Thanks for the reply Kthomp:
Is this the portion of the McNuchin Plan that you are referring to:
"2. Recapitalizing the GSEs
As described above, each GSE should remain in conservatorship until it has retained or raised
sufficient capital or other loss-absorbing capacity to operate in a safe and sound manner.
Potential approaches to recapitalizing a GSE could entail one or more of the following, among
other options:
Eliminating all or a portion of the liquidation preference of Treasury’s senior preferred
shares or exchanging all or a portion of that interest for common stock or other interests
in the GSE;
Adjusting the variable dividend on Treasury’s senior preferred shares so as to allow the
GSE to retain earnings in excess of the $3 billion capital reserve currently permitted;
Issuing shares of common or preferred stock, and perhaps also convertible debt or other
loss-absorbing instruments, through private or public offerings, perhaps in connection
with the exercise of Treasury’s warrants for 79.9% of the GSE’s common stock;
Negotiating exchange offers for one or more classes of the GSE’s existing junior
preferred stock; and
Placing the GSE in receivership, to the extent permitted by law, to facilitate a
restructuring of the capital structure.
Each of these options poses a host of complex financial and legal considerations that will merit
careful consideration as Treasury and FHFA continue their effort, already underway, to identify
and assess these and other strategic options.
Treasury recommends:
Treasury and FHFA should develop a recapitalization plan for each GSE after identifying
and assessing the full range of strategic options. (administrative)
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FHFA has relied primarily on its conservatorship authorities to oversee the safety and soundness of the GSEs
over the last 11 years. With the end of the conservatorship, FHFA will instead rely on its supervisory and
regulatory authorities, which include authorities to conduct examinations of the GSEs. FHFA could determine
that it should specify conditions with respect to the hiring and training of examiners or other aspects of the
buildout of its supervisory function.
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Pending that recapitalization plan, and as an interim step toward the eventual PSPA
amendment contemplated by this plan, Treasury and FHFA should consider permitting
each GSE to retain earnings in excess of the $3 billion capital reserve currently permitted,
with appropriate compensation to Treasury for any deferred or forgone dividends.
(administrative)"
I guess I dont see this as suggesting a cramdown but a reasonable step to make sure the MBS knows that the UST backstop is in place via the SPSA and to placate any concerns that the UST will not act in a fair and deliberative manner. This is what Calabria was also going back to his CATO Paper on the Conservatorhsip. Prior to Collins decision at SCOTUS I think UST and FHFA believed that the Conservatorship for GSEs would be governed by the same principles as a FDIC conservatorship and not the "special conservatorship" that SCOTUS came up with.
We can talk about the political part of this and what DJT II would do if you want but I thought I would respond first to this part of your email.
Thanks for the thoughts.
Meanwhile - I'm with Tim H.!
AI
