Fully Diluted
3 hours ago
Keyword “past”
Hello folks,
I want to point you to a specific word that Bessent gave in his written response to the pre-submitted questions from the US Senate Committee on Finance as part of his confirmation hearing.
Here is the question posed and the answer provided:
Question 80: Because of the federal government’s bailout of Fannie and Freddie, the federal government owns senior preferred shares in the GSEs. Should American taxpayers be compensated for any reduction in their senior preferred shares?
Answer: Treasury should be compensated for its past support of the GSEs, and if confirmed I look forward to exploring options for potentially dealing with this matter.
When I first read this, I jumped to thinking about the senior preferred stock liquidation preference. As I'm sure you know, this has been growing at the same proportion that Fannie and Freddie have been retaining earnings since the Fourth Amendment ended the Net Worth Sweep - on the balance sheet.
The word “past” initially made me think that Bessent might forgo this increase in liquidation preference.
But something inside me told me that's not it. On the one hand, it would make perfect sense for Bessent to refer to the liquidation preference because in the foreseeable future it would be higher than the companies are worth, and therefore he would be forced to give up a portion anyway. But why would he go into such specific detail? After all, the other answers were also formulated in very general terms.
And then I realized: this is a fundamental paradigm shift in the Treasury Department:
Perhaps you remember how Mnuchin was once asked by “little Bob” Corker whether the shareholders were entitled to any value at all, since the companies were bankrupt, and he replied that the companies were only making profits because the government had saved them and was providing them ongoing financial support - thereby suggesting that shareholders had no claims.
Against this background, I now see the word “past” in a different light. Bessent disagrees with Mnuchin's narrative. And as I understand it, this means nothing other than that the shareholders are also entitled to the profits that the companies make during conservatorship. Otherwise the word “past” would make no sense at all.
Consequently, one can assume that Bessent will waive the value of the senior preferred shares entirely. Otherwise he would be contradicting himself, because if he insisted on monetizing both the SPS and the warrants, he would dilute the shareholders to such an extent that they would have nothing of the retained earnings of the companies.
Sometimes a single word can say more than hours of questioning.
GLTA 🙂
TightCoil
8 hours ago
The Ratings Are In;
The Two Best Stocks to Buy for 2025
1. Federal National Mortgage Association (FNMA)
2. Federal Home Loan Mortgage Corporation (FMCC)
FNMA
8 Days above $5
Date - PPS - Volume
Jan 22 - $6.85 18,576,012
Jan 21 - 7.01 35,380,100
Jan 17 - 6.91 36,487,200
Jan 16 - 5.40 41,137,700
Jan 15 - 6.21 46,566,200
Jan 14 - 7.04 53,693,000
Jan 13 - 5.49 16,501,000
Jan 10- 5.26 24,269,000
FMCC has also been 8 days above $5
kthomp19
10 hours ago
Regardless of additional lawsuits (Ackman seems to imply he will initiate a lawsuit if Senior is converted)
His presentation didn't say that he would file a lawsuit. Did the audio version say that?
It's easy for him to threaten for someone else to file a lawsuit.
what are your thoughts about Ackman pointing out a lower valuation for the companies if a conversion were to take place?
I think it makes no sense whatsoever.
Ackman's idea is that new investors will look at a senior conversion as mistreatment of (then-current) shareholders and will place a lower value on the shares because of it. But Treasury greatly mistreated shareholders in 2008 (original punitive SPSPAs) and 2012 (NWS), and those events cannot be undone. If those events aren't enough to dissuade putative buyers of Treasury's common shares then a senior-to-common conversion won't be either. And if they are, FnF will never get out of conservatorship because Treasury won't be able to sell any common shares it obtains, whether by warrant exercise or senior conversion.
And even if Treasury does write down the seniors, new investors shouldn't be encouraged by it because these new investors will be stepping into the shoes of pre-conservatorship shareholders, not those in 2025. All they have a reason to care about is how much of the company's equity they get for their money; how the portion they don't get is split among Treasury/junior prefs/legacy common won't impact them at all.
f dollar amount is indeed a motivator for their release, a Senior writedown would make sense (assuming Ackman is correct in his statement).
If Ackman is correct, perhaps. He also didn't consider a senior-to-common conversion that gives the legacy common something between 0% (full conversion) and 18% (full writedown). Such a partial conversion could both give the legacy common enough to where they wouldn't sue (maybe $5-10 per share) while still having Treasury make more total money than a full writedown would.
kthomp19
10 hours ago
Ok genius, show me the evidence that the unnamed Treasury person was sharing the opinion of someone from the DOJ.
Look, we have been talking past each other on this for a long time. You ask for evidence, I tell you that I already provided it, and you refuse to accept it as evidence. That refusal is not my problem.
You also keep insisting on full and perfect information when it just isn't available. If you want to totally discount Calabria's reporting then you have a right to your opinion. I stand by my assertions and arguments on that front.
For someone who expects impeccable trails of evidence from others, why can't you hold yourself to the same standard?
Wrong. I do not "expect impeccable trails of evidence from others". For example, I use quotes from Calabria's book, which is less than impeccable evidence (though I do view it as strong enough to inform my estimates).
It is you that have insisted on "impeccable trails of evidence" by asking for direct quotes and statutes from Treasury/DOJ. Again, your accusations are more appropriate if you point at a mirror instead of me.
kthomp19
10 hours ago
I think your disconnect is that if there is pressure to get this done quickly, any lawsuit would be seen as a negative. Maybe "fear" is too strong a word, but lawsuits are something to avoid. What would be the logical course for the new Exec Branch to take then? A solution that works for all parties, whereby lawsuit likelihood is minimized. If there is a win-win situation that can be crafted, that would be the smart choice, knowing that you can't please all of the people all of the time. But you may be able to appease them just enough.
The flaw in Ackman's lawsuit threat is assuming that any senior-to-common conversion, no matter how it is crafted, would result in exit-stifling lawsuits.
Ackman's full writedown scenario has the legacy common getting 18% of the equity, and all of his senior conversion scenarios have them getting 0%. There is a lot of room in between to avoid lawsuits. For example, why would a common shareholder sue if a senior conversion at $8 per share happens?
I agree that the final outcome is unlikely to leave everyone pleased. I once heard a successful negotiation defined as an agreement where everyone feels like they got a bit screwed. That's another reason why I think Ackman's price target is a best case, not a base or worst case. It's basically his opening offer in a negotiation.
When you expect levels of detail from others that you are not willing to provide.
As I said in the other response, it is you who is guilty of this as evidenced by your continued requests for specific statutes and official comments by Treasury/DOJ regarding the (il)legality of a senior writedown.
And are you really accusing my posts of not containing sufficient detail? If anything I go too far in that regard, and certainly do compared to the vast majority of posters on this board.
When you interpolate or read into what has been said, and come up with your opinion, yet tell others they cannot do the same or that their interpretation is "wrong."
Post an example of this so I can have some idea of what you're talking about. Otherwise it's just another baseless accusation.
When you tell others they are guilty of logical fallacies that you are also making.
Given that you have been guilty of the argumentum ad populum, ad hominem, and false equivalence logical fallacies (among others), you don't have room to speak about others doing the same since you clearly don't recognize them for what they are.
I'd say that makes you a hypocrite.
Which once again proves that you don't actually know what that word means. A hypocrite is someone who says one thing and does another. In the case of my accusations, it is arguing for one thing (that X, Y, Z are illegal) while demonstrating a lack of conviction in what is said (by not filing a lawsuit).
DaJester
11 hours ago
The cognitive dissonance comes from those who think Treasury shouldn't convert the seniors because of lawsuits but fail to recognize the possibility that a writedown could also cause lawsuits.
I think your disconnect is that if there is pressure to get this done quickly, any lawsuit would be seen as a negative. Maybe "fear" is too strong a word, but lawsuits are something to avoid. What would be the logical course for the new Exec Branch to take then? A solution that works for all parties, whereby lawsuit likelihood is minimized. If there is a win-win situation that can be crafted, that would be the smart choice, knowing that you can't please all of the people all of the time. But you may be able to appease them just enough.
You keep using that word. I do not think it means what you think it means
Well what would you call it? When you expect levels of detail from others that you are not willing to provide. When you interpolate or read into what has been said, and come up with your opinion, yet tell others they cannot do the same or that their interpretation is "wrong." When you tell others they are guilty of logical fallacies that you are also making. When you discount an opinion due to lack of outside action when this is a discussion board that requires no action - and you have not shown any legal action yourself. I'd say that makes you a hypocrite.
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