Aloha Bra! This one is for you, Bra!
I’m just going to highlight some very key statements, arguments and exchanges from USA Today’s article “AIG Bailout Trial Judge Questions U.S. Over Taking Equity” dated April 23, 2015. This paints a very nice picture for Fairholme, Washington Federal and Ackman.
It is important to note, AIG case is different from the Fannie Mae and Freddie Mac case but there are similarities. Connect the dots, Read between the lines, and Follow the bread crumbs.
These statements from Judge Wheeler are huge:
“All of the company’s people who had been running the operation….were gone and the government is running the show, completely,” Wheeler told Justice Department lawyer Kenneth Dintzer. “How can it be there wasn’t some sort of illegal (taking) for that to happen?”
But Wheeler responded, “One view of the case is the government took the stock, didn’t pay anything for it and then pocketed revenue from the sales. I mean, come on.” The government earned about $16 billion in profits when it sold the AIG shares and another $7 billion or so in interest.
Wheeler, however, said he remained “perplexed” by the government’s treatment of AIG. “It doesn’t really justify interest (rate) four times as high (as other firms) and an 80% stake,” the judge said. “I mean nobody got that.”
Argument from Boies was very good:
Starr’s lawyer, David Boies, argued that federal law allows the Fed only to charge a market-based interest rate for a loan during a crisis. He noted that no other financial firm bailed out in the crisis was forced to surrender equity. “The government made a political scapegoat (of AIG)” and “demonized” the company.
Dintzer and Wheeler verbal exchange exposed lies and fallacies:
Dintzer said the law gave the government broad authority to set “limitations and restrictions” on a loan, suggesting those could include an equity stake. And he said AIG’s board had the power to act on behalf of shareholders in approving the government takeover.
But Wheeler said the evidence shows Fed board members didn’t necessarily believe that. “They were very intense on maneuvering through this process so (AIG) never had a shareholder vote.”
Obama and his Administration, DOJ, Treasury and FHFA are “Begging the Question”
THIS IS RIGHT FROM THE HERA STATUTE!
[When acting as conservator or receiver, the Agency shall not be subject to the direction or supervision of any other agency of the United States or any State in the exercise of the rights, powers, and privileges of the Agency.]
Remember these three important issues that are widely misunderstood or mischaracterized in the reform debate:
Treasury’s actions to place Fannie Mae and Freddie Mac into conservatorship
were fundamentally different from Treasury and Federal Reserve interventions
in support of commercial and investment banks during the financial crisis.
Intervention in support of banks was done in response to sudden and uncontrollable liquidity crises that required immediate government assistance to keep the companies from failing, and involved actions and tools intended to achieve that result (not always successfully). The act of placing Fannie Mae and Freddie Mac into conservatorship was not a response to any imminent threat of failure but rather a policy decision initiated at a time of Treasury’s choosing, and involved actions and tools intended to make and keep the companies insolvent.
Convincing evidence exists that the conservatorships of Fannie Mae and Freddie Mac were planned well in advance, and that they were intended to remove the companies permanently from private ownership. There also is clear prior history of OFHEO and its successor agency FHFA following the dictates of Treasury in its dealings with Fannie Mae and Freddie Mac.
The motive behind the third amendment to the Treasury-FHFA senior preferred stock agreement was made evident by its timing, coming as it did just ten days after Fannie Mae announced sufficient second quarter 2012 earnings not only to pay its $2.9 billion quarterly senior preferred stock dividend but also to add $2.5 billion to its capital. Coupled with strong and growing revenues, rising home prices in the first half of 2012 meant that the pessimistic assumptions that had driven earlier decisions to write down assets, add huge amounts to the loss reserve, and establish a valuation reserve for deferred taxes no longer were supportable. Treasury and FHFA entered into to the third amendment to ensure that when many of these write-downs were reversed it would be the government, and not Fannie Mae’s shareholders, that would benefit.
NOTE: Bailout is a very strong term. Basically, its an act of giving financial assistance to a failing business or economy to save it from collapse.
Fannie Mae and Freddie Mac might have needed some liquidity financing or loan but they were never in the verge of collapse. Therefore, a Bailout was not necessary.