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Good Points Navy - Thanks - Wonder what Seiberg is saying now?
Thanks tutt1126 for the info:
Here is what Jared Seiberg said in 2020 before JB was elected. Navy might be interested is his statement that he thought the JB Admin would release the GSEs before risking a new GOP Admin.
https://structuredfinance.org/news/what-could-happen-to-the-gses-under-a-biden-administration/
https://www.housingwire.com/articles/if-biden-wins-what-happens-to-fannie-and-freddie/?
Go Vols! Do all or your Xs live in Texas? Seriously it is more than just Sen Haggerty - all the GOP Senate Banking Committee signed the Letter! This is a great development because it sets up a MQD challenge to any policy objectives while in Conservatorship - they need to exit and monetize to do policy to comply with the MQD.
WOW! Robert did you see this Letter? MQD Up the Wazoo!!
Have you thought about getting a Netflix subscription? - I think you can find a lot of comedy shows there for laughs. With all your restructuring experience I would think you would have better use of your time than looking for laughs on IHUB? - OR are you just a short?
"If" is why the stock is at 66 cents. I thought you would be happy if shareholders were treated fairly - seems like you like being miserable?
Susan knows that USG officials coerced the GSEs to buy subprime and Alt A mortgages and she knows that screwed the GSE shareholders who have lost billions including the JPS shareholders who bought JPS at $ 25 after the NEC started to execute its Nationalization Plan with the leaked Barron's article in March of 2008.
Susan should come clean and tell us which USG officials coerced the GSEs before she stuffs the taxpayers with a FHA controlled housing sector that ultimately will stuff US taxpayers with credit losses and a lost AAA Sovreign credit rating.
Who coerced the GSEs to buy the subprime mortgages Susan? You told the FCIC interviewers - now is the time to come clean.
See the last few minutes of the 59:27 tape, She goes into her background around minute 54 and then talks about HUD and the CRA program under Cisneros - the last dialogue was that she would tell the interviewers which USG regulators stuffed the GSEs if they shut off the tape.
https://elischolar.library.yale.edu/ypfs-audio/304/
FCIC - "What if we turn off the tape? - can you tell us of the record?" Wachter " Sure" FCIC - "I am going to turn it off"
When did you read the Statute No Name? You have been hawking the US Bankruptcy Code for months so perhaps you read it yesterday?
It will go down like this:
1. The NEC and UST will decide if they want to exit
2. They will confer but basically tell the FHFA what they want to do
3. They will ask the Civil Division of the DOJ to write a Memo justifying a compromise of debt under 902.2
4. They will let JB know how it will help him politically if he still is Pres.
No Attorney General is going to get in the way of the UST Secretary or the Chair of the NEC. Lawyers work for Clients and Clients make the business/policy decisions. Yes - this will be perfunctory.
Someone should ask Wachter what she told the FCIC at the end of her interview when she went off the record. If USG Govt officials were successful pressuring the GSEs which were public companies as she stated in her interview - just think what they could do with the bureaucrats that currently run the GSEs in Conservatorship.
Check out the interview from the 55 minute mark to the end when she went off the record. It ends with the interviewer saying " what if we turn off the tape - will you tell us off the record" Her last words "sure"
https://elischolar.library.yale.edu/ypfs-audio/304/
Very well stated DaJester!
Susan Wachter also knows what really happened at the GSEs and how they were pressured to purchased sub prime MBS. The problem is not the wild west - it is the DC Swamp.
Susan Wachter from Wharton actually talked about how some USG officials pushed the GSES to buy subprime mortgages in a FCIC Interview. It is at the end of the tape and she specifically said that that this was thought to have happened. She said she would elaborate on this but said she would do it off the record at the end of the interview.
Check the tape of her interview with the FCIC from 55 min mark on. The discussion regarding sub prime starts with a discussion of the CRA program and ends with a suggestion to talk to a couple people from the GSEs and then said it is interesting to ask what regulators were pushing the GSEs to buy Alt A and Subprime Loans. She referred to a NYT article where Mozillo who was the CEO of Countrywide threatening market share with the GSEs and then the interviewers ask - who do you think the regulators were- and then she paused. The final words were by the interviewers " what if we turn off the tape" It sounded that the interview continued after the tape was turned off.
https://elischolar.library.yale.edu/ypfs-audio/304/
Hi No Name,
Our fate rests with Secretary Yellen right now and whoever is the next UST Secretary - maybe Vivek? The Civil Division of the DOJ will do whatever their client tells them to do ( right now Yellen) and they know they cant prove their case in court on the facts ( like Lamberth Jury determined) and that is why they are fighting so hard not to have a case go to trial. Practically the Comptroller General will sign off on reasonableness behind the political/policy decision.
Again there is no bankruptcy because the US Bankruptcy Court does not apply. The DOJ can prove their case in court so they will advise their client to write down the SPSA if the decision is ever made to Exit Conservatorship. Whatever is needed under 902.1 will be a perfunctory process.
Hi No Name - it the DOJ or the Comptroller General which would have oversight for UST actions? If it was actions of individuals - then probably the FBI would get involved and you would be right because the FBI is part of the DOJ. In this case it has to do with a accounting decision by the UST itself and would fall under the oversight of the Comptroller General?
https://en.wikipedia.org/wiki/Comptroller_General_of_the_United_States
Hi Kthomp - you are saying something is illegal when it is clearly a discretionary decision by UST under 31 CFR 902.2. Calabria also says that McNuchin said to Calabria -" You're really not a bad-looking guy". Maybe Calabria has a penchant for exaggerating like he exaggerated the required level of capital needed by the GSEs? Do you really believe the Secretary of the UST told the FHFA Director - " You're really not a bad-looking guy"? See Page 149 of Calabria's book.
There is nothing illegal about the Compromise of Debt allegedly being owed to the UST and Kthomp knows it. The governing regulation actually enables the write down of alleged debt:
31 CFR 902.2 is the governing regulation as noted in Footnote No. 30 of the CBO GSE Restructuring Paper. Here is the first section of 31 CFR 902.2 :
902.2 Bases for compromise.
(a) Agencies may compromise a debt if the Government cannot collect the full amount because:
(1) The debtor is unable to pay the full amount in a reasonable time, as verified through credit reports or other financial information;
(2) The Government is unable to collect the debt in full within a reasonable time by enforced collection proceedings;
(3) The cost of collecting the debt does not justify the enforced collection of the full amount; or
(4) There is significant doubt concerning the Government's ability to prove its case in court.
The facts are that "There is significant doubt concerning the Government's ability to prove its case in court"!
What we need is someone like Ackman not letting his shares to be borrowed for short sales. A good old fashion short squeeze or two as we get closer to resolution of the law suits would do wonders.
Hi Skeptic7,
There is a definite path to end Conservatorship especially if the FHFA lowers the Capital requirements to close to 2.5% - even Jim Parrot has said this. The issue is whether this Administration or a future one will want to end Conservatorship and that is why Mr. Market has the JPS and Commons trading pennies on the dollar.
LuLeVan - the facts are that the Commons suffered the most in lost market capitalization and therefore are deserving of the largest compensation. As shareholders it is my opinion that we all should stand together on the foundation of the Constitution and advocate for fairness otherwise we may lose the moral imperative to claim the high ground of fairness when it really matters.
Thanks again LuLeVan - I dont know how common shareholders get fully compensated unless we get Cert in one of the Derivative suits which is a super low probability. The Kelly suit has the most convincing fact pattern but the probability of the facts ever getting into a courtroom is almost nil especially after the COFC transferred the case from a DJT appointee to a JB appointee. Also if there was some type of Derivative win or settlement it is likely that the UST would still end up with 80% of the benefit via the Warrants.
Good Stuff LuLeVan! - Thanks for your contributions to the Board. We have to stay close to our principles in this fight for fairness and justice and it is good to have these type of posts.
Thanks Kthomp
Is that line from the Kevin Costner and Robert DeNiro movie about Al Capone?
31 CFR 902.2 (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. In determining the litigative risks involved, agencies should consider the probable amount of court costs and attorney fees pursuant to the Equal Access to Justice Act, 28 U.S.C. 2412, that may be imposed against the Government if it is unsuccessful in litigation.
The Lamberth Decision can also be used by a UST to justify a compromise of debts under 31 CFR 902.2. Any UST even a DJT UST will have to have a justification to write down the SPS. A JB UST could use this to settle and get the GSE Utility Model in place and secure against future political interference and a DJT UST could use this to write down the Liquidation Pref because the FHFA has already loss on the facts of a judicial proceeding.
Thanks Robert.
I would imagine the FHFA appeals so perhaps the Plaintiff's can cross complain regarding the amount itself? Do you remember how much is reserved for shareholder damages - I think it is $ 3 bn? Why wouldnt the FHFA just use the class action to settle with everyone except the FNMA common?
Regarding whether HERA of Delaware Chancery Court governs - clearly HERA governs as long as the GSEs are in Conservatorship but if there is an exit it seems likely that the USG will be majority shareholder for a while and then wouldnt Delaware Corporate law govern?
Wont we see soon?. Once the decision is final I would think the Plaintiff's lawyers would submit the decision for Judicial Notice in all the outstanding cases - definitely for Collins, Bhatti and Rop.
Great Questions Robert!. It wouldnt seem that the USG could be sued while in Conservatorship but what will happen if the GSEs exit and the USG is still are controlling shareholder. It would seem that Delaware law could be used to sue a bad acting controlling shareholder? This is one reason that I dont think the USG will cram down shareholders because if they do it and keep them in Conservatorship they will have a new round of Constitutional lawsuits and if they cram down and exit the USG will be sued under Delaware law. Give the legacy common shareholders their 20 percent and settle the derivative suits.
We as shareholders loss the damage model in Lamberth so our only real hope are the derivative suits in the COFC right now. These seem like long shots for Cert which realistically is our only hope for compensation for the NWS abuse.
Hi Kthomp
What do you mean about not even being a badge?
Thanks for sharing 8mileshigh. Doesnt this Paper allign with the Urban Institute Paper - lower capital requirements by implementing a Utility Model for the GSEs? Seems to also be consistent with the CBO 2025 Equity Offering Scenario and the comments of TH. I dont know if TH supports the Utility Model but he does think the cap requirements should be around 2.5 pct
Good Morning Navy and Robert,
As outlined in the Urban Institute Paper, it may be that the FHFA could significantly lower the cap requirements for the GSEs and if they do it could mean that the GSEs could be fully capitalized in the next 3 years or so with or without an equity raise. When do we expect the FHFA to propose a new rule based off Single Family pricing rule that had the Public comment end on 8/14/23? TH also laid this out and it could fit in nicely with the 2025 equity offering scenario in the CBO GSE Restructuring Paper.
https://www.urban.org/research/publication/how-think-about-fannie-mae-and-freddie-macs-pricing
The most logical issue is whether a future Admin will try to keep the GSEs in Conservatorship or release them? Will they be more Utility like with lower ROE requirements which means less capital or less Utility like with higher ROEs?
https://www.cbo.gov/publication/56511
Three major issues : 1. What will the courts do regarding the Constitutionality of the SPSA and NWS, 2. Will a future Admin try to keep the GSEs in Conservatorship even if they become fully capitalized, 3. Will the required capital be lowered or kept the same?
TH mentioned that on 8/14/23 which is the day of the Lamberth decision the FHFA Comment Period for Single Family Loan Pricing also ended. He is suggesting that the FHFA lower its required capital to closer to 2.5%. This also seems to be in line with the recommendations of the Housing Finance Policy Center which is part of the Urban Institute. Jim Parrot and his Partner Bob Ryan have closely worked with the Urban Institute for some time. Here is the link to the Urban Institute Paper which can be downloaded:
https://www.urban.org/research/publication/how-think-about-fannie-mae-and-freddie-macs-pricing
Exactly! - No Name is in Bankruptcy Code La La Land.
You are the best Robert! Thank you so much for all your advocacy.
Hi No Name,
How about the CBO?
Here is the excerpt in the CBO GSE Restructuring Report and the text of Footnote 30:
CBO’s model incorporates the judgment that in scenarios in which the GSEs’ common-stock sale did not raise enough funds to redeem the full face value of both the senior preferred and junior preferred shares, the Treasury would take a reduction (known as a haircut) in the value of its senior preferred stake before requiring junior preferred shareholders to do so.
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
Have you read the CBO Paper No Name?
31 CFR 902.2 (d)
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. In determining the litigative risks involved, agencies should consider the probable amount of court costs and attorney fees pursuant to the Equal Access to Justice Act, 28 U.S.C. 2412, that may be imposed against the Government if it is unsuccessful in litigation.
The UST could never prove its case in court based on the facts. It can only win if the facts are not presented.
The UST will exercise its warrants as TH has stated. How much will 20% of the GSEs be worth for legacy common.
Hi Rodney, As always thanks for the reply and your advocacy for GSE shareholders
As you may know I have been a GSE shareholder since 2008 and actually bought FNMAT at $ 25 in May 2008 on the IPO believing I was supporting housing. I have always looked at FNMA and FMCC sort of like the Bailey Savings and Loan in the movie Its a Wonderful Life and at the time I thought there was no way the USG would let FNMA and FMCC fail. Little did I know at the time that the NEC and UST were actively pushing a Nationalization while letting the GSEs sell shares to the public. My kids 529 had one investment at the time and that was The Growth Fund of America ( which is listed as the top shareholder in the Counterfeit Shares Paper that you shared previously).
Right now I believe the CBO Restructuring Paper is the most probable roadmap because it was requested by a past Republican House Financial Services Committee and I believe TH has the best solutions to resolve the Conservatorship. I believe TH is right to push for a capital requirement of 2.5% and for the exercise of warrants rather than a cramdown. It is unfair to legacy GSE shareholders that the UST gets a 80% stake when they actively pushed a Nationalization as early as March 2008 but if there are damages I believe they will be derivative in nature and in any event unlikely unless SCOTUS eventually takes up Fisher, Kelly and Wazee and rules in shareholders favor - very unlikely at this point.
Here is the excerpt in the CBO GSE Restructuring Report and the text of Footnote 30:
CBO’s model incorporates the judgment that in scenarios in which the GSEs’ common-stock sale did not raise enough funds to redeem the full face value of both the senior preferred and junior preferred shares, the Treasury would take a reduction (known as a haircut) in the value of its senior preferred stake before requiring junior preferred shareholders to do so.
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.
Effects of Recapitalizing Fannie Mae and Freddie Mac Through Administrative Actions | Congressional Budget Office (cbo.gov)
Thanks for your assumptions No Name
Something like an assumed EV of $300 bn with a 20 pct discount or $ 250 bn. It seems to be in line with what TH is assuming - $ 250 bn - makes sense.
You dont need the cram down and there is no reason for JPS to agree to a conversion if they dont get PAR. I would rather take 5% on PAR rather than agreeing to convert at a 25% to 30% haircut - just turn on the divs. The ROE on a Utility Model valuation should be on the low side so why agree to convert?
Sounds like you may be a naked short ? _ and NEED the cramdown to happen to cover your naked short - so you are willing to take a haircut on your JPS?
Hi No Name,
So you are assuming an equity valuation of approximately $ 250 bn? $ 33 bn JPS Par X .75 = $ 24.75 bn.
Hi Rodney,
The report regarding the Naked Shorts of the GSEs is real interesting. Did you see that the market maker firm owned by Bernie Madoff's sons was one of the major market makers for the GSEs. Also - the report lists the shares owned by Capital Research which is the nominee owner for The Growth Fund of America.
Are you suggesting that some on this Board are here because they continue to hold naked short positions and need the cramdown to happen to cover their shorts?
I was thinking that No Name was being disingenuous when he/she/they said that they dont own any shares when they seem to have a valuation model and assumed conversion ratio for the JPS.
Perhaps he/she/they are telling the truth as you suggest and are carrying a net naked short position and they need the cramdown to cover the naked short because holders like Ackman will eventually squeeze them to cover otherwise?
Hi No Name,
Dont follow - you obviously have an equity valuation and an assumed exchange ratio - you must have come across the mechanisms for exchange ratios in your immense experience. What is your assumed valuation for the GSE Equity and how will the exchange ratio be determined to get to your assumed 9- 10% ownership for the JPS after a consensual conversion to common?
Hi No Name,
How do you come up with this conversion ratio for the JPS? Looks like you are assuming that the GSE Equity would be worth around $ 300 bn?