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Wednesday, December 16, 2015

Who cares if Treasury expected a GSE downward spiral? + The Bob Corker Story Has Legs

What did they know when they enacted the 3rd Amendment Sweep?

What did they know and when did they know it? That seems to be the big question hovering over the litigation in the Judge Sweeney’s Court. The government says that in mid-2012—after turnarounds in the Los Angeles, Phoenix, Miami and Las Vegas housing markets were apparent — Treasury and FHFA suddenly feared that the GSEs might fall into a death spiral. So, to protect the Fannie and Freddie, they executed the Third Amendment to the Senior Preferred Stock Purchase Agreement.

The deal drained the GSEs of all prospective earnings by way of cash dividends.What did the companies get in return? Possible relief from their pre-existing obligation to pay $4.7 billion in senior preferred dividends each quarter. Whenever GSEs failed to generate earnings to cover the $4.7 billion to make the preexisting payout obligation, they would be relieved of such obligation. Government officials claim they had no idea whatsoever that the GSEs were going to generate $100 billion in earnings in early 2013, because of reversals of non-cash accounting provisions.

Well that makes about as much sense as pork sushi. On what planet would anyone drain an undercapitalized financial institution, in conservatorship, of all equity? It’s a complete perversion of American laws governing bankruptcy and conservatorship. The conservator’s statutory obligation is to restore the GSEs’ soundness and solvency. He may wind down the GSEs’ affairs after he declares that conservatorship has ended and going forward the GSEs are in receivership. But he never announced any such thing because he didn’t want to destabilize the mortgage markets, and because he could not say the conservatorship had failed when its operating earnings were continuing to improve.

The bargain afforded the GSEs no consideration, an essential element of any binding contract, last I checked. No dividend payment is a firm legal obligation to make a cash payment on a date certain. So foregoing that obligation doesn’t meet the definition of consideration.

I think that cuts to the chase. The transaction is exactly what it looks like, a plot to demolish the GSEs without the requisite authority of Congress, which chartered both companies.

It sure sounds like the government doesn’t want to open up a can of worms. Which is why it’s been stalling plaintiffs’ discovery in the Court of Claims. 

Let’s not forget, Treasury was perfectly transparent about its intentions on August 17, 2012, when it announced the, “Income Sweep of All Future Fannie Mae and Freddie Mac Earnings.” Treasury would be, “acting upon the commitment made in the Administration’s 2011 White Paper that the GSEs will be wound down and will not be allowed to retain profits, rebuild capital, and return to the market in their prior form.”

One little problem, which is apparent to anyone who read the White Paper and see that Treasury made no such commitment, since it had no legal authority to do so. The 2011 document simply presented policy recommendations to Congress. All recommendations were predicated on Congress abolishing the GSEs. 

The White Paper shows that Treasury made an entirely different commitment:
As the market improves and Fannie Mae and Freddie Mac are wound down, it should be clear that the government is committed to ensuring that Fannie Mae and Freddie Mac have sufficient capital to perform under any guarantees issued now or in the future and the ability to meet any of their debt obligations.
The August 2012 press release is a triumph of Orwellian doublespeak. Draining the GSEs of all equity, said the release, would be:
· Supporting the continued flow of mortgage credit by providing borrowers, market participants, and taxpayers with additional confidence in the ability of the GSEs to meet their commitments while operating under conservatorship.
· Providing greater market certainty regarding the financial strength of the GSEs.
How stupid does Treasury think we are? Answer: Very. How stupid do Treasury’s lawyers think Federal judges are? Answer: Very. Judge Sweeney shows extraordinary patience.
I’ve been told that people in The White House feel that Geithner misled them. Unlike others within the Department of Treasury, Geithner refused to countenance any discussion that might consider the possibility that the GSES might survive. Geithner certainly misled the American people.

Corker’s Very Active, And Heretofore Undisclosed, Trading

From what I’ve seen, The Wall Street Journal story on Bob Corker doesn’t really capture the magnitude of illicit trading he’s been doing. The volume of individual trades that he executed over two-day periods, would leave him scant time for his day job. I think more will be coming. If you’re not familiar with the term, “front loading,” look it up.



  1. All know that death spiral was a open secret lie.
    Third amendment was continuation of Fraud of 2008.

    There is duplicity in Third amendment death spiral lie.

    They said without third amendment FnF would get in to death spiral and may die on their own.
    Without third amendment FnF had some chance to survive.

    What about third amendment?
    Third amendment was like murdering FnF with thousand cuts and then bleeding them to death without giving them any chance to survive?

    Which one is better and which one is lawful?

  2. This comes in the Department of Oh what a tangled web....

    Treasury was perfectly transparent when it acted, and there was no plausible justification if you read the law or understood basic concepts of corporate governance, so they made up an implausible story, which fails the laugh test, in hopes they could fool someone like Royce Lamberth.

    1. Judge Royce Lamberth's judgment is still a mystery.
      Judge Royce Lamberth does not seem to be supporter of Gov in traditional sense.
      Only future will tell.

  3. The only thing in a downward spiral was the banking industry. So the US Govt. went to the only source able to rescue the banks and the US Govt., FNMA and FMCC. "They were the engine we needed" per Hank Paulson. However so outrageous was the govt's plan that they had to, per Hank Paulson, surprise attack FNMA and FMCC so fast that "the first thing they will hear is the sound of there heads hitting the ground". Sounds like an ethical and legal way of asking a private company to help the govt. out of its mess right? Not!

    Then for the Obama administration and the US Treasury to have the nerve to say we shareholders have not paid back the bailout money forced upon us via accounting fraud because we "owe them for the backing of the companies during conservatorship" when it is THEY WHO NEEDED US to fix their mess shows just how easily our government lets lies flow from their lips. Never mind the fact the govt. has seized over 50 billion dollars over the amount forced upon the companies and shareholders, the fact that neither FNMA or FMCC were in any of the 12 situations required to be placed in to conservatorship.

    The US Government and banking system owe FNMA and FMCC shareholders for bailing them out, not other way around.

  4. Courts should recognize these facts and make Govt pay FnF appropriate fees for their use to bailout Gov and Banking, Insurance and Finance sector.

    All need to repeat the below truths every time there exists an opportunity.

    FnF are private shareholder companies without any Gov guarantees.
    FnF are NOT Gov agencies.
    Gov does NOT own FnF in any sense.
    Gov does NOT provide any sort of Guarantees to FnF.
    Gov never paid FnF for the unfunded social mandates.

    Gov has never incurred any losses in the history of FnF as private shareholder companies.
    So "private profits and public losses" is a Big Lie to commit fraud against FnF shareholders.

    FnF were regulatory compliant for capital and liquidity requirements.
    FnF were more than adequately capitalized with more than enough liquidity and cash profits to meet all their obligations for many years without any support from Gov.
    FnF had AAA assets in trillions as collaterals to borrow at very low markets rates and never needed highly toxic SPSPA credit line at usury interest rates.
    FnF never needed SPSPA credit line and Taxpayers were never at risk, so there was NO need for 80% equity warrants to be issued for free. Also there is no need pay any commitment fees because FnF never needed SPSPA creditline.

    If FnF were a failed business model and if FnF were insolvent and bankrupt, where are the supporting facts?
    How could FnF pay back all the highly toxic SPSPA loans with $100B profit to Gov in no time?
    How could FnF become most profitable companies the world in no time?
    How could FnF become profitable for foreseeable future in no time?

    FnF are private shareholder companies dedicated to public policy purposes.
    FnF are the unsung and most vilified heroes that saved the economy from bankruptcy.

    How is that there have been no criminal or civil cases of any sort against FnF for any wrong doing but still under perpetual conservatorship?

    On the other hand countless banks and FIs have been prosecuted for all sorts of criminal or civil violations and have been made to pay very large civil and criminal fines in Billions to FnF/FHFA. But these banks and FIs have never been under any conservatorship and their shareholders are getting all the benefits of stock appreciations and dividends.
    The worst part is, there are many toxic plans to wipe out FnF and FnF shareholders and give their highly profitable businesses to the same banks and FIs that were the cause of 2008 crisis and also who have admitted to countless civil and criminal wrong doings.

    Why conservator has gagged FnF for more than 7 years and at the same time allowed others to lobby against FnF with no holds barred?

  5. These truths can be used for public awareness ads in media. Institutional investors should start ads in media. This is the most effective way to counter propaganda of lies. FnF haters will run away once these truths start appearing in media.

    David, Is there a you can influence this or promote the idea?