And this important tidbit of information from Professor Larry Crumbly’s report and analysis of the forensic accounting; further substantiating that the GSE’s financially did not require a bailout and/or for financial reasons, need to be placed into conservatorship.
]i]“Spittler and Ciklin suggest in their report that had the Federal Government simply made a line of credit available to Fannie Mae, then no senior preferred stock would have been issued. Fannie Mae actually did have access to a Government Sponsored Enterprise (GSE) Credit Facility,which had been created by the Treasury in September 2008. The GSE credit facility provided Fannie Mae with an opportunity to borrow short-term collateralized loans at a LIBOR + 50 basis point rate. The facility was not used and expired on December 31, 2009.”15 The average LIBOR rates per month are shown in Appendix D, and ranged from a high of 3.044% in September 2008 to a low of 0.161% in January 2009. Adding 50 basis points equates to a high of 3.544% for September 2008 to a low of 0.661% in January 2009. As seen in Appendix D, the monthly LIBOR rates would have yielded less than 1% financing rates for Fannie Mae for every month in 2009, the same period for which Fannie Mae first issued senior preferred stock to the Treasury carrying a 10% rate. Since management was competent, they should have explored all financing options, especially ones that had a 9% difference in financing rates. Myers and Majluf’s (1984) Pecking Order theory suggests that managers prefer to finance operations from the lowest cost of capital. Typically the pecking order of financing options results in management using internally generated capital first, then debt, and finally equity issuance.
In the situation of Fannie Mae, had they not had sufficient internal capital outside of the conservatorship, it seems as though management should have preferred to use funds from the credit facility before issuing senior preferred stock. Management’s actions in issuing senior preferred stock indicates a willingness to pay a 9% financing premium at a time when Fannie Mae was potentially financially distressed. This decision suggests questionable management practices at best. However, this practice is consistent with a notion that the conservatorship damaged minority shareholders at the benefit of the majority shareholder. In this situation the majority shareholder, the Treasury Department, enjoyed a 9% borrowing premium by purchasing senior preferred stock instead of allowing Fannie Mae to draw on the GSE credit facility.
Ref 15: www.reuters.com/article/2008/09/07/us-freddie-fannie-creditfacility-idUSN0733407720080907 www.fhfa.gov/PolicyProgramsResearch/Research/PaperDocuments/20100120_MMNote_10-1_508.pdf (pg. 4)
III. GSE Credit Facility
What it did
The GSE Credit Facility ensured that all three of the housing GSEs had access to financing from the Treasury through the worst of the crisis. Through this facility, the Treasury stood ready to provide secured funding on an as-needed basis. The facility ensured that a lack of access to funding in the open market would not prevent a housing GSE from conducting its business, including making timely payment of interest and principal on senior or subordinated debt obligations.
3 See www.usdoj.gov/olc/2008/treasury-gse-ltr-opinion.pdf. 4
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When it expired
The facility was not used and expired December 31, 2009.
This begs the the question, If the bailout is obviously unnecessary financially for the GSE’s, then why?, for who and what ulterior purpose? Is this why there is no transparency with important details either hidden or redacted? Who is being protected and why so? If not financial, then Political? National or Global ?Is this what the Government implied in their defense that this information could have disastrous effects on the economy if exposed? Is this why Ugoletti may have committed perjury?Fanniegate indeed! and a real Pandora”s Box
AI
