Fannie Mae-No Politics (FNMA)

[obiterdictum]

Seems gvt could accomplish that without dissolving GSEs. Tweaking how GSEs will be able to act according to the surrounding economic conditions at any given time, should be possible without going as far as dissolving them. If that quote (thanks for it!) from the President's adviser likely reflects what the president will probably seek, then it's good to know, and provokes some questions.

Yes. Contract a bit, tweak all systems, release and regulate. Done.

Makes me wonder: if Berkowitz's proposal goes through, then he's taken away a significant chunk of the GSEs and their business. The remaining portion of the GSEs remain still in c-ship, still subject to congressional reform legislation efforts. So the question then becomes: how will the politicians perceive the smaller GSEs at that point, and how might they hope to reform them AFTER they have been shrunken by Berkowitz's purchase? Will their currently promoted reform proposals (like corker warner crapo) remain relevant? Or will the political will for reform subside because a big part has been privatized?

Berkowitz's proposal guts the GSEs thriving businesses for the contraction and buys what the GSE do and all necessary assets to do it with and plans to do what they do. After all, it is clearly written in his proposal that he wants to acquire all of the operating assets and cash and cash equivalents and leave only the legacy assets to be run-off and liquidated. The GSEs will not be allowed to do the business of securitization any more or to start new business and they will then cease to exist. The FHFA, US Treasury and Congress have little reform work to do besides figuring out how to run-off, liquidate and repeal the charters of the GSEs, finish the work of the common securitization platform (CSS LLC), and work out a government guarantee, back stop and regulatory system to predict and handle financial shocks of any magnitude and duration in the future without bailouts.

Berkowitz's plan still doesn't solve the 5th amendment issue, though maybe no one else can afford Olsen to pursue it. Commons would still be under the illegal thumb of gvt. But how do people here imagine Berkowitz's purchase affect the political will and plans for reform. THOSE would remain key questions for commons who don't get to go with the NewCo if the proposal's accepted.

Berkowitz's proposal fits either of the Congressional bills proposed in the House (Hensarling) and Senate {Corker-Warner). Berkowitz is proposing to be the new private capital and its rally point that the Congress, FHFA, US Treasury, Administration, Bankers, etc. have been saying needs to happen. He is the reform and all the rest is clean up, prevention and protection from future financial system shocks. Commons decline and disappear in Berkowitz's proposal with a possible opening and consideration to participate in the rights offering of the new companies, though that has not been made final in any way according to the proposal.

If it's realistic to think the political winds would not change after the Fairholme buys the insurance part of the GSEs, then some owners of commons might want to play this current uptrend as temporary and perhaps one of the last ones. If it's realistic to imagine that the political winds WOULD change and become less risky, then perhaps holders of common share will decide to keep holding through until a final result is reached.

Berkowitz is creating a new Fannie and Freddie and calling them different names. And though he claims that competition will be possible, but the new companies will be billions and billions of dollars more capitalized and better experienced and outfitted than any possible existing competitor. Since he left the legacy assets with the GSEs along with all liabilities and is starting new and fresh, the companies would not be multi-trillion dollars companies. However, there is no doubt that once they are rolling, they soon will be. After all who will their competitors in 2014?

Bill Ackman (Pershing Square Capital Management, L.P. ) is the new center for the commons and it is he who is driving the price up since October. His money is in commons. See his trading record on the SC 13D filed jointly with Fannie and Freddie. (EX-99.2)

FannieMae
http://www.sec.gov/Archives/edgar/data/1336528/000119312513443212/0001193125-13-443212-index.htm

Freddie Mac
http://www.sec.gov/Archives/edgar/data/1336528/000119312513443208/0001193125-13-443208-index.htm

Here is what Berkowitz proposes to acquire from Fannie and Freddie:

C. Acquired Assets
The NewCos would acquire the following from the Enterprises by
means of asset purchase:
*substantially all operating assets, including (a) trademarks
and copyrights, (b) intellectual property rights, (c) systems
and technologies, (d) tangible property rights, (d) business
contracts and relationships, (e) human capital assets, (f)
owned and leased corporate real estate assets, and (g)
goodwill (“Operating Assets”), in each case other than
those associated with the Common Securitization Platform
and other exceptions to be agreed; and
* cash or marketable securities in the amount determined
below (“Restricted Capital”).

Restricted Capital would constitute part of the initial capital of the
NewCos. All Restricted Capital – as well as attributable profits –
would be retained by the NewCos and used in their business
during the five years following the acquisition (the “Restricted
Period”). To enforce this requirement, the NewCos would agree,
during the Restricted Period, not to pay any dividend or make any
distribution attributable to Restricted Capital.

See the Business Plan in the Discussion Terms Sheet.

Source: Fairholme Proposal Documents - Letters, Proposal, Questions and Answers, Discussion Terms Sheet - http://bit.ly/17vLeIg