Fannie Mae (FNMA)

[kthomp19]

Good analysis here. A couple of quibbles:

Well in FDIC's role, once they take conservator control of a bank, they now OWN the obligations of the bank to its depositors. That means they GUARANTEE the accounts (yes, with limits) and it further means that the nationalization requires those guarantees to be transferred to Federal books and become part of the government's debt.

I thought the guarantee only came in when the FDIC appoints itself receiver, not conservator. Do I have this wrong?

It matters because the CBO has previously logged the opinion that the GSE's MBS debt most appropriately belongs on Fed books. This new ruling adds huge impetus to such an opinion by concluding that the FHFA absolutely is a government agency, meaning that any enterprise they nationalize must be accounted for as government debt. Just like FDIC actions require.

You're right that the CBO basically considers FnF's MBS debt to be a governmental liability.

The court ruling went further than what you said, though: FHFA has always been a government agency, but Judge McConnell said that Fannie and Freddie themselves are government actors for the purposes of Constitutional claims. (heading B on page 7 of the opinion)

This is where the nationalization argument is finally taking effect.

This is potentially the catalyst to set Steven Mnuchin and UST in motion to quickly END the conservatorship of Fannie Mae and Freddie Mac to avoid exploding the Debt Ceiling conversation under the Trump Administration's watch. If you were Mnuchin, which would be the better choice: hope for some possibly illusory $100 B gain for converted GSE warrants... or... the risk of getting $5 trillion tacked onto your Federal debt?

The problem with a quick end to conservatorship has already been discussed (heavier dilution). Unless you think the companies can be released before they are recapitalized?

FHFA would also have to put actual formal capital requirements in place before release, and if the companies are undercapitalized they would have to submit capital restoration plans. This requires an end to the NWS at the very least, and more likely the seniors being cancelled. This would have to happen anyway for our shares to have any value, it's just a milestone to watch for.

It would be interesting if a new suit or an existing one had a claim asking the judge to order the government to consolidate FnF's balance sheets onto its own, thus increasing the national debt by $5T overnight. Could a judge order this? And how could plaintiffs explain why they want this done? Or would embarassing the government be a good enough reason?