Replies to post #795641 on Fannie Mae-No Politics (FNMA)

[DaJester]

"the incidental powers clause that allows FHFA to act in its own interests"

Is the court saying the FHFA can do illegal things? I think the inference is that it can perform any *legal* act in it's own interests.

[Wise Man]

The Supreme Court put the prerequisite "Rehabilitate FnF" in its interpretation of the conservator's Incidental Power, and that's captured in the "authorized by this section", in:

Take any action authorized by this section, ...

Also pointed out by judge Willet in a prior ruling over the same case: "any action within the enumerated powers".
Hence the "rehabilitate FnF", because that's the Rehab power: "Put FnF in a sound and solvent condition". Recapitalization and reduction of debentures (SPS).


It's not "conserve and preserve assets" that you conveniently point out to deceive us.

FHFA was allowed to ignore its conserve and preserve mandate

You will come to the conclusion that the FHFA can ignore every statutory provision, which is the same take as Bill Ackman. We don't need laws, the hedge funds' playground.

Justice Alito missed that the capital distributions are restricted to that end, as a Prompt Corrective Action and "IN GENERAL".
Have a look to this explanation by the FHFA about this restriction being the grounds for the "rehabilitation" of FnF, in light of declaring the payment of Securities Litigation judgments "capital distribution" (CFR 1229.13), and written in the preface of the famous July 20, 2011 Final Rule "for the transparecy of the Conservatorships".
It's a masterpiece of the conservatorship dynamics in general:


It's not our fault that the Justices ignore that dividends, SPS LP increased for free and the Lamberth rebate, are capital distributions (statutory definition) restricted.
The Incidental Power cannot be used to violate statutory provisions (also the Credit Enhancement clause that bars the CRTs, other than PMI and Commingled securities) even if the FHFA is very interested to do it, because this is not the purpose of this provision.

Finally, a dividend is a distribution of Earnings, and thus, there weren't funds available for distribution, out of Accumulated Deficit Retained Earnings accounts.
What they want is to turn dividend payments into interest payments. Unacceptable.

BOTTOM LINE
You can't say that FnF are rehabilitated with the adjusted Retained Earnings acoounts stuck at $-216B every quarter, thus at the time of Justice Alito's opinion too. An account that absorbs future losses and one of the 3 checklist boxes pointed out by Jerome Powell for the Federal Reserve's proposed capital requirements. Commented here.
What Justice Alito authorized, on purpose or inadvertently, is a Separate Account plan for the reduction of the SPS and the, Recap, both exceptions to the Restriction on Capital Distributions (U.S. Code §4614(e) and CFR1237.12, respectively), that is what is rehabilitating FnF.
The fact that the Justice said "beneficial to" instead of the written text "best interest of" FHFA, is evidence of his intent to play the hedge funds' game of a goverment taking the profits away from private corporations.
The interests of a federal agency, wih regard to the companies it oversees, are others.
Currently in the 3rd phase: Common Equity held in escrow through the offset (reduction of Retained Earnings account) attached to the SPS LP increased for free.
The idea that in a Conservatorship for Critically Undercapitalized enterprises, it will start a plan of capital depletion on a great scale, is insane.
This is the FHFA in the same 2011 Final Rule:


Restriction on capital distributions: