or 18 months until they (those in congress and media) come to figure out what we already believe to be the case.
Hoping the warrants get cratered and we get to fair value.
Not looking for excesses. Just fair value.
GLTA... LONGS! Only need apply!
Factually, they are not transferable. By definition only the Treasury can exercise them per the warrant agreement. And Treasury is excluded from purchasing new securities by Hera.
The problem is if deemed lawful, which is speculative, they could do a cashless exercise.
Again, the big question is whether the warrants are considered a "taking" especially since the defacto debts have been repaid and the manner in which they were "created" and entered into.
Personally, I would consider them looted property and ill gotten gains from an otherwise illegal act.
At $1,000 per share....
That would be a different ball game.
The figure's I've hypothetical on have been smaller fractions of that amount.
But, even numbers with lots of zeros are easier to calculate, but harder to spend.
Fannie and Freddie need ...
Less government intervention.
They need to adhere to their mission and do so without government getting involved in policy issues which government does not pay for.
If fannie and freddie do things to support "governemt" goals then the governemnt needs to pay for that privilege. No more free rides.
Some people can't understand that money not spent is money earned. And money spent is after tax money... so money spent costs you 2x in gross earnings. So for every dollar spent you have to about earn 2.
I don't mind driving older vehicles and believe that buying depreciating assets is and over paying is not wise.
My personal goal is to retire before age 60.
If Fannie and Freddie do what they are capable of I'll beat that goal and be done in 3-4 years. If they blow it out; then I'll give myself the hall pass sooner.
I have too many other things I want to do and work just seems to get in the way.
Wrong.
After a 10-1 split... sure.
Hey...
Obit...
I AGREEEEE with you!
You are Spot on.
Once again he is wrong.
What do you expect from yellow journalism.
Sad that he has an outlet and is so skilled at scuttling the facts.
Nick seems like a good guy...
But, he's been wrong so often in his text is / has been amazing.
You'd think the WSJ would require their writers to be accurate. But, apparently, not.
I would caution about stating Watt is a smart guy.
He hasn't seem so thus far.
But, he could surprise us all.
Could this be a maneuver to obtain concessions from the other side?
if
Wiping out Fannie and Freddie are dead?
What does the "reform" look like now?
Has any Senator or House Member come out to push for "reform" of FandF as opposed to destroying them?
Yes.
Everybody.
Obviously, you weren't there and have no experience in this.
That's fine. You are certainly a seemingly learned individual with a lot of book smarts. I can only tell you what occurred in practice and a scholarly gentleman can choose to ignore the facts. That's fine, no skin off my nose. For the other readers, its important for them to know how it was in practice, in reality, and in the field what the perception truly was.
What I indicated was as is and clear. Pre take over / occupation (back in the 80's) there was an implied guarantee that was understood. This was the "cost" of allowing the government to meddle in their affairs and dictate "policy".
As Fed Agency investments MBS's were verified and priced relative to the interest rates and YTM but NEVER was there any issue with "collectibility" or valuation relative to that risk. You'd have been laughed at, scorned and other wise been a CLM (Career Limiting Move). Fed Agency debt was treated in the highest regard.
Don't believe me if you want. But for heaven sake don't argue the facts you simply can't understand or weren't there to experience.
I read the article quickly...
Keep in mind that at each quarter end public companies do not obtain an audit of their financial statements or disclosures. Instead, they have their auditors perform a "review". A review in these contexts is a high level kick the tires approach of looking analytically at the changes and expectations of those changes versus what is occurring in the business and its business plan.
In the case of Fannie they are a very large entity. They have a balance sheet with a lot of 0's. And a P/L with many of them as well.
The scope of a review is considerably less than an audit. And as such sometimes small otherwise cummulative issues can occur. The key thing is that though small they are corrected at year end and most of the time, the debits and credits... ie net number of potential issues is near insignificant.
As for loan loss issues being 2% problem... 2% on a hundred dollars is just $2 bucks. But on $2 Trillion ... is LARGE in absolute dollars and on the reserve in general say $50Billion 2% is $1 billion... and it is large... but its often just an estimate so not overly troubling.
Finally, there are always, reclassifications, and subtle things along and along. Most, don't hit the radar.
Is this a big issue. Not really. It won't change my opinion.
Is it a sign of professional stress at fannie and maybe freddie associated with all this rankor of winding down the entities and who of quality wants to work at a company people want to shoot. Yes.
Everybody... with any experience in banking, accounting, finance, or the like... took Fannie and Freddie as nearly = to government paper.
As "rock solid".
In the 1980's I audited S&L's Banks, Thrifts, Pension Plans and a other financial institutions and later worked in Finance and can state without a doubt and 101% clarity and certainty that at no time were investments in MBS's or collateralization / security for as an example Over Night Repo's from either a market risk, credit risk, or such (except interest rate) were they ever questioned.
More simply the "
So, Fannie Mae did not emerge as we know it until 1968. The only federal charter that exists for Fannie Mae is the amended one previously posted. Previously, the government guarantees were from the FHA and VA mortgages that Fannie Mae purchased. But that ended in 1968, when Fannie Mae was federally chartered and transformed into a publicly traded, shareholder owned corporation with no government guarantee. "
from your writing however much true was NEVER in practice the reality.
The implicit federal guarantee was taken as solid and part of the cost of the system... ie. you put up with their games, political and such for their implicit role.
Essentially, the consideration paid the government for their guarantee was it the government being allowed to meddle in their affairs. Which as it turned out the government then set aside by taking the warrants and charging usury rates on lent money.
It would be best for them to make this happen as quickly as possible as damages will accumulate until then and more uncertainty in the markets are not conducive to prosperity.
My feeling is the government through income taxes stands to collect around $200 Billion Dollars if they reform fannie mae and save $200 Billion in damage awards and 10 years of litigation and economic uncertainty, not to mention the $300 Billion of net economic stimulus to the economy if all they did was ... release and reform... fannie and freddie.
What a brilliant economic policy for America and idea.
Could you imagine an unfunded $300 Billion dollar stimulus package... that puts $200 Billion in the tax coffers... better than cash for clunkers....
Don.
If this were an 11. Then sure; I'd 101% agree.
I've done a lot of work in BK.
But, this was not an 11. It wasn't a receivership situation.
In fact many people have argued that fannie and freddie didn't need to be rescued. That for example barney frank said in the summer of 08 that they were adequately capitalized and they were "fine".
Many people have argued and I concur that fannie and freddie were taken over not for their protection but to save the banking system.
If you look at their balance sheets, you will note that it rose near 2 fold because of them being flooded with cash to take on risk that it; as a stand alone business would never have done. You will also see that throughout the process at nearly all times it had unrestricted cash on the books greater than the crammed down preferred stock *(debt); This was because they were forced to take on cash to "right size" the equity that was based upon the excess reserves being created. As ackmen's graph's showed and I've stated since 2009 they were creating so much excess reserves and cushions that it was SILLY and down right possibly fraudulently "cookie jar " accounting.
To me this is illegal.
Now. As for the warrants....
They were taken ... the whole "deal" was never voted on by the shareholders. It was theft by undue influence and extortion - just the way puleson, or whomever wrote about it in their... they won't hear their heads hit the ground... in the dark of night scenario.
As for lender of last resort? Really?
So, much for that "alleged" government guarantee that purportedly was bargained for over the past 80 years. You know the one that allowed government to toy with Fannie and Freddie management and policy directives in order to have access to lower cost capital in order to encourage home ownership among the sub prime people / higher risk ... as the exchange for the "unwritten" understanding.
Again... so much for the alleged governement backstop... that wasn't really a government guarntee ... reminds me of keeping your friends close and your enemies ... closer. They no sooner turned on Fannie and Freddie as ... Chainsaw Al would have. Or Gordon Gecko..
The warrants... really at .0000001 of a cent. when the equity was trading at $6.... really.
And taking 80% equity... really..
And... if 80% giving effective ownership and control wasn't enough ... chargin 10% interest when their cost of capital was close to 1%.
Could you imagine what your wife would say ... if you borrowed money at 5% and charged your kids say 50%... or if you did this in a consumer lending environment... you know... pay day lending or credit card lending... really? 10x your rate. Is that not absurdly silly.
I mean... wouldn't you be embarrassed to admit you did this.
Fact is ... in the real world... people go to jail for doing what the treasury did.
Total theft.
The first so called "deal" was not a deal . It was not an arms length negotiated transaction among a ready buyer and a ready seller without undue influence and other things that made it essentially a shame transaction.
If some one held a gun to your head and said... sell me your house or i shoot - is that "fair". Oh and here is a penny for it. So its legal and all.
The 10% rate is 10x the governement's cost of capital and 3x what it charged TARP people.
The near 80% warrants were priced at 1/600000th or so of then market price.
They are invalid - by all reasonable thought and purpose - they would be laughed at - at any true negotiation.
While potentially magically profitable its also incredibly stupid idea.
At Fair Value I retire * immediately. At $0 I retire in 5 years. If I put 100% of my net worth in here ... at $15 I retire immediately, at $0 I work till i die.
I'll play it safe.
Although... its darn tempting to roll the dice.
Akman says 47 a share is inclusive of the illegal warrants.
Remove the warrants that are illegal and you have a $240 share price.
The warrants are corruption and ill gotten gains. Should be tossed to the gutter. The judge will not allow them to profiteer with stolen merchandise.
This is not is it should be ...
Conservatorship is a fiction based play to "conserve" ... Conserve for who?
For my aunt sally? For Tiger Woods? For maybe Oprah Winfrey?...
Conserve for who?
Maybe the shareholders?
Who do you think the board works for, who do you think the employees work for, who do you think management works for?
Its not undifferent as to ATT or Fannie Mae.
Maybe the shareholders?
Rick,
While they were "lent" 187B or so... much of that was as a result of
1. Unnecessary and incorrect temporary write offs of Deferred Tax Assets
2. Excessive reserves on loan and investment losses that were "aggressively estimated"
3. Interest at 10% which was drawn in circular fashion.
and
4. Interest at 10% which is 10x the government's cost of capital and 3x TARP money.
When the warrants were "taken" there was a comment or two by lockhart or bernanke that they never expeceted to use them, but that it served as allowing them to "control" the entities.
Personally, if they do excercise them to me its theft and second since they are the defacto majority holder of constructive 80 percent ... we as minority holder will have been taken advantage of by their self dealing, including charging 10% interest on borrowed money when their prevailing cost of capital is 1%.
I find that to be self dealing.
So, take your pick... steal 80% of my company or get torched by the court for self dealing and lose 100% of what you stole plus damages.
Sure, the legal eagles may get them off the hook, but everyone knows what they did was wrong.
If this is the case ...
Then Mel Watt could ... end the conservatorship tomorrow....
if he chose to.
Which begets my case of ... why not?
After all at this point its really unnecessary. Isn't it.
Yes.
But the crux is the c - ship. The stealing (cash and warrants). The mismanagement and the theft.
This is a silly scenario.
What if FandF were able to build capital along the way?
Huh?
Cat got your tongue Mr. Fhfa?
crapo is a fool.
he also is a tool.
and he is struck with a case a of being a liar.
Navy,...
You've been putting up these Level 2 things for a while.
I look at them ... but since I am just an average folk.
What should we be looking at to see the "things" you are looking at. at.
Thanks in advance.
Glta
Looks like this is gamesmanship ... to stall the proceedings in order to slip a mickey in our drinks and spoil the party some quiet friday afternoon.
We need to stay vigilant.
Its a tactic...
This people should be ashamed of themselves deceiving the american public.
Well written.
There is more to add. The sinister games played by the tag team of the federal government has been horrible.
It would make for an excellent soap opera. But they have been masterful at orchestrating the charade.
Its all been a farce.
In the end... it was Fannie and Freddie that saved the US tax payer... not the way its misunderstood. So sad.
I would like that.
I'd like them to go back and consider what the facts and circumstances are now.
I'd really like to have a voice in telling them what to do.
Its very frustrating when those that can. Don't. or won't.
What I like about this post... slash reference to the article is that it essentially is an article they write about a "normal stock" ... like disney or coca cola or hewlett packard.... its like ... blha lblaha blahs market slows housing and fannie and freddie are down.
Its not another bleeding beat up the comapany article.
its regular borign no news.
i like it.
Sorry Obit, i simply disagree (that's okay we can disagree and still be on the same team). There are several people who work for me that I value them but I don't always agree with on everything. Its good to exchange ideas, that way we all get stronger.
Just because some "learned" folk postulates an idea doesn't make it so any more than me stating the otherwise obvious. Back in the day there were quite a few alchemists that when on and on about some such to be unproven. Same with those fancying the earth is flat or that the sun revolves around the earth; with their studies their theories; and everyone believed them until they were debunked.
I see - and its my opinion - it as a worn out fad of the day. It sells newspapers and sensationalizes the news. But labeling something.. systemic risk is over blown; Its not unlike people saying that the extinction of the buffalo would bring great hardship to the people or some such; sure it sucks but it didn't end life. So it is with systemic risk proponents, there are risks to the stats quo system; but change is inevitable; some change is good; and some risk is good. Some loss is good. It keeps people honest and forces them to revert to the mean.
But to harp on and on about systemic risk only protects the fatted calf, golden Buddha or some other sacred cow.
Somehow, somewhere someone sold a great many people on this hype, this hook and the fish have run off with it. Meanwhile those that started this are laughing at all those with a hook in their mouths postulating this fable.
Its my opinion and at least I have the guts to write it. Just like I had the guts to view my opinion on the merits of Fannie and Freddie back in 2008. When all the pundits, the learned people, the financial guru's called them zombies, worthless creatures, the scum of the earth. Well, how do you like me now! Now that I am on my way! I'll be more than happy to read how others view this concept and I'll as always take it and reach my own opinion. But, as I see it, I see it differently.
So, Meanwhile... back at Fannie and Freddie.
They need to regulate, release from the c-ship, cancel the warrants, or recalculate the interest at the government's cost of borrowing (owing to the 80% warrant)
You know the correlation was true... but the bigger thing was the Hype of ... some smart person saying... If xyz happens... company ABC is going out of business. Then... all the street heard was ABC is going out of business. Like... if Coca Cola stopped selling beverages in the united states... it would file Chapter 11. Next thing you knew... people would be harping on that.
Same happened to Wachovia. And several others... they hype became the news. The news became the hype and flush it went. It was so bad the companies like CBS and Disney cratered. But like, hey were people going to really stop watching TV? What about companies like Church and Dwight or PG, Colgate, and such. All followed everyone down. Sure there were issues, but these issues were well overblown. We had a crowd mentality that carried the day.
As for Fannie and Freddie... most learned people agree that they were never really at risk. The larger risk was the need to bolster the housing finance area and save the banks from themselves. Thereby they bought all this junk paper from them by using cash stuffed at it by the government.
Fact is as a country we've had this concept of risk for ever. Lets just not be paralyzed by it.
Sorry for being the doubting thomas here ...
But this concept of systemic risk is unproven and gets bantered around on and on and on and on...
Sure, I get it... if big wheels fall off the semi... the semi hits the ditches and all heck breaks loose. Got it... But some how I would figure America is stronger than just one company or one state.
All this hype of systemic risk has paralyzed congress and others into buying into it; and being mesmerized by it. Its like WMD or any other sort of "news of the day" used to rally into a frenzie the lemmings.
Let work on fixing FnF and making them strong financially. The methods of accomplishing that are really quite easy.
....
So, like i wrote. Sorry to rain on the "systemic" risk hype. Just tired of it as an excuse for not getting things done. Its become a hackneyed phrase... and so ''' last year'''.
Sorry to be a nay sayer..
but I am beginning to think "systemic risk" is alot like "global warming"; reincarnation, the devil's triangle and several others. Its a myth that some people believe are true but darn impossible to prove.
I guess what I am writing is... that use of this term is more of a "crutch" or an excuse of inactivity rather than as a real reason.