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SPS and liquidation preference get cancelled. This won't get rid of cases in other courts. Rooting for all cases in Federal Court of Claims. If Washington Federal wins, the 10% dividend is also gone.
Nice post, and reasonable - if only justice would prevail.
What really rules is greed, though. Greed by the government to get a return on their supposed "investment" in FnF.
Calabria wants to amend the PSPA to allow outside private capital to come in.
Even states like Argentina got new loans after defaulting several times.
the government threatens to ruin "full faith and confidence" in the US Government.
You could also ask: Why do stock market investors often panic at lows and sell everything, while they add positions at tops, assuming the upward trend will continue forever?
It's because investors have very little memory, and many are driven by emotions, not by intellect. The average investor is not very smart. Most traders lose money in the stock market.
So what might new FnF stock investors think if they are offered new shares in the capital raise? Do they think they are the next chicken waiting to get butchered? Or do they think: Wow, that sound like a real bargain?
It depends on the arguments they will hear. It's almost sure that a capital raise will come (2 x $70 billion - LA Jan. 14, 21).
You can therefore safely assume that the arguments will be presented in a way that makes the new shareholders feel safe, f. e.
- the 2008 subprime crisis has a 1 in a million chance to happen again, it was an "outlier event".
- it can't happen again because there is hardly any subprime financing left in the U.S. real estate market.
- FnF in recent years cleaned their books from bad loans which they sold to Wall Street (Wolf Richter article).
- due to the new capital rule FnF will have huge amounts of equity after the capital raise. Enough for even the worst crises to come.
- so "investing in FnF now is a safe bet".
FnF need a private layer of capital in their capital structure. If FnF were nationalized, U.S. government debt would rise by $6 billion and could be downgraded. That is, by the way, the reason why Bush didn't allow Hank Paulson to nationalize FnF in 2008.
It's "normal" that a private layer can be wiped out under severe circumstances. To compensate for that investors f. e. get a risk premium (dividends etc.) There must be a incentive for them to take on the risk. No risk, no fun.
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And some of these arguments are even true
Yes, it cannot be dismissed out of hand. But it's not very likely either. Just think about the Brookings Institution. They are already planning what to do with government's $100 billion "return" on its "investment" in FnF. This sounds like warrants exercise and common stock dilution - which would be the opposite of a reversal of HERA.
It was just a strategic lie anyway.
Yes, Thompson "would be perfectly content with it [1st & 2nd amendment] being thrown out." But Collins plaintiffs only challenge the 3rd amendment. Because they have realistic ideas about what is legally enforceable and what is not.
Therefore Thompson kind of lied: "....we are perfectly content with all of these arrangements [HERA], which, as we say in the complaint, were a concrete life-preserver." That's what judges and the government like to hear.
RumplePigSkin (now deleted): "With all money from 2012 going forward returned to the GSEs, no capital raise is needed....The full NWS repayment is very much in play. Thompson is quoted as saying he is fine with a full unwinding of the NWS, meaning ~$124 billion returned."
Couple of wrong assertions and allegations:
Your first hypothesis is "Shareholders will get "nothing" at the Supreme Court, and the government will be permitted to violate the US Constitution's "takings" clause
If "shareholders are not redeemed by Scotus", there is no reason to invest in the GSE twins.... Thus, your entire premise is refuted, because its all "contingent" upon a LOSS at Scotus.
Additionally your "new investors" hypothesis has likewise been refuted, because investors are "not" chickens.
You want to turn USA into Zimbabwe, and assume we are a third world country which permits private property taking and has no US constitution
Another 5 cents gone today. Headed to $5 at this rate. I wonder why everyone is selling the preferred shares. I’m thinking it’s because there will be no dividends for 15 years. Need to reach $283B per the capital rule.
No, your chart presents real facts. Politicians deny these facts. They endlessly lie that the FnF "bailout" in 2008 was a necessity. Calabria follows their track.
"However, if he DOES get his way, as you say, and bankrupts the biggest enterprise value company in the nation, shareholders would be entitled to the equity, and THIS could well be a windfall..."
(3) Will a company that is starved for capital from a depletion of capital by their "conservator" be able to redeem the preferred?
It's not about facts, it's about politics.
1. Preference in liquidation. Bankruptcy/liquidation is not the issue here, FNMA and FMCC are profitable and have been profitable.
I know that it was a forced nationalization by Hank Paulson to rescue the TBTF banks. But the official lie is that the "bailout" of FnF was a real necessity. And that official lie seems to live on forever, as Tim Howard ("mortgage wars") and Tim Paglaria ("another big lie") pointed out.
It would be very hard for any plaintiff to prove that the 2008 bailout of FnF was a fake. And the longer the lies last, the more everybody believes them.
My statements are based on this kind of pragmatism. Also the Collins P's didn't try/dare to challenge the holy grail. They just want that Scotus retroactively cancels the Third Amendment (NWS).
You "assume" that we are not entitled to interest on money stolen from us beginning 12 years ago
$500 is the desired share price, and 2$ is tip.
300 billion divided by 1.15 billion shares..$260 per share.
Instead, we look forward to the future when commons and preferreds are released from (the hospital) conservatorship.
Scotus wouldn't dare to decide this on Fools' Day.
Preferreds give up... the right to vote
Preferreds are selling at a premium vs commons, a premium many feel is not justified.
Preferreds [are] "hybrid" between bonds and stocks
As KThomp19 nailed it:
"Focusing on [Tim Howard's] 'quagmire' comment to the exclusion of the bigger picture is an exercise in willful ignorance"
You forgot that the cap rule will be amended.
Nobody would invest if there are still open claims like the warrants. And nobody would invest while FnF are still in conservatorship.
Therefore I think the government will announce a settlement with the plaintiffs prior to Scotus. The news of the settlement and the news of the planned capital raise will probably be announced at the same time. The warrants might get canceled or executed, depending on the terms of the settlement.
So external investors who participate in the capital raise will know what they get in advance.
The only "real" way to recap FNMA is a win, and the government forced to return the stolen money.
There IS no 180 billion. If there were, we'd be released.
With $180 billion equity FnF are sufficiently capitalized to withstand the worst scenarios in Basel III simulations.
So this huge (and exaggerated) capital buffer makes sure that the new investors who participate in the upcoming capital raise won't get wiped-out even under severe market stress.
Also subprime is gone forever - at least in housing. A subprime crisis like in 2008 therefore can't repeat.
The problems with your arguments are:
- Without a capital raise there is not enough equity to exit conservatorship, unless you wait for at least another 10+ years (slow recap).
- Government wants a faster recap because the next housing crisis due to Covid is looming. Government needs a fresh layer of private capital as a buffer asap. The $45 billion equity currently at hand might get lost quite fast.
- To entice new investors to sign the NEW commons (fast recap), they must be offered a decent or even huge share of the companies. This necessarily requires to dilute the old commons.
- In other restructurings like GM the old commons became worthless. I know that GM was REALLY bankrupt, and FnF were NOT bankrupt in 2008. But the current narrative ("another big lie" - T.P.) asserts the opposite. Even Calbria used the term "restructuring" several times.
- So as a compromise I expect old commons to get something, but probably much less than generally hoped for.
- New commons might get listed with the old ticker symbols FNM and FMC. Old commons (OTC) are probably exchanged for new commons according to a certain ratio (such as 10 to 1).
Just my guesses.
The GSE share Dilution referred to is the Secondary Offering by J.P Morgan & Morgan Stanley - financial Advisors - to reach reduced 3% Cap levels for EXIT fm GOVT HOSTAGE Conservatorship.
We already know FHFA is our adversary, they would rather keep everything and suck shareholders dry.
I agree.
Of course I count on SCOTUS as well. Should be evident.
Your arguments are based on malicious allegations regarding the government. The reality is much more based on the rule of law.
Perversion of the law has legal und constitutional limits. Thats why almost everybody here counts on SCOTUS - JPS and common holders alike.
Ebbs and Flows depending on time period - so 40% ..
Evidenced by the depreciation of JPS relative to Commons by 50%.
Commons and JPS fell by about the same extent since Christmas. The JPS maybe a bit more (due to lack of liquidity), but both are more or less cut in half.
The reason is disappointment because there was no fast solution by Mnuchin. Quite simple.
If the commons "win", the JPS will for sure "win" as well.
Unfortunately, the same is not true the other way around.
So there a scenarios, as KThomp19 pointed out, in which the JPS could reach par and the commons become ultimately almost worthless due to massive dilution.
IMHO, the worst quagmire is too much risk with too little potential reward.