Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 2675061 times)

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9970 on: June 13, 2018, 10:47:21 AM »
Also keep in mind the Moelis plan had a 3-4 year timeline, pre tax reform. Since tax reform passed, GSEs earnings are materially boosted which will lead to quicker build up of retained earnings. What was 3-4 years pre tax reform is now 2-3 years. So still on schedule for 2020.

Good point, but every NWS dividend sent out makes things worse. Unless one expects Treasury to send back overpayments past the 10% moment (I don't), time is still working against Mnuchin.

Our best hope now, perhaps, is another letter agreement upping the capital reserve to $12B or so per company to account for the rest of 2018's earnings, assuming Mnuchin really does want to wait out the current Congress. Mnuchin has said he wants to work with Watt's successor, but Josh Rosner makes a good point that given how slow the Senate has been to confirm appointments, Watt won't necessarily be stepping down immediately in January 2019.


Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9971 on: June 13, 2018, 01:35:53 PM »
Rosner's paper on FHFA Capital Requirements... https://www.scribd.com/document/381737512/GF-Co-FHFA-s-Proposed-Capital-Rule

PDF attached...
« Last Edit: June 13, 2018, 01:58:58 PM by Luke 5:32 »

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9972 on: June 13, 2018, 02:01:07 PM »
Rosner's paper on FHFA Capital Requirements... https://www.scribd.com/document/381737512/GF-Co-FHFA-s-Proposed-Capital-Rule

Wow, shots fired. I wonder why nobody has tried a lawsuit challenging these aspects of Watt and FHFA's behavior without going after the NWS itself, so as to not get the case consolidated with others. Since this is a duty of the Director, and not the Conservator, the 4617(f) bar cannot apply.

Even then I would love to hear a Congressional committee ask Watt directly why he has chosen to suspend capital standards when he has no statutory authority to do so. The idea that Treasury's backstop can substitute for capital is indefensible, and points to some level of hypocrisy given FHFA's use of the statutes to defend their choices in the capital requirements paper.

Heck, the capital standards paper from yesterday should have been done long ago. And not just that, the standards need to be enforced. It's in HERA section 1361(a)(1): (emphasis added)

Quote
‘(a) In General-

    ‘(1) ENTERPRISES- The Director shall, by regulation, establish risk-based capital requirements for the enterprises to ensure that the enterprises operate in a safe and sound manner, maintaining sufficient capital and reserves to support the risks that arise in the operations and management of the enterprises.

These requirements trigger specific other duties by FHFA and the companies as the levels are breached. Since maintaining sufficient capital is a "shall", then doesn't every NWS payment violate this section, especially since not having capital requirements isn't a statutorially (sp?) authorized option? Especially because the SPSPAs cannot override HERA.


Let's go further. Section 1313(a)(1)(B)(i): (emphasis added)

Quote
(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;

Hard to square NWS payments with the maintenance of adequate capital. Unless you decide that zero capital is adequate? Or that if no capital standards exist, neither does the notion of "adequate capital"?
« Last Edit: June 13, 2018, 02:41:56 PM by Midas79 »

rros

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9973 on: June 13, 2018, 03:21:26 PM »
Rosner's paper on FHFA Capital Requirements... https://www.scribd.com/document/381737512/GF-Co-FHFA-s-Proposed-Capital-Rule

Wow, shots fired. I wonder why nobody has tried a lawsuit challenging these aspects of Watt and FHFA's behavior without going after the NWS itself, so as to not get the case consolidated with others. Since this is a duty of the Director, and not the Conservator, the 4617(f) bar cannot apply.

Even then I would love to hear a Congressional committee ask Watt directly why he has chosen to suspend capital standards when he has no statutory authority to do so. The idea that Treasury's backstop can substitute for capital is indefensible, and points to some level of hypocrisy given FHFA's use of the statutes to defend their choices in the capital requirements paper.

Heck, the capital standards paper from yesterday should have been done long ago. And not just that, the standards need to be enforced. It's in HERA section 1361(a)(1): (emphasis added)

Quote
‘(a) In General-

    ‘(1) ENTERPRISES- The Director shall, by regulation, establish risk-based capital requirements for the enterprises to ensure that the enterprises operate in a safe and sound manner, maintaining sufficient capital and reserves to support the risks that arise in the operations and management of the enterprises.

These requirements trigger specific other duties by FHFA and the companies as the levels are breached. Since maintaining sufficient capital is a "shall", then doesn't every NWS payment violate this section, especially since not having capital requirements isn't a statutorially (sp?) authorized option? Especially because the SPSPAs cannot override HERA.


Let's go further. Section 1313(a)(1)(B)(i): (emphasis added)

Quote
(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;

Hard to square NWS payments with the maintenance of adequate capital. Unless you decide that zero capital is adequate? Or that if no capital standards exist, neither does the notion of "adequate capital"?
Between HERA and the NWS, James Lockhart (OFHEO) suspended the capital framework making that section of HERA irrelevant (to this day). He did it within weeks of HERA being signed into law. This made possible for the companies to bear losses and operate under-capitalized without risking receivership. Watt (and Geithner) have been asked about this repeatedly in many congressional hearings. Originally, Watt would say he "inherited" the problem. Later, he understood and "owned" it. But I agree with you, it's all a farce.

They have all used the suspension of the capital framework to suspend things in time. Literally. An indefinite time out.
« Last Edit: June 13, 2018, 03:24:02 PM by rros »

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9974 on: June 13, 2018, 04:50:47 PM »
12  U.S.C.  §  4623(d) limits court review of "director" actions.  this was taken up at judge Ginsburg's insistence in the perry appeal.

rros

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9975 on: June 14, 2018, 05:37:34 AM »
12  U.S.C.  §  4623(d) limits court review of "director" actions.  this was taken up at judge Ginsburg's insistence in the perry appeal.
Thanks!

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9976 on: June 14, 2018, 07:44:43 AM »
12  U.S.C.  §  4623(d) limits court review of "director" actions.  this was taken up at judge Ginsburg's insistence in the perry appeal.

Thanks, I didn't know about that.

The text reads:

Quote
(d) Limitation on jurisdiction

Except as provided in this section, no court shall have jurisdiction to affect, by injunction or otherwise, the issuance or effectiveness of any classification or action of the Director under this subchapter (other than appointment of a conservator under section 4616 or 4617 of this title or action under section 4619  of this title) or to review, modify, suspend, terminate, or set aside such classification or action.

Technically, Watt not issuing the capital standards that he is by statute required to do is neither a "classification" nor an "action", is it? Or does an inaction legally count as an action? Would a court order forcing Watt to come up with enforceable capital standards, and following the statute when they are not met, be considered as the court "affect[ing], review[ing], modify[ing], suspend[ing], terminat[ing], or set[ting] aside" some classification or action?

I know it sounds like I'm being pedantic. I'm just trying to understand the laws better and how violations and challenges tend to work in practice.

It kind of rankles that one section of a law could be used to prevent review of a violation of another part of the law. While claims against the NWS haven't had any clear statute of HERA that is violated, Watt's refusal to do what he is obligated to does directly violate 1361(a)(1). I'm not sure how much that matters.


Edit: Earlier in section 4623 is this:

Quote
(b) Scope of review

The Court may modify, terminate, or set aside an action taken by the Director and reviewed by the Court pursuant to this section only if the court finds, on the record on which the Director acted, that the action of the Director was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with applicable laws.

4623(d) only applies to things not covered in (b). Refusing to fulfill a statuory obligation - in this case setting capital requirements in 1361(a)(1) - seems like it is "not in accordance with applicable laws."

rros

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9977 on: June 14, 2018, 07:54:43 AM »
There is a "suspension" of this requirement set by prior Director. And it looks like courts can't get close to this. According to ch.

There is the law. And there is governing by regulation which aims at circumventing the law. Judge Brown specifically referred to this on her dissent. Lockhart did just that in 2008 when he suspended assessing capital levels. And it looks like he has been able to get away with murder.
« Last Edit: June 14, 2018, 08:02:11 AM by rros »

John Hjorth

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9978 on: June 14, 2018, 08:19:49 AM »
Pretty amazing to now read 10,000+ posts in this topic.
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SnarkyPuppy

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9979 on: June 14, 2018, 08:36:58 AM »
Pretty amazing to now read 10,000+ posts in this topic.

You read them all?