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"No, because the cash NWS removed all economic value from the junior pref and common shares. It isn't possible for any future deal to remove more value than that, therefore a further breach isn't really possible."
You clearly don't understand that investor expectations are not written in the contract and do not take into account every minutia of what changes over time. It is based on general expectations as a shareholder and what that entails. The company cannot thwart that general expectation that a shareholder is a part owner of a company and entitled to a share of the profits, as dictated by business results.
Lamberth said that investor expectations are not set at the time of original contracting but instead are updated with every relevant updates, which he specifically said includes the SPSPAs and amendments to them.
There was no need for a commitment fee because FnF were already forking over boatloads of cash.
"All you are arguing is that Calabria's reporting can't lead to a 100% chance on a conversion."
Since you claim to "know" this, you shouldn't have a hard time picking it out from this list.
"Your goals are far more reasonable and pragmatic than just about any common (and several preferred) shareholder I have seen on this board. Kudos."
"You said "Trust us - we're from the Government... We'll let you keep a dollar if you owe us a dollar in the future. Brilliant!"
Yah... that. I really wish the lawyers would get their heads out of their arse. This should be a layup for FNMA now.
Bro. The SPS, LP, repaid, or cancelled was not even addressed. There is nothing from the jury that says "those things are great, we legally bless them." The award is strictly damages as a result of the breach of good faith and fair dealing.
Of course, I'm suggesting it is in FHFA and Treasury's best interest to halt further actions that could also be deemed a breach of good faith and fair dealing with shareholders. But no, I'm not saying the jury is compelling this. This is also different than Takings. Continued breaches can yield further damages. My road through the yard is perhaps a bad example in this instance. How about toxic waste dumped in your neighborhood instead... Neighborhood gets upfront damages awarded when taken to court. If they decided to keep dumping crap in the future, then there could be additional damages. Just because they had to pay damages the first time they dumped waste, doesn't mean that your neighborhood should now expect it - and they can continue dumping. Better?
"You advocate 16 years with unlawful capital distributions and it's today when you fix it retroactively. Likely, because you are a rogue litigant that has filed frivolous lawsuits. Am I wrong?"
Great. We'll wake you back up when we get to the 60th floor restructuring conversation, if that ever happens here. Then your guidance would be prudent.
If the government decides to put a road through my yard and I take them to court, will the road get reversed or taken out? No, because that action is not illegal. However, I will get monetary damages. Did the NWS result in monetary damages granted to Shareholders? YEP.
"With a "reclassification" at the time of each dividend, you transmit the idea that the dividend can be approved, when it's unlawful. This way, the litigants and others are exonerated of the fact that they missed that a dividend is restricted."
"Fairholme withdrew this motion when he was aware that he was asking for documents that would prove the existence of a Separate Account plan. Source. So much for the "hidden documents."
the NWS goes on today, with another capital distribution restricted: the SPS LP increased for free in the absence of dividends. The same Common Equity Sweep as before with the dividends. The only difference is that now it gets substituted for SPS in the Net Worth, so the NW grows.
Treasury may win. There may be no additional lawsuit wins. But that has nothing to do with the SCOTUS "blessing" the NWS. That is not what happened. If it had, the Lamberth jury decision would be overturned.
"The SCOTUS has already blessed the legality of the variable dividend rate of the SPS"
Rodney, I'd have to go back and read the ruling. But I believe you are correct, in that the SCOTUS is basically just saying the NWS was not ultra vires, therefore was within the power of the FHFA. That argument was dismissed. What I'm saying is that just because something was within their power to do, doesn't mean that there isn't harm done which must be compensated for, or can therefore be pursued in civil court. Which is exactly why we have the Lamberth decision. Just like the govt can put a road through your yard, it is within their power to do so. But they need to pay you fair value for what they took.
The FHFA can continue to breach the shareholder agreement, it is within their power to do so. However, they would still be on the hook for any damages as a result. Just because they breached the contract once and have to pay for it, doesn't mean that all subsequent breaches are "free".
Correct, in general - Breaching a contract itself is not a crime, meaning people don't go to jail unless the breach is due to fraud or an illegal activity. However, as the Lamberth trial has indicated, there can be civil liability as a result of a breached contract, hence the resulting monetary damages.
BTW - IF it can be established that the NWS was a violation of a restricted capital distribution, it may very well be a crime.
Don't worry, I'm on it! :)
Can't let his hypocrisy go unchecked! 😎
"The LP ratchet itself is in place as a return consideration to Treasury for allowing FnF to keep their net worth"
In consideration for keeping $1, you will owe us $1 in liquidation preference, and you will pay us 10% dividend on it at a time we determine, and until we say otherwise. Why not say in consideration of $1 you owe me $10. That's not really valid consideration either unless you are a loan shark.
Does that not sound like a breach of good faith and fair dealing? Sounds AWEFULLY similar to the last breach which was you make a $1 you owe us $1....
"The thing is, one result of the jury verdict is that FnF have now been essentially indemnified from any further frustrations of shareholders' ability to profit from their investment."
Wholly incorrect. One infraction of a contract does not entitle the breaching party to further violate the contract because now "the other party should expect it" as you seem to imply. There was no contract remedy, which means the language in the shareholder contract was not updated as a result of the Lamberth ruling. All expectations on both sides of the shareholder agreement remain intact.
"I highly doubt the lawyers who drafted the original SPSPAs would have included a commitment fee on the funding commitment if it were so obviously illegal."
In that case, why hasn't the commitment fee ever been decided or implemented? Would have been a heck of a lot easier to make the backstop official, charge the fee and move on years ago. The whole purpose of the SPS dividends is to circumvent the restriction on fees. Make it look like something else, so it can't be challenged as a fee. I'm not going to post a link to the Charter Act, I'm sure you are familiar enough to know better.
"I trust their judgment far more than the armchair lawyers on this board."
Ha! Does that include yourself? Or you are just above everyone else. LOL!!!
"Your unwillingness to take Treasury's words at face value doesn't extend to him"
Treasury's words? Treasury, nor any representation of Treasury has officially made any such claim. Or do you mean a specific person? Does that specific person have the legal knowledge to make the claim? And was the quote that they "think" it's illegal or are they stating that IT IS ILLEGAL? These are not equivalent statements. That's the problem with your hearsay argument. "Reporting' that someone told you what hey "think" does not in any way mean that what you were told has a legal basis.
You and I both know the logical fallacy you are making. But keep beating your chest on it, I'm sure someone will think you are right.
"It said that FHFA can use its power to act in its own interest to override other duties HERA imposes on FHFA, like their obligation to conserve and preserve FnF's assets."
SCOTUS said FHFA is legally entitled to that action, much like the Govt can run a highway through your yard. It is not illegal to do so. Did the SCOTUS also say that there is no repercussions? If so, the Lamberth verdict is in jeopardy.
"They took a downgrade in that deal because $1 of LP is worth less than $1 of cash, even if you don't take the time value of money into account."
This depends greatly on what happens later. If Treasury gets 10% dividend on the LP for an unknown amount of time, and they later get to redeem the original $1, then clearly they are getting more than the $1 in cash.
"The FnF situation does not even come close to applying to any other company out there. Stop acting as if it does."
Wait, what? I'm pretty sure I'm the one who keeps saying this is a unique situation. I'm not the one comparing it to AIG or Citi, or numerous meetings on the 60th floor somewhere irrelevant. I'm basing my opinions on the unusual circumstances that got us here.
Again, I must refer you to your own words "you are a hypocrite."
"Especially in the light of incentives: converting the SPS gives Treasury far more of what they want than writing them down does."
We are just going to disagree on this whole "it's illegal to write down the LP" issue. You see the above as a reason for them to be telling the truth. I see it as the reason they may be giving misinformation.
If you feel Calabria's statement of What Treasury Thinks™ is important, then good for you. I see it as a recollection of a statement in a conversation. A statement in a conversation is not the law.
"Even I would sell some juniors to buy commons if the prices diverged enough. The FNMAS:FNMA ratio hit 4.0 today; if it goes much higher I probably will do just that"
Well, that may be your best argument yet for everyone to root for Preferreds! Let's get to 5:0+ so Kthomp will join us in Common!
"The 6.8% figure depends pretty heavily on if you're buying the most liquid series (FNMAS, FMCKJ), the least liquid (usually the 5-letter ones starting with FMCC), or somewhere in between."
Liquidity doesn't matter much if I don't plan to sell. I'm holding for them to be redeemed, or for dividends to turn back on - those are my expected end-games for preferred. Currently FNMAM, FNMAK, FNMAJ, FMCCO, FMCCT if you care to know. If divvys are resumed, I will be in the 90-100% dividend yield range (vs cost basis) and will hold them for that reason. I will sell Common in stages when/if they reach my targets, and hold some for possible future dividends.
"I suppose that depends on what you define "winning" to be. If the juniors outperform the common you would lose relative to owning only juniors and no commons. But differences of opinion are what make a market."
Winning is relative to what else I could be doing with my money. My goal is to double my money every 4 years (18%), minimum performance expectation is 7 years (10.5%). I'm in my 6th year of accumulating and thus far Common are not meeting my minimum, only up 40% with averaging down, but I have already exceeded 100% return on all my JPS. I treat the GSEs as a single investment however, and it's their combined performance that I'm monitoring. I originally got into FNMA in 2013, but exited that same year as I didn't like my forecasts. Decided to come back in 2018 as I thought release was more imminent. Clearly it wasn't.
I'll post it here as well. I can also see this happening with warrants exercised which would reduce the common stake.
--------------------------------
Hypothetical Situation: What if..
The SPS LP grows to $350B by next year. At that time, the SPS agreement gets re-written to cap the LP at that amount, and future earnings go to the GSEs without a corresponding dollar to LP. This finally ends the NWS.
I would suggest that the 10% divvy on the $350B LP can be reduced to a lower percentage, something more in line with an appropriate "guarantee fee" percentage. But the Charter Act prevents this. So let's go with zero percent dividend on the SPS. No need for Congress to change anything. Treasury holds 1M Senior shares, with just a LP and no dividend, no voting rights. This becomes their safety net - should they need to swoop in and liquidate the GSEs in the future, they hold $350B of LP. Warrants are not needed, and are left to expire.
Unencumbered by the NWS or dividends on LP, the GSEs build actual capital, and reach the minimum thresholds (hopefully reduced so it happens quicker). At that point, they can start paying divvys to JPS and Common as business dictates. FHFA regulates the GSEs with their regulations and occasional pet projects for whoever is in charge. Can't completly stop the bureaucracy.
Somewhere in between all this the announcement of release from Conservatorship happens, and relisting. GSEs are intact. Charter Act is intact. FHFA is intact. Common looks good. Junior look good. Seniors are intact with a huge LP amount, which is only relevant if they need to liquidate the GSEs. 🤑
Hypothetical Situation: What if..
The SPS LP grows to $350B by next year. At that time, the SPS agreement gets re-written to cap the LP at that amount, and future earnings go to the GSEs without a corresponding dollar to LP. This finally ends the NWS.
I would suggest that the 10% divvy on the $350B LP can be reduced to a lower percentage, something more in line with an appropriate "guarantee fee" percentage. But the Charter Act prevents this. So let's go with zero percent dividend on the SPS. No need for Congress to change anything. Treasury holds 1M Senior shares, with just a LP and no dividend. This becomes their safety net - should they need to swoop in and liquidate the GSEs in the future, they hold $350B of LP. Warrants are not needed, and are left to expire.
Unencumbered by the NWS or dividends on LP, the GSEs build actual capital, and reach the minimum thresholds (hopefully reduced so it happens quicker). At that point, they can start paying divvys to JPS and Common as business dictates. FHFA regulates the GSEs with their regulations and occasional pet projects for whoever is in charge. Can't completly stop the bureaucracy.
Somewhere in between all this the announcement of release from Conservatorship happens, and relisting. GSEs are intact. Charter Act is intact. FHFA is intact. Common looks good. Junior look good. Seniors have a huge LP amount, which is only relevant if they need to liquidate the GSEs. 🤑
"The GSEs are clearly distressed without a shred of doubt"
What do the stress tests say? Not just the current ones, but over the past 16 years? In the worst of the worst adverse scenarios? The GSEs are in no danger of operating as an ongoing concern.
Except....
The GSEs now, just like in 2008 are artificially distressed through accounting tricks and backdoor agreements that are not in the GSEs best interests. The NWS that puts $1 in LP for every $1 of profit is the only reason they are distressed. When (if) the NWS to LP is revised, the depressed state of the GSEs will be lifted.
KThomp has been MIA for a while now. I think I hurt his feelings and he took his marbles and went home...
Specifically, I think if the REINS Act passes, it will require a review of a lot of the FHFA policies and rules that have been put into place. The concept of exercising Options and/or converting the LP and selling 100's of Billions worth of shares is suddenly not as easy for an unelected bureaucrat. They may try to make smaller moves to get under the radar however.
"The bill defines a "major rule" as any federal rule or regulation that may result in an annual effect on the economy of $100 million or more; a major increase in costs or prices for consumers, individual industries, government agencies or geographic regions; or significant adverse effects on competition, employment, investment, productivity, innovation or the ability of U.S.-based enterprises to compete with foreign-based enterprises."
"Calabria who recently said in an article that the Net Worth absorbs the credit losses in mortgages."
Calabria is a proven shill who clearly doesn't (and didn't) know what he's doing - other than being a good puppet. He thinks his tweets can rewrite history. But you are correct - the accounting history shows the nonsense that occurred. Unfortunately, the average person and typical Congress member doesn't know that "Net Worth" is not a valid measure of credit loss buffers. It's all propaganda.
He lost it on his desk... And someone borrowed his pen and didn't return it yet.
Powerball ticket is more entertaining, at least for 30 seconds.
This is not at all what this means. I think you are getting some skewed info based on your news sources.
Legislative branch - creates/passes the laws (can no longer create vague laws and leave it to Agency puppets to interpret/change based on politics)
Executive branch - enforces the laws (The President is not suddenly immune from breaking laws. Presidentially appointed officials cannot create regulations that bypass laws or interpret them differently than what was intended by Congress)
Judicial branch - determines if the above actions follow the constitution and are interpreted accordingly
Pretty much gets us closer to what our forefathers intended.
I think it was that the GSEs, the entities themselves, would need to bring direct not derivative suit against FHFA, as opposed to the shareholders. But of course the GSE's board is under direct control of FHFA so that will never happen. I think that's separate issue from Chevron however.
I'm not sure it means when you "realize" as in a person just discovered something. I think it means that the harm is realized or comes to fruition. For example, a law is on the books for decades (eh hem... Charter Act), and at some point a Federal Agency (not Congress) decides to take an unusual interpretation of that law to implement or change a policy that affects a business or person. The 6 years would start from the point of that Agency action/interpretation/enforcement, not the date the original law went into effect. This is necessary when you have Federal Agencies that get whiplash from replacing their leadership for political bias and intentional misreading of the statutes to fit the political agenda.
AFAIK, Fidelity restricts trades under $3 unless you have authorized/enabled penny stock trading on your account. The only other caveat would be that they need to have shares available for you to borrow and you need to meet margin requirements. This is info readily available on their site, I have not called anyone to confirm.
That's not to say Fidelity is not targeting the GSEs to short. It's possible.
The only way I would know would be to allow them to borrow my shares and then see which ones get flagged (L) for on loan. Of course, I'm not willing to help the shorties so I'll never know. If anyone is part of Fidelity Stock lending program and sees that their FNMA/FMCC shares are on loan, please report back to the group.
Also makes me wonder - how would the jury award be treated for lent shares? Dividends get paid as "cash in-lieu" of the dividends if the borrowing period goes through the dividend date. I imagine they would have to pay out the damages award to the share lender as well. But I've never seen this situation before.
I have also recently received notice from Fidelity asking if I would like to join their Fully Paid Lending Program so they can lend out my shares. However, there is no indication that this is related to FNMA or FMCC or any other specific stock. They get to choose which stocks to borrow based on where the demand is.
I was a lurker for a good 5 years before my first post. It's like Pandora's box. Some days I wish I was just a lurker again...