A junior to pref conversion cannot happen, Collins is the first in row to be decided weeks from now as soon as Seila law case is decided, and both plaintiff and defendant think in Seila law the “for cause” is unconstitutional, so when the “for cause” is declared unconstitutional a lot of HERA needs to be changed as it is written in “independent” agency style, then there are 2 options:
1) FHFA will install a multimember board and lose all oversight and go even lower in enforcement and power as OFHEO had or
2) FHFA will keep the single director and agree FHFA now needs to obey the wishes of HUD, as it had become an dependent agency under the presidents control, that will be included in the appropriation act, and in that case the funds distributed so far under the then assessment clauses need to be returned in full
Then not only HERA is changed but it(FHFA) never had the power to act the way they did, and the decisions already made are the decisions of a government agency versus another government agency(treasury), so it is HUD versus Treasury, of course then the Fiduciary duty towards Fannie and Freddie will come into play as HUD also operates Ginnie Mae, and then we are in a hornet nest, the difficulties that will bring are endless
But to name a few
1) The parent agency of Ginnie mea decides how free market companies like Fannie and Freddie are run
2) The government/Ginnie mea decides how much money free market players make
3) The government/Ginnie mea sets rules for capitalization but what if Ginnie is undercapitalized
4) The government can direct market share from Ginnie to Fannie and Freddie as it wishes to abandon risk
Etc etc etc etc etc etc
But to come back to the “Calabria and Mnuchin it is a possibility the junior could convert to common”, I really think they did look at that possibility, to soon find out it is impossible as it does not resolve a problem, it solves 1 problem and creates another problem for the common holders, so indeed they might have that wishful thinking, only it will solve nothing and therefore is abandoned, but we will see soon enough what their thinking is
In a future settlement of course all the parties are invited to solve the lawsuits and Common and prefs are sitting at the table, the only logical solution is that Common and prefs (because of the lengthy procedure) will not give in a dime, as the end stage is already here, behind the closed doors they find a solution for Commons and prefs, but this new found invention they came up with will however never be a junior to common conversion as common holders want compensation for that wrongdoing, and the conversion rate flowing out of that settlement talk will be lower than the market value as the common and pref ones traded equal in price, then of course you can look at the price the prefs were bought for and convert then to current market value, but in the end I think this too difficult and raises more questions than answers
And the problem stays, if a conversion is justifiable then there was a problem and commons should not pay for the error the FHFA/Treasury made, all in all not a smart move to convert
The problem with settling is the problem the FHFA and treasury have on their hands, right now, the commons and prefs filed lawsuits that the “in perpetually 3th amendment” is not something a controlling(illegally) agency can do lawfully, so ones the 3 amendment is voided the funds need to be returned that are distributed under this illegal arrangement, not convert junior to common, return funds and reinstall dividend for Commons and prefs, as all lawsuits ask for
Expedience has nothing to do with the lawsuits, all agree including FHFA that the for cause and the 3th amendment are illegal, the capital is something to worry about when the lawsuits are settled, before settlement all is wishful thinking, Common and prefs have to agree on both sides, otherwise nothing will happen, only how to solve it ?
AI
