Quote From Fairholme Funds’ 2016 Annual Report
We recall Charlie Munger’s advice:
Students learn corporate finance at business schools. They are taught that the whole secret is diversification. But the rule is exactly the opposite. The ‘know-nothing’ investor should practice diversification, but it is crazy if you are an expert. The goal of investment is to find situations where it is safe not to diversify. If you only put 20% into the opportunity of a lifetime, you are not being rational. Very seldom do we get to buy as much of any good idea as we would like to.
Fannie Mae and Freddie Mac
Odds favor Fannie Mae or Freddie Mac helped your parents and you obtain a first home, and that the same will be true for your children and grandchildren. Fannie Mae and Freddie Mac guarantee the timely payment of principal and interest demanded by lenders. Investors just like you own and fund their operations. Yet, we fight an expropriation of our principal by the government. Here’s where we stand: prosperity exists in a capitalist society only when contracts are honored. The rule of law must be respected and cannot be eliminated by fiat. If you disagree, just see the despair in Venezuela. We look forward to a decision from the United States Court of Appeals for the District of Columbia Circuit that protects and preserves our investments in Fannie Mae and Freddie Mac. Signs indicate that we are nearing the end of our “Alice in Washington” journey.
Our three appellate court judges (Janice Brown, Doug Ginsburg, and Patricia Millett) published a separate decision (Heartland Plymouth Court MI, LLC v. National Labor Relations Board) that we believe is instructive to their eventual ruling in our case. Writing for the majority, Judge Brown stated:
As this case shows, what the [National Labor Relations Board (“NLRB”)] proffers as a sophisticated tool towards national uniformity can just as easily be an instrument of oppression, allowing the government to tell its citizens: “We don’t care what the law says, if you want to beat us, you will have to fight us” … We recognize the [NLRB’s] unimpeded access to the public fisc means these modest fees can be dismissed as chump change. But money does not explain the Board’s bad faith; “the pleasure of being above the rest” does. See C.S. Lewis, MERE CHRISTIANITY 122 (Harper Collins 2001). Let the word go forth: for however much the judiciary has emboldened the administrative state, we “say what the law is.” Marbury, 5 U.S. (1 Cranch) at 177. In other words, administrative hubris does not get the last word under our Constitution. And citizens can count on it.1
In another decision (DirecTV, Inc. v. National Labor Relations Board), Judge Brown was even more direct about the perils of unchecked executive action when she noted that: “Judicial review should mean more than batting cleanup for the administrative state.”2 If applied in equal measure, these sentiments bode well for our case.
Finding no clear reason in favor of extraordinary secrecy, U.S. Court of Federal Claims Judge Margaret Sweeney Fairholme Funds v. United States, No. 1:13-cv-00465-MMS) recognized that the government’s attempt to hide thousands of documents is unjustifiable, for the work of our government must withstand public scrutiny. Judge Sweeney issued a court order directing the Obama Administration to produce scores of documents that were improperly withheld based on assertions of deliberative process privilege, bank examiner privilege, and presidential communications privilege. Her decision was largely upheld upon review by the U.S. Court of Appeals for the Federal Circuit. In due course, we expect further proof that Obama Administration officials violated laws established by our founding fathers to prevent such unfettered discretion. Alexander Hamilton said it best:
The nature of the contract in its origin is, that the public will pay the sum expected in the security, to the first holder, or his assignee. The intent, in making the security assignable, is, that the proprietor may be able to make use of his property, by selling it for as much as it may be worth in the market, and that the buyer may be safe in the purchase. Every buyer therefore stands exactly in the place of the seller, has the same right with him to the identical sum expressed in the security and having acquired the right, by fair purchase, and in conformity to the original agreement and intention of the government, his claim cannot be disputed, without manifest injustice.3
We are frequently asked (i) why we own the preferred stock of Fannie Mae and Freddie Mac instead of common shares, and (ii) how this story ends. Our answers are simple: the provisions of the preferred stock contracts that we own provide us with greater security and certainty than the common stock and, as you know, we are not speculators. In this instance, we have invested in two superb insurance companies with unparalleled brand recognition, talented human capital, proprietary information technology infrastructure, and robust industry relationships. Fannie Mae and Freddie Mac are quintessential examples of what Warren Buffett would describe as “economic castles protected by unbreachable moats.” As interest rates rise, Fannie Mae’s and Freddie Mac’s portfolios become even more valuable – and we anticipate that Q4 2016 results will reflect this positive impact. Allow me to emphasize a few points that you may have heard before:
Any intellectually honest observer would proffer that the rational steps for resolution are: (i) halt the payment of any further monies to the United States Treasury; (ii) permit the companies to retain capital in order to protect taxpayers; (iii) transform the companies into low-risk, public utilities with regulated rates of return, just like your local electric company; and (iv) eventually release them from the shackles of a perpetual conservatorship so they can help more low- and moderate-income families move up the economic ladder. Only the disingenuous would assert that recapitalization of these companies would take decades and come at taxpayers’ expense, as if retaining earnings precluded the ability of each company to raise equity from private investors. Only those beholden to special interests would ignore the substantial reforms implemented at Fannie Mae and Freddie Mac over the last eight years and pretend the companies are somehow doomed to repeat the past upon release from conservatorship. And only those who oppose the dream of homeownership for America’s middle class would attempt to dismantle two publicly traded, shareholder-owned companies that have singlehandedly provided over $7 trillion in liquidity to support our mortgage market since 2009. We are optimistic that the indispensability of Fannie Mae and Freddie Mac to affordable homeownership eventually overpowers the taboo imposed upon them by the previous Washington establishment.
Fairholme Funds Annual Report 2016
Pershings Square Holdings Annual Report 2016
Kase Capital Annual Letter – Whitney Tilson
Original Order from Judge Sweeney Granting Access to Privilege Evidence
Letter from Cooper to Perry Appeals Court regarding Writ of Mandamus Ruling
List of privilege documents from Writ of Mandamus
Fairholme’s big win on Discovery
Important Comments from Tim Howard @ Howard on Mortgage Finance
First Quote From Tim Howard
In September 2008, Treasury granted itself 79.9 percent of the outstanding shares of the common stock of both Fannie and Freddie as a component of its purported “rescue” of them. Treasury’s action, however, was not a rescue; it was a takeover of two companies it historically had opposed, done for ideological and policy reasons. When Treasury granted itself these warrants, it had no intention of ever exercising them; its purpose was to reduce the stock prices of both Fannie and Freddie by a factor of five (since Treasury instantly gave itself the right to four-fifths of the companies’ earnings in perpetuity), in order to contribute to the sense that they were in financial free-fall (which they were not). Treasury’s intention at the time it took the companies over was ultimately to liquidate them, and to allow the warrants to expire worthless.
But Treasury, and its allies, never could come up with an alternative to Fannie and Freddie that worked as well as they did, and that Congress was willing to take a gamble on and legislate. So here we are, nine years later: the warrants still are outstanding, and Treasury Secretary-designate Mnuchin is talking about reforming Fannie and Freddie and bringing them out of conservatorship. And the warrants have become a complication.
The term sheet for the warrants says they may be exercised “in whole or in part, at any time during the exercise period [which runs through September 7, 2028]”…and that the warrants entitle Treasury to 79.9 percent of the outstanding shares of Fannie and Freddie not as of the date the warrants were granted (September 7, 2008), but “on the date of EXERCISE,” which could be any time up to September 2028.
When Treasury granted itself the warrants back in 2008, it never contemplated that the companies might issue new shares of equity to recapitalize (because it intended to kill them). But now that they might, that 2008 warrant language definitely is a problem. Unless Treasury exercises all of its warrants immediately–which would cause massive dilution and create a nearly insurmountable hurdle to reforming them and bringing them out of conservatorship–whatever percentage of its warrants for Fannie and Freddie’s “outstanding common shares” remains unexercised when they do their equity issues to recapitalize will, by the language of the 2008 Senior Preferred Stock Agreement, have to be turned into NEW shares for Treasury, for which it will pay an exercise price of one one-thousandth of one cent (meaning Fannie and Freddie will get negligible proceeds from this equity).
THAT is what I called the “deal-killer.” As long as the 2008 language governing the exercise of the warrants remains in force, the companies will not be able to recapitalize. That language never was intended to apply to companies that were going to recapitalize and come out of conservatorship. Now that this prospect is on the table, the language relating to the warrant exercises–along with other aspects of them–clearly has to be in play for alteration, amendment or cancellation.
I hope that makes this more understandable (as I said, it IS a complicated issue).
Second Quote From Tim Howard
I’ll give you my response just with respect to Fannie (makes the numbers easier to understand).
Today you have a company with about $11 billion in annual earnings, 1.15 billion shares outstanding, and essentially no capital. Let’s say Fannie needed to raise $60 billion to meet its new capital standards (not a prediction, just an example). Let’s further say that it has three years to get fully capitalized. It can get halfway there (assuming no growth in its outstanding MBS) through retained earnings, but still will need to raise about $30 billion in new equity. Factoring in dilution, let’s now assume it’s able to issue 400 million new shares at an average price of $75 per share. So now you have a fully capitalized company with $11 billion in earnings, 1.55 billion in outstanding shares, and annual EPS of $7.10 per share. At a P/E of 10:1 that’s about a $70 stock (at a P/E of 12 it’s about an $85 stock).
If Treasury exercises all of its warrants immediately, Fannie still has no capital, still has to raise $30 billion in the equity market, but now has 5.7 billion shares outstanding. Figuring the dilution that would result from Treasury selling its shares and the market anticipating the impact of mammoth capital raises is tricky, but at an average price of $15 per share Fannie would need to sell 2 billion shares of new stock to become fully capitalized. That’s a huge amount to raise in three years, and assuming you could do it, you’d end up with a company earning $11 billion per year, 7.7 million shares outstanding, an EPS of $1.43, and a stock price of about $14 at a 10 P/E ($17 at a 12 P/e).
If I’m a plaintiff, an end state that has a $14 stock versus one with a $70 dollar stock is a huge deal. I would be inclined not to settle without significant alteration of the terms of the warrants, and if I couldn’t get the terms I wanted, I would offer to fund the Washington Federal lawsuit to its conclusion, to get the warrants eliminated entirely.
That why, for me, the unaltered warrant terms are a “deal-killer.” Since Treasury did nothing to earn those warrants–it simply gave them to itself because it could–I would not accept a deal that left them unaltered (and cost me close to $55 per share on the value of the company I want to bring out of conservatorship). But we’ll see what the real plaintiffs do.
Gary Cohn: Fannie Mae, Freddie Mac reform will be high on Mnuchin’s agenda
Maybe GSE reform will happen quickly after all?
Complete Video of Steven Mnuchin confirmation hearing
Mnuchin: Get Fannie Mae, Freddie Mac out of government ownership
Sen. Warner Questions Treasury Nominee Steve Mnuchin
But asked by Warner if he does indeed support the recap and release of Fannie and Freddie, Mnuchin threw water on those who hope to see the Trump administration pursue recap and release.
“My comments were never that there should be recap and release,” Mnuchin said. “For long periods of time, Fannie and Freddie were well run and did not create risk to the government. I believe there are very important entities.”
That doesn’t mean that Fannie and Freddie should be left to their own devices, Mnuchin said.
But Mnuchin also said that the status quo of the housing finance system is unsustainable.
“We need housing reform,” Mnuchin said. “We shouldn’t leave Fannie and Freddie alone for the next four or eight years without reform.”
While Mnuchin did not provide specifics for how the Trump administration will seek housing finance reform, Mnuchin said he plans to do it with involvement from both parties.
“It is my objective to find a bipartisan solution to housing finance reform,” Mnuchin said.
Mnuchin was later asked to elaborate on his views on the future of Fannie and Freddie by Sen. Mike Crapo, R-Idaho, who himself is another proponent of housing finance reform.
“Do we need housing finance reform that goes further than recap and release?,” Crapo asked Mnuchin.
“I’m not a Medicare expert but on Fannie and Freddie, I think I am an expert,” Mnuchin said.
“Housing finance reform would be one of my priorities,” he continued. “We need a solution. “The status quo is not acceptable.”
Mnuchin said that he plans to seek a solution “where we don’t put the taxpayers at risk and we don’t eliminate capital for the housing market,” adding that he is “optimistic we can find a bipartisan solution.”
Senate Confirms Jeff Sessions as US Attorney General
Senate Confirms Steven Mnuchin as Secretary of Treasury
Gary Cohn on Trump’s economic agenda
Gary Cohn, National Economic Council director and former Goldman Sachs COO, discusses the Trump administration’s views on the U.S economy, over regulation and more.
FABER: GARY, OUR AUDIENCE INTERESTED IN PART IN THE GSEs. AND I KNOW YOU’VE SPOKEN AND SAID A COUPLE THINGS, BUT WE’RE STILL TRYING TO UNDERSTAND DETAILS IN TERMS OF CHANGING THE CONSERVATORSHIP, CHANGING THE SWEEP, CHANGING BASICALLY WHAT’S GOING ON WITH FANNIE AND FREDDIE. WHAT DO YOU HAVE PLANNED HERE? AND ARE WE ACTUALLY GOING TO SEE THOSE PLANS SOON?
COHN: SO THE GSE REFORM IS DEFINITELY ON OUR AGENDA. TREASURY SECRETARY DESIGNEE STEVE MNUCHIN HAS BEEN SPENDING A LOT OF TIME WORKING ON THAT. ONCE HE GETS APPROVED AND CONFIRMED, STEVE WILL BE TAKING THAT ON AS ONE OF HIS EARLY PRIORITIES. SO WE DEFINITELY HAVE SOME PLANS IN PLACE TO WORK ON THAT. AND HOPEFULLY HE GETS APPROVED AS SOON AS POSSIBLE.
Chuck Cooper withdraws from Solicitor General consideration
Smart move Chuck! The Stage is Set for Final Victory!
Follow Tim Howard at: https://howardonmortgagefinance.com
Recently filed Motion in Appeals Court
New filing in the Perry Case, click here to view. (Fairholme’s unopposed motion)
2nd filing in the Perry Case, click here to view. (Fairholme’s reply)
3rd filing in the Perry Case, click here to view.
4th filing in the Perry Case, click here to view.
Recently unsealed evidence from the Writ of Mandamus
PSPA MODIFICATION: KEY POINTS TO MAKE
Methodology Memo – Warrants, SPS, and Liquidity Commitment
Joshua Rosner Twitter Post
Freddie Mac Earnings Surprise: FAS 133 And What It Means
Court of Appeals agrees to rehear CFPB case, agency to fight “unconstitutional” ruling
TH717 
Andy p.
MARCH 3, 2017 AT 8:09 AM
Tim,
I believe the political hurdle is making a mountain out of a mole hill, because facts are, and have always been on our side.
I think with a simple 5 page powerpoint could disprove every lie thats been told against us, and can be disproved VERY quickly.
Failed business model? FnF loans out performed all other comparable loans by roughly 4 times.
FnF still owe the gove $189 bln?
$250+ bln has already been paid back.
Warrants? They were given as collateral IF fnf could not pay gov back. Again $250+>$189
FnF caused the crisis? FnF don’t make loans, and PLM’s can be shown to be a much larger problem, and again, FnF outperformed the competitors.
FnF NEEDED the $189 bln bailout? The accounting fraud is obvious when you look at the year over year earnings. If anyone has questions, you could help explain the accounting shenanigans in more detail, as you already have, without even seeing the books.
Death spiral? What about the “golden age of profitability” email, along with the ridiculous earnings.
We are where we are today based 100% off lies. All the lies were told by people in positions of trust behind a wall of secrecy, all those same lies can just as easily be disproved by Watt or Mnuchin.
In the last 9 years I have been following FnF, I have not heard 1 single good reason FnF should be eliminated or in conservatorship that holds any water.
On the other hand, there are LOTS of good reasons to remove the conservatorship and net worth sweep, and reinstate the earnings. 20% of the economy, trillions of loans with no capital cushion, the rule of law, market confidence. Dropping dozens of useless time waisting – taxpayer funded – court cases. And it takes a load of steve and Watts plates. Let them work on real issues, not imaginary ones.
The solution is, and always has been simple. Let us not complicate it.
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Many Courts in far away places like non-swampy Seattle WA can/will review any laws or even presidential executive order related to national security.
Reviewing lawless NWS of fake conservatorship should not be a big thing for such Courts.
So if FnF investors want justice then they should seek justice from courts far away from ‘The Swamp’. Farther the from ‘The Swamp’, the justice will be better and easy.
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Excuse me anonymous, but political correctness has trumped many laws over the past 10 years; in this case the GSEs were used as a “slush fund” to supplement Obama care.
There’s the “political correctness” angle AND the courts’ acquiescence of every procedural delay the federal government can come up with to prolong an exceedingly expensive, time consuming challenge. Some here have died without seeing justice served.
“The jury is still out” (lol) concerning the administration of justice: in Delaware, in Texas, in Washington, in Chicago.
That is not to say justice will be served somewhere concerning the GSE swindle, but the cost is super high and some have died without receiving their just rewards.
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The point is, it is very difficult get justice in “The Swamp”.
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Eight years out Freddie and Fannie have not gotten justice anywhere
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th717, why do you keep turning this blog off and on?
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political aspirations there
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Glen,
It is a good idea to start another Message Board also to have continuous voice FnF bloggers. May be Investor Unite can also help.
It does not cost much.
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I copied and pasted this from my TD Ameritrade on-line account:
Fannie And Freddie Short Sellers Profited $100 Million On Court Ruling
12:42 pm ET February 28, 2017 (Benzinga)
Federal National Mortgage Assctn Fnni Me (OTC: FNMA) and Federal Home Loan Mortgage Corp (OTC: FMCC) shareholders have been on quite a ride in recent weeks. Fannie Mae and Freddie Mac have been in limbo for years as the courts and the government decide their fate.
While both stocks got a big boost following the election, short sellers have experienced the most recent gains. When an appeals court shot down a shareholder lawsuit challenging the legality of Fannie and Freddie’s net-worth sweep earlier this month, both stocks plummeted more than 30 percent.
According to S3 Blacklight, Fannie and Freddie short sellers may have pocketed more than $100 million in profits off of the news. The firm’s proprietary S3 Short Interest Indicator suggests there was as much as $205.1 million in Fannie Mae short interest and $104.2 million in Freddie Mac short interest as of earlier this month.
Annualized borrowing fees for Fannie and Freddie have ranged between 1.5 percent and 2.0 percent so far in 2017. S3 reports short sellers jumped into both stocks following the post-election surge. Short interest in the two stocks is now sitting at all-time highs.
GuruFocus reports there are currently more than 135.4 million shares of Fannie Mae held short representing 12.1 percent of the stock’s float.
If the Trump administration reveals a plan to recapitalize Fannie and Freddie and return control to shareholders at some point, a wave of short covering could send shares skyrocketing in the short term.
© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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What are the “Net” Funds Received from Treasury through SPSPA?
Almost everyone gets this wrong.
Here is the FHFA authentic source for this number.
Page 9: https://www.fhfaoig.gov/Content/Files/WPR-2013-002_2.pdf
Summary of Funds Transferred (as of December 31, 2012)
“Net” Funds Received from Treasury $84.7B + $47.5B = $132.2B
FNMA: “Net” Funds Received from Treasury $84.7B
FMCC: “Net” Funds Received from Treasury $47.5B
Total FNMA and FMCC “Net” Funds Received from Treasury $132.2B
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AG didi it:
The federal government filed a motion seeking to drop its claim that the Texas law, one of the strictest in the country, is intentionally racially discriminatory.
Now he should do something for FnF.
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Some good writer could write a passionate letter to AG Sessions. Submit all 11000 hidden documents with any further delay. Otherwise, this admin starts to own Obama’s second worst problem (after Oabamacare).
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Almost every one in trump Administration knows about the lawless fake conservatorship and its misdeeds against the people. It is not only the question of when that the Trump administration delivers justice to the people but also exposes the secrecy and plots of earlier administrations.
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Mnuchin:
“So this is something that’s going to take us a little bit more time. It’s not something that we’re going to deal with as quick as taxes which is our number one priority. But we’re committed to a solution. I think hopefully there’s a bipartisan solution here. But … I’m optimistic as well that we can create housing reform under this administration.”
But? If no bipartisan support, I can still do it.
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We are close to victory than most think. One legal victory and no more appeal. Mnuchin will seize the opportunity. Delaware, texas, perry, or phh vs cfpb can deliver that victory
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Exclusive: Obama Illegally Robbed Fannie, Freddie to Fund Obamacare
Obama diverted money from low-income housing to keep Obamacare alive
Jerome R. Corsi | Infowars.com – February 27, 2017
http://www.infowars.com/exclusive-obama-illegally-robbed-fannie-freddie-to-fund-obamacare/
One can only hope Trump share this with the press on how Obama illegally robbed FnF to fund Obamacare.
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It is ORDERED, on the court’s own motion, that the Clerk withhold issuance of the mandate herein until seven days after disposition of any timely petition for rehearing or petition for rehearing en banc. See Fed. R. App. P. 41(b); D.C. Cir. Rule 41. This instruction to the Clerk is without prejudice to the right of any party to move for expedited issuance of the mandate for good cause shown.
Click to access 14-5243-1662092.pdf
Deadline is 2/28/2017
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check this out too……..only getting better………..
http://www.infowars.com/exclusive-obama-illegally-robbed-fannie-freddie-to-fund-obamacare/
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What are ahead:
1) Perry plaintiff wants rehearing en banc.
2) Courts vote to decide whether to accept
3) En banc rehearing
4) Decision
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Saw an interesting article on related case………..check it out.
Collins vs FHFA – Total new wild card to the litigation, and extremely strong argument. $fnma $fmcc https://twitter.com/aspit/status/836228647656820736
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Plaintiffs and Defendants have filed dispositive motions that will not be fully briefed and decided by the currently-scheduled initial conference. As a result, it is hereby ORDERED that the deadline for the parties’ Joint Discovery/Case Management Plan is extended to April 10, 2017, and the initial conference is rescheduled to April 17, 2017, at 1:00 p.m.
Click to access 16-cv-03113-0034.pdf
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GSE Preferred Shareholders Win Remand On Contract Claims
By Glen Bradford
Summary
On a cash basis, there is no business with more recurring, predictable income than Fannie Mae and Freddie Mac. The government knew this so conservatorship accounting generated early losses.
Now that the government is taking everything via the net worth sweep their defense is that they could do whatever they want as conservator, now an appeal court agrees.
I am not a lawyer, but I have read the applicable law and I can’t believe that Judge Brown was the only one fighting for ethics and morals.
I am not forecasting a receivership, but I am saying that one-way conservatorships end and in this case the receivership route would lead to a world of firsts.
http://seekingalpha.com/article/4049825-gse-preferred-shareholders-win-remand-contract-claims
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If Perry Appeal goes for en banc hearing, Sr. Judge Ginburg will not be in the panel.
En Banc panel
Merrick B. Garland, Bill Clinton
Karen LeCraft Henderson George H. W. Bush.
Judith W. Rogers Bill Clinton
David S. Tatel Bill Clinton
Janice Rogers Brown George W. Bush
Thomas B. Griffith George W. Bush
Brett M. Kavanaugh George W. Bush
Sri Srinivasan Barack Obama
Patricia A. Millett Barack Obama
Cornelia T.L. Pillard Barack Obama
Robert L. Wilkins Barack Obama
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How do you know?
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These are all active Judges.
Sr Judges are not included.
https://www.law.cornell.edu/rules/frap/rule_35
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based on this panel of judges, which includes Millett and Brown and the 1-2 year time frame, I would not pursue this and go straight to supreme court appeal which would likely be reviewed in the fall with a decision in the spring.
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I would agree with that, however the odds are long for a case being heard by the supreme court
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There are still only 8 Judges sitting on the SCOTUS. If I were a decision maker in the Perry case, I am sure I wouldn’t want to go to SCOTUS when there are other options on the table. Requesting En Banc buys more time—hopefully to get a “constitutionalist” 9th Judge on the bench, and more facts to peruse through from the Fairholme case.
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When one reads “SEC. 1313. DUTIES AND AUTHORITIES OF DIRECTOR”, and also look at what FHFA conservator has done, it becomes very clear that FHFA director has failed in his duties as a regulator.
SEC. 1313. DUTIES AND AUTHORITIES OF DIRECTOR.
(a) DUTIES.—
(1) PRINCIPAL DUTIES.—The principal duties of the Director shall be—
(A) to oversee the prudential operations of each regulated entity; and
(B) to ensure that—
(i) each regulated entity operates in a safe and sound manner, including maintenance of adequate capital and internal controls;
(ii) the operations and activities of each regulated entity foster liquid, efficient, competitive, and resilient national housing finance markets (including activities relating to mortgages on housing for low- and moderate-income families involving a reasonable economic return that may be less than the return earned on other activities);
(iii) each regulated entity complies with this title and the rules, regulations, guidelines, and orders issued under this title and the authorizing statutes;
(iv) each regulated entity carries out its statutory mission only through activities that are authorized under and consistent with this title and the authorizing statutes; and
(v) the activities of each regulated entity and the manner in which such regulated entity is operated are consistent with the public interest.
(2) SCOPE OF AUTHORITY.—The authority of the Director shall include the authority—
(A) to review and, if warranted based on the principal duties described in paragraph (1), reject any acquisition or transfer of a controlling interest in a regulated entity; and
(B) to exercise such incidental powers as may be necessary or appropriate to fulfill the duties and responsibilities of the Director in the supervision and regulation of each regulated entity.
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Please read Judge Brown’s eloquent and scholarly minority opinion as compared to artificially engineered stinking opinion by majority:
“The question is whether the government has violated the legal limits imposed on its own authority.”
“Plaintiffs— not all innocent and ill-informed investors, to be sure—are betting the rule of law will prevail. In this country, everyone is entitled to win that bet. Therefore, I respectfully dissent from the portion of the Court’s opinion rejecting the Institutional and Class Plaintiffs’ claims as barred by the antiinjunction provision and all resulting legal conclusions.”
“Here, the Court abdicates this crucial responsibility, blessing FHFA with unreviewable discretion over any action—short of formal liquidation—it takes towards its wards.”
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“Rule of Law” is the foundation for US leadership and superior dominance in almost every field.
“Rule of Man” is the slippery slope to anarchy, loss of trust and loss of everything.
The question in front of the Court was NOT whether investor made the right or wrong bet.
Investors made the right bet that the rule of law will prevail and this forms the basis for reasonable investment-backed expectation. In this country, everyone is entitled to win that bet.
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Will Appeals Court’s majority opinion end Free market Capitalistic economy?
If majority opinion is allowed to stand then it will destroy the US private sector including financial sector. The financial sector must be really scared of opinions expressed by the majority.
Judge Brown minority opinion:
“Private individual and institutional investors in regulated industries rightly expect the law will protect their financial rights—either through an agency interpreting statutory text or a court reviewing agency action thereafter.
They are also entitled to expect a conservator will act to conserve and preserve the value of the company in which they have invested, honoring the capital and investment conventions of governing law. A rational investor contemplating the terms of HERA would not conclude Congress had changed these prevailing norms.
Today, however, the Court explains this rational investor was wrong. And its bold and incorrect statutory interpretation could dramatically affect investor and public confidence in the fairness and predictability of the government’s participation in conservatorship and insolvency proceedings.”
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I certainly hope the treasury secretary doesn’t think that the current dysfunctional congress will agree about anything. It hasn’t agreed for years about any viable alternative to the Twins.
Two things stand out to me:
Mnuchin: “So this is something that’s going to take us a little bit more time. It’s not something that we’re going to deal with as quick(ly) as taxes which is our number priority.”
That statement smells of politics. He will find much more agreement there. The Trump admin. would rather pick the low hanging fruit victories. However the GSEs are another matter! Its proposed solutions will raise hackles and a firestorm with self serving radicals on both sides of the isle. Much “good will” will be checked in the process.
The Trump admin. tax reform and deregulation policies will highly benefit TBTF; however, that policy needs to be tempered with TBTF interests of the vital value of the Twins not only to DJT economic policies, but to TBTF interests as well.
Face it, since the Nov. 4 election the stock exchanges are UP considerably … and little of that increase can be pegged to policy enactment or appropriations. Housing/the Twins will have a whole lot to do with its success, and they are being bled of capital”? WTF! And where is it going anyway!
Mnuchin: “But we’re committed to a solution.”
Should legislation fail, executive fiat, er order will do. The congress abhors responsibility and will absolve itself of it whenever it can.
It would be best if it started quickly with the suspension of the NWS to the treasury. That is easily done with the stroke of Mnuchin’s pen. However, my reservations about him will be extremely heightened if he doesn’t send those profits back to the Twins ASAP.
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A judge makes a decision based on some reason. Sometime that reason is not a good reason. He then show an excuse and hides the reason. If a counsel focuses only on the excuse and misses the real reason, he will lose.
In our case, I’ve seen that defendant stated that government used $180B to help FnF survive. Plaintiff’s counsel had NOTHING to counter attack. NOTHING! How dumb!
How much “help” was needed by FnF is most important fact in the litigation.
May our plaintiff’s counsels heal the words. God help them.
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There was a “slight of hand” going on when $180 Billion was needed by FnF. It wasn’t due to losses of FnF’s pre-2008 portfolio’s, it was due to losses “being purchased” from the TBTF banks. FHFA Director DeMarco mentioned in one of his Strategic Reports for the Conservatorship that FnF had modified more than 12 million mortgages to remove predatory aspects and to refinance them at a much lower rate. You cannot purchase and modify 12 million plus mortgages to clean them up and package them into securities without incurring some substantial losses. Even Stevens publicly referred to those activities as being “in stealth”. The Government could have easily “hired” FnF to do the cleanup on those mortgages, but instead chose to saddle FnF with overwhelming debt that was designed to force them into receivership.
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It is the biggest abuse of executive power and abuse of taxpayer’s money by hank/ben/tim/jim/ed in the modern history. They picked FnF and FnF shareholders as a victims for this fraud.
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Appeals court ruled that FHFA Conservator has unchecked broad powers with bar on judicial review, making it official that FHFA Conservator is an unconstitutional authority. This it self should have been sufficient to void all the decisions (SPAPA, Warrants, NWS) made by the FHFA conservator.
Eventually FHFA conservator will be declared as unconstitutional authority and all decisions will be voided.
Besides FHFA Director can be declared as unconstitutional authority in Collins TX summary judgement motion and HERA itself can be voided completely (there is no severability clause in HERA).
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I suspect that Collins might be stay until PHH vs CFPB En Banc resolved these issues:
1. Is the CFPB’s structure as a single-Director independent agency consistent with Article II of the Constitution and, if not, is the proper remedy to sever the for-cause provision of the statute?
2. May the court appropriately avoid deciding that constitutional question given the panel’s ruling on the statutory issues in this case?
Click to access 15-1177-1661681.pdf
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Related case involving “Artcle 2 section 2 Appointments Clause” for Inferior Officer of US or employee.
“Congress may by law vest the appointment of such inferior officers, as they think proper, in the President alone, in the courts of law, or in the heads of departments.”
Appeals court has asked response to this question in CFPB case.
3. If the en banc court, which has today separately ordered en banc consideration of
Lucia v. SEC, 832 F.3d 277 (D.C. Cir. 2016), concludes in that case that the administrative law judge who handled that case was an inferior officer rather than an employee, what is the appropriate disposition of this case?
————————————
Appellate Courts Split Over Constitutionality of SEC Administrative Proceedings
http://www.clearymawatch.com/2016/12/appellate-courts-split-constitutionality-sec-administrative-proceedings/
————————————
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Is FHFA director “heads of departments” as in Artcle 2 Appointments Clause?
FHFA Director appoints FHFA (FHFA Director) as Conservator, a inferior officer to
exercise considerable power and discretion in carrying out the duties.
Will this appointment be consistent with Artcle 2 Appointments Clause.
Even if FHFA director as “heads of departments” can appoint inferior officers, can he appoint himself as inferior officer a manifest conflict of interest?
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Despite the ongoing lawsuits, Trump admin is on our side. Most Dem too. Our enemy are a few Republicans and Dem. Most Rep don’t care.
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Nice analysis from Mephistopheles
Trying to summarize everything with a 10,000 ft view:
1) Mnuchin once again expressed that conservatorship is not the answer. Together with previous comments that a) he doesn’t want taxpayers at risk and b) he wants to preserve the 30 year mortgage, it’s obvious that he wants privately owned solution.
2) So the question is, will he do this by a) bringing in new capital and screwing over current shareholders, or b) by returning the companies to their current shareholders?
-IMO (a) is much harder, because he’d have to deal with the existing shareholders simultaneously. And how exactly would this work? Would he have to wind them down first, and then sponsor new companies, bring in new private capital? Is there any reasonable way for them to transfer the assets and obligations of FNMA/FMCC to a new private sector company with new shareholder capital? I’m not an expert here but I feel it would a total mess while also having to deal with the legal battles. And let’s not forget that the clock is winding down and these companies will need a new Treasury draw at any moment.
-(b) is the more practical solution. Yes it rewards hedge funds, but it’s the quickest solution. Put an end to the legal battles, NWS, recap, privatize, not have to worry about future capital shortfalls. He has expressed several times that he wants the quickest possible solution. Not only does he want it, but it’s better politically given the almost zero equity left, as well as the lawsuits. And this also brings in huge warrant profits for Trump to spend – wind down doesn’t do that.
He could of course recap them and make them public utilities and have the Govt reap the profits year after year, but that wouldn’t be consistent with 1) not putting taxpayers at risk, 2) taking the huge political and financial windfall from the warrants. I think Trump would rather have 79.9% of the equity minus jr. preferred up front rather than have 100% of the net income for 4 (ok maybe 8 ) years.
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Steven Mnuchin: Housing reform is a priority for me – Fox Business News
https://video.foxbusiness.com/v/5334078062001/?#sp=show-clips
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This guy is a crook and lies with straight face with equally complicit and fake media.
Outright Lies in his talking points.
1. FnF defaulted and drew $180B from Gov
2. Instead of admitting fraud committed by the member banks he points at FnF
3. FnF has Gov guarantees (at no point in time Gov provided Guarantees to FnF)
4. FnF are sitting on Gov risk balance sheet with lot of taxpayer risk exposure
5. FnF bought risky assets with tax payer guarantees
6. Shareholder gains and taxpayer loses
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Treasury Secretary Steven Mnuchin Sees Tax Overhaul by August — 4th Update
Treasury Secretary Steven Mnuchin laid out ambitious goals to secure a U.S. tax-code overhaul by August and to deliver economic growth at rates not seen in more than a decade.
Mr. Mnuchin, in his first interview since his confirmation last week as Treasury secretary, said slower economic growth since the financial crisis had primarily been an anomaly and a result of Obama administration policies that can be reversed. He said the Trump administration is aiming for a sustained 3% or higher annual growth rate, a projection not widely shared by other forecasters.
“We think it’s critical that we get back to more normalized economic growth. More normalized economic growth is 3% or higher,” said Mr. Mnuchin.
Many economists have warned that the U.S. faces slower economic growth because the labor force is expanding less briskly than in the past as baby boomers retire. The economy has grown about 2% on average over the past decade, and other wealthy economies facing similar demographic challenges as the U.S. have seen slower growth rates.
Many economists believe sustained growth at more than 3% annually will be difficult. The Federal Reserve projects a long-run annual growth rate of just 1.8%.
Stronger growth would make it easier for the Trump administration to balance competing goals of cutting taxes and boosting spending on the military and infrastructure without sending deficits much higher. The new administration is working on a budget blueprint due out next month that will be a first step toward reconciling its objectives.
“We will have our own set of financial projections,” he said.
Mr. Mnuchin said the administration was working with House and Senate Republicans to smooth over differences among them on tax policy, with the aim of passing major legislation before Congress leaves for its August recess. He added, “that’s an ambitious timeline. It could slip to later in the year.”
In his first week on the job, Mr. Mnuchin has spoken with around 10 foreign counterparts and other leaders, including International Monetary Fund Director Christine Lagarde. He also has met with Mel Watt, the director of the Federal Housing Finance Agency, the independent regulator of mortgage companies Fannie Mae and Freddie Mac, which are under the effective control of that agency and the U.S. Treasury as a result of their 2008 bailouts.
Mr. Mnuchin, whose confirmation process was the longest for a Treasury secretary in U.S. history, brought a handful of advisers to the agency with him, but it will likely be months before other senior positions that require Senate confirmation are filled. The White House hasn’t nominated anyone for other posts at the department that require Senate approval.
The secretary has been in close contact with National Economic Council director Gary Cohn, his former colleague at Goldman Sachs Group Inc., who emerged as a powerful economic policy maker while Mr. Mnuchin awaited confirmation. The two men have a close relationship, a Treasury official said.
One big question is whether the Trump administration will go along with House Republican plans to make a tax overhaul revenue neutral — meaning lower tax rates won’t add to the deficit. Mr. Mnuchin wouldn’t discuss the administration’s view on that question and instead pointed to stronger economic growth as an engine that will reduce the urgency for major trade-offs in any tax bill.
The House GOP plan doesn’t count solely on growth. It also features limited deductions and a border-adjustment provision that taxes imports and removes taxes from U.S. exports. The plan is projected to generate about $1 trillion over a decade.
The border adjustment provision has run into criticism from large retailers and other importers. U.S. Senators have piled on, too, leaving the idea in trouble without a major presidential push that hasn’t happened and might never come.
Mr. Mnuchin said the administration is “looking seriously” at the House plan that includes border adjustment and was well aware of concerns raised by specific industries. The Treasury Department had its own concerns, he added, “about what the impact may be on the dollar” from a border-adjusted tax.
His comments underscored the challenge the new administration and congressional Republicans face reconciling competing objectives.
With the House plan in potential trouble, a Senate plan nonexistent and the Trump plan incomplete, the GOP’s tax agenda is in search of a guidepost at a crucial moment. Mr. Mnuchin called for a combined plan that would address developing fractures in the party over tax policy.
As Treasury secretary, Mr. Mnuchin also takes on the role as the Trump administration’s leading voice on U.S. currency policy, meaning his every word on the dollar will be closely followed in financial markets.
Mr. Trump has expressed frustration that other countries — most notably China — have used weak currency policies to boost exports. The comments during his campaign and since his election carried with them an implication that the new administration might favor a weaker currency to support the U.S. trade position.
But Mr. Mnuchin avoided taking confrontational positions on the dollar. He said the strong U.S. dollar is a reflection of confidence in the U.S. economy and its performance compared with the rest of the world and was a “good thing” in the long run. The comments echoed remarks Mr. Mnuchin made in a confirmation hearing last month.
The dollar has appreciated by 23% over the past three years and added to those gains since the November election.
“I think the strength of the dollar has a lot to do with kind of where our economy is relative to the rest of the world, and that the dollar continues to be the leading currency in the world, the leading reserve currency and a reflection of the confidence that people have in the U.S. economy,” Mr. Mnuchin said.
The past several administrations have for the most part signaled support for a strong dollar, even though at times an appreciation of the currency has hurt exports.
Mr. Mnuchin demurred when asked about China’s currency and said he looked forward to “healthy bilateral relations” with the world’s second- largest economy.
“There’s trade issues that will make sense to look at, and I think there’s investment issues that will make sense to look at,” he said. “There are many things that we will need to collaborate on.”
During the campaign, Mr. Trump repeatedly promised to brand China as a currency manipulator, but over the past 18 months, China has taken steps to bolster its currency. The Obama administration said that was a sign Beijing had moved away from seeking an unfair trading advantage by keeping the yuan undervalued.
Mr. Mnuchin said those were two separate issues. “One is the issue of currency manipulation, and then one is the issue of whether there’s unfair trading advantages,” he said Wednesday. “They may or may not be related.”
http://news.morningstar.com/all/dow-jones/us-markets/2017022216346/treasury-secretary-steven-mnuchin-sees-tax-overhaul-by-august-4th-update.aspx
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FAIRHOLME PROVIDES UPDATE ON FANNIE MAE AND FREDDIE MAC
Click to access 20170222Release.pdf
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Looking forward to hear what the Treasury secretary says tomorrow morning as much as practically everybody else here.
I doubt if the DJT administration will back away from releasing the GSEs from conservatorship. TH says the treasury secretary will be under pressure from TBTF to make any meaningful reforms from the current “predicament” it is in.
Maybe. Maybe not.
Unconventional political policies are what landed DJT in the White House. Conventional political policies — and especially HRC political connections with TBTF hamstrung her and the dems in November.
Throughout DJT career, from what I’ve heard, he refrained from using banking services in his business dealings as much as he could. If I’m wrong, please correct that.
So, he has no great affinity for TBTF, however both he and Mnuchin know TBTF plays a vital role in the economy. And so they agree on dismantling some aspects of Dodd-Frank. And TBTF has rallied greatly since Nov. 4.
However, don’t we think some sort of compromise needs to be made between TBTF and the GSEs? DJT/Mnuchin have already agreed to some degree of banking deregulation. TBTF really needs to get the message about pigs getting fat and hogs getting slaughtered.
TBTF wants dereg AND more of GSEs bread and butter too? Huh? I’m believing DJT/Mnuchin will need to put their foot (feet) down, draw a line in the sand and say “that’s enough” for TBTF.
The lawmakers in D.C. may not like it. Why? When was the last time GSEs contributed to any of their political campaigns? However, when/how much/how often does TBTF contribute to money and staff to lawmakers’ re-election campaigns? ALL-THE-TIME.
It would be great to hear Mnuchin say the NWS is over tomorrow morning b/c the GSE are now dangerous under-capitalized.
This makes sense to me.
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SP back up………Mnuchin on Fox this AM………appears he has a plan……….
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What Will Happen to GSEs Under the Trump Administration?
https://www.bloomberg.com/news/videos/2017-02-22/what-will-happen-to-gses-under-the-trump-administration
Josh Rosner, Graham Fisher managing director, discusses the outlook for Fannie Mae and Freddie Mac under the Trump administration. He speaks with Bloomberg’s Vonnie Quinn on “Bloomberg Markets.” (Source: Bloomberg)
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Nice moved Steve Mnuchin!
Steve Mnuchin hasn’t been Treasury Secretary for long, but here’s one urgent task: Asking the Justice Department to drop its appeal of a judge’s ruling that rescinded MetLife’s “systemically important” designation.
The matter is urgent because the D.C. Circuit Court of Appeals heard the Obama Administration’s appeal last year and a ruling could come any day. A bad ruling could set a precedent that enshrines too-big-to-fail policies before the Trump Administration has a chance to rewrite banking rules.
In 2014 the Financial Stability Oversight Council (FSOC) deemed MetLife a “systemically important financial institution,” which under the Dodd-Frank Act are subject to bank-style regulations and costs. The insurer sued to revoke the designation, and federal Judge Rosemary Collyer ruled in its favor.
Among other regulatory lapses, Judge Collyer said the council “never projected what the losses would be, which financial institutions would have to actively manage their balance sheets, or how the market would destabilize” if MetLife failed. Adding indignity to incompetence, FSOC didn’t follow its own rules or do a cost-benefit analysis on the designation.
The Obama Administration appealed Judge Collyer’s decision, which the D.C. Circuit agreed to hear in October. Government attorneys argued that Dodd-Frank doesn’t require the oversight council to analyze the cost of its designation—though Judge Collyer ruled to the contrary—and that judges should broadly defer to the council’s experts.
The Trump Administration has said it wants to revisit these Obama-era banking rules, but that job will be easier without judicial precedents that enforce the Obama Treasury’s interpretation of vague statutory language. Mr. Mnuchin and Attorney General Jeff Sessions should get on this case.
google search: Mnuchin’s MetLife Job
It’s time to STOP Obama Administration Treasury, DOJ Attorneys and FHFA from stealing GSEs funds!
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Words from Tim Howard at Howard on Mortgage Finance
Mnuchin probably now realizes that when he made his pledge to “get [Fannie and Freddie] out of the government…reasonably fast” he grabbed a tiger by the tail. As I believe he knows, the right solution to the unsustainable status quo of a “non-conserving conservatorship” for the companies is to make a few simple reforms to them (along the lines I’ve suggested in “Fixing What Works” and elsewhere) and then to release and recapitalize them. But there is intense political opposition to that from the large banks and their allies in Congress. A decision by the DC Court of Appeals remanding the Perry Capital case to the lower court would have given him a compelling reason to negotiate a quick settlement of the suits that included a proposal for how to restructure and recapitalize them. Now he has neither the “forcing event” nor the consequent excuse for urgency.
Yet he has made a public commitment to tackling this problem, and he knows what the right thing to do is. I don’t think he’ll endorse something like Corker-Warner as a safe way out–as much as the banks might wish him to–because I think he knows it won’t work, and that he would be blamed for its failure. And he still has to deal with the plaintiffs in the lawsuits.
After having given a good deal of thought to yesterday’s appellate ruling, I’ve come to the reluctant (reluctant because it does not reflect well on our judicial system) conclusion that Judge Ginsburg switched sides on this issue for political rather than judicial reasons. I have three reasons for thinking that. The first is the weakness of the legal argument made by the majority (Millett and Ginsburg) compared with the argument made by Judge Brown. Second is the fact that, based on my reading of the April 2016 transcript, Ginsburg started on the right side of the argument but by yesterday ended up on the wrong side. The third reason–which I only learned of yesterday–is the connection Ginsburg apparently has with individuals and institutions that historically have passionately opposed Fannie and Freddie. (A tip-off to the access people with this point of view had to the judges was that even the one who ruled in favor of the companies, Janice Rogers Brown, cited the made-up AEI figures for Fannie and Freddie’s alleged holdings of subprime mortgages in her historical summary; she didn’t find that non-fact herself– it found her.) As other commenters on this site have said, yesterday’s majority decision read like it started with a conclusion, then used the best (although still not very good) legal arguments available to justify it.
With the DC District Court of Appeals ruling, the focus now shifts to Judge Sweeney’s Court of Federal Claims, where the same net worth sweep that Judges Millett and Ginsburg opined was legal under their interpretation of the law is being contested as a regulatory taking. Judge Sweeney already has concluded in this case that the facts matter, and the facts do not support the government. And we still have the case in Delaware, that maintains the net worth sweep is illegal under Delaware State law, as well as a likely appeal of the DC Court of Appeals decision to the Supreme Court.
So Mnuchin can’t ignore the lawsuits in whatever he decides to do on mortgage reform. I also don’t see why he would feel any need NOT to benefit existing shareholders with what he does. The reason the big banks haven’t succeeded with legislative mortgage reform in eight years is that they insist on staying as far away as possible from anything that looks like Fannie and Freddie. But Fannie and Freddie have, by far, most effective and efficient secondary market credit guaranty model. Mnuchin knows that, and if you’re going to do something LIKE Fannie and Freddie, it’s folly not to start with the two companies that already exist.
That’s the dilemma Mnuchin now finds himself dealing with. He knows where he wants to go, but he has powerful forces telling him he shouldn’t try to go there, and now he’s got the legal winds in his face rather than at his back. It will be very interesting to see how he responds to these circumstances.
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Would putting the end to NWS ASAP be a constructive step in the meantime?
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All should have great respect for Judge Brown for scholarly legal reasoning and articulation;
Dissenting part extract:
Perhaps it might. But even in a time of exigency, a nation governed by the rule of law cannot transfer broad and unreviewable power to a government entity to do whatsoever it wishes with the assets of these Companies.
Here, Congress did not endow FHFA with unlimited authority to pursue its own ends;
The question is whether the government has violated the legal limits imposed on its own authority.
FHFA pole vaulted over those boundaries, disregarding the plain text of its authorizing statute and engaging in ultra vires conduct.
While I agree with much of the Court’s reasoning, I cannot conclude the anti-injunction provision protects FHFA’s actions here or, more generally, endorses FHFA’s stunningly broad view of its own power.
Plaintiffs— not all innocent and ill-informed investors, to be sure—are betting the rule of law will prevail. In this country, everyone is entitled to win that bet. Therefore, I respectfully dissent from the portion of the Court’s opinion rejecting the Institutional and Class Plaintiffs’ claims as barred by the antiinjunction provision and all resulting legal conclusions.
Here, the Court abdicates this crucial responsibility, blessing FHFA with unreviewable discretion over any action—short of formal liquidation—it takes towards its wards.
(Very good Observation by Judge Brown:)
HERA’s provision for judicial review over a claim promptly filed “within 30 days” of the Director’s decision to appoint a conservator or receiver further indicates Congress contemplated continuity of the conservator or receiver role during the period the conservatorship or receivership endured. 12 U.S.C. § 4617(a)(5). Here, therefore, in
transitioning sub silencio from the conservator to receiver role, FHFA has escaped the statute’s contemplated, though admittedly brief, period for judicial review following the transition.
Insulating all actions within the conservator role is an entirely different proposition from exempting actions outside that role, and this Circuit’s precedent leaves no doubt that a thorough analysis is required to determine where on the continuum an agency stands before applying FIRREA’s—or HERA’s—anti-injunction clause to bar a plaintiff’s claims.
A proper reading of the statute prevents FHFA from exceeding the bounds of the conservator role and behaving as a de facto receiver.
Treasury was no longer another, admittedly very important, investor entitled to a preferred share of the Companies’ profits; it had received a contractual right from FHFA to loot the Companies to the guaranteed exclusion of all other investors.
FHFA’s decision to strip these cash reserves from Fannie and Freddie, consistently divesting the Companies of their near-entire net worth, is plainly antithetical to a conservator’s charge to “preserve and conserve” the Companies’ assets.
But instead of acknowledging the reality of the Companies’ situation, the Court hides behind a false
formalism, establishing a dangerous precedent for future acts of FHFA, the FDIC, and even common law conservators.
Now investors in regulated industries must invest cognizant of the risk that some conservators may abrogate their property rights entirely in a process that circumvents the clear procedures of bankruptcy law, FIRREA, and HERA. Consequently, equity in these corporations will decrease as investors discount their expected value to account for the increased uncertainty—indeed if allegations of regulatory overreach are entirely insulated from judicial review, private capital may even become sparse. Certainly, capital will become more expensive, and potentially prohibitively expensive during times of financial distress, for all regulated financial institutions.
Conservation is not a synonym for nationalization. Confiscation may be. But HERA did not authorize either, and FHFA may not do covertly what Congress did not authorize explicitly. What might serve in a banana republic will not do in a constitutional one.
FHFA, like the FDIC before it, was given broad powers to enable it to respond in a perilous time in U.S. financial history. But with great power comes great responsibility. Here, those responsibilities and the authority FHFA received to address them were well-defined, and yet FHFA disregarded them. In so doing, FHFA abandoned the protection of the anti-injunction provision, and it should be required to defend against the Institutional and Class Plaintiffs’ claims.
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If an FHFA representative goes into Fannie building and steals a chair for his office, can he be sued in court?
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Plaintiffs should have asked Appeals Court to rule on this question. All employees/agencies are subject to same rules except when all the branches collaborate with each other against private shareholder companies..
If FHFA conservator were to be a private party, all the State and US law the enforcement agencies and regulators would have been after him.
What matters is for whom conservatorship is working and where the money is going.
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Does anyone know why the FnF stocks crashed today?
In way it was a great victory for shareholders compared to defendants.
1. Court affirmed Direct claims related to Contract Rights of shareholders.
2. Court ruled that Case is ripe for court review.
3. Remanded the claims for alleged breach of contract and breach of the implied covenant of good faith and fair dealing regarding liquidation preferences and the claim for breach of the implied covenant with respect to dividend rights.
Basically it was legal, political and ideological compromise ruling, very conveniently wrapped in legal verbiage. Probably by design, they started with end results in mind and then reverse engineered the ruling.
Court cleared FHFA/Tsy with any wrong doing allowing FHFA/Tsy to continue to do what ever they are doing. Then remanded the case to lowers court for direct claims related to Contract Rights of shareholders.
In essence court gave both the parties what they wanted in part and denied in part making it easy as well as compelling for both the parties to settle the case.
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Investors Unite: D.C. Circuit Acknowledges Shareholders Have Direct Contract Rights
WASHINGTON – Investors Unite Founder Tim Pagliara released the following statement in response to today’s decision by the D.C. Circuit Court of Appeals:
“We are pleased that the D.C. Circuit acknowledged that shareholders have direct contract rights which must be respected and we look forward to a resolution of those rights. We respectfully disagree with the opinion that FHFA has the power to do whatever it wants with Fannie Mae and Freddie Mac. Neither HERA, nor any other statute gives it such power. Meanwhile, the net worth sweep continues to place the U.S. taxpayer at risk by depriving these companies of adequate capital. We hope that the Trump Administration will put an end to this wrong by ending the sweep now and restoring the rights of shareholders.”
http://investorsunite.org/investors-unite-d-c-circuit-acknowledges-shareholders-direct-contract-rights/
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Judge Brown, the only one who sees the forrest and not just the trees. She “gets it” in her lucid, well-supported dissent.
“The word “conservator,” therefore, is not an infinitely malleable term that may be stretched and contorted to encompass FHFA’s conduct here and insulate Plaintiffs’ APA claims from judicial review.”
“The Court suggests FHFA’s incidental power to, “as conservator or receiver[,] . . . take any action authorized by [Section 4617], which the Agency determines is in the best interests of the regulated entity or the Agency” in 12 U.S.C. § 4617(b)(2)(J)(ii) erases any outer limit to FHFA’s statutory powers despite the common law definition of “conservator” and, therefore, forecloses any opportunity for meaningful judicial review of FHFA’s actions in conducting its so-called conservatorship at the time of the Third Amendment.”
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The other two judges did not see trees, or leaves, or branches. They notices Kim, Stalin, and Lenin smiling at them.
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One loss of government is sufficient.
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Plaintiff would better appeal to Supreme Court.
Congress enacted an unconstitutional law that allowed FHFA to do anything including confiscation without compensation.
It is obvious to common Joe, but not to the judges.
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This is not a full loss or full win for both the parties.
This is how court decide when Gov is a defendant.
Share holders won with these points:
“With respect to the class plaintiffs’ claims, we affirm
the judgment of the district court on all claims except for the
claims alleging breach of contract and breach of the implied
covenant of good faith and fair dealing regarding liquidation
preferences and the claim for breach of the implied covenant
with respect to dividend rights, which claims we remand for
further proceedings consistent with this opinion.”
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Ruling out
Click to access 14-5243-1662090.pdf
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GSE YIELDS FOREVER
Let me show you how we robbed the GSEs
Their Profits we steal
And no one’s gotten hung about it
GSE yields forever.
Fooling the people was easy
They misunderstand what they see
It wasn’t hard to plant lies in the Media
We’re bulletproof now you see…
Let me tell you how we stole the GSE yields
Their Profits we steal
Not one SEC indictment over it
GSE yields forever.
No one in the Media digs up the facts
I mean these journalists are hacks
Or else they can’t tell the truth or are just shills
Lawsuits will prove they were had…
Let me show you how Treasury stole the GSEs
See what they done wrong
You’ll want them all hung about…
GSE yields forever.
Let me tell you now we’re gonna keep the pressure on
Call them out on their wrongs
And get them all hung about…
GSE yields forever
GSE yields forever
GSE yields forever
[Mr. Capuano questions Mr. Lew on Capitol Hill]
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FnF shareholders have been complaining about fake media, fake financial establishment and their fake narratives since 2008.
Now we have POTUS DJT who completely agrees with us.
It is time to see justice from POTUS DJT if not from blind Lady Justice.
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It is amazing that Perry appeal process has taken more than 50 months (Judge Lamberth summary judgment on 09/30/2014 ) and still FnF shareholders do not have resolution.
Can anyone guess why would it take more than 10 months to decide in appeals court?
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Government has to Honor Contracts Period, if not markets are doomed!
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Mnuchin must bring transparency to Fannie Mae and Freddie Mac
Now that he has been confirmed, Treasury Secretary Steven Mnuchin has a lot on his plate. He needs to do what he can administratively to reduce the crushing burden of the Dodd-Frank Act on small banks and credit unions. He also needs to work with Congress on major legislative fixes such as the forthcoming Financial Choice Act from House Financial Services Committee Chairman Jeb Hensarling (R-TX), a restructuring of the convoluted housing finance system, and comprehensive tax reform.
-more-
https://cei.org/blog/mnuchin-must-bring-transparency-fannie-mae-and-freddie-mac
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Full reversal of Judge Royce Lamberth’s decision is coming this Friday, February, 24th in the Perry case
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oh yeah, another week away date…
That is what you did the entire last year.
Someday you will be right..
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Ok Glenn Bradford… Thought TH717 told everyone that this guy was Glenn.
Please delete thread by Justicehasbeenserved and then block him.
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Best option is to ignore, rather than get excited about it and start responding to it.
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In his response, Mnuchin wrote that “any solution will be dependent upon the GSEs being capitalized properly and other such controls that eliminate risk to taxpayers.”
https://www.bloomberg.com/politics/articles/2017-01-28/mnuchin-dims-banks-hopes-he-will-allow-a-prop-trading-revival
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Could Latest Fannie and Freddie Earnings Releases Signal a Halt to Sweep?
– February 17, 2017
With the latest quarterly/full-year earnings releases of Fannie Mae and Freddie Mac, it is easy to regard the news with a sense of “here we go again” – more earning snatched up by Treasury. But maybe not. Could the two home finance giants be on the verge of retaining their earnings?
On Thursday, Freddie Mac announced its Q4 and full year earnings for 2016, declaring, net income of $7.8 billion for the full year of 2016, the fifth straight year of positive earnings. This amounts to “nearly $106 billion returned to taxpayers, including scheduled March 2017 payment.”
Note the word “scheduled.” Previous year-end statements referred to dividend payments to Treasury as a fait accompli. Maybe the time has come for Freddie to do what other companies do – retain earnings and maintain a capital buffer.
Meanwhile, Fannie Mae today announced the company had paid a total of $9.6 billion in dividends to Treasury in 2016 and added, “The company expects to pay Treasury $5.5 billion in dividends in March 2017. With the expected March 2017 dividend payment, Fannie Mae will have paid a total of $159.9 billion in dividends to Treasury.”
To be clear, there has been no bold declaration that the quarterly sweep of earnings by Treasury is about to come to an end. However, it is worth taking stock of the fact that these companies have undertaken reforms and have been operating profitably for years. They are not behemoths teetering on what was perceived as insolvency as they were in the frenzied turmoil of the 2008 financial crisis. As such, it would be a welcome shift by the Treasury Department and the Federal Housing Finance Agency to come together and enable to companies to start retaining their earnings and building up capital.
Naturally, shareholders would welcome this development. Over the last eight years, too many policymakers seemed to have forgotten that, despite the government charter and conservatorship, Fannie and Freddie are privately held companies. The earnings, far in excess of the $187.5 billion the government provided to stave off a possible emergency in 2008, belong to shareholders.
A reconsideration of the policy that has routinely stripped the company of their earnings would also be welcome news for taxpayers, who would benefit from a return to the important and traditional regulatory concern of safety and soundness. Almost exactly one year ago today, Investor Unite Executive Director Tim Pagliara lauded FHFA Director Mel Watt for his forthrightness in discussing the possibility that government sponsored enterprises without inadequate capital buffers presented the risk of the companies having to once again draw from the Treasury – meaning taxpayers – to cover possible losses.
The 2008 crisis revealed the need to make improvements in federal policy so Americans could benefit from a healthy, liquid secondary mortgage market. The longtime pillars of this market, Fannie and Freddie, have been profitable since at least 2012. It is becoming clearer every day that they are companies that have been transformed in many ways. And yet, the conservatorship and Net Profit Sweep remain the glaring absurdities of the post-crisis financial world. Two of the largest financial institutions on earth have been forced to actively whittle down their capital reserves to absolutely nothing.
There have been signs that the Trump Administration wants to shed the legacy of inaction on housing reform during the Obama years. If the routine handover of earnings is now regarded as merely an expected or scheduled transaction, rather than firmly committed action, that could be additional evidence that policymakers are looking at the companies less as piggy banks and more as profitable enterprises that need to be run responsibly. This would be a long overdue policy imperative that would be good news for shareholders and taxpayers alike.
http://investorsunite.org/latest-fannie-freddie-earnings-releases-signal-halt-sweep/
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Latest Documents Confirm Government Scheme to Snag GSE Profits
February 16, 2017
Here we go again. More documents and more evidence that government officials were saying one thing and thinking another with regard to the Net Worth Sweep.
Newly released documents demonstrate that just prior to implementing the so-called Net Worth Sweep to the Fannie Mae/Freddie Mac conservatorship in the summer of 2012, Treasury officials fully expected the companies to start generating substantial income. There was no “death spiral” as government lawyers subsequently asserted in court. There was just a tempting pot of money to use for whatever the Administration wanted.
So, can shareholders substantiate their claim that the Net Worth Sweep resulted in a “taking” of property without compensation, in violation of the 5th Amendment to the U.S. Constitution? With each new document released, the answer is unquestionably “yes!”
Among the latest documents, there is a July 20, 2012 email from Treasury Under Secretary for Domestic Finance Mary Miller to several senior Treasury officials and Brian Deese in the White House, which explained an attached document was, “…our collective thoughts on how to signal a plan to amend the PSPAs (preferred stock purchase agreements).” She noted Treasury Secretary Tim Geithner asked to see this as well.
Among the thoughts on how to “signal” the change were the following:
– Under the Net Worth Sweep “the taxpayer will benefit from all future earnings of the GSEs. Under the current framework we are limited to the 10% dividend.”
– “We believe the taxpayers will be in a better position to benefit from any GSE profits as they are wound down.”
– “Is the taxpayer in a worse off position?”
– “No – they are in a better position. Under the current arrangement Treasury’s upside was capped at the 10% dividend, now the taxpayer will be the beneficiary of any future earnings produced by the GSEs.”
Since enacting the Net Worth Sweep, the government has consistently claimed that its actions benefitted the U.S. taxpayer. But these documents demonstrate something else: There was no death spiral that the taxpayer needed to be protected from. The government knew that Fannie and Freddie were on the verge of becoming hugely profitable, and the officials who perpetrated the Sweep wanted that money. In perpetuating the sweep and draining the companies of their capital, the government actually placed the taxpayer at more risk. The government’s Orweillian claims about protecting the taxpayer are wearing thin, and we wonder how much longer they can credibly make this argument.
Further underscoring this point, in yet another document, Anne Eberhardt, of the outside audit firm Grant Thornton, emailed a document to government officials on June 29, 2012, that focuses, in part, on the “deferred tax assets” of Fannie and Freddie. This accounting sleight of hand has long been the focus of efforts to clarify how government officials assessed the financial condition of Fannie and Freddie. With an expected windfall as the companies returned to profitability, Treasury officials enacted the Sweep to get their hands on the cash instead of allowing Fannie and Freddie to use the assets to rebuild their net worth. Ironically, Geithner wrote recently in Foreign Affairs that the country is safer for now from a repeat of the 2008 financial crisis, partially because banks are required to have larger capital cushions.
The Eberhardt email is important because the government has consistently relied on financial information from Grant Thornton to argue its case in Court. Now unsealed material by Grant Thornton employees is helping to rebut the government’s arguments: Recall that among seven documents released last spring was a deposition from former Treasury official Mario Ugoletti regarding the deferred tax assets that, at best, raised serious questions about how transparent government officials were regarding their knowledge of the companies’ financial situation. Ugoletti may have committed perjury, but a more important question for the Justice Department is who else at Treasury has been misrepresenting the facts to Courts?
The Trump Administration inherited a conservatorship that has been dragged out and mismanaged and a legacy of embarrassing defeats in court. No doubt, incoming Treasury Secretary Mnuchin and other officials in the new Administration will be increasingly eager to come clean about the facts and distance themselves from the legal and financial mess the Obama Administration left behind.
To find more Investors Unite blogs click here.
http://investorsunite.org/latest-documents-confirm-government-scheme-snag-gse-profits/
About Investors Unite: Formed by Tennessee activist investor and CapWealth Advisors Chairman and CEO, Tim Pagliara, Investors Unite (www.investorsunite.org) is a coalition of private investors from all walks of life, committed to the preservation of shareholder rights for all invested in Fannie Mae and Freddie Mac. The coalition works to educate shareholders and lawmakers on the importance of adopting GSE reform that fully respects the legal rights of Fannie Mae and Freddie Mac shareholders and offers full restitution on investments.
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Warrants: Exercise or not to Exercise, the Pros and Cons (feel free to add to the list)
Pros of Exercising Warrants:
1. Government receives a huge amount of shares from GSEs with significant value
2. It may satisfy members of Congress requests to support taxpayers while limiting shareholders’ gains
3. It will prevent Treasury from selling shares until after 2018.
Cons of Exercising Warrants:
1. It will prevent Treasury from selling shares until after 2018
2. Future investors may NOT fund the recapitalization of either GSEs due to Government’s bad faith
3. Set poor precedent
4. Eliminate a quick recapitalization and release
Pros of NOT Exercising Warrants:
1. It will establish good will and faith with the Government
2. It will help set recapitalization in the secondary market much easier
3. It will preserve and conserve assets of the both GSEs.
4. It will put both GSEs in a sound and solvent condition
5. It will allow Treasury to act administratively to resolve conservatorship without Congress approval.
6. Current shareholders are made whole
7. Most if not all litigation would end
8. Rule of Law prevails
9. Supports fast for reform, recap, re-list and release
Cons of NOT Exercising Warrants:
1. Many members of Congress will be upset
2. Government expropriation stops
3. No more money for the general fund (Obamacare)
What will Mnuchin, Treasury Secretary going to do?
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I think the warrants are unethical but the statute of limitations, unless the existing lawsuits are amended to include challenges to the entire conservatorship by means of new judge sweeney documents. i dunno nap time!
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Regarding statutes of limitations: how is the conservatorship different from a kidnapping? The statutes should start running the day after our companies are released and the common shareholder rights are reinstated.
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Just a thought Glen.
If defendant loses in Appeals Court or any court of competent jurisdiction that meets section 6.7, Purchaser (Treasury) may declare this SPSPA null and void and warrants rescinded.
I believe this would be the quickest way Cohn, Mnuchin, Sessions and Watt could remove government from GSEs ownership. I don’t believe this action would violate the 2016 Appropriations Act. Therefore, there is no need to wait until 2018 to act.
The statute of limitations would not come in play if the current administration follows above roadmap to nullified and voided the agreement and rescind the warrants.
6.7. Effect of Order; Injunction; Decree. If any order, injunction or decree is issued by any court of competent jurisdiction that vacates, modifies, amends, conditions, enjoins, stays or otherwise affects the appointment of Conservator as conservator of Seller or otherwise curtails Conservator’s powers as such conservator (except in each case any order converting the conservator- ship to a receivership under Section 1367(a) of the FHE Act), Purchaser may by written notice to Conservator and Seller declare this Agreement null and void, whereupon all transfers hereunder (including the issuance of the Senior Preferred Stock and the Warrant and any funding of the Commitment) shall be rescinded and unwound and all obligations of the parties (other than to effectuate such rescission and unwind) shall immediately and automatically terminate.
Click to access 2008-9-26_SPSPA_FannieMae_RestatedAgreement_N508.pdf
Btw, I’m trying to keep this under the radar in case this is under consideration.
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thanks …
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The biggest obstacle to recap is Sr Preferred Stock (SPS), the concrete life saver tied to FnF. Currently Sr Preferred Stock capital is treated as debt and is not considered as core capital because of cumulative dividend terms. Unless SPS are fully redeemed there is not a chance to RRR FnF.
The below 4 steps seem to be good way to RRR FnF.
The fist step should be: fully redeemed SPS
Untie the concrete life savers by enacting Rep. Capuano bill Bill H.R.491 or implement the same through administrative changes to SPSPA.
The second step should be: Release and Relist
Release FnF from Conservatorship and relist the stocks on regular exchanges with Gov commitment on next 2 steps. This step is to re-establish trust in investors and allow discovery of fair market price for FnF common stocks.
The third step should be: Recapitalize
If Gov wants to exercise warrants then it should be at fair market price with option for all investors to participate. This would recapitalize FnF and will also be fair to existing common shareholders.
The fourth step should be: Re-instate capital requirements
Re-instate smart capital requirements based on product, risk category, geography etc..
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obiterdictum summarizes the recent court filings – Investors Hub
Any significance of the treasury and FHFA being unopposed to the most recent motion?
The most recent motion is to unseal Fairholme’s third motion. That motion to unseal the third motion is unopposed by the Defendants. The motion to unseal the third motion is not yet granted or denied. Whether, the unsealing is granted or denied, the case goes forward. What is more relevant is whether or not the Third Motion itself will be granted or denied.
Here is what happened recently:
1. On 2/08/17, the Defendants, Treasury and FHFA filed an opposition to Fairholme’s sealed third motion for judicial notice and supplementation of the record and ask the Court to deny the third motion. The third motion was sealed.
2. On 2/14/17, the Plaintiffs submitted an unopposed motion to unseal Fairholme’s sealed third motion for judicial notice and supplementation of the record and requested that this motion to unseal should be granted. This motion is for unsealing the third motion. Since it is an unopposed motion, it most likely that unsealing will be granted.
3. Given the CADC and CFC Writ of Mandamus rulings and orders, Treasury and FHFA are not opposed to the unsealing of the third motion.
4. Even so, Treasury and FHFA remain opposed to the third motion for judicial notice and supplementation of the record (whether it is sealed or unsealed).
5. That being so, on 2/14/17, the Plaintiffs argue against the Defendants’ opposition filing to the third motion (2/08/17) and in their reply, Plaintiffs direct the Court to take judicial notice and to supplement the record with the documents attached to Fairholme’s motion.
We await Court’s decisions to grant or deny both motions. One to unseal the third motion, and the other, the third motion itself.
All of the related filings are listed below.
Sources:
Defendants Opposing Third Motion – 2/08/17
Click to access 14-5243-1660072.pdf
Click to access 14-5243-1660118.pdf
Motion to Unseal Third Motion – 2/14/17
Click to access 14-5243-1661267.pdf
Plaintiffs Reply to the 2/08/17 Opposition to the Third Motion – 2/14/17
Click to access 14-5243-1661268.pdf
CADC Writ of Mandamus Order
Click to access 17-1122-0018.pdf
CFC Writ of Mandamus Order
Click to access 13-465-0353.pdf
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thank you for the update. Welcome back.
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Just thought of something. Mnunchin can’t announce pro-GSE policies until he sells his shares in the hedge funds that own GSE stocks and eliminate any conflict of interest. Once that is done though …
Be interesting to know if he’s divested yet
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We are back online! Any idea what happened to the other timhoward717 site?
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Nice to see this site back up………..Dean
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