Replies to post #687052 on Fannie Mae-No Politics (FNMA)

[HappyAlways]

Can we gather some non-shareholders to suit on illegal taking as a responsible citizen who is furious that Constitution is violated publicly ? Then, we don’t need to worry about direct or derivative.

[Rickie foo]

Hi KT, without looking too far out into the horizon, i think the Breach of contract claims under Lamberth will give an indication how much progress we can get from takings claims. When i read Lamberth's opinions it strikes me on how he has earlier ruled on the demerits of all regulatory takings which probably shd have "warned" us sufficiently on this SCOTUS verdict. But just as equally striking is the reasons he gave for allowing the implied covenants of fair dealings to proceed, illustrating quite succinctly that how that claims defer from regulatory takings in that there are clear evidence of fraud/unreasonableness behind the implementation of the NWS that goes beyond the lowest expectation of investors.

What do you think the govt will use at the back of the SCOTUS ruling in their summary judgement come end of year that may potentially change Lamberth's mind?

[Mnemonic]

First, thanks for the reply; this provides a lot of clarity on the specifics of different court cases.

I appreciate your comments on the extent of takings liability as well.

The derivative claims have a real chance to force Treasury to write a $125B check, and that would be a real political black eye. Two mitigating factors are that we are at least 2-3 years (trial, appeals court, petition for cert to the Supreme Court) from Treasury having to actually cut that check, and that Treasury has a way to recoup 79.9% (warrants) to 99.9% (senior pref conversion) of that money.

So based on this and your previous post on the limits of what the CFC can do, the best we can hope for from Schwartz is $125B; CFC does not have the power to provide additional remedy, such as writing down the SPS or enjoining further sweep payments, correct?

Would we then still be buggered after a takings victory, since $125B of capital hardly matters against $200B of senior liquidation preference that keeps growing every quarter and cannot be paid down? I'm struggling to see how juniors unlock full value with a takings win.

Would you say the real bet is on an administrative solution--gov't trying to recoup that money, as you mentioned--or are there avenues to unlocking value that don't involve escaping conservatorship completely under what may be a hostile administration?

I'm invested in mostly JPS, and some series now seem pretty attractive priced at 17:1 odds on being made whole. But I'd be lying if I said I wasn't worried/confused about a few things:

1. The potential of another housing downturn wiping out the companies' capital and forcing us into receivership/restructuring. With SPS liquidation preference so high, there would be nothing left for JPS or commons.

2. The inability to pay down the seniors. Even if Treasury has to cut a check for $125B, they can still siphon off $18B or so per year at a 10% dividend rate. I don't see why they would be motivated to take a lump sum when they can effectively--and according to SCOTUS, legally--bleed the companies forever (10% divis, more would risk takings suits). I'm also not convinced Calabria's attempt to retain capital by postponing sweep payments can't be overturned by a new FHFA head colluding with Treasury. They'll find a way to get the cash cow back online one way or another.

Obviously if there end up being solutions to these issues, I'll be satisfied with my investment. But I can't shake the feeling that this administration will punt just like every other in the last 13 years, while I sit with my "perpetual options," hoping each new year won't bring an economic crisis.