FNMA and FMCC preferreds. In search of the elusive 10 bagger.

[muscleman]

Are you implying that the government would rather settle than allow such a deposition to be public?

 

I think so. If the deposition goes public, that probably implies the judge is completely not on their side and they will eventually lose anyway. So why let it go public? That will kill a bunch of people's career.

But the question is who has the authority to settle? We all know how bureaucrats work. There will be a bunch of finger pointing going on right now, but whether these politicians will reach an agreement to settle is in question.

[Mephistopheles]

In the interest of being a devil's advocate:

 

I know people have stated the agency principal problem applies here - why would anyone lie under oath for the benefit of the government when their own ass is on the line?

 

Obviously if shareholders prevail here, it would be very damaging to the Obama administration. Would it be possible for the deposed not to rat out the government in exchange for Presidential immunity or pardon from legal consequences? In other words, can Obama use his power to protect government witnesses and defendants?

 

Unlikely I know, but just a thought exercise.

[merkhet]

In the interest of being a devil's advocate:

 

I know people have stated the agency principal problem applies here - why would anyone lie under oath for the benefit of the government when their own ass is on the line?

 

Obviously if shareholders prevail here, it would be very damaging to the Obama administration. Would it be possible for the deposed not to rat out the government in exchange for Presidential immunity or pardon from legal consequences? In other words, can Obama use his power to protect government witnesses and defendants?

 

Unlikely I know, but just a thought exercise.

 

I'd like to point out that we might be getting dangerously close to going down the rabbit hole here since all we have right now is a couple of things that seem to link together but no concrete evidence either way. (i.e. I don't know how obviously damaging things could be for the Administration because I don't have any direct evidence -- I only have statements from clearly motivated plaintiffs)

 

The answer to your question, Mephistopheles, is that, yes, the Administration could pardon Ugoletti for perjury, but the political consequences would be dire -- there is a reason why Bush couldn't pardon Scooter Libby for his role in the Valerie Plame fiasco.

[Mephistopheles]

 

 

I'd like to point out that we might be getting dangerously close to going down the rabbit hole here since all we have right now is a couple of things that seem to link together but no concrete evidence either way. (i.e. I don't know how obviously damaging things could be for the Administration because I don't have any direct evidence)

 

The answer to your question, Mephistopheles, is that, yes, the Administration could pardon Ugoletti for perjury, but the political consequences would be dire -- there is a reason why Bush couldn't pardon Scooter Libby for his role in the Valerie Plame fiasco.

 

Agree on the rabbit hole, though I'm just thinking about the case in general with my question.

 

Bush did commute Libby's prison sentence, though yes it wasn't a full pardon. I'm not saying there will be perjury or pardoning here, but the political consequences were much more dire for Bush. By that time the majority of the people were against him and the war. In this case, it's safe to say that the government is the political favorite against the Wall St. plaintiffs.

 

On a related note, do you think Wheeler not awarding damages was politically motivated at all? He made it seem as if the only alternative was an AIG bankruptcy, but why couldn't an alternative be a fair interest rate/fee for the deal and just award damages in excess of that? Do you think he didn't want to get on the government's bad side too much? Richard Epstein said that judges give plenty more deference to the government over citizens, all else being equal.

 

Just worried about how politics play into all of this. It would suck to see a win based on legality only to be taken away by Presidential power, or because of unnecessary deference, etc.

[morningstar]

In the interest of being a devil's advocate:

 

I know people have stated the agency principal problem applies here - why would anyone lie under oath for the benefit of the government when their own ass is on the line?

 

Obviously if shareholders prevail here, it would be very damaging to the Obama administration. Would it be possible for the deposed not to rat out the government in exchange for Presidential immunity or pardon from legal consequences? In other words, can Obama use his power to protect government witnesses and defendants?

 

Unlikely I know, but just a thought exercise.

 

To me, a settlement would be damaging and embarrassing to the Obama administration (quite hard to spin an agreement that will ink a collection of HFs billions of dollars - there's basically nothing you can even claim you're getting in return). Meanwhile playing out the appeals string all the way to the Supreme Court probably moves any ultimate resolution well into the next administration. So I don't see a lot of logic to settling, especially since most of the people who could potentially be personally damaged by any revelations (in the sense that prior statements of theirs could be indicated as false) are probably already out of the administration.

[muscleman]

 

 

I'd like to point out that we might be getting dangerously close to going down the rabbit hole here since all we have right now is a couple of things that seem to link together but no concrete evidence either way. (i.e. I don't know how obviously damaging things could be for the Administration because I don't have any direct evidence)

 

The answer to your question, Mephistopheles, is that, yes, the Administration could pardon Ugoletti for perjury, but the political consequences would be dire -- there is a reason why Bush couldn't pardon Scooter Libby for his role in the Valerie Plame fiasco.

 

Agree on the rabbit hole, though I'm just thinking about the case in general with my question.

 

Bush did commute Libby's prison sentence, though yes it wasn't a full pardon. I'm not saying there will be perjury or pardoning here, but the political consequences were much more dire for Bush. By that time the majority of the people were against him and the war. In this case, it's safe to say that the government is the political favorite against the Wall St. plaintiffs.

 

On a related note, do you think Wheeler not awarding damages was politically motivated at all? He made it seem as if the only alternative was an AIG bankruptcy, but why couldn't an alternative be a fair interest rate/fee for the deal and just award damages in excess of that? Do you think he didn't want to get on the government's bad side too much? Richard Epstein said that judges give plenty more deference to the government over citizens, all else being equal.

 

Just worried about how politics play into all of this. It would suck to see a win based on legality only to be taken away by Presidential power, or because of unnecessary deference, etc.

 

Wheeler's ruling said that awarding damages based on the illegal excess profits of $22 bn that the government made would be a more feasible way but the plantiff didn't ask for this approach.

 

I think this opens the door for appeal. Basically, Wheeler might be suggesting that had the plantiff requested award of $22 bn based on the illegal excess profits, he may have awared them the $22 bn.

[arbcon]

I'm not a lawyer and not giving investment advice, but I wanted to go into Meritor a bit. It may not be useful but here goes: When Meritor was taken in the early 1990's by Sarah Hargrove Commissioner of Banking State of Pa on behalf of Fdic as receiver, Steven Roth of Vornado tax- lossed his huge position after the taking but prior to year end. When it looked like money would be coming back from fdic due to Frank Slattery's suit some decades later, Roth filed in the Court of Claims the argument that shareholders who were owners at time of taking were the only ones eligible for proceeds. Judge Loren Smith was the presiding judge, and decided, I think because the stock continued to trade,even though in receivership, that current shareholders were entitled to receipts.

This is a conservatorship not a receivership so the argument for current shareholders might be stronger.

[merkhet]

On a related note, do you think Wheeler not awarding damages was politically motivated at all? He made it seem as if the only alternative was an AIG bankruptcy, but why couldn't an alternative be a fair interest rate/fee for the deal and just award damages in excess of that? Do you think he didn't want to get on the government's bad side too much? Richard Epstein said that judges give plenty more deference to the government over citizens, all else being equal.

 

No -- read the opinion very carefully. (The vast majority of legal work is merely the ability to read really boring things very, very carefully.) Wheeler mentioned that the only alternative to a government rescue was bankruptcy for AIG. He wasn't talking about whether there were alternative measures that the government could have taken. Whether the government could have loaned the money at 0% interest with no equity taken is completely irrelevant.

 

The issue isn't what could the government have done. The issue was given what the government has done, what would have been the alternative had the government not done what it did.

 

The distinction is subtle but very important.

 

To me, a settlement would be damaging and embarrassing to the Obama administration (quite hard to spin an agreement that will ink a collection of HFs billions of dollars - there's basically nothing you can even claim you're getting in return). Meanwhile playing out the appeals string all the way to the Supreme Court probably moves any ultimate resolution well into the next administration. So I don't see a lot of logic to settling, especially since most of the people who could potentially be personally damaged by any revelations (in the sense that prior statements of theirs could be indicated as false) are probably already out of the administration.

 

I agree with you that settling looks bad too.

 

I think the choice that is before the administration (assuming some shenanigans with respect to the reason for the Third Amendment) is between which option is less shitty. Is it better to hand over billions of dollars to hedge funds and mutual funds and try to spin it as reforming an important foundation for homeownership in America (and making money off a sale of the warrants) or is it better to wait for evidence to come out indicating that the American government raided a private corporation as a piggy bank in order to play political chicken with the opposition party?

 

I don't think that the people who could be damaged have all left office. If that was the case, I don't know that the Department of Justice would be fighting disclosure as forcefully as it has been doing.

[merkhet]

Fairholme asks for a motion to stay the Government's motion to dismiss until after discovery is done.

 

While purportedly working furiously to complete discovery, the Government has now ab- ruptly brought forward a supplemental motion to dismiss challenging the standing of the Fair- holme Plaintiffs and “all other plaintiffs who did not own shares of Fannie Mae or Freddie Mac (the Enterprises) on August 17, 2012, the date of the alleged Fifth Amendment taking in this case.” It is mystifying why the Government has decided to raise this issue now. Indeed, the Gov- ernment does not dispute that at least one Plaintiff, Berkley Insurance Company, owned stock in Fannie and Freddie when the Net Worth Sweep was adopted and therefore has standing even un- der the Government’s view. Accordingly, even if the supplemental motion were granted (and, as noted below, it should not be), this Court’s subject matter jurisdiction would remain untouched and the case would proceed to a decision on the merits. Perhaps that is why the Government, alt- hough it has known the dates on which the Plaintiffs acquired their stock in Fannie and Freddie for over a year, has had no reason to file its supplemental motion until now. But there is still simply no reason for this motion to be adjudicated now, and there are ample reasons, including judicial economy, why the Court should defer briefing and decision on the motion until it adjudi- cates the Government’s principal motion to dismiss. The Court ought not permit the Government to distract the Court’s and the parties’ attention from discovery with its ill-timed and ill-con- ceived motion.

 

Very clever on behalf of the Fairholme lawyers -- keep the depositions going!

 

Another interesting tidbit from the motion:

 

Deferring consideration of the Government’s supplemental motion will also permit a more orderly presentation of the issues. After discovery closes, Plaintiffs intend to move for leave to amend their complaint and include facts gleaned from discovery. Presumably, the Gov- ernment could then file an amended principal motion to dismiss and raise any potential standing arguments, and the parties would be able to brief all issues raised in such a comprehensive mo- tion with the benefit of a complete record. Staying further action on the Government’s supple- mental motion, then, would ultimately help this Court adjudicate the motion with a fuller under- standing of the relevant facts.

2015-06-17_Fairholme_Motion_to_Stay_Governments_Motion_to_Dismiss.pdf

[Mephistopheles]

On a related note, do you think Wheeler not awarding damages was politically motivated at all? He made it seem as if the only alternative was an AIG bankruptcy, but why couldn't an alternative be a fair interest rate/fee for the deal and just award damages in excess of that? Do you think he didn't want to get on the government's bad side too much? Richard Epstein said that judges give plenty more deference to the government over citizens, all else being equal.

 

No -- read the opinion very carefully. (The vast majority of legal work is merely the ability to read really boring things very, very carefully.) Wheeler mentioned that the only alternative to a government rescue was bankruptcy for AIG. He wasn't talking about whether there were alternative measures that the government could have taken. Whether the government could have loaned the money at 0% interest with no equity taken is completely irrelevant.

 

The issue isn't what could the government have done. The issue was given what the government has done, what would have been the alternative had the government not done what it did.

 

The distinction is subtle but very important.

 

 

Got it. But even then, wouldn't it have made more sense if he awarded damages based on a fair rate, or the maximum the Fed could charge, rather than no damages at all? Or was it because of a technicality as muscleman pointed out that there was no reward?

 

 

Wheeler's ruling said that awarding damages based on the illegal excess profits of $22 bn that the government made would be a more feasible way but the plantiff didn't ask for this approach.

 

I think this opens the door for appeal. Basically, Wheeler might be suggesting that had the plantiff requested award of $22 bn based on the illegal excess profits, he may have awared them the $22 bn.

 

 

[Mephistopheles]

To me, a settlement would be damaging and embarrassing to the Obama administration (quite hard to spin an agreement that will ink a collection of HFs billions of dollars - there's basically nothing you can even claim you're getting in return). Meanwhile playing out the appeals string all the way to the Supreme Court probably moves any ultimate resolution well into the next administration. So I don't see a lot of logic to settling, especially since most of the people who could potentially be personally damaged by any revelations (in the sense that prior statements of theirs could be indicated as false) are probably already out of the administration.

 

Call me crazy but I think a settlement would look better if we're looking purely at political spin. Agree to end the sweep, exercise the free options, and see a huge $100 billion windfall for taxpayers. 80% of valuation realized upfront vs. 100% in perpetuity. It's better for to go out with a bang with the former rather than worrying about current administration officials being held accountable in the future.

[merkhet]

Got it. But even then, wouldn't it have made more sense if he awarded damages based on a fair rate, or the maximum the Fed could charge, rather than no damages at all? Or was it because of a technicality as muscleman pointed out that there was no reward?

 

No, not necessarily. You're getting caught up in the fairness of the rate again. As I've stated before, the fairness of the rate does not matter in this particular case.

[merkhet]

Correct me if I'm wrong, but I think this is the first time that the Treasury has ever said that the GSEs have paid back every penny that they've borrowed and then some.

 

[arbcon]

"Liability is borne generally"-Interesting statement by lew.

[cubsfan]

Correct me if I'm wrong, but I think this is the first time that the Treasury has ever said that the GSEs have paid back every penny that they've borrowed and then some.

 

 

Nice clip - "They're simply contributing to the general treasury account"

[merkhet]

It looks to me (biased, obviously) like the narrative has shifted from:

 

"The GSEs have yet to pay back Treasury, so they need to be in conservatorship"

 

to

 

"The GSEs have paid back Treasury, but they are still risky, so they need to be in conservatorship."

 

I suspect that this means that if they can come up with a way to "de-risk" the GSEs, then there would no longer be a reason for them to remain in conservatorship.

[constructive]

The official position from the Treasury, FHFA and Fannie and Freddie is that they still owe $189B, and the money they have paid to Treasury has been interest, not principal. Lew did a remarkably poor job of expressing that position. That doesn't mean the position has changed.

[merkhet]

The official position from the Treasury, FHFA and Fannie and Freddie is that they still owe $189B, and the money they have paid to Treasury has been interest, not principal. Lew did a remarkably poor job of expressing that position. That doesn't mean the position has changed.

 

Capuano's question wasn't terribly vague.

[muscleman]

The official position from the Treasury, FHFA and Fannie and Freddie is that they still owe $189B, and the money they have paid to Treasury has been interest, not principal. Lew did a remarkably poor job of expressing that position. That doesn't mean the position has changed.

 

It was interesting that when the congressman asked Lew that question, he did not dare to answer. He turned back and looked at people sitting behind him, and only after those guys said yes did he answer "Yes". I wonder what those guys are. Treasury lawyers?

[constructive]

It was interesting that when the congressman asked Lew that question, he did not dare to answer. He turned back and looked at people sitting behind him, and only after those guys said yes did he answer "Yes". I wonder what those guys are. Treasury lawyers?

 

Lew is not in charge of knowing whether Fannie and Freddie have paid back $170B or $230B or whatever. He has staff members who know the exact numbers.

 

He answered the question, and he mildly objected to the framing of the question. But his objection didn't match Treasury's official objection to that question, which they have published in multiple documents and legal filings.

[merkhet]

I only briefly saw the face of the one guy, but I don't recognize him from the court room. I don't think that was one of the lawyers from the DOJ. My guess is that he's a staff member from Treasury.

 

In other news...

 

06/18/2015 (4:13pm) 165 **SEALED** MOTION to Remove the “Protected Information” Designation from Certain Grant Thornton Documents , filed by All Plaintiffs.Response due by 7/6/2015. (Attachments: # 1 Appendix Volume 1, # 2 Appendix Volume 2, # 3 Appendix Volume 3)(Cooper, Charles) (Entered: 06/18/2015)

 

For those of you keeping score at home, these are the documents that allegedly show that Fannie & Freddie were on the road to recovery so that a circular draw would have been impossible -- brings to mind Berkowitz's recent quote in the Financial Times.

 

“Any notion of a ‘death spiral’ was fiction,” said Mr Berkowitz of Fairholme. “Fannie Mae and Freddie Mac performed as promised, had mountains of cash and generated cash during the financial crisis. Reported losses were the result of decisions by a handful of government officials to reflect a doomsday scenario that did not and could not occur.”

[merkhet]

Here's the counterpoint to the last video I posted:

 

 

Oddly enough, despite being given an opportunity to clarify, in his own words, that GSEs have not yet paid back the full amount owed to Treasury, Lew once again talked only about the risk borne by taxpayers. It's not dispositive, but it's certainly strange.

 

Notably, though, Lew once again reiterates that he thinks it's not yet time to end the conservatorship.

 

We'll see if the threat of unsealing the depositions will change his mind.

[Mephistopheles]

Deciding to continue or terminate the conservatorship should be up to the FHFA legally, at least that's what they tell us. Lew sharing his opinion strengthens the thesis that FHFA is not so independent of Treasury, does it not?

[merkhet]

Depends on how you view the provision in the SPSPA that says FHFA can't exit the conservatorship without the Treasury's approval.

[Mephistopheles]

Oh didn't know that, guess it's not a big deal then.