Replies to post #15259 on Fannie Mae Preferred S (FNMAS)

[mrfidlsticks]

The article states ....
"Some of this capital, however, was only on paper. In quarter after quarter, the GSEs would find themselves short of the cash needed to pay the mandatory 10 percent dividend, so Treasury would advance them more cash in order to do it, creating a circular cash flow that changed nothing.
Saying it wanted to end the pointless circularity, FHFA and the U.S. Treasury agreed in August 2012 to revise the terms of their agreement. Instead of a 10 percent dividend, the Treasury would receive all net income earned by the two GSEs paid in a quarterly “sweep.”
Not long afterward, Fannie and Freddie’s financial situation changed for the better, and the two entities began to produce substantial profits."

The FHFA and Treasury never needed to "revise the terms of their agreement." to "end the pointless circularity" the GSE's could have
paid dividends in kind which would have prevented the "circular cash flow" there was never a need for the third amendment based on the reasons given by the FHFA and the U.S. Treasury.

Then the article goes on ....
"Not long afterward, Fannie and Freddie’s financial situation changed for the better, and the two entities began to produce substantial profits."

Fannie and Freddie’s financial situation had already changed for the better before the FHFA and U.S. Treasury revised the terms of their agreement and created the sweep.

I recommend listening to Charles J. Cooper's interview with The Federalist Society
Mr Cooper is representing Fairholme Funds INC. in their lawsuit against the the U.S.

http://www.fed-soc.org/audiolib/freddieandfannieshareholderlawsuit-2-21-14.mp3


at 30:37 ....
"At no time has Fannie and Freddie been been required under their contractual agreement
with the Treasury to pay dividends in cash instead they could have paid the dividends in kind
and eliminated the circular payments that were cited by the government as the reason for the 3rd amendment "
and he states ...."That's the central flaw in the governments core defense"

pay divi's in kind .... and no sweep would be needed ..... Imagine that .....

start at 14:10 to hear his thoughts on paying the divi's in kind ....