Wise Man
5 minutes ago
Controversial case Wazee II that D.Thompson abruptly seized control of, is postponed until July 29th with regard to the Defendant's response.
https://www.docketbird.com/court-cases/Wazee-Street-Opportunities-Fund-IV-LP-et-al-v-The-Federal-Housing-Finance-Agency-et-al/paed-2:2018-cv-03478
How did we get here?
Justice Alito can't make laws and his "path of rehabilitation" of the Federal government isn't taken into consideration, because the ones in conservatorship are FnF, not the government.
It turns out that no other than the DOJ co-signed a brief in Wazee II (a satellite case because Hamish Hume had Wazee I in the Court of Federal Claims with judge Sweeney), a case in a district court of Pennsylvania (something unprecedented, because it's a case against the FHFA, where the UST is a "shadow defendant", like in the Lamberth court, hidden under the bed that has never showed up before, in order to allow that a case against the U.S. government can continue in low-level District courts, with judges more easy to be influenced by the stakeholders (Wall Street and its celebrities on Twitter), when that's precisely the reason why the Court of Federal Claims was established), a brief requiring the attorney Hamish Hume to either:
(a) amend the complaint if the claim isn't sustained under the Supreme Court's Collins "decision" (opinion), or
(b) to voluntarily dismiss the case.
The attorney Hamish Hume did both at the same time. Huh?
-He voluntarily dismissed his other case, Wazee I, and thus, relinquishing the scheduled appeal two days later, clearly influenced by the the DOJ's signature in the brief (all the images are posted below). He got spooked in the only case that challenged the ongoing NWS 2.0.
-He allowed the attorney for Fairholme, the almighty David Thompson, to seize control of this case Wazee II, and file himself the scheduled amended complaint on July 1st, because he didn't like how Hamish Hume was challenging the NWS 2.0 that will be commented next, and instead, now with a claim "sustained by the Supreme Court's Collins decision" where he was a party, and he copy/pasted his same flawed stance he is peddling since: The NWS 2.0 is wonderland and he sought constitutional damages because the "for cause" removal restriction prevented it from happening sooner, firing Mel Watt before:
The UST gets rich with gifted SPS LP and, at the same time, FnF are being recapitalized with retained earnings.
A bunch of lies based on the Financial Statement fraud in the enterprises that don't post on their Balance Sheets neither the SPS LP increased for free, nor the offset with reduction of Retained Earnings account, that would prove that FnF are not building regulatory capital and the only one that is being rehabilitated is the Federal government (Justice Alito's spin that isn't taken into consideration), as stated, precisely, by the attorney Hamish Hume in the Court of Federal Claims with Wazee I, before the voluntary dismissal:
FnF start building their Net Worth, while also providing that 100% of that Net Worth would be owned solely by Treasury.
The attorney Hamish Hume got spooked by the signature of a DOJ attorney and he has disappeared from the two cases he was handling, Wazee I and also Wazee II because, although he wasn't expelled like other attorneys in the case and all the plaintiffs other than Wazee, he hasn't signed the amended complaint filed by the attorney David Thompson on the scheduled date, July 1st.
Hamish Hume's whereabouts remains unknown.
SCREENSHOTS.
Wazee II: the parties imposed two options, or else:
Wazee II: A brief signed by the DOJ:
Wazee I, 2nd amended complaint: Hamish Hume challenged the NWS 2.0, not like David Thompson who loves it. The self proclaimed "unsophisticated, not regulatory lawyer. I am a litigator" in a conference call hosted by the hedge fund manager Pagliara. His shield for his misbehavior in court freely.
Wazee I: the attorney Hamish Hume had a scheduled appeal.
Wazee I: Appeal relinquished when Hamish Hume, under pressure, voluntarily dismissed the case two days before:
Wazee II: after an abrupt appearance in the district court, the attorney D.Thompson signed the amended complaint on July 1st. An exact replica of his other frivolous lawsuits that the attorney for Fairholme also seized control of abruptly (Rop, Bhatti, Collins, Robinson).
Wise Man
2 hours ago
khompt19 is a very rogue person. No deference to someone that repeats that the statutory provision Restriction on Capital Distributions is when FnF have a capital classification of Undercapitalized, when it states undercapitalized and IN GENERAL.
Image below.
Just what Sandra Thompson and the Financial Services Committee state, to name a few:
FnF remain undercapitalized.
And the exception to the restriction: Reduce the SPS. (U.S. Code 4614(e)), which is what has happened to legalize the capital distributions that went through despite the restriction.
Then, DeMarco enacted the July 20, 2011 Final Rule, for the moment the SPS had been fully paid down, the FHFA and the UST needed another exception to continue to send assessments to UST (1989 FHLB-style) in the form of capital distributions, that is, under the guise of dividend payments: Deplete capital is authorized (Balance Sheet) for their Recapitalization, in an External Position obviously (exceptions 1, 2, 3 and 4 in the supplemental CFR 1237.12). Image below.
A follow-on plan.
He is also famous for saying that the $132B SPS LP absent from the Balance Sheet is off-balance sheet and it doesn't affect the companies, as if it could even be possible to have a Liability out there, as a satellite position, not meeting the Asset/Liability Matching principle and, secondly, FnF report their Financial Statements on a consolidated bases.
Therefore, FnF MUST show up 2 items, because what lies behind is the reluctance to post the offset with the reduction of the Retained Earnings account that happens always that someone hands out a security for free (Not getting the corresponding cash, like occurred with the initial $1B SPS issued for free debited from the Additional Paid-In Capital account. Also in the case of stock dividends, debited from the Retained Earnings account, etc.), so that the plotters like Ackman and Sandra Thompson repeat:
FnF continue to build capital through retain earnings.
As seen in this image showing the changes in Equity adjusted for the gifted SPS LP every quarter, in an amount equal to the Net Worth increase:
Which is what the attorney Hamish Hume referred to, in his 2nd amended complaint with Wazee in the Court of Federal Claims with judge Sweeney:
FnF start building their Net Worth, while also providing that 100% of that Net Worth would be owned solely by Treasury.
Surprisingly, he relinquished the appeal two day before it was scheduled on May 24th.
FnF are building SPS (capital stock), not regulatory capital for their financial rehabilitation:
▪️Adjusted Accumulated Deficit Retained Earnings account: $-216B.
▪️Adjusted $402B Core Capital shortfall over Minimum Capital (Leverage) Level.
That is, the same Common Equity Sweep as before with the NWS dividend. Both debited from the Retained Earnings account (Core Capital and CET1), the only account that absorbs the future "unexpected" losses.
What kthompt19 conceals is that this new compensation to the UST is another capital distribution (also number 1 in the definition of capital distribution) restricted, and thus, necessarily, the Common Equity being swept is, in truth, held in escrow (exception 1, 2, 3 and 4 to the restriction on capital distribution, CFR 1237.12 mentioned before) in order to legalize this capital distribution.
Also, in order to comply with the FHFA-C's Rehab power: Put FnF in a sound and solvent condition, related to regulatory capital levels.
The key: when people see the image posted above, they would begin to wonder whether it happened the same with the dividend payments (restricted and the exception: reduce the SPS), and all the Separate Account plan would come to light, for those that hadn't spotted it beforehand.
This is why just these two twists from the rogue khtompt19 denounced in this post, are of supreme importance, because he uses it to justify that $435B of capital in private corporations under Conservatorship have been syphoned off to the UST.
The frivolous litigation and their social media crew, work hand-in-hand with the government in what is known as Fanniegate.
The litigants haven't submitted to court a Financial Statement, attempting to portray FnF as Mutual Funds, like the FHA's MMIF, when FnF are private corporations presenting Financial Statements in their reports filed with the S.E.C., which is also why kthompt19 claims that having $132B SPS LP out there, unaccounted for in the Balance Sheets, is just fine, because it doesn't affect the companies.
DCBill
4 hours ago
Calabria, a victim of his non-housing background and conservative dogma; Thompson, empty-suit, who was put into a job over her business capacity head and made subject to Treasury protocol.
They wanted to control GSEs--claiming "inadequate capital"-- then allow them to operate too successfully, making major "insiders," in both political parties look bad.
Sixteen years, now more, of unprecedented "Conservartorhsip," based on a well-documented 2008 political ambush that made no financial sense with few courageous people--outside of the companies--able to appreciate the Treasury bias and errors.
kthomp19
10 hours ago
The SPS LP grows to $350B by next year. At that time, the SPS agreement gets re-written to cap the LP at that amount, and future earnings go to the GSEs without a corresponding dollar to LP. This finally ends the NWS.
I would suggest that the 10% divvy on the $350B LP can be reduced to a lower percentage, something more in line with an appropriate "guarantee fee" percentage. But the Charter Act prevents this. So let's go with zero percent dividend on the SPS. No need for Congress to change anything. Treasury holds 1M Senior shares, with just a LP and no dividend. This becomes their safety net - should they need to swoop in and liquidate the GSEs in the future, they hold $350B of LP. Warrants are not needed, and are left to expire.
Why on this green earth would Treasury choose to do this? It would run counter to everything they have done before. The LP ratchet itself is in place as a return consideration to Treasury for allowing FnF to keep their net worth.
At the very, very least Treasury would do what you say but exercise the warrants instead of canceling them.
Is this possible? Technically yes. But given all the evidence we have there is no reason to assign more than a token probability to it. What matters are numerical probability estimates, not just possibilities. Hope is not a strategy.
Another big flaw in this plan is that FnF would still need until 2040 to reach their required regulatory capital levels for release. With a 0% div rate Treasury would presumably be okay with the SPS reclassified to non-cumulative, which would fix the core and Tier 1 capital holes, but no form of preferred shares (either cumulative or non-cumulative) count towards CET1 capital, which is one of the capital requirements FnF must meet to be classified as "adequately capitalized" by HERA and is the requirement for exit set in the January 2021 letter agreement.
For FnF to meet the CET1 requirement before 2040, the SPS must be written down, converted to common, or some combination of both.
kthomp19
10 hours ago
In the meantime, where does the windfall go? Yep, to Treasury!
In the eyes of the politicians that Layton referred to, when the money goes to Treasury it isn't a windfall because Treasury is the one who bailed FnF out.
Heaven forbid the legal shareholders of the company receive any of the profit.
The "windfall" thing is not a legal issue, it's a moral/political issue. The argument goes like this: the vast majority of FnF's shareholder base has turned over since the conservatorships started, so why would vulture investors who bought at distressed prices be entitled to a windfall? All politics is envy, FnF's release from conservatorship is a highly political process, and many politicians feel that shareholders who bought in after the conservatorships started deserve nothing.
This is exactly the sort of political fallout that a senior pref writedown could trigger, as Mnuchin told Calabria.
Wait... Isn't there a reasonable expectation to reap in the company profits embedded in the Shareholder agreement? Wasn't there a jury verdict that the Govt should not breach the good faith and fair dealing with Shareholders?
The thing is, one result of the jury verdict is that FnF have now been essentially indemnified from any further frustrations of shareholders' ability to profit from their investment. The NWS already extinguished all economic rights of the common and junior pref shareholders; any further action by the government cannot make things any worse.
You keep thinking that the jury verdict is somehow potentially the start of shareholder-friendly rulings when in fact it is much more likely to be the end.
kthomp19
10 hours ago
For someone who values semantics, you should note that JPS have a redemption value for when they get called. It happens to be the same as their liquidation preference, except for FNMFO.
They have a stated value, a redemption value, and a liquidation preference. They are all the same except that the stated value doesn't include accrued dividends (which I don't expect to ever matter). The FnF investor community calls this "par" even though it's a misnomer. I also call it "par" because it's much easier to type and effectively communicates what I mean.
I agree this could be the long term method that Treasury was hoping for, but it's problematic. First, because the dividends on the SPS are a huge windfall, likely to be in excess of $30B per year and not in line with what a "reasonable" funding commitment fee should be.
When I said that I expect the senior prefs to remain in existence I meant at a LP of $1B, not the >$300B LP they have today. The reduction in LP would happen alongside the conversion or writedown.
Second, because the Charter Act, which is the actual law - prevents a commitment fee from being charged. FHFA may be able to do what they want and ignore laws at the moment, but I don't think that will become status quo.
This is an opinion being presented as a fact. I highly doubt the lawyers who drafted the original SPSPAs would have included a commitment fee on the funding commitment if it were so obviously illegal. I trust their judgment far more than the armchair lawyers on this board.
kthomp19
10 hours ago
So the inverse is also true. Every dollar that is taken from the common shareholders as the result of the senior preferred write-UP, could remain with Common shareholders if they chose to stop stealing the equity.
"Stealing" is just your word, not FHFA's or Treasury's. How does one "steal" equity anyway?
You seem to get the point, though. Treasury and legacy common shareholders are fighting over the same pot of money. One side has all the power and the other has none. I would buy the SPS myself if I could, but I'm sure as hell not going to count on the side with no power coming out with any more than they are allowed to.
The absurdity of the NWS (cash or LP) must be lost on you.
I do think it is absurd that Treasury got away with it, but given their actions all along I am not all that surprised that they tried it.
At what point does the government get to take every profit dollar from a company or citizen, and add it to their books as an accounting entry?
Trust us - we're from the Government... We'll let you keep a dollar if you owe us a dollar in the future.
Brilliant! Let's just do that with every American company and watch our National Debt melt away like magic!
Classic strawman. FnF are a very special case: when the LP ratchet started, Treasury already had the rights to every penny of profit FnF would ever make. They took a downgrade in that deal because $1 of LP is worth less than $1 of cash, even if you don't take the time value of money into account.
The FnF situation does not even come close to applying to any other company out there. Stop acting as if it does.
kthomp19
10 hours ago
You don't think it's likely that someone at Treasury would make a misleading statement to get what they want? Really?
I think that's less likely than the possibility that they were just telling the truth. Especially in the light of incentives: converting the SPS gives Treasury far more of what they want than writing them down does.
Or concrete evidence that writing down the LP is illegal, such as a statue, executive order, past ruling/case law, or official word from DOJ - not a recollection of a conversation from years prior, and from only one side of the conversation.
Once again you are demanding an extremely stringent standard of evidence from Calabria and Treasury while out of the other side of your mouth are giving blanket agreement to other posters without questioning them.
It is obvious by now that you just don't want to admit to the real evidence that is right in front of you: Treasury is far more likely to convert the SPS than write them down.
That means exactly zilch for determining the legality.
We have been over this already. It isn't about what really is legal or not, it's about what Treasury thinks is legal or not. Treasury will act based on what it believes is true.
Not words said in a conversation, meeting, phone call, video chat, or written memoir.
Calabria's account IS evidence. Not in a court of law sense, but this is not a court of law. What Calabria said directly pertains to the possibility of a SPS writedown and shows what Treasury's thoughts were on the matter at the time. In the absence of any further evidence, there is no reason to believe that it is likely that they have changed their mind.
No. First because Treasury is an entity and not a person. Second, what a person thinks is irrelevant unless they are in a position to act on bad information and nobody advises them of their error. Third, because anything that is not overtly illegal is by definition, legal. So barring any evidence that writing down the LP is illegal, it is by definition... Legal.
1) Meaningless semantics.
2) Nonsense. What Mnuchin thought was highly relevant. If he thought writing down the SPS was legal then he could have easily done so at any time. There would have been no need to make the equal conversion offer to the junior pref holders.
3) It's not nearly that cut and dried. Laws have interpretations: that's why courts exist. Just about every FnF investor ever thought the NWS was illegal but the Supreme Court disagreed.
kthomp19
10 hours ago
The difference is that some are blinded by what they *think* will happen, ignoring other possibilities.
The difference is that some people, like me, actually put forth a number for things like the chances that Treasury converts (75%) or writes down (25%) the SPS. Most others just list possibilities without assigning numbers to them, which is completely useless when deciding whether to buy, sell, or hold at current prices.
But players are reluctant to relinquish their pick because that's the path they chose. The closer they get to the end, the more they think their pick is right.
That's just the endowment effect, a well-documented phenomenon.
Even I would sell some juniors to buy commons if the prices diverged enough. The FNMAS:FNMA ratio hit 4.0 today; if it goes much higher I probably will do just that.
Calculated from my cost basis. As the market fluctuates, I need to adjust my ratios as I accumulate. I haven't accumulated since common went back over 0.65. I've averaged down to roughly $1.00 per common, and less than $0.068 per $1 of JPS redemption value (mixed $25s & $50s).
The 6.8% figure depends pretty heavily on if you're buying the most liquid series (FNMAS, FMCKJ), the least liquid (usually the 5-letter ones starting with FMCC), or somewhere in between. They have all done well recently though.
Yes, and not knowing how much of each of those will actually happen, I've positioned myself for as many variations as I can.
You can only position yourself one way. It will be a function of the different possibilities and probabilities you assign to those variations.
If junior come out ahead of common, I win. If common realizes a higher multiple than JPS, I win more. I don't think Common nor JPS are getting wiped. I think there is upside in both.
I suppose that depends on what you define "winning" to be. If the juniors outperform the common you would lose relative to owning only juniors and no commons. But differences of opinion are what make a market.
I don't think either class gets totally wiped, but a SPS conversion would cause there to be little upside, and perhaps substantial downside, from current prices.