Corker open to Hedge Fund proposal !!!!
Bob Corker, the Republican senator co-sponsoring a bill to wind down Fannie Mae and Freddie Mac, has become the first senior politician to express openness to a hedge fund proposal to take over core operations of the US mortgage finance giants.
Mr Corker did not say he supported the plan, but said it provided hope that there was private capital willing to invest in the agencies.
He found the plan interesting, he added, saying that it validated his legislation because it would work only in a reformed housing finance system. He also said he would be open to meeting with the hedge funds to discuss the proposal.
“It works hand in glove with my plan,” Mr Corker said in an interview. “It only works in a reformed world.”
Mr Corker’s comments could provide an opportunity for the hedge funds to influence the debate in Washington over what to do with Fannie and Freddie, which had to be bailed out by the government during the financial crisis and are now in conservatorship.
Other government officials have rejected the plan, led by Bruce Berkowitz’s Fairholme Funds, to recapitalise a bulk of the mortgage finance firms.
Gene Sperling, White House national economic council director, said earlier this week that it risked creating two new “too big to fail” institutions. He added that the Obama administration wanted to avoid a return to the duopoly that existed before the financial crisis.
Other Fannie and Freddie investors are starting to become more vocal. Consumer advocate Ralph Nader, a shareholder in Fannie and Freddie, held a conference call on Friday urging shareholders to group together and lobby Washington, saying they were being “ripped off” and ignored by politicians.
The Fairholme plan would eliminate Fannie and Freddie, and transfer their future mortgage guarantee business to two new private sector companies. The new entities, which Mr Berkowitz nicknamed “Tom” and “Jane”, would be capitalised with assets equivalent to the $34.6bn face value of Fannie and Freddie’s preferred shares, plus the proceeds of a $17.3bn rights issue, potentially backed by private equity.
Mr Corker said he could not comment on whether those were favourable terms to make it a good deal, but he said the nature of the proposal fits with his bill, adding that the hedge funds’ plan would need his legislation to set up the necessary mechanisms to make their investment.
Critics of Mr Corker’s bill, which is also sponsored by Democratic Senator Mark Warner, questioned whether enough private capital would want to invest in a reformed housing finance system, especially after only five years, the bill’s timeframe for winding down Fannie and Freddie.
Jim Millstein, former head of restructuring at Treasury during the financial crisis, expressed scepticism during a Senate hearing on housing finance reform on Friday, saying it was a long way from making an offer to completing the $17.3bn fundraising Fairholme proposed.
He said one of his main concerns with the Corker-Warner bill was that after five years, “you can’t just flip a switch” and expect private capital to show up.
Excuse me, I have to go return some video tapes.
