Quote: The FHFA can rule that NO CORE CAPITAL is necessary during the starting point for release and rebuild.
First, I'm not sure about this. HERA section 1110 says:
Quote: ‘(1) ENTERPRISES- The Director shall, by regulation, establish risk-based capital requirements for the enterprises to ensure that the enterprises operate in a safe and sound manner, maintaining sufficient capital and reserves to support the risks that arise in the operations and management of the enterprises.
I don't think Lockhart/DeMarco/Watt (and now Otting) suspending capital requirements is legal. There is a shall in there, after all.
Also, USC section 4612(a) outlines statutory minimum capital levels:
Quote: (a) EnterprisesFor purposes of this subchapter, the minimum capital level for each enterprise shall be the sum of— (1) 2.50 percent of the aggregate on-balance sheet assets of the enterprise, as determined in accordance with generally accepted accounting principles; (2) 0.45 percent of the unpaid principal balance of outstanding mortgage-backed securities and substantially equivalent instruments issued or guaranteed by the enterprise that are not included in paragraph (1); and (3) 0.45 percent of other off-balance sheet obligations of the enterprise not included in paragraph (2) (excluding commitments in excess of 50 percent of the average dollar amount of the commitments outstanding each quarter over the preceding 4 quarters), except that the Director shall adjust such percentage to reflect differences in the credit risk of such obligations in relation to the instruments included in paragraph (2).
I will need to take some time to see what this comes out to, but a rough guess is 2.5% times $5.5T, or $137.5B, and that's a minimum capital requirement that can only be met by core capital (which currently stands at negative $181B). I am not 100% sure if Calabria can set a standard lower than this, actually. He can set one higher by 4612(c):
Quote: (c) Establishment of revised minimum capital levels
Notwithstanding subsections (a) and (b) and notwithstanding the capital classifications of the regulated entities, the Director may, by regulations issued under section 4526 of this title, establish a minimum capital level for the enterprises, for the Federal Home Loan Banks, or for both the enterprises and the banks, that is higher than the level specified in subsection (a) for the enterprises or the level specified in subsection
They statutory definition of "adequately capitalized" is in USC 4614(a):
Quote: (a) EnterprisesFor purposes of this subchapter, the Director shall classify the enterprises according to the following capital classifications: (1) Adequately capitalizedAn enterprise shall be classified as adequately capitalized if the enterprise— (A) maintains an amount of total capital that is equal to or exceeds the risk-based capital level established for the enterprise under section 4611 of this title; and (B) maintains an amount of core capital that is equal to or exceeds the minimum capital level established for the enterprise under section 4612 of this title.
That means, in order to avoid being undercapitalized, FnF must have core capital at least as high as the 2.50% plus other stuff above. So I don't think they have the authority to say that no core capital is necessary at any point.
Second, Treasury can veto release, and why would they agree to allow the companies to be released with the companies this far undercapitalized? When instead they could just insist that the companies be adequately capitalized first?
Quote: Please supply support for your contention that Calabria knows credit is not capital?
USC section 4502(7) defines core capital as:
Quote: (7) Core capitalThe term “core capital” means, with respect to an enterprise, the sum of the following (as determined in accordance with generally accepted accounting principles): (A) The par or stated value of outstanding common stock. (B) The par or stated value of outstanding perpetual, noncumulative preferred stock. (C) Paid-in capital. (D) Retained earnings. The core capital of an enterprise shall not include any amounts that the enterprise could be required to pay, at the option of investors, to retire capital instruments.
A line of credit from Treasury doesn't work here. Calabria knows the statutes, he is a sharp guy.
Quote: What Mnuchin and Calabria have both said is that they want safety which means solvency and ability to meet payment obligations, to me.
Safety = capital, and lots of it. Even Watt knew that.
Quote: I simply reject the claim that more dilution is best for JPS holders and so that is the one trick pony in play among outcomes.
More dilution is best for the new common buyers. The question is, who is going to push back against them? If Treasury cancels its warrants, or sells them back to FnF for a fixed sum, the answer is noone.
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