Replies to post #216023 on Fannie Mae-No Politics (FNMA)

[Patswil]

Wasn't that $400 billion used to cover the toxic mortgages that the GSE's were forced to absorb from the BIG banks?

we should be SOOOOO golden when this becomes public knowledge--platinum actually

[Donotunderstand]

again
my 2 cents

I say to those in politics or her who argue that the GOV was SuperMan and nothing can pay them back for the massive gigantic risk they took - wrong. A deal was struck - and while numbers were high in terms of cash needs - everyone knew that money invested into F and F for liquidity or BS purposes was ASSET BACKED at distressed prices that in all of history rebounded

I say to those who think the GOV took way too much. No one else offered to help fund the cash and BS needs of the GSEs. The GOV for many reasons stepped up and took risk and pushed a TON of cash to the GSEs and backed them as Obit says to at least $400B cash.

In most (99%) of private sector cases such an infusion of "equity" would kill existing equity 100%.

Here for three reasons CH11 was not used (at least)

1) The GOV did not want the semi panic of declaring F and F 'Bankrupt' and wanted to protect from day one the value of F and F bonds as held here and abroad and to prevent a contagion on the value of agency bonds or even Treasury bonds.

2) Going for a wipe out of 100% of equity meant the GOV would have to put the 4-8 Trillion or whatever of debt held by F and F on their books --- no way they wanted that.

3) The Gov wanted to avoid the appearance of pure nationalizing of F and F and the money that finances housing

For these reasons (IMO) the GOV during the crisis as laws were being written and no bathroom break meetings were held and there was true panic - did not kill F and F under emergency powers etc but rather took preferred shares - 10% - and warrants for 79.9%

One can argue that was way too little - one can argue it was way too much

It is what it is - and IMO it is hard to argue the actions taken by the GOV ---- during a crisis. Basically - one does not win in court when one challenges financial actions of the GOV during a period of semi national emergency

That is my opinion

NONE of the above holds for the third amendment. By then the GOV was not even dealing with a true counter party (Fairholme I believe is arguing this). By then - even if not clear to TREAS it should have been clear to TREAS - that F and F were saving the housing industry and sooner v latter they would write up written down assets and make money and use DTA -- big big time. Thus IMO that was a taking.

Even then under some construct similar to Eminent Domain - I assume (do not know) the GOV could have said "we need to own these companies" --- but just and fair compensation (condiseration) is required by law. None was offered or given and the GOV had no right to steal all profits (i.e. the Gov had no right - IMO unilateraly - to change the deal post fact to kill F and F a different way)